environmental volatility, system adaptation, planning requirements, and information-processing...

ENVIRONMENTAL VOLATILITY, SYSTEM ADAPTATION,

PLANNING REQUIREMENTS, AND

AN INTEGRATIVE MODEL 1NM)RMATION-PROCESSING STRATEGIES:

Sandra J. Hartman Department of Management, University of New Orleans, New Orleans, LA 70148

Michael C. White Department of Management and Marketing, University of Tulsa, Tulsa, OK 74104

Michael D. Crino Department of Management, Clemson University, Clemson, SC 2963 1

ABSTRACT

As noted in the literature, comparatively little research has examined either descriptive or prescriptive modeling of the planning process. A major reason for this lack of research appears to be the difficulty of comparing and testing planning methods within and across actual organizations. The purpose of this paper is to present a prescriptive planning model based on information-processing research and strategies. This model explicitly considers the linkages among the environment, the organization’s adaptation to that environment, the type of planning, and information-processing strategies.

Subject Areas: Decision Analysis, DecLsion Processes, and Planning and Control.

INTRODUCTION

A great deal of theoretical and empirical research has focused on planning and managerial decision making. Much of this work has attempted to describe activities within the decision-making process and has centered on the search for ways to describe how decision makers go about using information, or “cues,” from their environment [44] [34] [33] [45] [6]. More specifically, interest has centered on determining how decision makers assign weights to cues and how cues are com- bined for a final decision.

However, little research has examined models of the entire planning process. Such models may be prescriptive (prescribing how decision makers should act to achieve maximum results) or descriptive (describing how decision makers actually operate). Nutt [41] suggested that the relative lack of attention paid to either prescriptive or descriptive modeling is due to the difficulty of comparing planning methods in actual organizations. Hence, the difficulty of actually testing hypotheses may have served to discourage the development of models.

Testing prescriptive models further presents the difficulty of showing that use of the model actually improves the resulting planning decisions [61]. The little research done on prescriptive models has yielded inconsistent results [5] [31]. Moreover, it has been suggested that current research has not examined the planning process properly, that planners do not actually use prescriptive planning steps as outlined [I]. It also is possible that the planning steps, when used, are effective

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19861 Hurtman, White, and Crino 455

only under certain conditions [4] [52]. In addition, prescriptive models may have been generally too rational and may have ignored the human limitations of information processing. Thus they may be inconsistent with actual planning activities and cannot be adopted even by those who would value higher payoffs because they are impractical. Hence, a need exists to document the planning process as it actually takes place and to contrast these descriptive efforts against the prescriptive models found in the planning literature [171 [231 [331 [361 [431.

In this paper we consider the available research on the decision-making process. Ideally, such research should do two things: (1) it should show the strategies actually used by decision makers, and (2) it should provide analysis showing how decisions made following a given decision rule compare to an ideal decision. Un- fortunately, no available research takes this second step. Work by Vroom and Jag0 [60] indicates that, to a certain degree, it is possible to take this step. Unfortunate- ly, the problem is evaluating the relative “goodness” of decisions departing from a prescribed model. In addition, there also is the problem of deciding which decision is “best.” Vroom and Jag0 asked the decison maker to evaluate whether the decision achieved the desired results. An apparent shortcoming to this approach, however, is the possibility that the decision maker will not be objective in evaluating his or her own work. In any case, this is an area where work remains to be done.

Winkler [62] suggested that when the model-building process is considered the link between problem identification and problem solution has been ignored. In addition, the research that has been done has emphasized problem sofution as opposed to the processes by which problems are framed [62]. It should be noted that the problem-framing process is vital to problem solution; it is at that point that information-processing strategies apparently are critical. Therefore one purpose of this paper will be to contrast and evaluate the prescriptive and descritive literature. A second will be to develop a prescriptive model of the planning process that incorporates descriptive findings which define the practical limitations or constraints on decision makers. The paper also will deal with the strategic process of planning and will give primary attention to developing a prescriptive model of information-processing strategies available for planning. Emphasis will be on decisions about how much information to gather and how to “package” the information that has been gathered in a manner that permits a decision to be made. Earlier attempts to model the planning process prescriptively typically hdve provided little direction for empirical research [ 5 ] . This paper will provide such research direction by suggesting that research efforts be focused on the primary linkages of the model.

PLANNING AND DECISION MAKING

In order to understand the importance of decision making to planning, it may be helpful to examine the relationship between them. By demonstrating how planning and decision making are related, what is known about the use of cues in the decision-making process may aid in understanding the planning process itself. More important, an understanding of these cues may serve as a foundation for modeling

456 Decision Sciences [Vol. 17

the planning process. It should be noted that Hogarth [26] described all decision making as involving judgments about future events. Thus, for Hogarth, decision making is an activity within the planning process.

