Discuss about the Literature Review on Corporate Planning.
Businesses use corporate planning to map out a course of action that will lead to increased growth and increased cash flow. Effective corporate planning necessitates gathering of data about competitors and the projected industry growth. For this process to be successful, a business requires a combination of research entrepreneurial instinct and accurate and up-to-date business records. Putting all these factors together and using them effectively requires thoughtful planning and continued effort. Corporate planning has evolved over a long period, and business experts use various theories to demonstrate its significance. They consider how a bond is constituted, ethical issues, and its sustainability. Though opinions vary on some of these factors, there is a consensus that corporate planning is the backbone of modern businesses.
The history of corporate planning dates far beyond the post-World II era. However, researchers are persuaded that before this period, corporate planning was still at its infancy stage. According to Amey (1986), almost all businesses that were operational during this period were carrying out their affairs without stating any formal objectives and without preparing any formal business plans. Most businesses confined planning to the lower organizational levels, particularly the departmental levels and functional levels. Nonetheless, this plans only focused on manufacturing product planning, materials ordering and receiving as well as labor hiring.
Further, these were extremely short-term plans. Most corporate organizations used their annual budgets or annual financial plans to ensure their liquidity. From the era of war onwards, long-term planning began. Three-to-seven year planning assumed an ever increasing significance from then onwards (Jones, 1980).
The evolutional of corporate planning has been due to income demonstration effects that emerge from time to time. According to Ghosh and Chan (1992), today, comprehensive corporate planning involves the entire fabric of organizations and cover longer periods. Besides, it covers every functional aspect of organizations and also takes into account the environment in which the business operates. This comprehensive systematic assessment involves major strategic decisions and leads to the realistic mapping out of long-term objectives, operational plans, and strategic plans. However, some experts still think corporate planning is less tenable today due to many factors. The phony assurance that corporate planning brings about is becoming an obstruction as “the speed of business continues to accelerate, and technology cycles outpace corporate planning cycles” (Satell, 2012; Satell, 2013).
While corporate planning has an expansive history, it usually fails to achieve its objectives in many organizations because of several mitigating factors. An astute business person who understands the theories has a better chance of success.
Some researchers argue that the portfolio-based theory is the most efficient strategy. What lies at the root of this common strategy is the identification of the assets that the business own that can be used and are effective in current and future situations and also identify the classes of holdings that will be “of greater or less useful in future”( Shefrin, 2008,p.113). Moore also says that hedge-fund managers agree that diversification of the portfolio is central to their investment and corporate strategy (2012).
For large concerns, the theory of high share strategy is central for dominating a mass market. This theory works when products are standardized and based on the constant flow of the new features and new products that operate with the right equipment (Viljoen & Dann, 2000).
Smaller firms find niche strategies useful. This theory centers on the benefits of specialization, rather than standardization and market dominion. For example, for a niche electronic firm to maintain its electronic systems, it must be allied with larger firms. As a result, the centrality of complementary goods and comparative advantage are critical for maintaining a strong niche strategy (Rowland, 2004).
In niche strategies, specialization is highly vulnerable. Success niche firms will be able to attract larger companies trying to enter the same market. As the standards of firms change, however, the firms specializing in different types of complementary technologies often encounter issues such as irrelevance and obsolescence. This puts the niche strategy at the mercy of other larger firms (Viljoen & Dann, 2000).
Corporate planning aims to help managers to anticipate new developments and put in place for immediate action. As problems change and as external circumstances change, they should be able to see the impact of these changes over time. The work of a corporate planner, according to this theory, is to turn liabilities into assets (Viljoen & Dann, 2000).
Whichever corporate strategy a firm chooses to implement, they need money to be successful. Corporate bonds can be a major source of finance, along with lines of credit, bank loans, and equity. Any company that has some reliable earning prospective can offer a bond to the public. Besides, a firm with an extremly high credit quality can issue an extremely high volume of bond low rates. If a company requires an incredibly short capital boost, it can sell commercial paper which matures in 270 days or less and is typically similar to a bond. They can constitute a bond, a debt security sold to investors. The backing for this type of debt security is usually the money to be earned in the days to come. In certain instances, corporations’ physical assets are utilized as collateral (Zhou, 2011).
Since bonds are typically deemed to have high risk, their interest rates are high. They are issued in blocks of $1,000 in par value. Immediately the investors take the ownership of the bond, they obtain interest from the company for the period that the bond is maturing. On the bond’s maturity, the investor has a right to reclaim its face value. If a corporate bond has a call provision and prevailing rates change, early prepayments are allowed. In such a case, an investor can opt to sell bonds ahead of their maturity date (Zhou, 2011).
Corporate bonds trade over-the-counter markets. In these markets, decentralized dealers are the intermediaries between sellers and buyers. They bonds are also listed on exchanges; however, “most corporate bonds trade in over-the-counter (OTC) market (Types of Bonds, 2013).
