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Policy-formation and policy-execution in the business undertaking.

Posing the problem

More than fifty years ago the American engineer, Frederick Winslow Taylor, first coined the phrase "Scientific Management". He started from the idea that the old style of management was based on the purely empirical, personal experience of the particular head of the business; that the rule-of-thumb principles used were often completely inadequate, resulting in an enormous waste of human effort materials and money; and that it ought to be possible for the human activity of managing a business to be analysed scientifically and systematically improved. Because of the period in which he lived and his own education and experience, he thought primarily of factory management and the application of the methods of the natural sciences to the solution of its problems.

Fifty years have since gone by and efforts to achieve a more systematic management on a scientific basis have, in the course of the years, assumed a vast scale; management literature with its many and varied ramifications has become impossible to keep up with. In spite of all this, most experts in both practice and theory are at this very moment agreed that management on the whole is still carried on predominantly in accordance with empirically-obtained, individually selected information and that there is still a great waste of resources in our undertakings as a result of faulty management, and that the scientific penetration of management problems is still in its infancy. Peter Drucker, for example, says frequently in his books that we shall be able to solve the vast economic problems of the future only by obtaining more systematic knowledge about the nature and art to management in its constantly changing environment. To avoid misunderstanding, I should like to emphasize that we are not concerned here with the ideas of isolated theoretical scholars prejudiced against practice because they know nothing about it, but with the ideas of people who are very successful in practice as well.

The reasons why, in spite of the continuous efforts of many people, there is still no satisfactory doctrine of management, are very numerous. One of the reasons is certainly that in the course of a few years the tasks of management have undergone a fundamental change, and that in accordance with general technical and economic development, they are changing ever more rapidly, so that scientific analysis is constantly lagging behind and so the practitioner must, in the first instance, concern himself with the up to the moment problems of his firm and scarcely ever finds time to reflect about them at length. Numerous problems of factory management to which Taylor once addressed himself, have in the meantime been completely solved, at least in theory--to mention only work study, efficiency-promoting incentive payments or the organization of the main areas of control. But for every problem solved, two new ones have arisen in the meantime, and the deeper we enter into individual problems, the more we realize that what is involved is not (or, at least not in the first instance) the solution of these individual problems in a fragmentary area of the undertaking alone, but the organization and the conduct of the undertaking as a whole. In what follows, the attempt will be made to comprehend management as a process of policy-formation and policy-execution, and to probe as deeply as possible into it. It is obvious that, given the complex character of the management problems of an undertaking, it will not be possible by this means to obtain an all-embracing picture of the conduct of a business. However, it should be possible to illuminate these problems from a certain point of view and thus obtain another constituent element for a future doctrine of management.

The Undertaking as an organisation

The undertaking is an independent economic unit which, from the point of view of the economy as a whole, is given the task of producing and passing on to other economic units products which are required somewhere within the whole economic process, whether it be in the sphere of production, distribution or consumption. "Independent" means that in principle the undertaking can act like a human being, i. e. that within the framework of the existing social order, it can set itself freely-chosen aims and seek to achieve these aims by suitable measures.

The process which leads within the undertaking to the setting of aims, and to the planning and execution of measures corresponding to these aims, is called management. The undertaking is in fact a complex structure but in essence a human community, and in any community it is the task of the leadership to make it capable of action i. e. to set its aims and to direct their realization. No community capable of action can exist without leadership, but this leadership can arise and be constituted in the most varied ways--witness the heterogeneous social forms of democracy, dictatorship etc.--and the tasks and powers of leadership can be distributed among many or few persons,--in the extreme case, either vested in the majority of all the members or concentrated in a single person. Seen from this point of view, the organisational structure of the undertaking is simply the order of competence which determined which positions participate with what powers in this process of leadership. Without such an order of competence, the undertaking is not capable of action and for this reason the organisational structure can rightly be designated as the foundation of management.

This process of management can also be described as a process of "will-formation" and "will-execution", for in the last resort what is involved is this: that like a human being, the undertaking possesses a will of its own and that, whenever possible with success, it can translate this will into fact by taking suitable measures.