This paper will adopt the convention found in much of the decision-making literature by referring to the individual who assumes primary planning responsi- bilities at a point in time as the “planner” [26] [45]. As a consequence, various individuals within an organization, or even groups of individuals [40] within a given organization, may function as the planner at any particular point in time.

One distinction between planning and decision making which should be noted is that planning should center on the environment and the organization’s ability to respond to that environment [4] [7] [461. More specifically, the planner has a boundary-spanning role when scanning for and using environmental cues and knowledge of organizational capabilities to make decisions about future actions [57] [4]. Environmental scanning may be irregular (in response to outside crises), regular (conducted on a comprehensive, systematic basis), or continuous (where a central body acts to coordinate a stream of incoming information) [17]. In this way the planner acts as an information processor, using environmental cues. The planner must be concerned with what kind of cues are considered and how cues are weighted in generating and evaluating alternatives. Moreover, it seems likely that the planner will operate differently, depending on whether scanning is irregular (when attention is given primarily to outside conditions) or is regularkontinuous (where more attention is devoted to inside scanning in order to determine the organization’s ability to react to those conditions).

Because the most appropriate way to process information may not always be apparent, the primary purpose of this paper will be to draw on the planning and decision-making literature (both descriptive and prescriptive) in order to form a practical, prescriptive model of information-processing strategies that may be fol- lowed by decision makers when planning. Several papers [9] [ 181 [59] have pointed to the central role of information processing in organization design and functioning. Thus we will argue that emphasis should be given to the environmental and organizational factors affecting a planner’s search for and use of environmental information and to the strategies used to process that information. More specifically, the model we propose will consider linkages among the following factors:

1. the environment, 2. 3. 4.

the organization’s adaptation to that environment, the type of planning, and the strategy adopted for processing planning data.

This paper also will take the position that the strategy adopted is a dependent variable affected by the key independent variables in the process: the environment, organization adaptation, and planning type.

Environmental Factors

In the planning process, future actions must be formulated in the face of uncertainty associated with factors in the environment and with the organization’s ability

19861 Hartman, White, and Crino 457

to respond to those factors. Duncan [14] developed a typology in which he argued that the external environment includes customers, suppliers, and competitors, as well as the sociopolitical and technological environments. Boulton, Lindsay, Frank- lin, and Rue [4] indicated that a planner needs to be concerned with the relative importance of similar environmental factors: customers, suppliers, sociopolitical factors, and technology. Boulton et al. [4], however, suggested, that in the planning situation the competitor dimension collapses into the customer and supplier dimensions.

In contrast, Tosi, Aldag, and Storey [58] and Synder and Glueck [56] suggested it is possible to reduce environmental factors from the four suggested by Boulton et al. [4] to as few as two: unpredictability in the market (e.g., demand for the organization’s output) and volatility of the general technology in which the firm operates (e.g., uncertainties surrounding technological advances in rapidly changing industries). Tosi et al. [58] indicated that environmental volatility can be operationalized as the average of the coefficients of variability of sales divided by the average of sales revenues. Technological volatility can be expressed as the average ratio of the sum of research and development expenditures and capital expenditures to total assets.

It may be possible at least partially to reconcile the Boulton et al. [4] viewpoint with that of Tosi et al. [58] by considering Boulton et al.3 four environmental factors in terms of the amount of potential organizational control. Research into decision making suggests that individuals operate differently depending on whether they see the situation as one of certainty, risk, or uncertainty arising from factors outside the organization. In the certainty situation, a single precise out- come can be specified for each alternative being considered. Under risk, several outcomes may be possible for each alternative, but the probability of each can be specified. In an uncertain situation, such probabilities cannot be specified [3] [23]. While a situation of certainty may occur, planning most likely will take place in an environment characterized by either risk or uncertainty. This is because a planner in a situation where there is contact with environmental elements and the ability to influence them is likely to define the situation as one of risk (or possibly even of certainty). When factors are not within the planner’s control, the situation is much more likely to be perceived as one of uncertainty.

As Figure 1 suggests, in the customer, competitor, and supplier dimensions, the organization is in direct contact with environmental elements and has at least some ability to negotiate with and influence them. Of course, there may be risk in that more than one response by these elements is possible to the alternative strategies being considered by the planner. However, the planner should have close enough contact to be able to estimate what responses are possible and the probability of each occurring. Thus, Tosi et al.’s [58] market volatility situation may be thought of as one in which customer, competitor, or supplier considerations are important. Where the technology is changing (i.e., with the advent of robotics or genetic engineering) or where there are sociopolitical changes (i.e., changes in values affecting large segments of the population), a planner should feel less able to estimate what the possible outcomes will be if a given alternative is selected.

