What Is Planning?Planning

Managerial function that involves: Defining the organization’s goals Establishing an overall strategy for achieving

those goals Developing a comprehensive set of plans to

integrate and coordinate organizational workTypes 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

Purposes of Planning

Provides directionReduces uncertaintyMinimizes waste Sets the standards for controlling

Planning and PerformanceThe Relationship Between Planning and

PerformanceFormal planning is associated with:

Higher profits and returns on assets Other 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

How Do Managers Plan?Elements of Planning

Goals (also objectives) Desired outcomes for individuals, groups, or entire

organizations Provide direction and performance evaluation criteria

Plans Documents that outline how goals are to be

accomplished Describe how resources are to be allocated

Steps in Planning 1. Being Aware of Opportunities 2. Establishing Objectives or Goals3. Developing Premises 4: Determining Alternative Courses 5. Evaluating Alternative Courses 6. Selecting a Course 7. Formulating Derivative Plans8. Quantifying Plans by Budgeting

Types of Plans

Types of PlansBREADTH

Strategic PlansApply to the entire organizationEstablish the organization’s overall goalsSeek to position the organization in terms of its

environmentCover extended periods of time

Operational PlansSpecify the details of how the overall goals are to

be achievedCover short time period

Types of Plans (cont’d) TIME FRAME

Long-Term PlansTime frames extending beyond three years

Short-Term PlansTime frames of one year or less

SPECIFICITYSpecific Plans

Clearly defined and leave no room for interpretationDirectional Plans

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

Exhibit 3.4 Specific Vs. Directional Plans

Types of Plans (cont’d)FREQUENCY OF USE

Single-use PlanA one-time plan specifically designed to meet

the needs of a unique situationStanding Plans

Ongoing plans that provide guidance for activities performed repeatedly

Types of PlansPlans can be classified as (1) mission or purposes, (2) objectives or goals, (3) strategies, (4) policies, (5) procedures, (6) rules, (7) programs, and (8) budgets

Types of PlansThe mission, or purpose, identifies the basic

purpose or function or tasks of an enterprise or agency or any part of it

Objectives, or goals, are the ends toward which activity is aimed

Strategy is the determination of the basic long‑term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals

Policies are general statements or understandings that guide or channel thinking in decision making

Procedures are plans that establish a required method of handling future activities

Types of Plans – cont. Rules spell out specific required actions or

nonactions, allowing no discretionPrograms are a complex of goals, policies,

procedures, rules, task assignments, steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action

A budget is a statement of expected results expressed in numerical terms

Developing Plans

Contingency Factors in PlanningDegree of environmental uncertainty

Stable environment: specific plans Dynamic environment: specific but flexible

plansLength of future commitments

Current plans affecting future commitments must be sufficiently long-term to meet the commitments

Approaches to Establishing Goals

Traditional Goal SettingBroad goals are set at the top of the

organizationGoals are then broken into subgoals

for each organizational levelGoals are intended to direct, guide,

and constrain from above

Approaches to Establishing Goals (cont’d)

Management By Objectives (MBO)Specific performance goals are jointly

determined by employees and managersProgress toward accomplishing goals is

periodically reviewedRewards are allocated on the basis of

progress toward the goalsKey elements of MBO:

Goal specificity, participative decision making, an explicit performance/evaluation period, feedback

Steps in a Typical MBO Program

Specific objectivescollaboratively set

with employees

Objectives allocated todivisional and

departmental units

Action plansimplemented

Give Rewards forAchieved Objectives

Jointly Set Objectives

Overall objectivesand strategies of

organization

Develop Action Plansto Achieve Objectives

Managers andemployees work on

action plans together

Review Objectives andProvide Feedback

Does MBO Work?Reason for MBO Success

Top management commitment and involvement

Potential Problems with MBO ProgramsNot as effective in dynamic environments

that require constant resetting of goalsOveremphasis on individual

accomplishment may create problems with teamwork

Benefits of Management by Objectives

Clear goals: Motivate Improve managing through results-

oriented planning Clarify organizational roles, structures

and the delegation of authority Encourage personal commitment to

their own and organizational goals. Facilitate effective controlling,

measuring results, and leading to corrective actions

Failures of Management by ObjectivesList some failures and limitations of MBOWhat would you do to overcome the failures?

Criticisms of PlanningPlanning may create rigidityPlans cannot be developed for dynamic

environmentsFormal plans cannot replace intuition and

creativityPlanning focuses managers’ attention on

today’s competition, not tomorrow’s survivalFormal planning reinforces today’s success,

which may lead to tomorrow’s failure

Organizational StrategyStrategic Management

The set of managerial decisions and actions that determines the long-run performance of an organization

The Strategic Management Process

SWOT Analysis

Identify the

organization's

current mission, goals,

and strategies

Internal Analysis

• strengths

• weaknesses

External Analysis

• opportunities

• threats

Formulate

Strategies

Implement

Strategies

Evaluate

Results

Strategic Management ProcessStep 1: Identify the Organization’s Current

Mission, Objectives, and Strategies Mission: the firm’s reason for being

The scope of its products and services Goals: the foundation for further planning

Measurable performance targetsStep 2: Conduct an Internal Analysis

Assessing organizational resources, capabilities, activities, and culture: Strengths (core competencies) create value for the

customer and strengthen the competitive position of the firm

Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage

Strategic Management Process (cont’d)

Step 3: Conduct an External AnalysisThe environmental scanning of specific and

general environments Focuses on identifying opportunities and threats

Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

Strategic Management Process (cont’d)

Step 4: Formulate StrategiesDevelop and evaluate strategic alternativesSelect appropriate strategies for all levels in

the organization that provide relative advantage over competitors

Match organizational strengths to environmental opportunities

Correct weaknesses and guard against threats

Strategic Management Process (cont’d)

Step 5: Implement StrategiesImplementation: effectively fitting organizational

structure and activities to the environmentThe environment dictates the chosen strategy;

effective strategy implementation requires an organizational structure matched to its requirements

Step 6: Evaluate ResultsHow effective have strategies been?What adjustments, if any, are necessary?