As a rule in the modern undertaking a fairly large number of collaborations are co-operating in this process of management. Seen from the point of view of the individual collaborator, management implies having a share in this process of will-formation and will-execution on behalf of the undertaking. The classic entrepreneur of the economical theory who founds an undertaking alone with his own money and manages it unaided is now dead, if ever he existed at all; his place has been taken by a group of people, the so-called management which directs the concern in functional collaboration. This also applies even when there is a so-called one man head to the business, that is a sole director who possibly also is the sole financial proprietor and perhaps also the founder in his time of the undertaking. Even the autocratic entrepreneur of this type will hardly dispute the fact that he alone cannot really direct the enterprise, and that he must have at his disposal a number of directing collaborators who support him in his task. It is clearly seen today, however, particularly in big firms that even this picture of a director with his own auxiliary directors does not really correspond to reality. It is rather perhaps the case that the whole complex of management functions is divided among a number of people, because these functions cannot be fulfilled either quantitatively or qualitatively in any other way; and that on the basis of this division of work in the directorial sphere of the firm, there results a certain hierarchy in the positions shared out according to the type and scope of their function within the framework of the management.

The obtaining of a suitable basic structure of relationships between the different positions allocated to management, or as is sometimes said, to the command organization, is, as already indicated, an organisational task and its solution is set out in a definite organisation chart. We do not propose here to go into these organisational problems any more closely; we are rather assuming the existence of such an "order of competence". Our problem is rather the following: how does this thing called management, the conduct of a business really take place?

Since the undertaking, as already mentioned, must be capable of action like an individual human being, there is an obvious comparison between the process of management and the "will-formation" and "will-execution" of an individual human being.

Human activity directed towards a particular aim must be logically so arranged that first of all an aim must be fixed, and then a decision made which has this aim for its task; that the necessary means and actions for achieving this aim are planned, prepared and set in motion, and that finally the result achieved is tested for its conformity with the aim which has been set. The process which has been roughly outlined lies ultimately at the root of every "rational" human action.

The difficulty of transferring this simple pattern to the subject of management lies in the complex nature and the corporate continuity of the business undertaking and its problems. The undertaking is a structure which is planned for an indefinite period in which various performances and outputs are taking place continually. The aim cannot be achieved once and for all time but must be posed and striven for again and again. The aim itself can and will change in the course of time in some essential elements, and in the means to be employed; the methods of application may change completely even within short periods. A business which we knew ten years ago is today no longer recognisable in its essential elements; but the person who has himself experienced this process of continuous reorganisation cannot as a rule appreciate the total change, since he has seen it grow in small or very small stages.

The business must therefore be in a position continually to set itself new tasks, to create new means and to plan and carry through new methods of operation. Often several aims are striven for simultaneously; these can be reconciled only in an abstract formula and in their concrete reality are mutually contradictory or impede each other. Business management becomes therefore in reality a series of complex problems with many aspects and which it is impossible to survey as a whole; it is therefore not surprising that the analysis of it has, up to the present time, not led to important results either in practice or in science of management.

The sphere of management problems

If we are to consider first of all the process of business management as being to a certain extent directed towards a particular aim, then we must proceed from one aim which it is desired to achieve. In this process I would like to distinguish the following five stages:

1. the fixing of the aim; 2. preparation for the decision; 3. the decision; 4. measures to achieve the end in view; 5. control and evaluation of the result.

Between the 4th and 5th stage is that of realisation, which we will not consider in greater detail here.

1. The fixing of the aim

It is self-evident that one cannot act at all in a business without fixing an aim. Nevertheless,--and this is known to every practical man--cases often occur in which numerous collaborators are extremely active without anyone having a really clear idea of the aim to be achieved. Christian Morgenstern once said that "he who does not know the aim, does not know the way". Illusions, vague ideas that something should be done, "high-flying" ideals, pessimistic prognoses for the future, all these are aims which cannot be achieved.

The procedure for fixing the aim is now obviously of decisive importance for the prosperity of the business; if the aim which has been set is false, then the most rational method of achieving it cannot alter it and how many cases do we know of in which hundreds of collaborators endeavour to achieve an aim with such toil and spirit, which subsequently proves to be false, when it would have been better to have done nothing at all or something different? Not only Kaiser Wilhelm II but also many a business head could have engraved on his desk, when looking back on many of his activities, the motto "That was not my intention".

What makes the fixing of the aim so difficult to grasp is the fact that it represents for the greater part a so-called creative activity and therefore can neither be understood logically nor organised rationally. We can derive aims from given facts, or from prognoses about the future, but they cannot be derived from themselves. The igniting spark of the creative imagination must also be there and belongs to personal or even super-personal things, which cannot be organised. A man who has no inspiration can fix no aims; he can at the most accept the aims of others and make them his own. He can therefore hardly be used in the topranks of leadership.

And a man who lives in the clouds, who possesses imagination but cannot measure the span between present-day reality and the state represented by the imagination is not suitable as a leader; he can indeed fix aims but as a rule only those which cannot be achieved or only at too great a price.