In the current business world, business experts agree that ethical considerations should be incorporated into planning in organizations. Ethics determine the actions of all individuals in business. The behavior of the business owner towards his clients, members of staff, vendors, and the community affects the behavior of everyone who works for him and looks up to him to set the standard (Ledgerwood & Broadhurst, 2000).
Ethics is a major consideration from the very early stages of the development of a company. When the entrepreneur drafts a mission statement that describes the type of firm he intends to build, he must put into consideration ethics. His long-term corporate plans include a statement of the good things he intends to achieve through the firm (Rossouw & Vuuren, 2014).
When creating a code of conduct to provide a specific direction about what their staff needs to do in situations they encounter in their work, they need to consider an ethical requirement. Other researchers, however, think that adhering to strict ethical standards may mean a manager does not realize his business goals. Some production manager prefers to use lower quality raw materials so as to keep production cost in line (Rossouw & Vuuren, 2014).
Ethical issues also affect how a business builds its customer and employee relations strategies. Businesses build ethics strategies with the intention of winning many customers. The ethical consideration is that it is much better to lose one business and be able to win much more in the future when the company has gained a reputation for being honest. Some of the ethical strategies that they use are delivering on all their promises and accurately explaining the benefits of their products (Rossouw & Vuuren, 2014).
Managers can build sustainability into corporate planning in many ways. Business is sustainable if it has a growing ecological footprint, is committed to increased consumption and place social equity at the heart of its operations.
For a business to be successful in this regard, it has to define “sustainability” for its operations and get to know the factors that need to be included and excluded during planning. Some of the things a business should do include protecting the environment, creating more equitable societies, and enhancing economic well-being. The problem is how manager interprets this concept. There is a problem whether sustainability mean employees are to be paid at the going rate, the firm should be heavily involved in social corporate responsibility programs or the gap between the lowest and highest paid worker should be big or small. Since businesses pursue profits, they are good at eco-efficiency, which is good but does not qualify as deep sustainability (Taticchi, 2013).
To solve this challenge, some researchers find it appropriate for businesses to determine their time horizon for profitability. The time horizon will determine how you prepare for risks. A good manager should engage with changing pressures like customer demands and changes in laws when trying to figure out what they can or cannot do so as to be truly sustainable. The top management should also define this strategy accurately and be willing to implement it. In addition, the performance manager system should help managers to verify whether corporate objectives are being achieved or not by monitoring, measuring, and reporting on corporate objectives (Derickson & Henley, 2007).
Conclusion
Corporate planning helps businesses to take well-planned steps to improve their products, service delivery, and operations. This type of forwarding thinking requires research, up-to-date business records, and entrepreneurial instinct. Continued effort and thoughtful planning are necessary to help put this combination together.
References
Amey, L. R. (1986). Corporate planning: a systems view. New York: Praeger.
Derickson, R., & Henley, K. (2007). Awakening social responsibility: a call to action. Cupertino, CA: HappyAbout. Info.
Ghosh, B. C., & Chan, C. O. (1992). Corporate planning: the practice of corporate planning in small & medium-sized enterprises in Singapore & Malaysia. Petaling Jaya, Selangor Darul Ehsan, Malaysia: Pelanduk Publications (M).
Jones, H. (1980). Corporate planning. Toronto: Coles Pub. Co.
Ledgerwood, G., & Broadhurst, A. I. (2000). Environment, ethics and the corporation. New York, NY: St. Martin’s Press.
Moore, H. (2012). Hedge fund: & other living margins. Bristol: Shearsman Books.
Rossouw, D., & Vuuren, L. V. (2014). Business ethics. Cape Town: Oxford University Press.
Rowland, M. (2004). In search of the perfect model: the distinctive business strategies of leading financial planners. Princeton: Bloomberg Press.
Satell, G. (2013, September 22). The Evolution Of Strategy. Retrieved March 22, 2017, from https://www.forbes.com/sites/gregsatell/2013/09/14/the-evolution-of-strategy/#6448d0971a75
Satell, G. (2012, May 6). Business Models and the Singularity. Retrieved March 22, 2017, from https://www.digitaltonto.com/2012/business-models-and-the-singularity/
Shefrin, H. (2008). A behavioral approach to asset pricing. Amsterdam: Elsevier.
Taticchi, P. (2013). Corporate Sustainability. Berlin: Springer.
Types of Bonds. (2013, May & june). Retrieved March 22, 2017, from https://www.investinginbonds.com/learnmore.asp?catid=5&subcatid=18&id=174
Viljoen, J., & Dann, S. J. (2000). Strategic management: planning and implementing successful corporate strategies. Frenchs Forest, N.S.W.: Pearson Education Australia.
Zhou, Y. (2011). Gong si zhai quan = Corporate bond. Beijing Shi: Zhong xin chu ban she.
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