CHAPTER 7: FOUNDATIONS OF PLANNING

Planning- a primary managerial activity that involves:

• Defining the organization’s goals
• Establishing an overall strategy for achieving those goals
• Developing plans for organizational work activities.
Types 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.
Why do Managers Plan?
Purposes of Planning
• Provides direction • Minimizes waste and redundancy
• Reduces uncertainty • Sets the standards for controlling
Planning and Performance
• The Relationship Between Planning And
Performance
➢ 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.
How Do Managers Plan?
o Elements of Planning
• 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
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 versus Real Goals
-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).

Types of Plans
• Strategic Plans
-Apply to the entire organization.
-Establish the organization’s overall goals.
-Seek to position the organization 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.
• 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
• Directional Plans
-Flexible plans that set out general guidelines, provide focus, yet
allow discretion in implementation.
• 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
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.
*The downside of Traditional Goal Setting

• Maintaining the Hierarchy of Goals

o Means–Ends Chain
- The integrated 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).
• Management By Objectives (MBO)
o Specific performance goals are jointly determined by employees and managers.
o Progress toward accomplishing goals is periodically reviewed.
o Rewards are allocated on the basis of progress towards the goals.
o Key elements of MBO:
- 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.
Characteristics of Well-Designed Goals
1. Written in terms of outcomes, not 4. Challenging yet attainable
actions - Low goals do not motivate.
-Focuses on the ends, not the means. -High goals motivate if they can be
2. Measurable and quantifiable achieved.
- Specifically defines how the 5. Written down
outcome is to be measured and how - Focuses, defines, and makes goals
much is expected. visible.
3. Clear as to time frame 6. Communicated to all necessary
- How long before measuring organizational members
accomplishment. - Puts everybody “on the same
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?

Developing Plans
• Contingency Factors in A Manager’s Planning
a. Manager’s level in the organization
-Strategic plans at higher levels
-Operational plans at lower levels
b. Degree of environmental uncertainty
-Stable environment: specific plans
-Dynamic environment: specific but flexible
plans
c. 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
• 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.
 • 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 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.

• 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.
Terms
• Planning - a primary managerial activity • Directional plans - flexible plans that set out
• Goals - desired outcomes for individuals, general guidelines, provide focus, yet allow
groups, or entire organizations, provide discretion in implementation.
direction and evaluation performance • Single-use plan - a one-time plan
criteria specifically designed to meet the
• Plans - documents that outline how goals are need of a unique situation.
to be accomplished, describe how resources • Standing plans - ongoing plans that provide
are to be allocated and establish activity guidance for activities performed repeatedly
schedules • Traditional goal setting
• Stated Goals versus Real Goals - broadly- • Means-ends chain - the integrated network
worded official statements of the of goals that results from establishing a
organization (intended for public clearly-defined hierarchy of organizational
consumption) that may be irrelevant to its goals, achievement of lower-level goals is
real goals (what actually goes on in the the means by which to reach higher-level
organization). goals (ends).
• Framing • Management by objectives (MBO)
• Strategic plans -Specific performance goals are jointly
-Apply to the entire organization. determined by employees and managers.
-Establish the organization’s overall goals. -Progress toward accomplishing goals is
-Seek to position the organization in terms periodically reviewed.
of its environment. -Rewards are allocated on the basis of
-Cover extended periods of time. progress
• Operational plans - Specify the details of • Mission
how the overall goals are to be • Commitment concept - current plans
achieved, cover short time period. affecting future commitments must be
• Long-term plans - plans with time frames sufficiently long-term to meet those
extending beyond three years commitments
• Short-term plans - plans with time frames on • Formal planning - written, specific, and
one year or less long-term focus, involves shared goals for
• Specific plans - plans that are clearly the organization.
defined and leave no room for interpretation