The basis for fixing an aim must therefore be a realistic assessment of the state of affairs. In this there are two decisive elements--the present reality and the possible future. "The assessment of a situation is an ordering of events and a weighing up of possibilities, wherein the majority of the bases available are uncertain" (F. Konig, Vom Entschlu|beta~ zum Befehl, Zurich 1944).

Business practice has for some years been intensively concerned with these two elements. To these belong accounting, which assesses and represents past and present events but which also endeavours to calculate in advance the effect of the fixing of aims; market research, which tries to estimate the present state of the market and also future market tendencies; technical research, the short-term market forecast and the ascertaining of long-term tendencies in industrial development. With the aid of such instruments management can create for itself a series of data which can be used as the basis for the development of a possible fixing of aims.

The fixing of aims presupposes a future state; it exists first of all in the imagination but should become reality by way of planning and execution. All great managers of business therefore have within them something of the inventor; they can visualise realistically something which as yet does not exist and, a fact which is equally important believe that something which does not exist can be created. The manager who has to fix aims must therefore in a certain sense live the future beforehand, which is possible only if his mind is almost continually occupied with the future.

Fortunately, and a source of comfort to us all who are simply normally gifted persons with a little intelligence, a small power of action, a little imagination and a reasonable share of diligence, it is obvious not a fact that a human being must simply wait for an idea coming from somewhere, which falls into his lap by grace; doubtless it is that hard thoughtful work on the unsolved problem, a continual preoccupation with present conditions and future possibilities, and all related activities make us ready in the majority of cases to seize this idea which rescues us. A man who is not interested in the problems, who does not rack his brain for possible solutions, is rarely inspired to make even a modest contribution to the problem.

But conversely it is indeed a fact that the idea which leads to the correct fixing of an aim often comes when it pleases, when our mind is free to receive it. The over-worked head is in danger of never being prepared to capture ideas and, in spite of rationalisation, the necessary freedom required for deploying this ability to develop creative ideas is a genuine and great problem in all well organised business undertakings.

2. Preparation for the decision

The aim indicates the final state to be striven for: a new product, a new turnover index, a certain profit margin, a certain reduction of costs, etc. If the aim is fixed, then the first steps must be taken to realise it. The most direct employment of means in fulfilling aims which are fairly important is not always possible, or at least not advisable, since it is part of the essence of a business undertaking to act with due regard to economy, i. e. to achieve the aims set with the smallest possible expenditure. A plan for the selection and employment of the means must be set up in order to achieve to a certain extent an economical sequence of actions. In the case of aims fixed far into the future numerous variations of plans are often necessary before the best possible method is achieved.

Numerous aids have also been created for this extremely important phase of planning, since planning ability is a prime necessity in the armoury of the industrial economist. In larger concerns numerous workers are often occupied with these tasks at various planning locations.

We are dealing here with a theoretical integration of many methods, which may be introduced in the most diverse combination, and we must, therefore, bear in mind possible future events which can influence the implementation of planning. In this planning phase, thanks to the new expedient of Operations Research a kind of revolution is at present under way. It has been recognised that by traditional methods, that is, with a little systematisation and much sound common sense, the best possible solution is discovered only by chance, even so the factors to be combined amount to a relatively small number, by no means as many as a dozen. But if we really consider carefully even the smaller problems of management we realise at once that usually very many more factors play a part, and that moreover the influences of these factors differ greatly. Furthermore, these factors are, to a certain extent interdependent. If we take a sales target as an example we see immediately that the planning task must take into account such factors as:

General economic development;

any particular features of the specific geographical market;

possible measures to become competitive in the broadest sense of the word, special means of publicity sales promotion, presentation of product, and of research, public relations and personnel management, etc.

Some of these factors are to be included in our study as possible external factors which cannot be modified; others may be controlled as we desire, but not to an unlimited extent.

Operations Research attempts by means of mathematical--statistical methods, which are still in the development stage, to formulate a correct appraisal of all factors, and modern data processing techniques permit us to do the necessary calculations for this within an effective period of time. Everyone concerned with such planning needs a great deal of correct and timely information; hence the great importance attached to reliable sources of information and, indeed, to information services in general, from the management point of view.

Often in this stage of preparing to take a decision it appears that the target set is wrong, i.e. is not attainable or only at too great a cost, or that it should be changed or extended or reduced. In reality, therefore, the two phases, target setting and preparation, are closely connected. Although it is not to be denied that many heads of firms are successful in this method of stubbornly retaining the original target set even though it is regarded by everyone else as unattainable, it is probably true that the unbiased checking of the target setting must be linked with preparations. It is without question true that in every good concern many more targets are set than attained, because in the planning stage many of them are discarded as unattainable. One of the dangers for the chief executive of a large concern is that he clings to targets for reasons of prestige when the fact that they are unattainable has long since been proved. But when, on the other hand, planning becomes the routine of a bureaucracy where no bold idea has any chance of implementation then a different distribution of power amongst management centres is urgently required.