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FIGURE 1 Sources of Environmental Uncertainty

I I ----------- MARKET VOLATILITY-----------

I I

Indirect contact

TECHNOLOGICAL VOLATILITY

Changes in sociopolitical

technological dimensions

Even if outcomes can be specified, it will be virtually impossible to project their likelihood. Thus, in the case of technological or sociopolitical volatility, a planner is likely to see the situation as one of uncertainty.

The planning process therefore will involve the need to anticipate changes in the above areas. The situation may closely resemble Tosi et al.’s [ 5 8 ] concept of technological volatility. Thus, for the purposes of this paper, market volatility will include those situations where the customer, supplier, and competitor are the critical factors to be dealt with; technologicaVsociopolitica1 volatility will include the relatively more unstructured situations where plans are being made to respond to an- ticipated technological or sociopolitical changes [49].

Linkages between Environment and Information Processing

The literature discussed above suggests that perceived environmental conditions should have important effects on the way a planner gathers and processes information. Where the situation is one of certainty, the planner should attempt to process all information available. A limited number of alternatives will be available, and the likelihood of each will be known. Thus it would be reasonable to expect the planner to be able to combine all available information to find an optimal solution.

Where the situation is one of risk or uncertainty, problems will arise. In a situation involving risk, the planner may know the alternatives but will need to weigh them, using probabilities. March and Simon [32] pointed out that human beings are limited in their ability to process information and that ultimately satisficing

19861 Hurtman, White, and Crino 459

results from these limitations. It is important to recognize that satisficing cannot be avoided in cases where information exceeds human abilities to process it. When satisficing occurs, a decision maker either may stop searching for information and use only what is readily available or may resort to simplified decision rules in order to process “excessive” information. When these ideas are applied to a planning situation, it is apparent that under risk a planner has complete information and needs to develop heuristics to permit the processing of that information. Further, it should be noted that under uncertainty there will be incomplete information as well. There- fore, a planner will need to develop some way of getting needed information and also of finding heuristics to permit its processing.

This view is consistent with that of the specific environment versus the general environment [21], where the specific environment represents that part of the environment the organization is in direct contact with. It also draws on the distinction between direct linkages between the focal organization and its suppliers or customers (transactional interdependencies) and linkages between entities not in direct contact with the organization. These linkages make up the causal texture of an organization’s environment and are potentially the most dangerous to it [15].

Organizational Adaptation

Miles and Snow [35] described several kinds of organizations: (1) prospectors, firms which are anticipating changes and searching continually for market oppor- tunities; (2) defenders, firms reacting to environmental changes; (3) reactors, firms aware of environmental pressures and seeking to respond; and, at an intermediate position, (4) analyzers, firms which react to and comply with environmental changes. Hambrick [22] demonstrated that prospectors and defenders perform differently depending on the nature of the environment, the type of industry, and the performance measures used. It is important to note that the Miles and Snow [35] typology is centered on the business level and is intended to apply to firms competing within a given industry [22] [35]; thus, it does not apply well to highly diversified firms which compete across several industries and operate as several businesses. A highly diversified firm of this type, therefore, will not be included in the following discussion which will not describe how such firms develop an overall strategy for the firm as a whole. Where individual divisions (typically departmented by prod- uct) within such firms operate as separate businesses, the strategies they develop for “the business” can be included within the Miles and Snow [35] typology and the model developed in this paper.

Chakravarthy [7] suggested that an organization’s performance as a prospector, analyzer, reactor, or defender results from its internal adaptation or vulnerability to environmental influences. Chakravarthy listed three possible states of adaptation: unstable, stable, and neutral. In the unstable state, the organization is highly vulnerable to environmental changes. It will respond by acting as a defender and attempting to buffer itself from environmental events and demands. In the stable state, the organization is vulnerable only to certain environmental changes; as a consequence, it will make little attempt to buffer its environment but use market


surveillance instead to react to environmental changes. Chakravarthy classified such organizations as analyzers. Finally, in the neutral state, the organization is least vulnerable to environmental changes because it is able to anticipate them and respond, either by adapting to or by changing the environment. In this case, the organization will act as a prospector. Presumably, the inherent instability of a reactor’s position precludes its inclusion in this model. For the present analysis, we collapse Chakravarthy’s [7] three categories into two: unstable and stableheutral.

Linkages between Adaptation and Information Processing

From the information-processing viewpoint adopted by this paper, the unstable and stableheutral categories will be used to distinguish two potential modes of dealing with environmental information. Where the planner perceives that the organization is in the stableheutral state, it will be appropriate to extend the search for information. If the organization is in the unstable state, search will be seen as inappropriate, and the planner will attempt to buffer the organization from environmental information; efforts will be directed toward internal conditions and specifically toward tactics for gaining sufficient internal consensus to permit decision making to proceed. Figure 2 illustrates the differences in the information- screening versus information-seeking strategies used.

