Chapter 7: Foundations of Planning

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Chapter 7 Foundations of Planning

• Definition of planning
• Formal vs. informal planning
• Purposes of planning
• Planning Concerned with ends or means?
• Relationship between planning and organizational
  performance
• Types of goals
• How plans differ
• Traditional goal-setting vs. Management By
  Objectives
• Characteristics of well-defined goals
• Tips for effective planning

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What Is Planning?

• Defining the organizations goals
• Desired outcomes for individuals, groups, or
  entire organizations
• Establishing an overall strategy for achieving
  those goals
• How shall we achieve the goals?
• Developing a comprehensive set of plans to
  integrate and coordinate organizational work
• Who is going to do what?
• How will resources be allocated?

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Formal vs. Informal Goals

• 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

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Purposes of Planning

• - Provides direction
• - Reduces uncertainty
• - Minimizes waste and redundancy
• - Sets the standards for controlling

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The Relationship Between Planning And Performance

• Formal planning is associated with
• Higher profits and returns of assets.
• Positive financial results.
• But
• 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.

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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).

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Stated Objectives from Large U.S. Companies

• Financial Objectives
• Faster revenue growth
• Faster earnings growth
• Higher dividends
• Wider profit margins
• Higher returns on invested capital
• Stronger bond and credit ratings
• Bigger cash flows
• A rising stock price
• Recognition as a blue chip company
• A more diversified revenue base
• Stable earnings during recessionary periods

• Strategic Objectives
• A bigger market share
• A higher more secure industry rank
• Higher product quality
• Lower costs relative to key competitors
• Broader or more attractive product line
• A stronger reputation with customers
• Superior customer service
• Recognition as a leader in technology and/or
  product innovation
• Increased ability to compete in international
  markets
• Expanded growth opportunities

Source A.A. Thompson Jr. and A.J. Strickland
III. Strategic Management 12th ed. (New York
McGraw-Hill/Irwin, 2001), p. 43.
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Velocita Case

• What were Velocitas goals
• Strategic?
• Financial?
• What was Velocitas strategy/plan?
• What factors might prevent Velocita from
  achieving its goal(s)?

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Stated 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)!

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Types of Plans
Exhibit 7.2
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Strategic vs. Operational Plans

• Strategic Plans
• Apply to the entire organization.
• Establish the organizations overall goals.
• Positions organization in terms of its
  environment
• Cover extended periods of time.
• Operational Plans
• Assumes objectives exist
• Specifies details of how overall goals will be
  achieved
• Cover short time period

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Long-term vs. Short-term Plans

• Long-Term Plans
• Plans with time frames extending beyond three
  years
• Short-Term Plans
• Plans with time frames on one year or less

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Specific vs. Directional Plans

• Specific Plans
• Clearly defined
• No room for interpretation
• Directional Plans
• Flexible plans
• General guidelines
• Provide focus yet discretion in implementation.

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Specific Versus Directional Plans
Exhibit 7.3
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Single-use vs. Standing Plans

• 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.

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Traditional Goal-Setting

• Broad goals set at the top of the organization.
• Goals broken into sub-goals for each org level
• Assumes that top management knows best because
  they can see the big picture.
• Goals are intended to direct, guide, and
  constrain from above.
• Common Problem
• Goals often ambiguous, lack clarity
• Goals become reinterpreted as flow down
  hierarchy

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Problems With Traditional Objective Setting
Exhibit 7.4
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Problems with Traditional Approach Can Be Solved
Via Means-Ends Chain

• Establish clearly defined hierarchy of
  organizational goals
• Goals are specific
• Goals are additive (lower-level goals will enable
  you to reach higher-level goals)

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A Means-Ends Chain Illustrated
We need to increase profits by 10
We need to reduce costs by 15
We need to reduce WIP by 10
I need to reduce defects at my work station by
10 and accelerate my assembly line by 10
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MBO Goes One Step Further

• Establishes means-ends chain, but is also
  MOTIVATING, not just CONTROLLING!
• Four elements
• Goal Specificity
• Participative decision-making
• Explicit time period
• Performance feedback
• How it works
• Specific performance goals are jointly determined
  by employees and managers (increases commitment)
• Progress toward accomplishing goals is
  periodically reviewed.
• Rewards are allocated on the basis of progress
  towards the goals

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Characteristics of Well-Designed Goals

• Written in terms of outcomes, not actions
• Focuses on the ends, not the means.
• Measurable and quantifiable
• Specifically defines how the outcome is to be
  measured and how much is expected.
• Clear as to time frame
• How long before measuring accomplishment.

• Challenging yet attainable
• Low goals do not motivate.
• High goals motivate if they can be achieved.
• Written down
• Focuses, defines, and makes goal visible.
• Communicated to all
• Puts everybody on the same page.

Exhibit 7.6
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Contingency Factors in A Managers Planning

• Managers level in the organization
• Strategic plans at higher levels
• Operational plans at lower levels
• Degree of environmental uncertainty
• Stable environment specific plans
• Dynamic environment specific but flexible plans
• Length of future commitments
• Current plans affecting future commitments must
  be sufficiently long-term to meet the commitments.

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Planning in the Hierarchy of Organizations
Exhibit 7.7
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Tips For Effective Planning

• Dont let plans create rigidity -- develop plans
  that are specific but flexible
• Focus on quality and implementation, not quantity
• Dont relegate planning to planning department
  it should become an integrated part of
  management
• Make sure you plan long enough to meet future
  commitments (commitment concept)
• Persistence in planning eventually pays off
  because managers learn to plan and quality of
  planning improves