3. Decision

The phase of preparation for taking decisions should lead to a well considered selection of possibilities, the advantages and disadvantages of which are to be balanced one against the other. The decision may be imposed by material considerations and prove easy to make, but it can also happen that the final choice represents a decision arrived at only by resolute action. In any case, a correct preparation of the material will make the decision easier. Power of decision and conscious assumption of responsibility, will power, boldness, confidence in his associates and in himself: all these are personal attributes which the manager who has to take decisions requires in full measure and they are indeed indispensable.

The phase of decision also includes the transmission of the decision to those other areas which must be well-informed about it. Everyone knows that it is precisely this second part, the transmission and explanation of the decision, its conversion into orders, and the assurance that these latter have not only been received but are also understood that is extremely important.

4. Measures to Achieve the end in view

The above-mentioned decision in general fixes both the object to be achieved and the way to its realisation, and is of a fundamental nature. Following on is numerous other so called "small decisions" must usually be taken which might be called "rules for realisation". The fundamental decision is made more and more concrete by this division into individual elements, so that finally individual instructions are produced which are ready for execution. This phase, too, is very important, because here often the momentum of the decision which was taken with enthusiasm and great resolution fades away; or because the executive measures themselves can gradually and imperceptibly change the desired and original decision.

5. Checking and Evaluation of Results

After this phase of making arrangements follows the execution the actual carrying out and realising of the plan, putting the decision into effect. There, at the latest, the control phase must begin; this ensures, on the one hand, that the execution takes place purposefully so that any necessary corrections can be quickly made; and, on the other hand, it aims at determining the final result obtained and at checking its agreement with the result desired. Only by a continuous control of execution and precise evaluation of intermediate results can we ascertain the appropriateness of the individual measures taken, the degree of economy achieved in the employment of means, and whether the original aim was correctly set.

In the framework of this phase of the management-process accounting becomes very important. Admittedly many other checking aids play a part, yet modern accountancy is the most important and comprehensive instrument of management control because it evaluates and presents the processes effecting the success of an enterprise. Every excentive should be able to have available the results of this checking method quickly and in detail as far as they concern his own sphere. If it is correct that the control phase represents a necessary part of every process of management, it is surely illogical to set up an accounting system as a centralised and efficient means of control and yet not to make its findings accessible to all other responsible executives.

In practice events in a firm do not develop along one line, but along several; numerous processes take place simultaneously and these can effect the most varied phases at any given time. This is particularly noticeable in the work of executives who have to run businesses of a complex nature. On the same day they are often concerned with the management of various matters, and with the continuous supervision of other processes, whilst at the same time they are required to evaluate the result of a completed transaction which they have just received, and to think about fresh projects. In conclusion, therefore, we shall consider how this whole performance, which we have divided into five phases, must be thoroughly organised in a business firm.

As we have already established, many people--the whole personnel of a concern--must co-operate in the complex process of decision-taking and execution. The kind of distribution of work amongst these people is of decisive importance. We must here remember that it is possible to allot tasks not only to individuals but also to groups, which as committees form an organisational unit.

It is obvious that the aim-fixing phase is always the most important and essentially determines the content of the following phases; the whole existence of the enterprise depends first and foremost on the right aims. Naturally there are more and less important targets, those which decisively concern the whole enterprise and those which affect only a small part of it. It is clear, therefore, that the aims must always be determined by the highest authority concerned, and that aims which vitally concern the whole enterprise must be decided upon by the top executive management.

The decision phase is in turn more important than that of carrying out, as the latter presupposes a decision which has already been taken. Hence it is also necessary here that the decision be made by a high executive, while the actual carrying out within the framework of this decision can be delegated to a lower level of management.

The phase of decision-preparation and the plan of execution is certainly extremely important, but does not contain, as do the phases of aim-setting, decision and management, the issuing of final strategies. Here it is the question of know-how, of being completely informed on matters of technique, and of being capable of systematic organising. As a rule several executives of varying seniority must operate together in this phase, so that all aspects of the problem are covered, and all possible information can be utilised. Often a small organization is required which exists in its own right, an organisation that is, functioning only temporarily and forming a special committee of those people who know a certain aspect of the problem particularly well. We may mention, in passing, that a team of various specialists got together in this way can also have very positive results from the educational and general development point of view. For permanent tasks in this phase centralised planning committees have often proved extremely suitable.

