Foundations of Planning Chapter -8 Foundations of Planning Copyright © 2004 Prentice Hall, Inc. All rights reserved.

What Is Planning? Planning A primary functional managerial activity that involves: Defining the organization’s goals Establishing an overall strategy for achieving those goals Developing a comprehensive set of plans to integrate and coordinate organizational work. Categories of planning Informal: not written down, short-term focus; specific to an organizational unit. Formal: written, specific, and long-term focus, involves shared goals for the organization. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Why Do Managers Plan? Purposes of Planning Provides direction – provides a clear sense of direction to the activities of the organization and to the job behavior of managers and others.. Reduces uncertainty – enables managers to look ahead, anticipate changes, consider the impact of change, and develop appropriate responses. Minimizes waste and redundancy – when work activities are coordinated around plans, inefficiencies become obvious and can be corrected or eliminated. Establishes the goals or standards for controlling – without planning, there would be no goals against which to measure or evaluate work effort. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Planning and Performance Although most studies have shown generally positive relationship between planning and performance, it cannot be said that organizations that formally plan always outperform those that don’t plan. Formal planning is associated with: Higher profits and returns on assets. Positive financial results. The quality of planning and implementation affects performance more than the extent of planning. The external environment can reduce the impact of planning on performance Formal planning must be used for several years before planning begins to affect performance.

GOALS AND PLANS Goals (also Objectives) Desired outcomes for individuals, groups, or entire organizations Provide direction and evaluation performance criteria Plans Documents that outline how goals are to be accomplished Describe how resources are to be allocated and establish activity schedules Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Types of Goals Financial Goals Are related to the expected financial performance of the organization. Strategic Goals Are related to all other areas of an organization’s performance other than financial- ex: to beat the competitor Stated Goals versus Real Goals Stated: official statements of what an organization says – and what it wants its stakeholders to believe – its goals are. Real: the goals that an organization actually pursues.

Levels of Goals – Goals hierarchy 1. Strategic goals are broadly defined targets set by top management. 2. Tactical goals are the targets usually set by middle management for specific departments or units. 3. Operational goals are those targets set by lower management that address specific, measurable outcomes required from the lower levels. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Types of Plans Copyright © 2004 Prentice Hall, Inc. All rights reserved. Exhibit 7.2

Types of Plans 1. Strategic plans are detailed action steps mapped out to reach strategic goals. a. Strategic plans are organizational wide and are developed by top management. b. The time horizon tends to be long 3 to 5 years or more. 2. Tactical plans are the means charted to support implementation of the strategic plan and achievement of tactical goals. a. Tactical plans tend to be more specific than strategic plans. b. Tactical plans are important to the success of strategic plans. c. The time horizon tends to be intermediate in range 1 to 3 years.

Types of Plans 3. Operational plans are the means devised to support implementation of tactical plans and achievement of operational goals. a. Operational plans spell out specifically what must be accomplished to achieve operational goals. b. The time horizon is relatively short-tem—usually less than 1 year as a maximum.

Types of Plans (cont’d) Long-Term Plans Plans with time frames extending beyond three years Short-Term Plans Plans with time frames on one year or less Specific Plans Plans that are clearly defined and leave no room for interpretation with clearly defined objectives Directional Plans Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Specific Versus Directional Plans Copyright © 2004 Prentice Hall, Inc. All rights reserved. Exhibit 7.3

Types of Plans (cont’d) Single-Use Plan A one-time plan specifically designed to meet the need of a unique situation- ex: business expansion Standing Plans Ongoing plans that provide guidance for activities performed repeatedly- rules, policies etc. Ex: employee recruitment, harassment law etc. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Approaches to Establishing Goals Traditional Goal Setting Broad goals are set at the top of the organization. Goals are then broken into subgoals for each organizational level. Assumes that top management knows best because they can see the “big picture.” Goals are intended to direct, guide, and constrain from above. Goals lose clarity and focus as lower-level managers attempt to interpret and define the goals for their areas of responsibility. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Traditional Objective Setting Copyright © 2004 Prentice Hall, Inc. All rights reserved. Exhibit 7.4

Approaches to Establishing Goals (cont’d) Management By Objectives (MBO) Specific performance goals are jointly determined by employees and managers. Progress toward accomplishing goals is periodically reviewed. Rewards are allocated on the basis of progress towards the goals. Key elements of MBO: Goal specificity, participative decision making, an explicit performance/evaluation period, feedback Studies have shown that MBO can increase employee performance and organizational productivity.

Contingency Factors in A Manager’s Planning Degree of environmental uncertainty Stable environment: specific plans Dynamic environment: specific but flexible plans Length of future commitments Plans should extend far enough to meet the commitments made when the plans were developed. Planning for too long or too short a time period is inefficient and ineffective. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Approaches to Planning In the traditional approach, planning is done entirely by top-level managers who are often assisted by a formal planning department A second approach: Involving organizational members in the process Plans are developed by members of organizational units at various levels and then coordinated with other units across the organization. Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Contemporary Issues in Planning Criticisms of Planning Planning may create rigidity. Plans cannot be developed for dynamic environments. Formal plans cannot replace intuition and creativity. Planning focuses managers’ attention on today’s competition not tomorrow’s survival. Formal planning reinforces today’s success, which may lead to tomorrow’s failure. Just planning is not enough Copyright © 2004 Prentice Hall, Inc. All rights reserved.

Contemporary Issues in Planning (cont’d) Effective Planning in Dynamic Environments Develop plans that are specific but flexible. Understand that planning is an ongoing process. Change plans when conditions warrant. Persistence in planning contributes to significant performance improvements. Flatten the organizational hierarchy to foster the development of planning skills at all organizational levels. Copyright © 2004 Prentice Hall, Inc. All rights reserved.