Does Planning Help? The Art of Planning for SMEs

Does Planning Help? The Art of Planning for SMEs March 7, 2024Leave a comment

Many of us would like to be like Gunter, the car parts tycoon. How did he became so rich? A school classmate wanted to know how someone who never did his homework and who spent all his time with the best-looking girls managed to get where he was. Gunter, who later became very good at math, replied, “Well, I started out really small, buying at ten and selling at twenty. After a few years, I figured this 10 percent was OK, but I wanted to get more ambitious.” Gunter had discovered how to make a small fortune: You start with a big one.

As the owner of an SME, you’ve read a lot of words on planning. You’ve filled out a lot of charts provided by consultants. You even have an action plan that you hope you will be using as a guide for action and not as a coaster for your coffee mug. But maybe some of you are saying, “I don’t need to worry about forms and checklists. Let me just ‘do,’ without planning”. After all, did planning really help Gunter?

There are limitations in planning for SMEs.  And there are people MUCH smarter and richer than you or me who have made monstrous planning goofs. Of course, WE are not going to be so stupid in our planning process. We are going to learn from THEIR mistakes. (We will make ours, but they will be smaller and cuter.)

First of all, it is useful to point out that planning, in the perspective of history, is a very recent phenomenon. NOBODY did it a hundred years ago (and still got rich with brute force and dowries). Approximately 99.46 percent of humanity believes that God will provide. Even captains of industry and the presidents of some wealthy countries consult oracles and registered soothsayers. If our lot is already in the hands of powers beyond our mortal comprehension, why plan at all?

Well, the planning process has, in fact, evolved. From an art to a pseudo-science to a tub-thumping session in “belief”. All this is sort-of interesting to SMEs as we need to know what is, and is not, useful to us. If planning started as an art, then like “art,” it has a history. We shall briefly condense the 4-5,000 years of art history to the 40-50 years of existing business planning history.

