Copyright Atomic Dog Publishing, 2003 Elements of Planning Chapter 5

Copyright Atomic Dog Publishing, /43 Planning—First Step in Management Process  Planning is one tool management needs to adapt to change  Every manager plans  Formal planning vs. informal planning  Planning attempts to define the organization  Planning includes all activities that lead to the definition of objectives and to the determination of appropriate courses of action

Copyright Atomic Dog Publishing, /43 Benefits of Planning  Forces managers to think ahead  Leads to the development of performance standards  Forces management to articulate clear objectives  Enables an organization to be better prepared for sudden developments

Copyright Atomic Dog Publishing, /43 Factors in Understanding the Need for Planning  Increasing time spans between present decisions and future results  Increasing organization complexity  Increasing external change

Copyright Atomic Dog Publishing, /43 Types of Planning  Planning activity differs in scope, time frame, and level of detail  Research has shown that organizational effectiveness declines for companies that don’t integrate (to some extent) the various types of planning  3 types of planning are:  Strategic Planning  Operational Planning  Tactical Planning

Copyright Atomic Dog Publishing, /43 Strategic Planning  Comprehensive, long term, and relatively general  Focuses on the broad, enduring issues for ensuring a firm’s effectiveness over a long period of time  Necessary in order to create the organization’s mission and a set of goals

Copyright Atomic Dog Publishing, /43 Operational Planning  Focused, short term, and specific  Translates the broad concepts of the strategic plan into clear numbers, specific steps, and measurable objectives for the short term  Requires efficient, cost-effective application of resources to solving problems and meeting objectives

Copyright Atomic Dog Publishing, /43 Tactical Planning  Falls on the continuum between the strategic and operational planning processes  Is more specific than strategic planning  Deals more with issues of efficiency than with long-term effectiveness

Copyright Atomic Dog Publishing, /43 Deciding on What Plan to Use  Type of planning managers engage in is determined by the type of goals and/or objectives to be achieved by the plan  Higher management levels deal with plans with longer time frames, greater scope, and less detail than lower-level managers  Participation usually doesn’t work in reverse; however, it would be highly unusual for a company executive to be involved in short- range tactical planning

Copyright Atomic Dog Publishing, /43 What Plan to Use (cont.)  Single Use Plans  Have clear time frame for their usefulness  Include detailed goals and objectives concerning quality, primary markets, roll out schedule, etc.  Standing Plans  Ongoing meaning and applications for an organization

Copyright Atomic Dog Publishing, /43 The Elements of Planning  Objectives  Conditions of the future that the planner deems satisfactory  Actions  Means to achieve the objectives  Resources  Constraints on the courses of actions  Implementation  Assignments and direction of personnel to achieve the plan

Copyright Atomic Dog Publishing, 2003 Objectives

Copyright Atomic Dog Publishing, /43 Establishing Objectives  Establishing objectives begins with the determination of future objectives, which must satisfy expectations of the organization’s environment  Corporate management has turned more and more to formal planning techniques  Organizations that use formal approaches to planning are more profitable than those that do not  Establishing objectives means to determine the priority and timing of objectives, resolve conflict between objectives, and provide measurement of objectives so results can be evaluated

Copyright Atomic Dog Publishing, /43 Priority of Objectives  At a given time, accomplishing one objective is more important than accomplishing any of the others  Prioritization reflects the relative importance of certain objectives, regardless of time  Balanced scorecard approach provides a balanced picture of current operating performance as well as drivers of future performance

Copyright Atomic Dog Publishing, /43 Time Frame of Objectives  Develop different plans for different periods of time  Definitions of long-run and short-run plans vary widely  Examples of long-run plans:  Aircraft or automobile business—5+ years  Women’s fashion business—1 or 2 years  Children’s toy business—1 selling season  The organization’s product, technology, and market will dictate what long-term and short- term plans are

Copyright Atomic Dog Publishing, /43 Conflicts Among Objectives  Include and integrate all groups’ interests into corporate plans, e.g., stockholders (owners), employees (including unions), customers, suppliers, creditors, and governmental agencies  Most common planning trade-offs faced by managers:  Short-term profits vs. long-term growth  Profit margin vs. competitive position  Direct sales effort vs. development effort  Greater penetration of present markets vs. developing new markets  Achieving long-term growth through related businesses vs. unrelated businesses

Copyright Atomic Dog Publishing, /43 Conflicts Among Objectives (cont.)  Present and potential customers hold ultimate power over the firm  Suppliers hold power over firms, too. They can disrupt the flow of materials to express disagreement with the firm’s activities  Government agencies have the power to enforce the firm’s compliance with regulations  More successful firms consistently emphasize profit- seeking activities that maximize the stockholders’ wealth

Copyright Atomic Dog Publishing, /43 Measurement of Objectives  Well-managed business organizations have at least five categories of objectives:  Profitability  Competitiveness  Efficiency  Flexibility  Quality

Copyright Atomic Dog Publishing, /43 Profitability  The most important objective  Return on investment—net profit divided by the capital invested in the organization or some similar measure  Earnings provide the return on investment— the reason that shareholders are willing to supply capital

Copyright Atomic Dog Publishing, /43 Competitiveness  It focuses on prospects for long-term profitability  It measures the competitive strength of the organization  Competitiveness depends on a number of factors, including:  Customer values  Shareholder values  The ability to act and react within a competitive environment

