Management Services: A Magazine of Planning, Systems, and

Controls

Volume 1 Number 1 Article 6

3-1964

Framework for Analysis

Robert N. Anthony

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Anthony, Robert N. (1964) "Framework for Analysis," Management Services: A Magazine of Planning,
Systems, and Controls: Vol. 1: No. 1, Article 6.
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 Anthony: Framework for Analysis

“Planning and control systems" is usually used

as a generic term. However, this article points out
that there are many different planning and control
processes in business, and suggests a classification
of which can serve as a . . .

FRAMEWORK
FOR
ANALYSIS

by Robert N. Anthony
Harvard Graduate School of Business Administration

ince dogsand humans are both whole planning and control proc and we expose this one primarily
S mammals, some generalizations
that apply to one species also ap
ess in a however, there
actually are several quite different
in the hope that discussion of it
will lead to agreement on some
ply to the other. It for this reason types of planning and control proc scheme, not necessarily this.
that new surgical techniques ­ mistakes may be made if
esses, and In this article, we shall focus on a
can be tested on dogs before being a generalization (principle, rule, process labeled management con
risked on humans. But dogs and technique) valid for one type is trol. We shall describe its main
humans differ, unless these applied to the other. characteristics, and distinguish it
differences are recognized, gener The purpose of this article is to from processes labeled
alizations that are valid for one suggest a classification of the main planning and technical control.
species may be erroneously applied topics or "species” that come within (Two other processes, financial
to the other. For example, canine the broad term, Planning and Con counting and information
behavior can be largely explained trol Systems, and to suggest dis are also relevant, but space does
in terms of conditioned reflexes, tinguishing characteristics of each. not permit a discussion of them
but human behavior is much more Hopefully, this will lead to a sort here.)
complicated. Similarly, some gen ing out and sharpening of prin Obviously, we do not assert that
eralizations can be made about the ciples and techniques applicable these processes can be separated by
to each species. sharply defined boundaries; one
The particular classification shades into another. Strategic plan
This article based on research done
for the Division of Research at the Har chosen has been arrived at after ning sets the guidelines for man
vard Business School and financed by careful analysis of how well various agement control, and management
The Associates of the Harvard Business alternatives match statements made control sets the guidelines for tech
School. Both the professional and in the literature more impor nical control. The complete man
cial aspects of this support are gratefully
tant, what is found in practice. It agement function involves an inte
acknowledged. An expanded treatment of
the subject is planned for publication by is, however, tentative. Better gration of all these processes, and
the of Research. schemes may well be developed, the processes are complementary.

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 Management Services: A Magazine of Planning, Systems, and Controls, Vol. 1 [1964], No. 1, Art. 6

Psychological considerations are dominant in management control . . .