FIGURE 2 Relationship between Environmental Influences,

Organizational Adaptation, and Organizational Reaction

Environmental

Screening and Openess to protective devices environment

in unstable state

defender

Organization

analyzer/prospector

It is important to note that descriptive research by Lindsay and Rue [28] indicated that measures of an organization’s internal environment (in contrast to its external environment) were not related to the completeness of the long-range planning process. This finding suggests that organizations ignore internal conditions in the actual planning process, possibly because they represent less perceived

19861 Hartman, White, and Crino 46 I

uncertainty. The prescriptive model developed in this paper, however, suggests that internal conditions should be considered.

Type of Planning

The planning process requires a decision maker to respond to environmental factors and to the organization’s vulnerability to those factors. The information gained from these sources is used as the basis for planning. However, it is likely that the planning requirements themselves will have an effect on what information is gathered and how it is used. Although definitions vary somewhat, it is possible to distinguish three broad types of planning.

Strategic or Corporate-Level Planning. For Beard and Dess [2], planning at this level involves overall decisions about what kind of business to be in. Strategic planning is heavily dependent on factors in the environment [42]. Historically, strategic planning has been identified by its time horizon. Because they required the longest time to carry out, strategic plans have been considered long-range plans [27], with the exact length of time not fixed but considered at least one year in the future [25].

Secondary to corporate-level strategy are the kinds of plans that center around how best to compete in the chosen industry. Beard and Dess [2] referred to this level as business-level planning. However, Robinson [5 13 and Leontiades I271 showed that the business level of planning may be divided further into operational planning and tactical planning.

Operational Planning. At this level, emphasis is on the organization as the unit of analysis and on developing objectives which define the organization’s relationship to its environment [54]. The process is relatively ill defined and ill structured [38]. In terms of time horizon, operational planning will be intermediate in length between strategic planning and tactical planning [24].

Tactical Planning. At the tactical level, plans deal with how to accomplish the overall mission developed at the operational planning level. Units below the organization as a whole are used as the unit of analysis, and attempts are made to develop optimal solutions within the constraints imposed by the planning horizon and environmental factors. The process is relatively well structured and well defined, and the time frame is the shortest of the planning types (usually well under one year and often as short as weeks or months) [27] [38].

Linkages between Type of Planning and Information-Processing Strategies

It is important to note that the planner’s role will differ depending on the type of planning. With more information to deal with, uncertainty will increase. In March and Simon’s [32] terms, satisficing will be needed at higher levels of planning, es- pecially in strategic planning. Where strategic planning is involved, a planner will act primarily as a boundary spanner dealing with outside conditions. At operational and tactical levels, primary emphasis probably will shift to internal scanning, centering on the firm’s ability to respond to the strategy.


FIGURE 3 Planning Situations Resulting from Variations in Environmental Uncertainty,

System Adaptation, and Planning Requirements Environmental volatility as a source of uncertainty

market volatlllty

System adaptlon (vulnerablllty to environment)

Planning requirements

strategic (1) operational (2) tactical (3) , stablelneutral

(structured) strategic (4) operational (5) /-\ unstable -- tactical (8)

strategic (7) stabk ,neutrals-. operational (8)

unstable -- strategic (10)

technological volatility tactical (9)

operatlonal(t1) tactical (12)

Environment/Adaptation/Planning-Type Situations

The preceding discussion suggested that a planner must consider the environment, the organization’s vulnerability to that environment, and the type of planning in selecting an information-processing strategy. Figure 3 demonstrates that a decision-tree approach may be used to arrive at twelve possible environment/ adaptatiodplanning-type situations.

The planner’s first task is to devise a method of dealing with or processing information. Thus, the planner’s mission is to develop a method of gathering useful information and getting that information into a form which permits a decision to be made. As Figure 3 indicates, a planner may be in one of several situations depending on environment, system adaptation, and the type of planning being contemplated. Each situation may require a different strategy to process the planning information.

The Search for Information

Before information can be processed, a planner must act to insure that ade- quate information is available. This involves decisions about how far to search for information. It appears reasonable that the amount of information ultimately available to be processed often will be a function of the extent of the decision maker’s search for it. Thus, one way of satisficing is to search less actively and therefore to find fewer cues to process.

