Ch 3 - Foundations of Planning 

Planning: is a primary managerial activity that involves:

• Defining the organisation’s goals

• Establishing an overall strategy for achieving those goals

• Developing plans for organisational work activities

Types of Planning:

• Informal: not written down, short-term focus, specific to an organisational unit

• Formal: written, specific, and long term focus, involved shared goals for the organisation

Purpose of Planning:

• Provides purpose

• Reduces uncertainty

• Minimises waste and redundancy

• Sets the standards for controlling

The Relationship Between Planning and Performance:

Formal planning can lead to higher profits and returns on assets and 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

Elements of Planning:

• Goals (or objectives): desired outcomes for individuals, groups, or entire organisations, 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

Types of Goals:

• Financial Goals: are related to the expected internal financial performance of the organisation

• Strategic Goals: related to the performance of the firm relative to factors in its external environment

• Stated goals Vs. Real goals: broadly-worded official statements of the organisation (intended for public consumption) that may be irrelevant to its real goals (what goes on in the organisation)

Types of Plans:

1- Breadth:

• Strategic Plans:

• Apply to the entire organisation

• Establish the organisation’s goals

• Seek to position the environment in terms of its environment

• Cover extended periods of time

• Operational Plans:

• Specify the details of how the overall goals are to be achieved

• Cover short time period

2-Time Frame:

• Long-Term Plans:

• Plans with time frames extending beyond three years

• Short-term Plans:

• Plans with time frames on one year or less

3- Specificity:

• Specific Plans:

• Plans that are clearly defined and leave no room for interpretation

• Directional Plans:

• Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation

4-Frequency of Use:

• Single-Use Plan:

• A one-time plan specifically designed to meet the need of a unique situation

• Standing Plans:

• Ongoing plans that provide guidance for activities performed repeatedly

Establishing Goals and Developing Plans:

Traditional Goal Setting:

• Broad goals are set at the top of the organisation

• Goals are broken into subgoals for each organisational level

• Assumes that top management knows best because they can see the “big picture”

• Goals lose clarity and focus on lower-level managers attempt to interpret the goals for their areas of responsibility

• Goals are intended to be direct

Disadvantages:

Maintaining the Hierarchy of Goals:

Means-end Chain:

• Network of goals that results from establishing a clearly defined hierarchy of organisational goals

• Achievement of lower-level goals is the means by which to reach higher-level goals (ends)

Management By Objectives (MBO):

• Specific performance are determined by employees and managers

• Progress towards 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

Does MBO Work:

MBO is successful as top management is committed and involved

Potential disadvantages with MBO:

• Not as effective in dynamic environments that require constant resetting of goals

• Overemphasis on individual accomplishment may create problems with teamwork

• Allowing the MBO program to become an annual paperwork shuffle

Characteristics of Well Designed Goals:

• Written in terms of outcomes, not actions (focuses on the ends, not the means)

• Measurable and quantifiable (specifically defines how the outcome is to measured and how much is expected

• Clear time frame (time estimate before measuring accomplishment)

• Challenging yet attainable (low goals do not motivate, high goals motivate if they can be achieved)

• Written down (focuses, defines, and makes goals visible)

• Communicated to all necessary organisational members (puts everybody on the same page)

Steps in Setting Goals:

1. Review the organisation’s mission statement (do goals reflect the mission)

2. Evaluate available resources (are resources sufficient?)

3. Determine goals individually or with others  (are goals specific/timely?)

4. Write down the goals and communicate them  (is everybody on the same page?)

5. Review results and whether goals are being met  (what changes are needed in mission/mission/goals?)

Developing Plans

Contingency Factors in a Manager’s Planning:

Manager’s level in the organisation:

• Strategic plans at higher levels

• Operational plans at lowers levels

Degree of environmental uncertainty

• Stable environment: specific plans

• Dynamic environment: specific but flexible plans

Length of future commitments

• Commitment concept: current plans affecting future commitments must be sufficiently long-term to meet those commitments

Approaches to Planning:

• Establishing a formal planning department

• Group of planning specialists who help managers write organisational plans

• Planning is a function of management (it should never become the sole responsibility of planners)

• Involving organisational members in the process

• Plans are developed by members of organisational units at various levels and then coordinated with other units across the organisation

Issues in Planning:

• Disadvantages:

• May create rigidity

• Plans cannot be developed for dynamic environments

• Does not replace intuition and creativity

• Focuses managers' attention on today’s competition not tomorrow’s survival

• Formal planning reinforces today’s success, which may lead to tomorrow's failure

Effective planning in Dynamic Environments

• Develop plans that are specific but flexible

• Understand that planning is a process

• Plans change depending on the conditions

• Flatten the organisational hierarchy to foster the development of planning skills at the organisational levels