We do assert that the processes of a division, and at the same time reject and spoilage rates are also
are sufficiently distinct so that those lessens the profits of the company important parts of the system.)
who design and use planning and as a whole, there is something The management control process
control systems will make expensive wrong. Technically, this purpose tends to be rhythmic; it follows a
errors if they fail to take into ac can be described as goal congru definite pattern and timetable,
count both the common character ence. month after month and year after
istics of a process and the differ year. In budgetary control, which is
ences between processes. This an important part of the manage
“Total” system necessary
article will deal with these similar ment control process, certain steps
ities and differences and point out Psychological considerations are taken in a prescribed sequence
some of the errors that are made dominant in management control. and at certain dates each year: the
when they not recognized. Activities such as communicating, dissemination of guidelines,
persuading, exhorting, inspiring, preparation of original estimates,
and criticizing are an important transmission of these estimates
Management control
part of the process. up through the several echelons in
Management control is the proc Ordinarily, a management control organization, the review of these
ess of assuring that resources are system is a total system in sense estimates, final approval by top
obtained and used effectively and that" it embraces all aspects
­­ of management, dissemination back
system
"the
ently
the in the accomplishment
those the are
man­ ­­­
these
the
control ­
company ’s operation. It needs to be through organization, operation,
arethe organizations objectives. ­
of
the
are a total system because an important reporting, and the appraisal of per
Management control is a process management function is to assure formance. The procedure to be fol
carried on within the framework that all parts of the operation are in lowed at each step in this process,
established by strategic planning. balance with one another, and, in the dates when the steps are to be
Objectives, facilities, organization, order to examine balance, manage completed, and even the forms that
and financial factors are more or ment needs information about each to be used can be, and often
less accepted as “givens.” Decisions of the parts. are, set forth in a manual.
about next year’s budget, for ex With rare exceptions, the man
ample, are limited by policies and agement control system is built
Interlocking subsystems
guidelines prescribed by top around a financial structure; that is,
agement. The management resources and outputs are expressed A management control system is,
process is intended to make pos in monetary units. Money is the or should be, a co-ordinated, inte
sible the achievement of planned only common denominator by grated system: that is, although data
objectives as effectively and effi means of which the heterogeneous collected for one purpose may dif
ciently as possible within elements of output and resources fer from collected for another
givens. (e.g., hours of labor; type of labor; purpose, these data should be rec
The purpose of a management quantity and quality of material; oncilable with one another. In a
control is to encourage man amount and kind of products pro sense, management control sys
agers to take actions which in duced) can be combined and com tem is a single system, but it is per
the best interests of the company. pared. (Although the financial haps more accurate to think of it as
For example, if the system is struc structure is usually the central fo a set of interlocking subsystems. In
tured so that a certain course of cus, nonmonetary measures such many organizations, for example,
action increases the reported profits as time, number of persons, and three types of cost information are

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 Anthony:
needed forFramework
managementfor Analysis
control: (including policies as to manage
(1) costs by responsibility centers, ment control and other processes);
which used for planning and the acquisition and disposition of
controlling the activities of respon major facilities, divisions, or subsid
­ sible supervisors; (2) full program iaries; the markets to be served
costs, used for pricing and other and distribution channels for serv
operating decisions under normal ing them; the organization structure
circumstances; and (3) direct pro (as distinguished from individual
gram costs, used for pricing and personnel actions); research and
other operating decisions under development of new product lines
special circumstances, such as (as distinguished from modifica
when management wishes to utilize tions in existing products and prod
idle capacity. (“Program” is here uct changes within existing lines);
used for any activity in which the sources of new permanent capital;
organization engages. In industrial dividend policy; and so on. Strate
companies, programs consist of gic planning decisions affect
products or product lines, and physical, financial, and organiza
“product costs” can be substituted tional framework within which op
in the above statements.) erations are carried on.
Line managers are the focal
points in management control. They
Irregular in nature
are the persons whose judgments
are incorporated in the approved Briefly, here are some ways in
plans, and they the persons who which the strategic planning proc
must influence others and whose ess from the management
performance is measured. Staff control process.
people collect, summarize, and pre A strategic plan usually relates to
sent information that is useful in some part of the organization,
the process, and they make calcula rather than to the totality; the con
tions which translate management cept of a master planner who con
judgments into the format of the stantly keeps all parts of the organ
system. Such a staff may be large ization at some co-ordinated op
in numbers; indeed the control de timum is a nice concept but an
Strategy is used here in the usual partment is often the largest de unrealistic one. Life is too compli
sense of deciding on how to combine
partment in a company. However, cated for any human, or computer,
and employ resources . . .
the significant decisions are made to do this.
by the line manager, not by the Strategic planning is essentially
staff. irregular. Problems, opportunities,
and “bright ideas” do not arise ac
cording to some set timetable, and
Strategic planning
they have to be dealt with when
planning the process ever they happen to be perceived.
of deciding on changes in the ob The appropriate analytical tech
jectives of the organization, in the niques depend on the nature of
resources that are to be used in problem being analyzed, and no
attaining these objectives, and in over-all approach (such as a mathe
the policies that are to govern the matical model) has been developed
acquisition and use of these re that is of much help in analyzing
sources. all types of strategic problems. In
The word strategy is used here in deed, an overemphasis on a sys
its usual sense of deciding on how tematic approach is quite likely to
to combine and employ resources. stifle the essential element of cre
Thus, strategic planning is a process ativity. In strategic planning, man
having to do with the formulation agement works now on one prob
of long-range, strategic, policy-type lem, now on another, according to
plans that change the character or the needs and opportunities of the
direction of the organization. In an moment.
industrial company this includes The estimates used in strategic
planning that affects the objectives planning are intended to show the
of the company; policies of all types expected results of the plan. They