Copyright Atomic Dog Publishing, /43 Efficiency  Organization must maintain certain types of short-run efficiencies to bring about the prospect of long-run profitability  Measures of efficiency reflect how well the organization’s resources are employed  Efficiency directly influences performance and involves both the human and nonhuman resources of the organization

Copyright Atomic Dog Publishing, /43 Efficiency (cont.)  Quality of management  Succession of management  Depth of critical personnel  Employee turnover  Age and condition of the plant and equipment  Teamwork  Factors of efficiency:

Copyright Atomic Dog Publishing, /43 Flexibility  Continually develop new strategies, adapt to new market realities, and then shift all aspects of the organization so that they are congruent with the new strategies  Flexible organizations use their structure as a source of competitive advantage

Copyright Atomic Dog Publishing, /43 Quality  Experts have specified fundamental principles or guides for quality management  Deming prepared the list of 14 Points of Quality  Drucker, Deming, Crosby, Juran, and others offer a mix of goals and procedures that provide managers with guidance for planning  Dimensions of corporate objectives are profit, market share, and return on assets

Copyright Atomic Dog Publishing, /43 Quality (cont.)  Proactive, quality-based planning involves setting objectives that add value by exceeding mandated standards or even setting standards of quality where none had previously existed  Objectives need to emphasize quality over quantity

Copyright Atomic Dog Publishing, /43 Quality (cont.)  Garvin identified 6 planning values that are the basis of a quality-based system:  Performance  Features  Reliability  Conformance  Aesthetics  Perceived quality (customer perception)

Copyright Atomic Dog Publishing, /43 Quality (cont.)  Establish planning values that are responsive to both the internal and external environments of the organization  Internal—people, processes, and practices  External—customer satisfaction  Drucker developed a set of 8 planning objectives that managers must keep in mind

Copyright Atomic Dog Publishing, 2003 Actions

Copyright Atomic Dog Publishing, /43 Actions are...  Specific, prescribed means to achieve objectives  Determinates of the success or failure in meeting objectives  Directed toward changing a future condition—that is, achieving an objective  Causally related to objectives, i.e., the objectives are caused to occur by the courses of action

Copyright Atomic Dog Publishing, /43 Forecasting  Forecasting is the process of using past and current information to predict future events  Forecasting models range from the subjective to the sophisticated:  Hunches  Market surveys  Time-series analysis  Econometric forecasting

Copyright Atomic Dog Publishing, 2003 Resources

Copyright Atomic Dog Publishing, /43 Resources are...  Defined as the financial, physical, human, time or other assets of an organization  Usually controlled by use of a budget—a predetermined amount of resources linked to an activity  Compared with the budgeted (planned) results, which may lead to corrective action, as is the management function of controlling

Copyright Atomic Dog Publishing, 2003 Implementation

Copyright Atomic Dog Publishing, /43 Implementation of Plans  Planning won’t help an organization realize objectives if plans cannot be implemented  Manager must implement plans through other people, motivating them to accept and carry out the plan  Means of implementing plans:  Authority  Persuasion  Policy

Copyright Atomic Dog Publishing, /43 Authority is...  A legitimate form of power, in the sense that it accompanies the position not the person  The right to make decisions and to expect compliance to the implications of these decisions

Copyright Atomic Dog Publishing, /43 Persuasion is...  A process of selling a plan to those who must implement it, i.e., communicating relevant information so individuals understand all implications  Convincing others to base acceptance of the plan upon its merits rather than upon the authority of the managers

Copyright Atomic Dog Publishing, /43 Policy  Policy encompasses written statements that reflect the basic objectives of the plan and provide guidelines for selecting actions to achieve the objectives  Effective policies have these characteristics:  Flexible  Comprehensive  Coordination  Ethics  Clarity  Ultimate test of the effectiveness of a policy is whether the objective is attained

Copyright Atomic Dog Publishing, /43 Policy (cont.)  If the policy does not lead to the objective, the policy should be revised  Managers must provide information that reports actual performance and permits comparison of the performance against standards

Copyright Atomic Dog Publishing, /43 Time-Based Planning  Speed can often determine the success or failure of a plan’s implementation  Important period between the time a product is first considered and the time it is sold to the customer is called concept to customer  Speed in planning and delivering a product or service can be a strategic competitive advantage  Paying attention to time usually forces the firm to look at other issues affecting products’ and services’ quality, e.g., designing, staffing, and inspecting

Copyright Atomic Dog Publishing, /43 Time-Based Planning (cont.)  Paying attention to production speed can lead to reductions in idle periods  Pace of innovation varies by industry  Important variations exist in the pace of innovation within industries  By eliminating the time when a product or process lies idle, speed is added to the planning process. Much improvement stems from simply not wasting time

Copyright Atomic Dog Publishing, 2003 Final Thoughts on Planning

Copyright Atomic Dog Publishing, /43 In Summary  Planning, a fundamental activity of managers, can cover any time span from the short run to the long run  Planning is the essence of management; all other managerial functions stem from planning  Managers begin the planning process by asking the appropriate questions  Fundamental questions are appropriate regardless of the type and size of the organization

Copyright Atomic Dog Publishing, 2003 End of Chapter 5