In the descriptive literature, several factors have been found to influence how much effort a decision maker will expend in gathering information. In general, a decision maker will limit the search to relatively accessible information unless there is considerable perceived environmental complexity [ 81. More specifically, the


search will be extended if the decision is seen as important and/or irreversible and/or if the decision maker will be held directly responsible for the results [33]. Evidence also suggests that task analyzability has an impact. Daft and Macintosh [9] found that in highly equivocal situations (e.g., where the task is unanalyzable, as in craft and nonroutine technology), less perceived information processing takes place; more processing, usually of quantitative information, is associated with routine or engineering technologies with analyzable tasks. Daft and Macintosh also pointed out that information sources and, presumably, methods of processing information cannot readily be substituted. Thus varying situations have been shown to call for varying techniques and strategies.

This paper, arguing from a prescriptive position, suggests that a planner must make a judgment about when to extend the search. Since information-processing capability has been shown to be limited, receipt of additional information will make it increasingly likely that the planner will need to resort to heuristics of some sort to deal with the information once it has been gathered. Thus it seems reasonable that extending the search will not be appropriate in all cases. Where task importance is judged to be high or where the decision cannot readily be reversed, it appears reasonable to recommend extending the search. However, accountability [33] does not appear a reasonable variable since a rational decision maker should proceed the same regardless of his or her personal accountability. Similarly, ease in obtaining and dealing with information should be of little concern. Thus the findings of Culnan [8] and Daft and Macintosh [9] run counter to the prescriptions of this model.

In view of the prescriptive nature of the proposed model, it also is important to note that the importance criterion requires the search be extended where strategic and where at least some corporate-level planning is involved. Although uncertainty and need for satisficing will be high in these cases, perceived importance will lead the decision maker to extend the search and to look for ways to process the additional information.

Information Processing

Descriptive research into the decision-making process suggests that several factors are important in determining how a decision maker goes about processing information. In general, decision making can be described in terms of a linear, compensatory model. The decision maker in effect considers alternatives by taking each piece of information or attribute, weighting it according to its perceived importance, adding up the weighted factor scores, and selecting that alternative with the highest numerical value [151 [19] [201 [261.

Decision makers, however, are limited in their ability to process information. As Slovic, Fischhoff, and Lichtenstein [55] pointed out, research indicates that human decision makers often depart from fully rational processes. This is due to people’s limited ability to process information, an idea which supports March and Simon’s [32] theoretical analysis (outlined previously). In addition, human decision makers may be ignorant of or unable to apply the steps of the decision-making


process in a systematic manner. It appears that decision makers follow a strictly rational process only in cases where there is little overload or where there are few alternatives to choose from and where each alternative has only a few well-defined attributes or features that require consideration [48]. In the nonoverload situation, it appears that decision makers proceed in a rational manner, processing all available data in a probabilitistic manner to generate an optimal decision [29]. However, Payne [48] found that when faced with more than two alternatives, subjects departed from their initial use of linear compensatory strategies. Malhotra [ 301 reported similar results when decision makers encountered more than five aiternatives or attributes.

In the overload situation, decision makers apparently need to reduce the amount of information to be processed to a manageable level. Several broad strategies have been suggested. A conjunctive strategy involves setting minimum standards for each attribute and eliminating alternatives not reaching these standards on all attributes [I51 [20]. Once alternatives are reduced in this way to a manageable level, a linear compensatory strategy can be used. Disjunctive strategies appear to be used primarily when cues are highly correlated. In this case, the decision makers simply may select that alternative with the highest score on one or more attributes, disregarding other attributes [34].

Decision makers, therefore, will attempt to reduce their information-processing load to a manageable level by using conjunctive or disjunctive strategies. However, from the prescriptive viewpoint of this paper, more information should be considered; the use of conjunctive or disjunctive strategies presumably will be reduced when the decision is important or irreversible. Applying this notion to Figure 3 suggests that in most situations a decision maker will need to find some way to permit the gathering and processing of additional information. Table 1 suggests considerations for extending the search process discussed above to the twelve possible planning situations developed in Figure 3. Moreover, it should be noted that the search process should be extended in all situations except for situations 3, 6, 9, and 12. Thus, in situations 1 ,4 ,7 , and 10, strategic planning is being contemplated.

TABLE 1 Planning Situations and Considerations for Extending the Search for Information

Planning Situation Should the Search Be Extended?

1, 4, 7, 10 Extend the search based on the importance of the strategic-planning process. 2 Extend the search based on the availability of complete information. 5 Extend the search based on the importance of gaining information in the de-

fenderheactor role. 8, 11 Extend the search based on technological complexity. Technological complex-

ity will lead to perceived environmental complexity. 3, 6, 9, 12 Do not extend the search. Tactical planning involves developing methods for

carrying out broad plans devised at the strategic and operational levels. Uncer- tainty, decision-maker responsibility, and importance are not likely to be considered critical.


In these situations plans are likely to be seen as both important and irreversible and, based on these criteria, the search will be extended [33].