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is
 Management
are neutral and Services:
impersonal. By con A­Magazine of Planning, Systems, and Controls, EXHIBIT Vol.I 1 [1964], No. 1, Art. 6
trast, the management control proc SOME
ess, and the data used in it,
STRATEGIC PLANNING MANAGEMENT CONTROL
intended to influence managers to
Person primarily involved Staff and top management Line and top management
take actions that will lead to desired Small Large
Number of persons
results. Thus, in connection with Mental activity Creative; analytical Administrative; persuasive
management control, it appropri Variables Complex; much judgment Less complex
Time period Tends to be long Tends to be short
ate to discuss how “tight” an oper Irregular, no schedule Rhythmic; timetable
Periodicity
ating budget should be: Should the Procedures Unstructured; each Prescribed procedure,
goals be set so high that only an problem different regularly followed
Focus Tend to focus one All encompassing
outstanding manager can achieve aspect at a time
them, or should they be set so that Source of information Relies more on external Relies more internal
they are attainable by the average and future and historical
Product Intangible; precedent More tangible; action
manager? At what level does frus within precedent
setting
tration inhibit a manager’s best ef Communication problem Relatively simple Crucial and difficult
forts? Does an attainable budget Appraisal of soundness Extremely difficult Much less difficult

lead to complacency? And so on. In

strategic planning, the question to
be asked about the figures is sim
ply: Is this the most reasonable quires that steps be taken to inhibit spends in thinking about the future
estimate that can be made? communication. (Wide communi is taken from time that could other
Strategic planning relies heavily cation of the decisions that result wise be used in controlling current
on information, that is, on from strategic planning is obviously operations, so in this indirect way
data collected from outside the important, but this part of the strategic planning can hurt current
company, such market analyses, management control process.) performance. And, of course, the re
estimates of costs and other factors Strategic planning essentially verse also is true.
involved in building a plant in a applied economics, whereas man More directly, many actions that
new locality, technological devel agement control essentially ap are taken for long-run, strategic rea
opments, and so on. When data plied social psychology. sons make current profits smaller
from the normal information sys Both management control and than they otherwise would be. Re
tem are used, they usually must be strategic planning involve top man search and some advertising ex
recast to fit the needs of the prob agement, but middle management penditures are obvious examples.
lem being analyzed. For example, (i.e., operating management) typ The problem of striking the right
the current operating of a ically have a much more important balance between strategic and oper
plant that are collected for measur role in management control than ating considerations one of the
ing performance and for making they have in strategic planning. central problems in the whole man
pricing and other operating deci Middle managers usually are not agement process.
sions usually must be restructured major participants in the strategic
before they are useful in deciding planning process and sometimes
Consequences of confusion
whether to close down the plant. are not even aware of the fact that
a plan being considered. Many Following are statements illus
operating executives are by temper trating some of the consequences of
Communications are limited ament not very good at strategic failing to make a distinction be
Another characteristic of the rele planning. Also, the pressures of cur tween strategic planning and man
vant information is that much of it rent activities usually do not allow agement control.
is imprecise. The strategic planner them to devote the necessary time “We should set up a long-range
estimates what will happen, often to such work. Currently, there is a planning procedure and work out a
over a rather long time period. tendency in companies to set up systemized way of considering all
These estimates are likely to have a separate staffs which gather the our plans similar to the way we
high degree of uncertainty, and facts and make the analyses that construct next year’s budget.” (A
they must be treated accordingly. provide the background material long-range plan shows the esti
In the management control proc for strategic decisions. mated consequences over the next
ess, the communication of objec These and other differences be several years of strategic decisions
tives, policies, guidelines, decisions, tween management control and already taken. It part of the man
and results throughout the organi strategic planning are summarized agement control process. Although
zation is extremely important. In in Exhibit 1, above. it provides a useful background for
the strategic planning process, com Strategic planning and manage considering strategic proposals, it
munication is much simpler and ment control activities tend to con not strategic planning. Strategic
involves relatively few persons; in flict with one another in some re proposals should be made when
deed, the need for secrecy often re- spects. The time that management ever the opportunity or the need
CONTRASTS

