Chapter 7: Foundations of Planning
Planning is a primary managerial activity that involves:
a) Defining the organization’s goals / objectives
b) Establishing an overall strategy for achieving those goals
c) Developing plans for organizational work activities
Elements of Planning
Goals (Objectives) are desired outcomes for individuals, groups, or entire
organizations. It is set to provide direction and evaluation performance criteria.
Plans are documents that outline how goals are to be accomplished, where it
describes how resources are to be allocated and establish activity schedules.
Why Do Managers Plan? (Purposes of Planning):
• Provides direction
• Reduces uncertainty
• Minimizes waste and redundancy
• Sets the standards for controlling
Formal planning
• Specific goals covering a specific time period
• Written and shared with organizational members.
• 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.
Types of Goals
• Financial Goals are related to the expected internal financial
performance of the organization.
• Strategic Goals are related to the performance of the firm relative to
factors in its external environment (e.g., competitors).
• Stated Goals can be found in an organization’s charter, annual report,
or public relations announcements, or in public statements made by
managers. [N.B.: These broadly-worded official statements of the
organization (intended for public consumption) that may be irrelevant to
its real goals (what actually goes on in the organization)].
N.B.: If managers emphasize only one goal, other goals necessary for
long-term success are ignored.
SMART Objectives
Specific
Measurable
Attainable
Relevant
Time bound
Breadth:
A)StrategicPlans, which apply to the entire organization to position the organization in terms of its environment. It
covers extended periods of time.
B)Operational Plans, which specify the details of how the overall goals are to be achieved. It covers a short time
period.
Time Frame:
a)Long-Term Plans, which are plans with time frames extending beyond three years.
b)Short-Term Plans, which are plans with time frames of one year or less
Specificity:
1)DirectionalPlans, which are flexible plans that set out general guidelines and provide focus, yet allow discretion
in implementation.
2)Specific Plans, which are plans that are clearly defined and leave no room for interpretation.
Frequency of Use:
1)Single-Use Plan, which are a one-time plan specifically designed to meet the need of a unique situation
2)Standing Plans, which are ongoing plans that provide guidance for activities performed repeatedly
Approaches to Setting Goals:
1) Traditional Goal Setting
- Broad goals are set at the top of the organization, where it assumes that top management knows best because
they can see the “big picture”.
- Goals are then broken into sub-goals for each organizational level.
- 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.
Downside of Traditional Goal Setting:
Maintaining the Hierarchy of Goals
Means–Ends Chain
• Theintegrated network of goals that results from establishing a
clearly-defined hierarchy of organizational goals.
• Achievement of lower-level goals is the means by which to reach
higher-level goals (ends).
2) 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 involve goal specificity, participative decision making, an
explicit performance/evaluation period, feedback.
Steps in a Typical MBO Program
1. The organization’s overall objectives and strategies are formulated.
2. Major objectives are allocated among divisional and departmental units.
3. Unit managers collaboratively set specific objectives for their units with their
managers.
4. Specific objectives are collaboratively set with all department members.
5. Action plans, defining how objectives are to be achieved, are specified and agreed
upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and feedback is provided.
8. Successful achievement of objectives is reinforced by performance-based
rewards.
Does MBO Work? Reason for MBO Success
• Top management commitment and involvement.
Potential Problems with MBO Programs
• 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.
Well-Written Goals
• Written in terms of outcomes, • Challenging yet attainable
not actions Low goals do not motivate.
Focuses on the ends, not the High goals motivate if they
means. can be achieved.
• Measurable and quantifiable • Written down
Specifically defines how the Focuses, defines, and makes
outcome is to be measured goals visible.
and how much is expected.
• Communicated to all necessary
• Clear as to time frame organizational members
How long before measuring Puts everybody “on the same
accomplishment. page”.
Steps in Goal Setting:
1. Review the organization’s mission statement.
Do goals reflect the mission?
2. Evaluate available resources.
Are resources sufficient to accomplish the mission?
3. Determine goals individually or with others.
Are goals specific, measurable, and 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, resources, or goals?
Contingency Factors in Planning
1. Manager’s level in the organization
– Strategic plans at higher levels
– Operational plans at lower levels
2. Degree of environmental uncertainty
– Stable environment: specific plans
– Dynamic environment: specific but flexible plans
3. Length of future commitments
– Commitment Concept: current plans affecting future commitments
must be sufficiently long-term to meet those commitments.
Planning in the Hierarchy of Organizations
Approaches to Planning:
1. Establishing a formal planning department
– A group of planning specialists who help managers write organizational
plans.
– Planning is a function of management; it should never become the sole
responsibility of planners.
2. 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.
Contemporary Issues in Planning
Criticisms of Planning
• Planning may create rigidity.
• Plans cannot be developed for dynamic environments.
• Formal plans can’t 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 isn’t enough.
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 eventually pay off.
• Flatten the organizational hierarchy to foster the development of planning skills at
all organizational levels.
