1.2. Law on strategic planning and decisions on project management
As we have described in the previous part, the process of the federal law implementation faced serious problems which stimulated additional efforts to bring it to life.
The government made a decision to implement project management in the public sector. One of the reasons for implementation of the principles of project management was improvement of goal setting procedures as a key function of SSP.
Project management principles are covered by the regulation dated 15.10.2016 № 1050 “On the organization of project activities”, which establishes procedure for the implementation of projects and programs in the main areas of strategic development, and by the decree of the president of the Russian Federation dated 30.06.2016 № 306 “On the Council under the President of the Russian Federation on strategic development and priority projects”, the 4th point of which says that one of the main tasks of the Council is:
“a) preparation of proposals to the President of the Russian Federation for the development, implementation and updating of the objectives, priorities and performance in key areas of strategic development of the Russian Federation, including in the sphere of socio-economic policy, the definition of major tasks, basic approaches to methods, stages and forms of their solution”.
The topic of project management implementation in the Russian strategic planning is of high importance currently, because authorities understand that project management approach is an efficient supplement to the strategic planning system (SSP). The Ministry for economic development of the Russian Federation is working on this issue at the moment. However SSP now is facing many problems, which cannot allow to reach the objectives set for given administrative innovation, such as:
new regulations further complicate the SSP, make it costlier, instead of shaping more transparent and manageable structure;
strategic planning documents do not secure consistency in goal setting;
strategic planning documents still lack sufficiently specified updating procedures;
incorporation of key "players" affecting long-term social-economic processes into the SSP (representing business community and civil society) is still inadequate.
1.3. Short historical outline of strategic planning and management concepts
Although the roots of public-sector strategic planning are deep, most of the history and development of the concepts, procedures, and tools of strategic planning have occurred in the private sector.9
The classical approach to strategic planning was formed as a solution to the problem of long-term planning in a highly predictable environment. As a consequence, its main categories are forecasting with a focus on extensive analysis, rigid strategic planning presuming the presence of a target and a highly detailed plan.
Classic strategic planning is associated with a manageable system which future state are realistically predictable.101112It is assumed that the predictive ability of the organization means to enable a high degree of probability to identify opportunities and threats of the external environment, as well as compare them with its own strengths and weaknesses. In these terms, the theory proposes an analytical tool that allows organizations to formulate the logic of their actions for the planned changes, or a strategy taking usually a form of a long-term plan of action.
In practice real value of the classical approach is significantly reduced because of uncertainty. Turbulence of the external environment makes unrealistic the possibility to create accurate strategies that describe a particular "path" of the organization to visible and highly constant goal.13Strategic management in the classical approach, applied under conditions of low certainty leads to overexpenses during planning process with its low predictive power. In extreme cases, the use of classical management technics can lead to disruptions between planning and implementation, and between image about the future and reality, associated with the occurrence of the "blind zones" control.
In addition, the idea of "hard" plan involves a bias towards "paper" work shifting managers’ focus to analytical work cut off from practical management.
Assessing uncertainty became the basic factor in theoretical rethinking of the strategic planning and management in contemporary society.
By uncertainty we understand basically absence of information for decision-making.14Also uncertainty means contradictions in this information and complexity of connections within the organization, as well as between an organization and external environment.15Structurally, the uncertainty is described by a combination of two factors: the number of changes in the external environment affecting the organization and the level of complexity of the environment (number of participants). Depending on the ratio of these parameters there are 3 levels of uncertainty: low, controlled and high.
Different levels of uncertainty imply changes in management approach. Approaches to generate, validate and deploy strategic resources, supported by investments and resources in a controlled and high uncertainty, take on special meaning.
New approaches to strategic management and planning are related to knowledge economy and innovation management. These approaches suggest that competing and developing organizations have to make strategic decisions in conditions of rapid changes in the environment, high decision-making effects of uncertainty, occurrence of significant disturbances not only in the immediate circle of agents associated with the organization, but also stem from the complementary, new or unrelated markets, etc.