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­ ­­
 Anthony: Framework for Analysis

PROCESS

is perceived in a form that best pre managers typically do not have the is to make judgments as to the
sents the arguments.) time, the inclination, or the analyt “right” amount of managed costs in
“The only relevant costs are in ical bent that required for form a given set of circumstances. These
cremental costs; pay no attention to ulating strategic plans. Further are, by definition, subjective judg
fixed or costs.” (This is so in more, such plans often must be ments.
strategic planning, but operating kept highly secret.) Management control applies to
managers are often motivated in the whole of an organization, and
the wrong direction if their deci to any parts of the whole in which
Technical control managed costs are
sions are based on incremental
costs; for example, in intracompany Technical control is the process of Technical control applies to those
transactions.) assuring the efficient acquisition activities, and only to those activi
“We may be selling Plant X some and use of resources, with respect ties, in which there are no signifi
day. We should therefore up the to activities for which the optimum cant elements of managed Or
operating reports so that manage relationship between outputs and more simply, in the management
ment will have at its fingertips the resources can be approximately de control process, management judg
information it will need when it is termined. ment is an important element; in
deciding this question. For ex The definition of technical control the technical control process, the
ample, we should show inventory refers to outputs and resources. technique itself is
and fixed assets at their current Outputs are the accomplishments As an example of technical con
market value.” (Operating reports of the organization, what it does, , consider inventory control. If
time, ­­
should be designed to assist in the and resources are the inputs which the demand for an item, the cost of
take ­
management of current operations. the organization consumes. For a storing it, its production cost and
Special compilations of data whole the outputs the production and the loss in
needed for such major, nonroutine goods and services sold, which volved in not filling an order are
actions as selling a plant. Collection measured by revenues earned, and known or can be reasonably esti
of such data routinely both too the inputs are costs and expenses mated, then the optimum inventory
expensive and likely to impede incurred. In rough terms, “output” level and the optimum production
operating decisions.) equals “results,” and “resources” schedule can both be calculated,
“Our ultimate goal is an all equals “cost.” and reasonable men will agree with
purpose control system—integrated One of the important tasks in an the results of these calculations.
data processing—so that manage organization is to seek the optimum In other than exceptional circum
ment will have all the data it needs relationship between outputs and stances, these calculations can de
for whatever problem it decides to resources. For some activities, this termine the actions that should be
tackle. We should collect data in optimum relationship is fairly easy n. Management intervention is­
elemental building blocks that can to establish: To manufacture a necessary only when these excep
be combined in various ways to given part should require such-and- tional circumstances arise.
answer all conceivable questions.” such labor, a certain sequence of
(This is an impossible goal. Each machine operations, and so on. For contrast,
Some areas can’t be measured
strategic proposal requires that the other activities, there exists no
data be assembled in the way that “scientific” (even in the loose sense By consider the legal
best fits the requirements of that of this term) way of establishing department of a company. No de
proposal. No one can foresee all the optimum relationship; for these vice can measure the quality, or
the possibilities. The “building activities, decisions as to what costs even the quantity, of the legal ser
block” idea is sound within limits, to incur depend on human judg vice that constitutes the output of
but the limits are not so broad that ment. this department. No formula can
all problems are encompassed.) The term “managed costs” is a show the amount of service that
“All levels of management should descriptive one for those types of should be rendered nor the opti
participate in planning.” (All levels resources for which an objective de mum amount of costs that should
of management should participate cision as to the optimum quantity be incurred. Impressions as to the
in the planning part of the manage to be employed cannot be made. “right” amount of service, as to the
ment control process, but operating An important management function “right” amount of cost, and as to

