Chapter 4: Planning

Planning is the core area of all the functions of management. It is the foundation upon which the other three areas should be build. Planning requires management to evaluate where the company is currently, and where it would like to be in the future. From there an appropriate course of action to attain the company's goals and objectives is determined and implemented.

The organizational plan that results from the planning process details the goals of the organization and the specific set of strategies that managers will implement to attain those goals. Thus, planning is both a goal-making and a strategy-making process.

Planning is necessary to give the organization a sense of direction and purpose. A plan states what goals an organization is trying to achieve and what strategies it intends to use to achieve them.

Planning is a useful way in getting managers to participate in decision making about the appropriate goals and strategies for an organization. Effective planning gives all managers the opportunity to participate in decision-making.

A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state. Without a well-thought-out plan, for example, it is possible that the members of the manufacturing function will produce more products than the members of the sale function can sell.

A plan can be used as a device for controlling managers within an organization. A good plan specifies not only which goals and strategies the organization is committed to but also who bears the responsibility for putting the strategies into action to attain the goals.

Operational Plans: An operational plan is one that a manager uses to accomplish his or her job responsibilities. Operational plans can be a single-use plan or an ongoing plan.

Single-use plans apply to activities that do not recur or repeat.

Continuing or ongoing plans are usually made once and retain their value over a period of years while undergoing periodic revisions and updates.

Tactical Plans: A tactical plan is concerned with what the lower level units within each division must do, how they must do it, and who is in charge at each level. Tactics are the means needed to activate a strategy and make it work.

Tactical plans are concerned with shorter time frames and narrower scopes than are strategic plans. 

Strategic Plans: A strategic plan is an outline of steps designed with the goals of the entire organization as a whole in mind, rather than with the goals of specific divisions or departments. Strategic planning begins with an organization's mission.

Contingency Plans: Contingency planning involves identifying alternative courses of action that can be implemented if and when the original plan proves inadequate because of changing circumstances.

Management by Objectives (MBO): A goal-setting process in which a manager and each of his or her subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate the extent to which the subordinate is achieving those goals.

Management by objectives involves three specific steps:

Step 1: Specific goals and objectives are established at each level of the organization.

Step 2: Managers and their subordinates together determine the subordinates’ goals.

Step 3: Managers and their subordinates periodically review the subordinates’ progress toward meeting goals.

Step 1: MBO starts with when top managers establish overall organizational objectives such as specific financial performance goals or targets. Then objectives setting cascades down throughout the organization as managers at the divisional and functional levels set their goals to achieve corporate objectives. Finally, first-level managers and employees jointly set goals that will contribute to achieving functional objectives.

Step 2: Managers at every level sit down with each of the subordinate managers who report directly to them, and together they determine appropriate and feasible goals for the subordinate and bargain over the budget that the subordinate will need to achieve his or her goals. The participation of subordinates in the objective-setting process is a way of strengthening their commitment to achieving their goals and meeting their budgets.

Step 3: Once specific objectives have been agreed on for managers at each level, managers are accountable for meeting those objectives. Periodically, they sit down with their subordinates to evaluate their progress.

A strategic management analogy is taking a trip during your vacation. First you decide where you want to go – the natural beauty of Yellowstone or the bright lights of Las Vegas. Then you develop a strategy of how to get there – take an airplane (which flights), drive your car (which highways), etc. This will be influenced by the amount of money, time and other resources you have available. Then you monitor your trip to see if your strategy takes you to your destination and how your strategy worked (missed flights, poor road conditions, etc.).

Mission: A company’s mission is its reason of being. The mission often is expressed in the form of a mission statement, which conveys a sense of purpose to employees and projects a company image to customers.

Objectives: Objectives are concrete goals that the organization seeks to reach. Objectives should be challenging but achievable. They also should be measurable so that the company can monitor its progress and make corrections as needed.

Situation Analysis: Once the firm has specifies its objectives, it begins with its current situation to devise a strategic plan to reach those objectives. An external environmental scan is performed to identify the available opportunities. There is also an internal analysis which considers the situation within the firm itself like culture, structure, staff, resources etc.

Strategy Formulation: Once a clear image of the firm and its environment is in hand, specific strategic alternatives can be developed.

Implementation: The strategy will be implemented and translated into specific policies for functional areas such as marketing, research and development, human resources, information systems etc.

Control: Once implemented, the results of the strategy need to be measured and evaluated, with changes made as required to keep the plan on track. Standards of performance are set, the actual performance measured, and appropriate action taken to ensure success.