Chapter 7 Foundations of Planning

Planning is one of the four functions of management. Planning involves defining the organizations goals, establishing an overall strategy for achieving these goals, and developing plans for organizational work activities. The term planning as used in this chapter refers to formal planning. Purposes of Planning Planning serves a number of significant purposes. 1. Planning gives direction to managers and non-managers of an organization. 2. Planning reduces uncertainty. 3. Planning minimizes waste and uncertainty. 4. Planning establishes goals or standards used in controlling. Planning and Performance Although organizations that use formal planning do not always outperform those that do not plan, most studies show positive relationships between planning and performance. Effective planning and implementation play a greater part in high performance than does the amount of planning done. Studies have shown that when formal planning has not led to higher performance, the external environment is often the reason. The Role of Goals and Plans in Planning Planning is often called the primary management function because it establishes the basis for all other functions. Planning involves two important elements: goals and plans. Goals (often called objectives) are desired outcomes for individuals, groups, or entire organizations. Purposes of Goals Provide guidance and a unified direction for people in the organization. A well develop plan always helps in developing a strong effect on the quality of other aspects of planning. Serving as a source of motivation for employees of the organization planning also provide an effective mechanism for evaluation and control of the organization. Types of goals a. Financial goals versus strategic goals - Financial goals related to the financial performance of the organization while - Strategic goals are related to other areas of an organizations performance. b. Stated goals versus real goals - Stated goals are official statements of what an organization says and what it wants its various stakeholders to believe its goals are. - Real goals are those that an organization actually pursues, as defined by the actions of its members.

Types of goals by level Mission statement is a statement of an organizations fundamental purpose. Strategic goals are goals set by and for top management of the organization that address broad, general issues. Tactical goals are set by and for middle managers; their focus is on how to operationalize actions to strategic goals. Operational goals are set by and for lower-level managers to address issues associated with tactical goals.

The Environmental Context

Strategic goals

Strategic plans

Tactical goals

Tactical plans

Operational goals

Operational plans

Types of Plans Plans can be described by their breadth, time frame, specificity, and frequency of use

On the basis of Breadth plans can be Strategic or operational plans. Strategic plans (long-term plans) are plans that apply to the entire organization, establish the organizations overall goals, and seek to position the organization in terms of its environment. Operational plans (short-term plans) are plans that specify the details of how the overall goals are to be achieved. On the basis of Time frame plans can be Short-term or long-term plans. Short term plans are plans that cover one year or less. Long-term plans are plans with a time frame beyond three years. On the basis of Specificity plans can be Specific or directional plans. Specific plans are plans that are clearly defined and leave no room for interpretation. Directional plans are flexible plans that set out general guidelines. On the basis of Frequency of use plans can be Single-use or standing plans. A single-use plan is a one-time plan specifically designed to meet the needs of a unique situation. Standing plans are ongoing plans that provide guidance for activities performed repeatedly.

Approaches to Establishing Goals Goals can be established through the process of traditional goal setting or through MBO (management by objectives). Traditional goal setting is an approach to setting goals in which goals are set at the top level of the organization and then broken into sub-goals for each level of the organization. Traditional goal setting assumes that top managers know what is best because of their ability to see the big picture. Employees are to work to meet the goals for their particular area of responsibility. This traditional approach requires that goals must be made more specific as they flow down to lower levels in the organization. In striving to achieve specificity, however, objectives sometimes lose clarity and unity with goals set at a higher level in the When the hierarchy of organizational goals is clearly defined, it forms an integrated means-end chain

an integrated network of goals in which the accomplishment of goals at one level serves as the means for achieving the goals, or ends, at the next level.
Management by objectives (MBO) is a process of setting mutually agreed-upon goals and using those goals to evaluate employee performance. Studies of actual MBO programs confirm that

MBO can increase employee performance and organizational productivity. However, top management commitment and involvement are important contributions to the success of an MBO program. The following steps are involved in a typical MBO program: The organizations overall objectives and strategies are formulated Major objectives are allocated among divisional and departmental units. Unit managers collaboratively set specific objectives for their units with their managers Specific objectives are collaboratively set with all department members Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employee The action plans are implemented Progress toward objectives is periodically reviewed, and feedback is provided Successful achievement of objectives is reinforced by performance based rewards

Whether an organization uses a more traditional approach to establishing objectives, uses some form of MBO, or has its own approach, managers must define objectives before they can effectively and efficiently complete other planning activities. Characteristics of Well-Designed Goals 1 Written in terms of outcomes 2. Measurable and quantifiable 3. Clear as to a time frame 4. Challenging, but attainable 5. Written down 6. Communicated to all organizational members Five Steps in Goals Setting 1. Review the organizations mission (the purpose of the organization). 2. Evaluate available resources. 3. Determine the goals individually or with input from others 4. Write down the goals and communicate them to all who need to know. 5. Review results and whether goals are being met. Make changes as needed. Developing Plans The process of developing plans is influenced by three contingency factors and by the particular planning approach used by the organization. Three Contingency Factors in Planning are; Managers level in the organization: Operational planning usually dominates the planning activities of lower-level managers. As managers move up through the levels of the organization, their planning becomes more strategy oriented. Degree of environmental uncertainty: The greater the environmental uncertainty, the more directional plans should be, with emphasis placed on the short term. When

uncertainty is high, plans should be specific, but flexible. Managers must be prepared to rework and amend plans, or even to abandon their plans if necessary. Length of future commitments: According to the commitment concept, plans should extend far enough to meet those commitments made today. Planning for too long or for too short a time period is inefficient and ineffective. Approaches to Planning In the traditional approach, planning was done entirely by top-level managers who were often assisted by a formal planning department. Another approach to planning is to involve more members of the organization in the planning process. In this approach, plans are not handed down from one level to the next, but are developed by organizational members at various levels to meet their specific needs. Criticisms of Planning Although planning is an important managerial function with widespread use, five major arguments have been directed against planning: Planning may create rigidity. Plans cant be developed for a dynamic environment. Formal plans cant replace intuition and creativity. Planning focuses managers attention on todays competition, not on tomorrows survival. Formal planning reinforces success, which may lead to failure. The external environment is constantly changing. Therefore managers should develop plans that are specific, but flexible. Managers must also recognize that planning is an ongoing process, and they should be willing to change directions if environmental conditions warrant. Flexibility is particularly important. Managers must remain alert to environmental changes that could impact the effective implementation of plans, and they must be prepared to make changes as needed.