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­ are
 Management Services: A Magazine of Planning, Systems, and Controls, Vol. 1 [1964], No. 1, Art. 6

In the technical control process, the technique itself is dominant. . .

whether the relationship between technical control appropriate for tions, the application of the rules is
the service actually rendered and certain aspects of the work, such as automatic. The rules can in prin
the cost actually incurred was posting and check writing. ciple be programed into a com
“right” are strictly subjective. They Some people believe that the dis puter, and the choice between us
are judgmentsis made by manage tinction between the two classes of ing a computer and using a human
ment. If persons disagree on activities described above is merely being depends primarily on the rel
judgments, there is no objective one of degree rather than of kind; ative cost of each method.
way of resolving the disagreement. they say that all we are doing is In management control, psycho
Yet the legal department as a part distinguishing between situations logical considerations are domi
of the whole organization must be where control is “easy” and “diffi nant. The management control sys
controlled; the chief counsel must cult,” respectively. We think the tem at most assists those who take
operate within the framework of distinction is more fundamental action; it does not directly or by it
policies prescribed by top manage than that, and hope this will be ap self result in action without human
ment. The control exercised in this parent from the following brief list intervention. By contrast, the end
situation is management control. of characteristics that distinguish product of an inventory control sys
Examples of activities that can be management control from technical tem can be an order, or a decision
subjected to technical control are: control. to replenish a certain inventory
automated plants, such as cement Management control covers the item, and this order may be based
plants, oil refineries, and power whole of an organization. Each entirely on calculations from for
generating stations; the direct oper technical control procedure is re mulas incorporated in the system.
ations of most manufacturing plants stricted to a subunit, often a nar (The formulas were devised by hu
(but often not the overhead ex rowly circumscribed activity. man beings, but this is a manage
pense items); production schedul Just as management control oc ment control process, not a techni
ing; inventory control; the “order curs within a of policies derived cal control process.)
taking” type of selling activity; and strategic planning, so techni In a consideration of technical
order processing, premium billing, cal control occurs within a set of control, analogies with mechanical,
payroll accounting, check handling, well-defined procedures and rules electrical, and hydraulic systems
and similar paperwork activities. that are derived from management reasonable and useful, and such
Examples of activities for which control. terms as feedback, network balanc
management control is necessary Control is more difficult in man ing, optimization, and so on, are
are: the total activities of most agement control than in technical relevant. It is perfectly appropriate,
manufacturing plants, which in control because of the absence of a for example, to view a technical
clude such “judgment” inputs as in “scientific” standard with which control system as analogous to a
direct labor, employee benefit and actual performance can be com thermostat which turns the furnace
welfare programs, safety activities, pared. A good technical control on and off according to its percep
training, and supervision; most ad system can provide a much higher tion of changes in temperature.
vertising, sales promotion, pricing, degree of assurance that actions These analogies do not work well as
selling (as distinguished from order proceeding as desired than can for management control sys
taking) and similar marketing ac a management control system. tems, however, because the success
tivities; most aspects of finance; of management systems is highly
most aspects of research, develop dependent on their impact on
Rules can be programed
and design; the work of staff people, and people are not like
units of all types; and management A technical control system is a thermostats or furnaces; one can’t
activity itself. rational system; that is, the action light a under a human being
The control appropriate for the to be taken is decided by a of simply by turning up a thermostat.
whole of any unit which carries on logical rules. These rules may or A management control system is
both the technical and the manage may not cover all aspects of a given ordinarily focused on a financial
ment types of activities is manage problem. Situations not covered by structure, whereas technical control
ment control. The control of the the rules are designated as “excep data are often nonmonetary. They
whole accounting department is tions” and are resolved by human may be expressed in terms of man
management control even though. judgment. Other than these excep hours, number of items, pounds of