The phase of control and evaluation of results may finally be divided into two sections, one of a more executive and the other of a more theoretical nature. The exercise of controls may often be transferred to special control committees, or to relatively subordinate levels which possess as a rule of the advantage of "being close to the job". The evaluation of the results of control, however, can be separated only with difficulty from the appropriate decision function. Whoever is responsible for setting the aim must analyse intensively the results of previous measures in order to see new aims in the light of what has already been achieved. Whoever makes decisions must know the results of his former decisions, and the same holds good for those responsible for carrying out these decisions.

To recapitulate we can say: in the hierarchy of an organisation of executives a delegation of authority must exist such that aims are determined and fundamental decisions are taken at the top; and that at the bottom the carrying out occurs within the framework both of the aims which have been decided upon, and of decisions already made. It is a part of the business of every management executive to attend to the necessary control and to analyse continuously the results within his own particular range of competence. The carrying out of the control functions can sometimes be delegated downwards in the hierarchy and sometimes be entrusted to special control sections.

The overburdening of many senior executives stems not only from the fact that they are concerned (against all the rules) with execution, but also from their concentrating too little on the accomplishment of certain aims and decisions, and too much on executive management; this often wastes time and they become far too concerned with day to day control. This overburdening is extremely dangerous and can greatly impair the logical progression of the five phases. There exists the peculiar phenomenon, well known to every manager--this is perhaps slightly exaggerated--that the more urgent it seems to be to do a certain thing, the less important it really is. Short term problem-solving seems, as regards time, much more urgent than the consideration of fundamental aims. Whoever does not deliberately undertake an evaluation of his problems according to their importance--not based on time-urgency--runs the risk of being burdened with the petty trivialities of management, with minor directives, continuous control, and the correction of details, and then finds no time for the consideration of long term aims and planning.


These five phases represent an attempt to analyse the extremely complex processes of decision taking, communication, and execution which always take place in every enterprise. As these processes form the content of the directive activity, it is simultaneously an attempt to analyse managerial activity in any enterprise. The consideration of long term business policy or the formulation of personnel policy can always be postponed. Yet the telephone is always picked up and the question from a head of department concerning whether or not he should give employee Smith two days extra holiday must be answered immediately.

We have seen that the activity of management in the broader sense consists of an unceasing process of policy-formation, which can be viewed as a recurring process and which leads from the creative idea through its realisation and the evaluation of results to the setting of new aims.

We have recognised that in a modern enterprise the process of management can no longer take place in the mind and spirit of a single individual, but that several executive colleagues participate in it. A uniform policy-formation which makes the enterprise into a machine capable of responsible action can thus only come about if this work distribution process is organised and planned, i.e. if the functions of every individual sharing in it are clearly laid down and co-ordinated with those of his colleagues and if care is taken to bring about intensive and continuous co-operation. I am convinced that the great problems of management organisation today lie not so much in the economical shaping of the way the work is carried out in office and work-shop but in the preparation and shaping of the policy as a dynamic process.

Of course the shaping of the managerial process is not only an organisational but also and especially a personal and human problem. The very consideration of the five phases of policy-formation should have convinced us that in the leading positions the undertaking depends absolutely on men with high qualities and abilities like creative imagination, power of decision, will to action, perseverance in following aims once set, and also of objectivity, self-criticism and the will to co-operate.

To awaken and cultivate these qualities in the top executives and to apply them usefully in the interests of the whole enterprise is the most important task of a progressive management in this dynamic age. The future of the enterprise depends to a much greater degree on whether new and successful work continues to be done along these lines than on machines, capital, and other material elements. What urges the enterprise forward and what makes it into a great and successful undertaking is its mental and moral power, that is the sum of the intellectual and human forces which are active in it, and for it.

The clear formulation of policy, in general and in sections, and its announcements within and without the organisation in a written declaration, can be of the highest importance in promoting the effectiveness of management. Policy is obviously the basis of the structure of organisation needed for carrying on the affairs of the enterprise. Unless policy is clearly defined, it is not possible to frame an organisation, because it is not possible adequately do determine the appropriate executive responsibilities and relationships; nor can be appointed executives carry out these responsibilities with effectiveness and coordination.
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Title Annotation:Policy and Planning
Author:Ulrich, H.
Publication:Management International Review
Date:Jan 1, 1992
Previous Article:A content analysis of contributions to the Management International Review journal.
Next Article:Investment policy in industrial enterprises.

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