The Primitive art of planning began with budgets. These were dull tools foisted upon companies by government authorities so that the companies could be taxed periodically. The year was arbitrarily chosen as a measurable time unit. It was soon seen by the business community that budgeting never corresponded to reality, and it began to look for other instruments. Governments, however, given their aptitude to change snappily, are still using these primitive tools. Budgets, especially government ones, are still interesting as they are self-perpetuating. There is always some budget that needs mopping up before the year ends so that it (the budget) can maintain the supporting bureaucracy the year after. Uncannily, these budgets are almost always the exact SAME amount as the year before. For companies, bureaucracies and SMEs, the amount of the annual budget is a bit like asking yourself how long is a piece of string. They are NEVER met exactly, mostly overshot and ALWAYS relegated to someone else’s filing cabinet before the year is out. But they do serve a useful purpose: You know they are not a basis for belief.
The Gothic art of planning extended the planning time unit to five years. This was done in the mistaken belief that you would get the annual budget right after trying five times. Governments were the first proponents of this process as sharp tools of industrial policy. Companies, many state-owned and run, sat back and delivered what the plan asked for. The five-year plan was invented by the French and quickly stolen by Soviet spies. For the rest of us SMEs, x-year plans, like Gothic churches, are museum pieces.
The next art of planning was Baroque and evolved in the hallowed halls of U.S. academia. Or rather in its business schools (sounds less hallowed, somehow). This system was based on mortality. Eh? Yes, mortality really does exist, for all of us, for products, and even for industries. The invention of the product life cycle caused a great stir and an inexhaustible number of baroque variants to it that business schools still transmit to MBA students today. In the euphemisms we all invent for our terminal stage, the hapless product did not die: it was simply “declining.” In fact, it could sometimes be resurrected and given a new life in a better world that was still in an earlier phase. You could breathe new life into terminal products by exporting to “developing” countries. If this didn't work, then it was decided that perhaps the product was not yet dead, but that the industry was. This led to great internal discussions about the definition of an industry. “What industry are we in?” Do we produce watches or fashion accessories? BOTH can’t be dead. However, some of the useful bits of the living and dying terminology can still be applied effectively to the (less baroque) planning process of SMEs.
The Romantic art of planning was introduced some 50 years ago and called itself the “planning portfolio.” The notion was that we had a menagerie of businesses that we had spawned a bit haphazardly over time. Some of these were dear to us and should be nurtured, and some were subject to “tough love” and had to fend for themselves. With the help of specialized geneticists (known as “consultants”), we could transform these various offspring into different animals like dogs and cows. Some animals were more equal than others but still had to be loved for what they were. In fact, we should spend much time with the geneticists, both to label correctly these animals and to determine the amount of nurturing each should be given. Perhaps this was fine for the geneticists (who prospered), but it was less useful for those SMEs who had but one child to nurture. If you are an SME with one sole tattoo parlor in Manhattan, what should you be nurturing? “But, doctor, she’s all I’ve got!” You, and there are lots of SMEs like you, have a portfolio of one.
We get to the Impressionist art period of planning. This was in vogue not too many years ago and called itself “strategic planning.” This was a corporate version of the Soviet central planning in the Gothic planning period. Strategy, as we all know, is a military game played by great powers with only one Field Marshal per country. This type of planning had been in practice under a different name ever since the corporation existed. It is the “do-as-the-boss-says” planning process. It fits well the inherently non-democratic nature of a corporation where there is no such thing as one paycheck = one corporate vote. Do not belittle this process: The boss may have been omnipotent but that didn’t mean he was stupid. He had still to impress the troops and provide ample evidence that he knew over which hill to gallop the cavalry. So he created a position called something like “Chief Strategic Planner” and placed this person in an office close to his. So the impressionist period was one where planning was delegated internally to a few people with imported tools in order to, well, impress upon customers, workers, and stakeholders alike that there was a captain (uh, Field Marshal) on board. This person had the plans in a thick black folder full of transparencies. The impressive black folder was the corporate strategic plan. Everything was under control. There were even contingency plans in case it doesn’t work. For an SME, the boss needs a vision but not a strategic plan.
The Modern art period of planning is still in vogue in so-called industrial democracies. This is the era of “strategic management.” It calls for everyone in the company to be aware of the ambitions of the Field Marshal and to conduct him/herself accordingly. So plans are laid out for all to understand, and the corporation is composed only of managers. There is no chief strategic planner, only an organizational matrix looking like a Mondrian painting. The plan, in the interests of democracy, has at least two people responsible for the tasks in each cell of the matrix. The planner was now also the implementer. Any new task that had been forgotten in the planning process was given, not to the person who had the fewest tasks, but to the one who had the most. The logic here was that this person was obviously the best organized to cope as he wouldn’t have accepted the tasks in the first place. It became common knowledge that the most energetic individuals were given the newest and most interesting tasks. This was the birth of the modern “learning-by-doing” corporation. In the Nordic countries, where democracy is rife, gifted individuals are plucked from the ranks (well, they don’t really have ranks) after accumulating enormous quantities of tasks and thrust into the capitalist harness of leadership. Even if this plucking process defeats the democratic purpose (who is doing the thrusting anyway?), the strategic management idea has its merits. Even for SMEs.
Finally, we get past the Modern and into the future: the Participative art of planning. Even if all planning is supposed to focus our minds on the future, this type of exercise does it with a twist. And it really is helpful — even if we know before we start that we will never follow the plans developed here. This process is called scenario building. It deals with jumbo scenarios for jumbo customers of marginal use to an SME. (Like “what if sun spots blot out telecommunications in 2028?” or “what happens when the Bayan Obo deposit runs out of dysprosium?”) It’s not like we NEED to know the answers to these questions, but sometimes it’s useful to start in the future and work backwards. Most of our time is spent going hell-bent in the opposite direction. We sometimes need to put ourselves into a situation that doesn’t exist and participate either in the hypothetical extrication process or in the could-it-really-happen-to-me one. However, the planning process for SMEs is different from that of large companies. SMEs have less ammunition and must at least aim in the right direction if there is a chance to hit an ever-moving target. The big guns can make lots of noise, miss, and blame the target. And they do miss a lot. 