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waste, and so on. Since each tech­ Anthony:unimportant
relatively Framework for Analysis
part. The Following are statements illus
nical control procedure designed system can help motivate the man trating the consequences of failing
for a limited area of application, it ager to make decisions that are in to make a distinction between man
is feasible to use the basis of mea the best interests of the organiza agement control and technical con
surement that is most appropriate tion, and the system can provide : s ­­
for that area. ­ information that aids the manager “Computers will make middle ­­
in making these decisions; but management obsolete.” (Although
many other stimuli are involved in computers can replace human be
Approximations meet data needs motivating the manager, and good ings in technical control, they are
Data in a technical control sys information does not automatically not a substitute for the human
tem are in real time and relate to produce good The suc judgment that is an essential part
individual events, whereas data in a cess or failure of the management of the management control proc
management control are control process depends on the per ess.)
often retrospective and summarize sonal characteristics of the man “Business should develop a man
many separate events. Computer ager: his judgment, his knowledge, agement control system like the
specialists who do not make such a his ability to influence others. SAGE and SAC control systems
distinction, dream about a that work so well for the military.”
that will display to the manage (The military systems mentioned
Technique is all-important are technical control sytems. They
ment the current status of every in
dividual activity in the organiza In technical control, the system are not related to the management
tion. Although this could be done, itself a much more important control problem in the military, let
it should not be done; management part of the whole process. Except in alone that in business.)
doesn’t want such detail. Manage fully automated operations, it is an “The way to improve the man
ment does not need to know the exaggeration to say that the system agement control process is to de
time at which lot No. 1007 was is the process, but it is not much of velop better management decision
transferred from station 27 to sta an exaggeration. The technical con rules.” (This implies that mathe
tion 28; rather, it needs to know trol ordinarily states what matics, rather than human beings,
only that the process is, or is not, action should be taken; it makes is the essence of management con
proceeding as planned, and, if not, the decisions. As with any opera trol. )
where the trouble lies. tion, management vigilance is re “Transfer prices should be calcu
Similarly, technical control uses quired to detect an unforeseen lated centrally.” (This gives no
exact data, whereas management “foul-up” in the operation, or a recognition to negotiation and the
control needs only approximations. change in the conditions on which exercise of judgment by divisional
Material is ordered and scheduled the technique predicated. And managers.)
in specific quantities, employees management will be seeking ways “If you follow the planning and
paid the exact amount due them, to improve the technique. In gen control techniques described in this
but data on management control re eral, however, the degree of man book, your profits are a near pre
ports need contain only two or agement involvement in technical dictable certainty.” (This implies
three significant digits and are control is small, whereas in man that the technique, rather than the
therefore rounded to thousands of agement control it is large. quality of management, is the prin
dollars, to millions of dollars, or As new techniques are devel ciple determinant of success.)
even (in the S. Government) to oped, there is a tendency for more
billions of dollars. and more activities to become sus Summary
A technical control system re ceptible to technical control. In the
quires a mathematical model of the factory, the production schedule We have described several sub
operation. Although it may not al that was formerly set according to systems that come under the gen
ways be expressed explicitly in the foreman’s intuition now de eral heading, “planning and
mathematical notation, there is a rived by linear programing. And, systems.” Although related to one
decision rule which states that although not too long ago it was another, they have different pur
given certain values for parameters believed that technical control was poses and different characteristics;
a, b, . . . action X is to be taken. appropriate only for factory oper different ways of thinking about
Models are not so important in ations, we now see models and each of them are therefore required.
management control. In a sense, a formulas being used for certain Generalizations about the whole
budget or a PERT network marketing decisions, such as plan area are, if valid, so vague as not
models associated with the manage ning salesmen’s calls and planning to be useful. By contrast, useful
ment control process, but they direct mail advertising. This shift generalizations, principles, and
not the essence of the process. probably will continue; it is a large techniques can be developed for
The formal management control part of what people have in mind each of the subsystems. Mistakes
system only a part of the man when they “management is are made when those valid for one
agement control process, actually a becoming increasingly scientific.” subsystem are applied to another.

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