Levels of Organizational Strategy

Research andDevelopment

Manufacturing Marketing HumanResources

Finance

StrategicBusiness Unit 1

StrategicBusiness Unit 2

StrategicBusiness Unit 3

MultibusinessCorporation

FunctionalLevel

BusinessLevel

CorporateLevel

Types of Organizational StrategiesCorporate-level Strategy

The company’s grand strategy for the entire organization and its strategic business units

Types of Grand StrategiesGrowth: expansion into new products and

marketsStability: maintenance of the status quoRetrenchment: addresses organizational

weaknesses that are leading to performance declines

Combination: simultaneous pursuit of two or more of the strategies above

Corporate-Level StrategiesGrowth Strategy

Seeking to increase the organization’s business by expansion into new products and markets

Stability StrategyA strategy that seeks to maintain the status

quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons

Corporate-Level Strategies (cont’d)

Retrenchment StrategyReduces the company’s activities or

operationsRetrenchment strategies include:

Cost reductions Closing underperforming units Closing entire product lines or services

Corporate-Level Strategies (cont’d)

Combination StrategySimultaneous pursuit by the

organization of two or more of growth, stability, and retrenchment strategies

Business-Level StrategyBusiness-Level Strategy

A strategy that seeks to determine how an organization should compete in each unit within the organization to create a competitive advantage

Competitive advantage An organization’s distinctive competitive edge that is

sourced and sustained in its core competencies

Functional-Level StrategyFunctional-level strategies support the

business-level strategyi.e., Marketing, human resources,

research and development, and finance all support the business-level strategy

Problems occur when employees or customers don’t understand a company’s strategy

Forces in an Industry Analysis(Five Forces Model Given by: Porter

Substitutes

Buyers

BargainingPower ofBuyers

Threat ofSubstitutes

Suppliers

BargainingPower ofSuppliers

NewEntrants

Threat ofNew Entrants

Intensity ofRivalry Among

CurrentCompetitors

Five Competitive ForcesThreat of New Entrants

The ease or difficulty with which new competitors can enter an industry

Threat of SubstitutesThe extent to which switching costs and

brand loyalty affect the likelihood of customers adopting substitute products and services

Bargaining Power of BuyersThe degree to which buyers have the

market strength to hold away over and influence competitors in an industry

Five Competitive Forces (cont’d)Bargaining Power of Suppliers

The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship

Current RivalryIntensity among rivals increases when

industry growth rates slow, demand falls, and product prices descend

BenchmarkingThe search for the best practices among

competitors and noncompetitors that lead to their superior performance

By analyzing and copying these practices, firms can improve their performance

Decision MakingDecision making is defined as the selection

of a course of action from among alternatives

Decision Making Process1. Identification of problem2. Identification of decision Criteria3. Allocation of weights to criteria 4. Development of alternatives5. Analysis of alternatives 6. Selection of an alternative 7. Implementation of the Alternative8. Evaluation of decision effectiveness

Eg:Purchase of raw materialQuantity, Quality, Time of delivery & mode of

deliveryAllocate the weightsSearch for various suppliersAnalyze allSelect one supplierPlace a order

Rationality

Limited, or "Bounded," Rationality Limitations of information, time, and

certainty limit rationality, even though a manager tries earnestly to be completely rational

Satisficing is picking a course of action that is satisfactory or good enough under the circumstances

Programmed And Nonprogrammed Decisions

Structured problems &Programmed decisions:Programmed decisions are used for

structured or routine work Unstructured Problems &

Nonprogrammed decisions: Nonprogrammed decisions are used for

unstructured, novel, and ill-defined situations of a nonrecurring nature

Types of decisions at various levels in the organization

Non Programmed Decisions

Programmed Decisions

Unstructured

Structured

Top level

Lower Level

Simon’s model of decision making Contribution of Herbert Simon The decision making process can be broken

into series of three sequential steps:1. Intelligent activity2. Design activity3. Choice activity

Intelligent activity refers to the initial phase of searching the environment for conditions calling for decisions.

Design activity refers to the phase of inventing, developing, and analyzing possible course of action to take place.

Choice activity refers to the final phase of actual choice selecting a particular course of action from those available.

Creativity and Innovation Creativity refers to the ability and power to

develop new ideasConditions necessary for Creativity: Expertise, Creative thinking skills, Internal

Motivation, Environmental need, Tension & Encouragement from others

Innovation means the use of new ideas

ForecastingIt is the process of estimating the relevant

events of future, based on the analysis of their past and present behaviour

Acc to Neter & Wasserman: Business forecasting refers to the statistical analysis of the past & current movement in the given time series so as to obtain clues about the future pattern of those movements

Features of forecastingIt relates to future eventsDefines the probability of happening of future

eventsAnalysing the past & present relevant eventsUse of some statistical tools & techniques

Planning & ForecastingPlanning is more comprehensive and

forecasting involves the estimation of future events & provides parameters to planning

Importance of ForecastingPromotion of organisationKey to planningCoordination & controlSuccess in organisation

PremisingPremises are the assumptions on which plans

are formulatedA major source of premising is forecasting