In situation 2, a planner will be developing operational plans to carry out strategies developed previously. The situation will be one of market volatility where information will be relatively analyzable [9]. Moreover, operational plans are likely to be made by a single decision maker and to be clear cut. Therefore, a decision maker should be willing to extend the search on the grounds that information is accessible.

In situation 5 , the organization is in the defenderheactor role and sees itself as vulnerable to environmental influences. In this case a planner should initially seek information about internal conditions and the organization’s ability to respond. Based on what is found, the search may be extended into the environment or screening may be attempted [371.

In situations 8 and 1 1, a great deal of technological complexity is present. In these cases a planner will be in a situation of uncertainty. The planner should attempt to reduce uncertainty by gaining as much information as possible about alternatives and the probability of the consequences associated with them. Thus the search will be extended in an attempt to reduce environmental complexity.

Finally, in situations 3, 6, 9, and 12, tactical plans are being developed. At this stage, the problem has become considerably more structured by decisions made at previous (strategic and operational planning) levels. The planner will be carrying out previously made, relatively clear-cut decisions. In addition, the shorter time frame and relative structure will lead to less perceived importance and, therefore, to less willingness to extend the search.

Information-Processing Strategies

The planning literature contains a variety of information-processing techniques that have been suggested as aids to the planning process. Among these are a number of techniques that appear to have application as tools to permit the decision makedplanner to handle the overload information that must be dealt with in all but the simplest of the twelve planning situations (see Table 1). Although many of these strategies are similar (in that they are intended as aids to the decision maker in packaging complex data so that it can be dealt with), little research has aimed at determining the circumstances under which any given technique should be used [13]. Table 2 summarizes strategies from the planning literature and suggests situations where each could be useful.

Situation-Strategy Linkages

While relatively little research relates the planning strategies summarized to specific situations, it is possible to suggest reasonable linkages based on the characteristics of the situation, specifics of the strategy, and available research data. When this is done, the linkages given in Table 3 result. Table 3 provides one or more recommended strategies for each of the twelve possible environment/adaptatiodplanning-type situations with an accompanying rationale for strategy selection.


TABLE 2 Potential Information-Processing Strategies

and Their Recommended Application to the Planning Process

Strategy

Ready-made solution [371

Nominal group technique [12]

Linear compensatory modeling [48] [47]

Expand information-processing capability [ 181

Stakeholder analysiskooptation [40] [41]

Scenarios [50]

Lateral thinking [l I ]

Delphi [13] [lo]

SJA (social judgment analysis) WI

Morphology [63]

When (and How) to Use

Dimensions of problem as perceived by decison maker match a traditional solution.

Decision maker faces uncertainty and must develop innovative but workable plans. “Nominal” groups work in a structured environment, where discussion is strictly con- trolled, to generate lists of problem contributors and solutions. Ratings by group members are used as the basis of the decision.

Decision maker is in a nonoverload situation and is able to compare each alternative and attribute separately to pro- duce an overall rating.

Decision maker is in an overload situation and invests in ver- tical information systems or restructures the organization to expand its ability to process information.

Decision maker is in a situation where pressure from the environment must be dealt with, where an innovative solution is required, and where the organization is able to respond to requirements for change. Environmental representatives are brought into the process and the decision maker uses their recommendations in formulating a final decision.

Decision maker is in an overload situation but is able to specify environmental conditions, causal events, and the most likely linkages and results. Descriptions of the most probable future conditions are constructed and are used as the basis for the final selection.

Decision maker is in a situation where innovation is required and it is necessary to break away from traditional patterns. The problem is approached from nontraditional angles, using a variety of techniques. The decision maker is able to work independently and need not rely on others.

Decision maker faces environmental uncertainty and as- sembles the best judgment of outside experts on probable events and responses. Innovative ideas and recurring themes are used as the basis for selection.

Decision maker faces environmental uncertainty and a situation where those affected by the decision use differing judgment processes to arrive at conclusions. Group members explore the logic of their underlying judgment strategies (such as the perceived importance of various pieces of information) in depth. Considerable consensus for the resulting decision is present.

Decision maker faces a situation where the decision involves a number of complex factors which need to be integrated into a system. All possible factors are gathered and com- bined into an overall system. The decision maker acts on his or her own.

19861 Harttnan, White, and Crino 467

Decision-Tree Modeling of the Prescriptive Process

The final step in modeling is to present the recommendations made in Table 3 in a form which permits the planner to utilize them. A decision-tree approach to making this selection is illustrated in Figure 4. Figure 4 suggests that a planner can improve the planning process at the outset by selecting the most appropriate information-processing strategy. Thus the strategy adopted may be thought of as a result of the planner’s effort to achieve a match between the requirements of the situation and available strategies.