Approaches to the strategies of organizations operating in an environment where forecasting is extremely complicated, contains the following ideas:
1. Strategic management and planning activities are no longer formed solely as a product of successive stages of forecasting, strategy development and programming, preparation and implementation of which is carried out during whole forecasting period.1617The uncertainty of the external environment suggests that the threats and opportunities arise unexpectedly, and at the previous stage it is virtually impossible to predict new changes. As a result, forecasting becomes not a "one-off" cyclical but permanent instrument.1819Organizations analyze the environment for opportunities and threats permanently, and identified changes become the basis of the set strategic lines.
2. Strategic management and planning are eventually becoming a diversified network of actions based on the different aspects of the future.
I.Ansoff began to research whether the processes by which strategies were identified and determined were not in some way contingent on the circumstances in which the organisation operated. Obviously there are many variables that will affect the quality of strategy, not least being the competence and judgement of the people who make it. Ansoff focused on something different, the external circumstances in which the organisation operated. What resulted was the definition of five levels of turbulence, with each of which was associated an optimal way of strategic management. There is face validity to this proposition, that, for example, an organisation in a level 1 degree of turbulence needs control more than it needs strategic change, and the old extended budgeting system of the 1960s is probably the best way of stopping people from developing new strategies that are not needed. At level 3 there is uncertainty and change, but quite a lot can be estimated with reasonable accuracy: therefore the strategic planning process that is the cornerstone of much of the present theory is appropriate. At level 5, the business exists in a state of massive turbulence, planning systems are too cumbersome to cope, and the approach to strategy must incorporate ways of finding and using weak signals about change, rapid response, flexibility, and a top management state of constant awareness. Level 5 organisations have to work to create the environment in which they are to operate: for level 1 organisations maintaining the status quo is more important. 20
D’Aveni provides tools and methods, as well as a philosophy for managing under conditions of hypercompetition, arguing that strategic management is no longer about creating long-term competitive advantage, which is unsustainable, but is about continually changing the patterns of markets, seeking temporary advantages, and maintaining the momentum of change.
The new McKinsey approach relates the levels of uncertainty to a new industry model developed on the foundation of Porter’s approach. Like the Ansoff concept, it suggests different approaches to strategic thinking which are contingent on the degree of uncertainty about the future. They distinguish four levels. At level 1 it is possible to develop a usable prediction of the future through analysis: at level 2 analysis enables different scenarios to be made, although there is uncertainty over which will happen. By level 3 there is a condition of continuous uncertainty, where the outcome is likely to lie upon a continuum rather than a couple of discrete scenarios. Level 4 is a condition of great ambiguity.
It has three dimensions: the structure/conduct of the industry, the basis of competition, and the external forces which affect the industry. They believe that the new model gives a more appropriate insight into what is important in making strategy, and that the process by which strategy is made should change with the level of uncertainty. They argue that traditionally, strategic management has meant little more than staying the course. Today, however, it means actively managing the way in which strategy unfolds, month after month, year after year. That might entail drawing up contingent road maps in which reaching specific milestones will clarify the right strategy: it might equally mean recognising that strategy will have to evolve as industry conditions alter.21
It can be concluded that the current approach to public management and strategic planning corresponds to the classical methodologies with all the ensuing opportunities and risks. Thus, formation of specific long-term guidelines becomes possible and essential, descending on all levels of government; the creation of regional, sectoral or functional strategies, which are in fact a guide to action at every stage of the implementation of forecasting and defining the guidelines for state and municipal programs and plans for their implementation.
Goal - setting
In general goal setting process may be divided into the following stages:
Strategy elaboration
Startegic programming/projecting
Goals realization (project management)
According to Henry Mintzberg ‘strategic planning should really have been labelled strategic programming, since it is a means to programme the consequences of strategies already created in other ways, notably through the vision of a leader or the learning of people who take actions’.22
Put differently, in the absence of strategy, there is no reason to engage in formalized strategic planning. It will not generate strategies; at best, it will extrapolate strategies from the past or copy them from other organizations. But given viable, stable strategies, the role of planning becomes to programme them, that is, to implement rather than formulate them.