Hindsight is useful in this respect to judge the forecasters:
 • The Club of Rome in 1972 (yes, they were forecasting before you were born) produced a book by the most eminent scientists and thinkers of the time. It was called “The Limits to Growth” and was a best seller. In fact, it did so well as a book that they produced a sequel in 1975 called “Mankind at the Turning Point.” This predicted global crises by 2000 in food, population, energy, and resources of all kinds. There was no way out: by then, we would all be snicker-snackering each other, razor-wire would be in high demand, there was not enough of anything to go round, you would be reading this by candlelight, etc. 
• In 1982, “In Search of Excellence,” a mega-bestseller from an experienced geneticist-consultant listed 62 companies as excellent models to be followed. In 1994, 40 of these had fallen from grace. Today, only 18 of these companies exist, and 3 of their presidents either have done jail terms or are dead and unemployable • September, 1987: the cover of Fortune was “Wall Street guru says the Dow-Jones index will continue upwards past 3000.” October 1987: Black Monday. The Dow-Jones index drops 20 percent in one day.  
• Over a ten-year period in the 1990s, the Economist gave a questionnaire to 4 OECD ex-finance ministers, 4 chairmen of multinational firms, 4 students at Oxford University and 4 London garbage collectors. The questions were to predict, over the next ten years, the average growth rate and inflation in the OECD, the price of oil, the exchange rate between dollar and sterling, and if Singapore’s GDP/capita would overtake Australia’s. Who gave the most accurate responses? It was a tie between the chairmen and garbage collectors; the finance ministers scored worst. The lesson is that if you want a forecast to be accurate, ask a chairman or dustman. Then if you want to be sure, listen to your finance minister (and believe the opposite).  
• Some of the biggest companies in the world are in oil. They make their money on the price of the goo that bubbles out of holes they drill in real estate they don’t own. They employ smart people big time. They possess huge computers with sophisticated predictive software. Their profits depend almost entirely on the world price for this goo. You would think that these smart people would get predictions right about the price movements for it. Well, you would be wrong. NOBODY predicted ANY of the of the price hikes of 1973, 1979….  Or the troughs of 1986, 1999… Nobody knows what it will be within 50 percent accuracy next year. Not even the direction the forecast will take. $50 a barrel or $150. Does it matter? What would they do if they knew exactly? One goo company has the answer, again, only sort-of. Its planning team tells the story of the misuse of predictive certainty. It goes something like this: 
At the turn of the 20th century, they were drilling for oil in South East Asia. Regional headquarters was Singapore. The town had wide roads, several multistory buildings and, of course, motorized vehicles doing what motorized vehicles do. The exploration work took this company to parts of the world where there were tribes who knew nothing about the world beyond their tropical valleys. They encountered one tribe whose womenfolk did all the work (even I could have predicted that), carrying loads on their heads and babies in their arms. There were no vehicles. The wheel was unknown. People lived in grass huts and chewed betel. After much gesticulation and a few interpreters, they managed to communicate with the tribe’s chief. They convinced him, a curious, intelligent and obviously intrepid person, to come to Singapore for a short stay. This he did and saw the future. No doubt about it. This was what his valley would one day be like.  Then they brought him home. They asked him again through gesticulating and interpreters what he had learned and what he would do with the knowledge. The chief said that he learned that women could carry even bigger loads if they had carts. He wasn’t going to do anything about it. And that was it.  

What did the goo company learn from this experience? Certainty is non-productive. That exact knowledge is not enough. Not if you don’t act on it. Not if you are lacking a frame of reference outside of your tropical valley. Many years later, they spent a large amount of time and effort within their organization to prepare people psychologically to act on the knowledge they had, both collectively and singly. Not to plan, but to act.

Where does this place us SMEs? If the big guns can’t get it right how can we? And does it matter if we’re right or not? Must we always act, and never plan?

Well, let’s take the opposite approach. Suppose you, like the tribe’s chief, are not going to do anything about the knowledge you have. This is a conscious choice, doing nothing, and is sometimes deployed as part of a conscious strategy. Politicians do it all the time. Only act if you have to. You take the service station approach: I’m here; let’s see who drives by and who stops and buys gas. Each day is discrete, sometimes they stop, sometimes they don’t. There is no point aggregating the filling data I have gathered over time to derive any trends or patterns. I can’t do much about it anyway: I can’t force drivers to run low on gas in front of my service station. How can I plan running out of gas? “Gosh, Betty, I know it’s late and I’m trying to get you home on time, but we just ran out of gas.” Yes, you can even plan running out of gas.

What are we trying to say here? Imagine if, with Betty, you had acted without planning. The outcome might not have been the same. So yes, planning matters. All knowledge is useful. Bits of it are discrete and useless to most of us. Patterns are useful to those who can interpret them. After running out of gas three nights in succession — even Betty may discern a pattern. And here’s why even a service station can engage in planning. They might discover patterns, such as the fact that most people buy their gas on Friday.

What good are patterns? Not much without some form of knowledge about their interpretation. You can make a conventional interpretation (his gas gauge must be malfunctioning) or you can make a radical interpretation (hmmm, maybe he’s dyslexic). You can also interpret the observations with a bit of help from others. Some of them, like those who have made this article happen, may have taken this road before.

Does planning help? Yes and no. There is one sure method: Make mistakes, make many, but make them quickly. And finally, don’t trust any of the above — rules are for others.

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