Introduction to Planning

Learning Outcomes After this lecture, you will be able to: Discuss the nature and purposes of planning. Explain what managers do in the strategic management process. Compare and contrast approaches to goal setting and planning. Discuss contemporary issues in planning.

1- What Is Planning? Planning establishes the basis for all the other things managers do as they organize, lead, and control. Planning is deciding on the organization’s objectives or goals and getting the job done by establishing an overall strategy for achieving those goals and developing a comprehensive hierarchy of plans to integrate and coordinate activities.

Planning can be informal or formal Planning can be informal or formal. Smaller businesses often use informal planning where little is verbalized or written down and the planning is general and lacks continuity. Formal planning, however, defines specific goals that are to be met in a specific time period. They are written down and made available to organization members. Then managers develop specific plans that clearly define what the organization will do to move from where it is to where it wants to be.

2- Reasons for Planning

1- Planning coordinates effort 1- Planning coordinates effort. It gives direction to both managers and non-managerial employees so each knows what he or she must contribute— individually and as a group—to reach the organization’s goals. Planning stimulates intra- and inter-department coordination of activities, which fosters teamwork and cooperation. 2- Planning forces managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses. It also clarifies the consequences of the actions managers might take in response to change.

3- Planning reduces overlapping and wasteful activities 3- Planning reduces overlapping and wasteful activities. Coordination before the fact is likely to uncover waste and redundancy. 4- Finally, planning establishes the goals or standards that facilitate managerial control to ensure that the plans are carried out and the goals are met.

3- Criticisms of Formal Planning Although it makes sense for an organization to establish goals and direction, critics have challenged some of the basic assumptions of planning.

1- Planning may create rigidity with goals and a timetable that are set under the assumption that the environment won’t change. 2- Formal plans cannot replace intuition and creativity. Planning should enhance and support intuition and creativity, not replace it.

3- Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival. Formal planning tends to focus on how best to capitalize on existing business opportunities instead of ways to reinvent the industry. Instead of focusing on today, managers should plan with an eye to untapped opportunities.

4- Formal planning reinforces success, which may lead to failure 4- Formal planning reinforces success, which may lead to failure. It’s difficult to shift from the comfort of what works to the uncertainty of the unknown. However, managers may need to face that unknown and do things in new ways to be even more successful.

Formal planning generally results in: 4. Formal Planning and Organizational Performance On the other hand Formal planning generally results in: Higher profits Higher return on assets Improved quality of planning Appropriate implementation of the plan

4.1 Strategic Management One important aspect of an organization’s formal planning is strategic planning, which managers do as part of the strategic management process.

4.2 The Importance of Strategic Management Reasons why strategic management is so important include 1- It can make a difference in how well an organization performs. Research has found a generally positive relationship between strategic planning and performance. 2- It prepares managers in organizations of all types and sizes to cope with continually changing situations and to examine relevant factors in planning future actions.

3- Each part of an organization needs to work together to achieve the organization’s goals; strategic management helps accomplish this.

Steps in the Strategic Management Process

Step 1: Mission, Goals, & Strategies The mission is a statement of the organization’s purpose. Defining the mission forces managers to identify what the organization is in business to do. For instance, the mission of Facebook is “a social utility that connects you with the people around you,” and the mission of the National Heart Foundation of Australia is to “reduce suffering and death from heart, stroke, and blood vessel disease in Australia.”

The components of a mission statement: includes target customers, markets, and goals and strategies, and each should be assessed to see if managers should change any of them.

External and Internal Analyses STEP 2: External Analysis Know the competition Examine components of the environment Identify opportunities and threats STEP 3: Internal Analysis Resources Capabilities

Formulating, Implementing, and Evaluating Results STEP 4: Formulating Strategies Corporate Business Functional STEP 5: Implementing Strategies STEP 6: Evaluating Results How effective have the strategies been? What adjustments are necessary?

Strategies Managers Use Growth Strategy Stability & Renewal Strategies Competitive Strategy

Activities can include: Growth Strategy An organization expands the number of markets served or products offered Activities can include: Concentration Vertical integration Horizontal integration Diversification

Stability & Renewal Strategies Stability strategy – An organization continues to do what it is currently doing Renewal strategy – An organization addresses declining organizational performance Retrenchment strategy Turnaround strategy

A retrenchment strategy is a short-run strategy used for minor performance problems. This strategy helps it stabilize operations, revitalize organizational resources and capabilities, and prepare to compete once again. When an organization’s problems are more serious, they need to use the turnaround strategy. While managers cut costs and restructure organizational operations in either renewal strategy, these measures are more extensive than in a retrenchment strategy.

Competitive Strategy A competitive strategy is a strategy for how an organization will compete in its business.

The Role of Competitive Advantage Competitive advantage – The distinctive edge that comes from the org’s core competencies of doing things different or better than others Three competitive strategies: Cost leadership strategy Differentiation strategy Focus strategy

Compare and contrast approaches to goal setting and planning Learning outcome 3: Compare and contrast approaches to goal setting and planning

Setting Goals and Developing Plans Types of Goals: Financial goals – The financial performance of the organization Strategic goals – All other areas of an organization’s performance

Setting Goals

Characteristics of Well-Written Goals

Steps in Goal Setting Review the organization’s mission and employees’ key job tasks. Evaluate available resources. Determine the goals individually or with input from others.

Steps in Goal Setting (cont.) Make sure goals are well-written and then communicate them to all who need to know. Build in feedback mechanisms to assess goal progress. Link rewards to goal attainment.

Types of Plans

Developing Plans

Approaches to Planning “Top-down” traditional approach – Top-level managers plan; plans flow down to the different levels. Development by organizational members – Employees at various levels and in various work units develop plans to meet their specific needs.

Discuss Contemporary Issues in Planning Learning outcome 4: Discuss Contemporary Issues in Planning

Contemporary Issues Two of the many contemporary planning issues that managers face are: 1- Planning effectively in dynamic environments, and 2- How managers can use environmental scanning, especially competitive intelligence.

the external environment is continually changing the external environment is continually changing. In such an uncertain environment, managers should develop plans that are specific but flexible. Managers need to recognize that planning is an ongoing process and that plans serve as a road map—although the destination may change due to dynamic market conditions.

The flexibility to change direction is particularly important as plans are implemented. Even when the environment is highly uncertain, it’s important to continue formal planning to improve organizational performance. Persistence and practice in planning contributes to significant performance improvement.

In dynamic environments, making a flatter hierarchy means lower organizational levels can set goals and develop plans because organizations have little time for goals and plans to flow down from the top. Managers should teach their employees how to set goals and to plan, and then trust them to do it.