‘In more formal language, strategic programming involves three steps: codification, elaboration, and conversion of strategies. Codification means clarifying and expressing the strategies in terms sufficiently clear to render them formally operational, so that their consequences can be worked out in detail. In the words of Hafsi and Thomas, planning makes ‘all the implicit assumptions . . . explicit’, considers the ‘major hurdles’, makes sure that ‘everything is taken into account’ and that the inconsistencies and incoherences are uncovered and eliminated. Planning thus brings order to strategy, putting it into a form suitable for articulation to others in the organization’. 22
‘Elaboration means decomposing the codified strategies into substrategies, ad hoc programmes of various kinds, and overall action plans – specification of what has to be done to realize each strategy as intended. And conversion means considering the effects of the strategic (programmatic) changes on the operations of the organization. Here a kind of ‘great divide’ has to be crossed, from the ad hoc world of strategies and programmes to the routine world of budgets and objectives. Objectives have to be restated and budgets reworked, and policies and standard operating procedures reconsidered, to take into account the consequences of the specific changes in action. How this is done, at least in any formalized and articulated way, remains a matter of management practice and intuition, probably one of the more important points of how effective organizations really function. But some do get it right, even if many do not. One point must be emphasized here. Strategic programming is not a ‘one best way’, or even a good way, except under specific circumstances. It makes sense when viable intended strategies are available, in other words when the world is expected to hold still or change predictably while these strategies can unfold, so that formulation can logically precede implementation’.23
Moreover, it should be noted that along with the regular strategy update cycle there is a need to establish a rapid response to new challenges with the assessment of their possible impact on an adopted strategy or its parts.
The principle of institutional separation of strategically oriented activities
Ansoff identified four standard types of organisational decisions as related to strategy, policy, programmes, and standard operating procedures. The last three of these, he argued, are designed to resolve recurring problems or issues and, once formulated, do not require an original decision each time.
This means that the decision process can easily be delegated. Strategy decisions are different, however, because they always apply to new situations and so need to be made anew every time.
Ansoff developed a new classification of decision-making, partially based on Alfred Chandler's work, Strategy and Structure (Cambridge, Mass., MIT Press, 1962). This distinguished decisions as either: strategic (focused on the areas of products and markets); administrative (organisational and resource allocating), or operating (budgeting and directly managing).
Ansoff's reliance on planning suffered from three fallacies: that events can be predicted, that strategic thinking can be separated from operational management, and that hard data, analysis and techniques can produce novel strategies.
Initially, the function of corporate planning development in the external environment took the form of long range planning. However, intro-enterprise planning faced difficulties caused by the gap between corporate planning staff departments and operational units of a corporation with factories, sales offices, research laboratories and design offices, i.e., those who directly implement the plans. Planning staff divisions are costly, while effects of their activities are not that evident, especially from the very beginning.
The main difference between long-term (sometimes called corporate) and strategic planning is the interpretation of the future. Long-term planning objectives transform into programs of action, budgets and profit plans developed for each of the main departments of the company. Then programs and budgets are enforced by these units. In the system of strategic planning extrapolation is replaced by deployed strategic analysis, which connects vision and objectives together to develop a strategy.
It may happen that in some parts of the organization some managers have responsibility for that and for another activity, i.e. they are, according to P. Drucker, bear full responsibility for profits and losses. However, whenever the level of strategic activity is sufficiently high, it is advisable to install a dual system, due to which these managers could participate in both the current and strategic work. Such a system is shown in Picture 1.
Operational planning ensures today’s profit of and the strategic — the creation of the economic potential for the future. As shown in Picture 1, in a dual system goals, objects and strategies are used to create two action plans and two budgets, respectively. Goals related to making a profit at the moment, are transformed into current plans and future economic potential plans (or development plans).
The current plan includes a set of production programs and budgets that are developed for each business unit. Typically, these detailed programs and budgets are compiled for a year and with less detail – for 3-5 years.
Strategic plan includes projects that differ from the programs by four parameters: time interval, by time within the annual period, focusing on solving problems rather than work of the units. Unlike departments of the company, the projects have temporary basis, they are developed from time to time for specific purposes.
According to I. Ansoff experience has shown that the current system of control, which is used to guide the implementation of operational programs and budgets, is inefficient and even hostile to the system of management of strategic projects. It was actually one of the main reasons for discrediting the idea of strategic planning. So in a dual system managing outages and system control are separated.
As shown in the lower part Picture 1, this system perfectly suits for projects that are developed in the process of solving important strategic tasks.24
Picture 1. Dual system. Combination of strategic and operational planning