Figure 4 summarizes the matches proposed in Table 3 and illustrates ways in which, based on environmental/organizational/planning-task demands, the decision maker may select differing strategies to obtain and process planning information. Situations l , 4, 7, and 10 illustrate how the decision maker should operate. In all cases, the requirement is for strategic planning. In the market volatility situation, the requirement is to gain data about suppliers or customers. Social judgment analysis is preferred in situation 4 to allow the development of consensus to deal with organizational vulnerability. For situations 7 and 10, strategic planning is taking place in the context of technological volatility; the linkage is to develop innovative strategies. Since there is less need to respond to customers or suppliers, emphasis is on individual-rather than group-based-techniques. In addition, choice of technique is moderated by the organization’s vulnerability to the environment.

Situations 3,6 , 9, and 12, however, provide some contrast. In these situations, tactical planning is required. It is assumed that the situation is better defined and structured since tactical planning calls for devising ways to meet goals and to complete tasks decided on at higher planning levels. In this case, it appears likely that a linear compensatory model can be used. In addition, in those relatively certain cases involving market volatility, ready-made solutions may be available.

Situations 2, 5 , 8, and 11 are intermediate in that operational planning is called for. In general, decision makers will rely on finding ways to process more information or on techniques such as scenarios that will permit the planner to get an overall view of alternative ways to accomplish the mission specified at the strategic-planning stage. Depending on the degree of the organization’s vulnerability to the environment, scenarios may be used to determine how the environment will respond to organizational changes or how the organization will be affected by the implementation of a given set of plans.

SUGGESTIONS FOR FUTURE RESEARCH

This paper has taken the position that planning is a special case of the decision- making process in which the decision maker responds to three dimensions: (1) the demands of the environment, (2) the ability of the organization to respond to environmental demands, and (3) the type of planning conducted in selecting a strategy for processing planning information. The human decision maker is seen as limited in his or her ability to process information. Except in simple, highly-structured situations, all attributes of all alternatives cannot be considered. However, in cases where


TABLE Situation-Strategy

Characteristics Strategy

Situation 1 Market volatility, stableheutral adaptation, stra- Stakeholder analysiskooptation tegic planning

Market volatility, stableheutral adaptation, opera- Scenarios tional planning

Market volatility, stableheutral adaptation, tac- Ready-made solutions/linear compensatory tical planning modeling

Situation 2

Situation 3

Situation 4 Market volatility, unstable adaptation, strategic SJA (social judgment analysis) planning

Situation 5 Market volatility, unstable adaptation, operational Expand information-processing capability planning

Situation 6 Market volatility, unstable adaotation, tactical Readv-made solutions/linear comoensatorv -. planning modding

Situation 7 Technological volatility, stableheutral adaptation, Delphi /lateral thinking/morphology - ~ -- strategic planning

Situation 8 Technological volatility, stableheutral adaptation, ScenariosINGT (nominal group training) operational planning

Situation 9 Technological volatility, stableheutral adaptation, Linear compensatory modeling tacticaI planning

Situation I0 Technological volatility, unstable adaptation, stra- Morphology/SJA tegic planning

Situation 11 Technological volatility, unstable adaptation, op- Scenarios ,erational planning

Situation I2 Technological volatility, unstable adaptation, tactical planning

Linear compensatory modeling

19861

3 Linkages

Hartman, White, and Crino 469

Rationale

The organization must decide what business to be in and must extend the search. Because the situation is one of market volatility, customers and suppliers need to be dealt with. A cooptative strategy will permit adjustment to environmental demands.

Overall directions have been established and the organization is developing moves to permit success in its line of business. Environmental conditions can be specified and scenarios can be used to judge the outcomes of various environmental conditions and organizational responses.

The environment permits a relatively structured approach. The organization is in a position to respond, and the planning type is relatively well defined. Given the relative stability and certainty, ready-made solutions are likely. Where several solutions could apply, linear compensatory modeling will permit decision makers to compare all alternatives and attributes for a best solution.

A relatively structured environment exists, but the organization is vulnerable to environmental changes. Strategic planning calls for expanding the search and considering more information. Decision makers may use SJA since it permits the development of a high-quality solution and also allows use of environmental representatives (such as those from customer or supplier groups) in the process.

The organization is called on to design overall moves in the face of customer, competitor, or supplier uncertainty. This uncertainty probably can be quantified. The organization will need to react quickly to this information. Expanding information processing may let it do this.

Environment and planning type are relatively structured, but the organization is vulnerable to environmental influences. A ready-made solution, i f available, offers the security of a tested method. Where no ready-made solution (or where more than one) is available, linear compensatory modeling can be used to compare all alternatives or attributes for a best solution.

