29
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March 2017
6 minutes

Top-down, bottom-up or countercurrent process?

Find out which planning direction best suits your company!

Which planning direction is the right one for a company depends decisively on the corporate culture. (Image: Ilyafs/shutterstock.com)

Basically, three alternative planning directions can be distinguished: top-down planning, bottom-up planning and planning using a countercurrent process. Which of these is best for a company depends primarily on the respective corporate culture. Relevant questions are whether the company is mainly centrally or decentrally organised, how much value is attached to staff participation and whether open communication and an ongoing exchange of information is practiced.

Top-down planning (retrograde planning)

With top-down planning, the plans are derived from above to below, i. e. the management level presents the general objectives and framework data, which are then specified in detail by each of the successive planning levels in turn for their areas of responsibility. This is a centralist approach, in which the plan data from the highest level of management are fixed for the departmental planning of the respective lower levels.

The advantages of this approach are clear. First, it makes rapid plan development possible, since time-consuming and laborious coordination work is largely unnecessary. Second, the strict top-down approach ensures a high level of consistency of the plan objectives at all hierarchical levels. However, the drawbacks of the top-down planning approach should not be underestimated. Since the top management is often not familiar with the possibilities and problems of individual departments, there is a basic danger that their targets are unrealistic and consequently not achievable. This can lead to staff demotivation.

Bottom-up planning (progressive planning)

Bottom-up planning is the opposite of top-down planning. Planning starts at the lowest level of hierarchy and then moves step by step upwards, from below to above. Each level plans is objectives and measures and passes its partial plan up to the next level. There, partial plans are coordinated, controlled, integrated, supplemented and passed on again to the layer above that. The level of aggregation steadily increases. At the end of the process, the strategic plan for the entire company emerges.

An important advantage of this decentral approach is that it has a motivating effect on staff and encourages a sense of identification. They generally have access to all important information and are directly included in the planning, rather than "being planned" from above. A further decisive advantage of bottom-up planning is the increased chance that the plans can be achieved, since the knowledge of the staff at the levels where they will be implemented is utilised. The most important drawbacks of bottom-up planning, apart from the high costs for coordination and time, are the danger that the content of the individual partial plans conflict and the risk that the individual planning units set less ambitious goals or merely perpetuate them. This can in the end lead to the entrepreneurial objective level for the company as a whole not being achieved.

Countercurrent process

Countercurrent process is a combination of the other two planning directions, combining the advantages of each. Here, the top management first set the provisional overall objectives and framework data, without however going into detail. These guidelines assist the following level of the hierarchy in determining the direction. Their task is successively to derive from the overall objectives sub-objectives and partial plans for their respective areas of responsibility and to assess their feasibility and specify them in detail. In a subsequent bottom-up process, starting at the lowest hierarchical level, the plans are successively coordinated and merged. The planning process ends with the approval of the corporate objectives and plans by top management.

The countercurrent process ensures that the strategic objectives and measures are internally consistent, that they are ambitious but also achievable and that the staff can identify with them.

The need for communication and coordination between the central and decentral planning units is admittedly quite high, especially since the top-down/bottom-up loop often needs in practice to be followed several times before the final corporate plan is complete. For the central strategy department in particular, the amount of work is considerable. They need to make available and process the necessary information and data, to test the individual partial plans for their completeness, consistency, and plausibility and to ensure adherence to time and formal constraints. However, with corresponding special software, these challenges can be effortlessly met and the additional demands on time and staff effort can be drastically reduced.

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