MGT 201: Principles of Management Chapter 8 Foundations of Planning

What is Planning? Planning A primary functional managerial activity 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 work Concerned with both ends (what is to be done) and means (how’s it to be done) 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 Planning provides direction to managers: planning is the primary management function that establishes the basis for all other management functions. Without planning, departments and individuals might work at cross purposes, preventing the organization from moving efficiently towards its goals Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses Planning minimizes waste and redundancy: when work activities are coordinated around established plans, it reduces overlapping and wasteful activities Planning establishes the standard for controlling: in planning we develop the goals and the plans. Then through controlling, we compare actual performance against the goal and identify significant deviations and take necessary corrective actions. Without planning, there would be no way to control

How do Managers Plan? Elements of Planning Planning involves two important elements Goals (also objectives) Desired outcomes for individuals, groups, or entire organizations Provide direction and evaluation performance criteria Represent the criteria against which actual work accomplishments can be measured Plans Documents that outline how goals are to be accomplished Describe how resources are to be allocated and establish activity schedules

How do Managers Plan? Types of Goals All organizations have multiple objectives No single measure can evaluate whether an organization is successful 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). - Survival not specifically mentioned as a goal, however, it is extremely important. Organizations must survive if other goals are to be achieved

How do Managers Plan? 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 3 years Definition of long term has changed with increasingly uncertain organizational environments Short Term Plans Plans with time frames of one year or less

Establishing Goals and Developing Plans Approaches to establishing goals Management by Objective (MBO): A management system in which Specific performance goals are jointly determined by employees and managers. Progress toward accomplishing goals is periodically reviewed. Rewards are allocated on the basis of progress towards the goals. Does MBO Work? Reason for MBO Success: Top management Commitment and employee involvement Problems with MBO Not as effective in dynamic environments that require constant resetting of goals Overemphasis on individual accomplishment may create problems with teamwork

Establishing Goals and Developing Plans Approaches to Planning Traditional, top-down approach Planning done by top manager Formal planning department – specialists whose sole responsibility is to help to write organizational plans Plans float down to lower levels Tailored to particular needs at each lower level Most effective if plan is a workable document used by organizational members for direction and guidance Inclusive approach Employees at each level develop plans suited to their needs Employees acquire greater sense of the importance of planning when they participate in the process Plans more likely to be used in directing and coordinating work

Contemporary Issues in Planning Criticisms of Planning 1. Planning may create rigidity unwise to force a course of action when the environment is fluid 2. Plans can’t be developed for a dynamic environment flexibility required in a dynamic environment can’t be tied to a formal plan 3. Formal plans can’t replace intuition and creativity mechanical analysis reduces the vision to some type of programmed routine 4. Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival plans concentrate on capitalizing on existing business opportunities hinders managers who consider creating or reinventing an industry 5. Formal planning reinforces success, which may lead to failure success may breed failure in an uncertain environment © Prentice Hall, 2002 7-9

Contemporary Issues in Planning Effective Planning in Dynamic Environments Develop plans that are specific but flexible. Understand that planning is an ongoing process. Change plans when conditions warrant. Flatten the organizational hierarchy to foster the development of planning skills at all organizational levels.