Environmental factors are relatively uncertain, the technology is out of the organization’s control, but the organization is in a position to respond to its environment. Strategic planning is important, and the organization will attempt to extend its search for information. Approaches such as Delphi or lateral thinking may be useful in developing innovative ideas. Delphi may be used when outside experts are needed, lateral thinking when the need is for information by the individual decision maker, and morphology when the need is to synthesize facts.

Environmental factors are uncertain, and the organization is relatively vulnerable to them. Operational planning deals with overall moves to improve the organization’s competitive position within the industry. Scenarios can be used to show a variety of possible technological states with related organizational responses. When experts within or outside the organization are useful, NGT can be used to incorporate their judgments.

There is considerable environmental uncertainty, but the organization is in a position to respond. The planning type is relatively well structured. Ready-made solutions are unlikely. However, in relatively well-defined situations of tactical planning, linear compensatory modeling can be used to compare all attributes and alternatives for a best solution.

There is considerable environmental uncertainty, and the organization is vulnerable to the environment. The need for strategic planning calls for extending the search for alternatives. When a need exists for a solution that synthesizes environmental factors (assuming those factors can be projected and that the decision maker can work alone), morphology may be used. When there is a need to consult environmental elements and/or experts from inside the organization, SJA will permit consensus.

There is considerable environmental uncertainty, and the organization is vulnerable to the environment. Operational planning calls for developing overall moves to permit successful competition within the industry. Scenarios can be used to show the impact of possible technological situations and to permit the organization to develop appropriate responses.

There is considerable environmental uncertainty and the organization is vulnerable. However, tactical planning is relatively structured in that it involves developing methods to carry out overall operational plans. While ready-made solutions are not likely to be available, linear compensatory modeling can be used to compare all attributes and alternatives to develop a best solution.

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19861 Hartman, White, and Crino 47 1

the decision is seen as important or irreversible, a decision maker will attempt to extend the search to obtain more or higher-quality data.

While this paper has argued for a general model of the information-processing stage of the planning process, it is obvious that at times differences across planners may affect the model’s generalizability. Such differences include the level in the organization where planning is taking place and the number of individuals shar- ing in the planning task. Such effects have been indicated where appropriate.

Several cautions are in order. While Figure 4 is offered as a prescriptive model for improving decision making, it must be subjected to an empirical test. As Nutt [41] cautioned, empirical testing in the planning area is difficult. Moreover, Snyder and Glueck [65] suggested that the ability to express variables in measurable terms is a key factor in permitting empirical testing. While Snyder and Glueck [56] showed that Tosi et al.’s [58 ] approach to operationalizing the environmental factors can prove beneficial, similar work remains to be done in quantifying remaining variables. While type of planning probably can be operationalized in a reasonably objective way, there remains a need to operationalize the idea of stableheutral or unstable system adaptation used in this paper.

Certainly, one tactic would be to use a pencil-and-paper approach, asking decision makers to rate their organization’s level of adaptation. Obviously, this tactic relies on decision-maker perceptions, but it may be defensible in that the decision maker’s actions will be based on those perceptions. An alternative approach was suggested by Chakravarthy [7], who noted that internal adaptation should be evidenced by the organization’s level of activity in the environment. Thus organizations experiencing unstable adaptation should act as defenders while those with more stable adaptation should act as prospectors. Hitt, Ireland, and Palia [25] pointed to evidence that activities emphasized may relate fairly directly to a firm’s posture as a prospector or a defender. Thus, defenders would be more likely to emphasize production, research, and development while prospectors would emphasize research and development and give less attention to production. Chakravarthy’s work suggests another possible approach. It might be possible to develop an index of an organization’s prospecting versus defending activities which can be used to represent a firm’s internal adaptation status. Once this is done, the type of planning probably can be specified in a reasonably straightforward way, and it will be possible to begin identifying organizations where various environment/system- adaptation/planning-type combinations are present. A first step toward building a research base then could be taken by examining linkages among various combinations and information-processing strategies used in actual settings. Such work must be undertaken if an understanding of the planning process is to move beyond the level of theory. [Received: March 29, 1984. Accepted: October 4, 1985.1

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Sandra Hartman is Assistant Professor of Management at the University of New Orleans. She received her Ph.D. from Louisiana State University. She is interested in decision making and in modeling the decision-making process.

Michael C. White is Associate Professor of Management at the University of 'hlsa. He received his Ph.D. from the University of Georgia. His research interests include strategic management and organizational theory.

Michael D. Crino is Professor of Management at Clemson University. He earned his Ph.D. from the University of Florida. He is a member of ABSEL, Decision Sciences Institute, Academy of Manage- ment, and American Psychological Association. His research interests are in the areas of employee dis- cipline and motivation.

environmental volatility, system adaptation, planning requirements, and information-processing...

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