1. m a n a g e m e n t 2e H i t t / B l a c k / P o r t e r
Chapter 6:
Planning
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2. Learning Objectives
After studying this chapter, you should be able to:
Define planning and explain its purpose
Differentiate between strategic, operational, and tactical plans
Describe the interrelationship between an organization’s types of plans and the levels at which they are developed
Explain the planning process

3. Learning Objectives Discuss budgeting as a planning tool
List and explain the five characteristics of effective goals

4. Overview of Planning Objectives End states or targets Plans
Means to hit the desired targets
Planning
Decision-making process focused on the future of an organization and how it will achieve its goals
[Note: Planning is an activity that most students will admit they need to improve. You can start the discussion of planning by asking students what they already plan on a regular basis, what they have missed because of not planning, and what they could do to improve. Have students who are good at planning give advice to students who aren’t so good.]

5. Types of Plans STRATEGIC PLANS Broad future of the organization
External environmental demands
Internal resources
TACTICAL PLANS
Translate strategic plans into specific goals
Specific parts of the organization
Even good planners might have a difficult time differentiating among different types or levels of planning. This slide summarizes the differences.
Strategic plans focus on the broad future of the organization. They are typically longer-term and should be set before the other types of plans are developed, as they set the direction for the organization. Other plans (tactical, operational) flow from strategic plans.
Tactical plans translate strategic plans into specific goals for specific parts of the organization. While strategic plans encompass the entire organization, tactical plans center around a specific business unit and its products.
Operational plans translate tactical plans into specific goals and actions. Of all the types of plans, operational plans have the shortest term and are the least complex.
OPERATIONAL PLANS
Translate tactical plans into specific goals and actions
Small units of the organization
Near term

6. Types of Plans STRATEGIC PLANS TACTICAL PLANS OPERATIONAL PLANS Time
Horizon
Typically 3-5 years
Often focused on years in the future
Usually focused on the next 12 months or less
Scope
Broadest,
originating with a focus on the entire organization
Rarely broader than a strategic business unit
Narrower, usually centered on departments or smaller units of the organization
Complexity
This slide and the next summarize the contents of Exhibit 6.1 and helps students differentiate between different types of plans in more detail.]
The most complex and general, because of the different industries and business potentially covered
Somewhat complex but more specific, because of the more limited domain of application
The least complex, because they usually focus on small homogenous units
Adapted from Exhibit 6.1

7. Types of Plans (continued)
STRATEGIC
PLANS
TACTICAL
PLANS
OPERATIONAL
PLANS
Impact
Have potential to dramatically impact the fortunes and survival of the organization
Can affect specific businesses but generally not the fortunes or survivability of the entire organization
Impact is usually restricted to specific department or organization unit
Low interdependence, the plan may be linked to higher-level tactical and strategic plans but is less interdependent with them
Interdepen-
dence
High interdependence, must take into account the resources and capabilities of the entire organization and its external environments
Moderate interdependence, must take into account the resources and capabilities of several units within a business
Adapted from Exhibit 6.1

8. Organizational Levels
CORPORATE LEVEL
What industries should the firm be in?
What markets should the firm be in?
In which businesses should the firm invest money?
BUSINESS LEVEL
Who are our direct competitors?
What are their strengths/weaknesses? What advantages do we have over them?
What are our own strengths and weaknesses?
What do customers value in our products/services?
Not all levels of the organization work on all types of plans.
The corporate level thinks about the bigger picture and longer-term issues, as discussed in the slide.
The business level thinks about the strategic business unit’s (SBU’s) specific issues, as summarized in the slide.
The functional level thinks about more short-term and very specific issues.
FUNCTIONAL LEVEL
What activities must my unit perform well to meet customer expectations?
What competitor information do we need compete effectively?
What are our unit’s strengths and weaknesses?

9. Organizational Levels
Corporate
Level
Business
Level
To understand what is meant by the different levels, the organizational chart the manufacturer
Brunswich illustrates that top management is what is known as the “corporate level,” the actual business units are known as the “business level,” and the functional departments are what is known as the “functional level.”
Functional
Level

10. Interaction Between Plans and Levels
Types of Plans
Organizational Levels
Strategic Plans
Corporate Level
Tactical Plans
Business Level
Putting the two last concepts together, Exhibit 6.2 shows that strategic plans are typically developed by the corporate level and perhaps even the business level, tactical plans are developed by the business level and perhaps also the functional level, and the operational plans are primarily accomplished by the functional level.
Operational Plans
Functional Level
Adapted from Exhibit 6.2

11. The Planning Process Analyze the Analyze Resources
External Environment
Analyze Resources
Set Objectives
The key elements of the planning process include environmental analysis, resources, objectives, actions, implementation, and outcomes. This slide provides a broad overview of the planning process and where these elements fit. The following slides provide more detail behind each step of the process.
Develop Action Plans
Monitor Outcomes
Adapted from Exhibit 6.3

12. The Planning Process: Analyzing the External Environment
Forecasts
Environmental uncertainty
The more uncertainty, the more flexible the plans
Contingency plans
Benchmarking
Investigating the best practices by competitors and noncompetitors and comparing your practices
The planning process starts with analyzing the organization’s external environment – the forces external to the organization that impact how business is done.
Forecasts can be made about all critical elements in the environment that are likely to affect the organization. Forecasts often contain numbers, but they don’t necessarily use just numbers.
Environmental uncertainty can exist and make forecasting more difficult. In general, the greater the environmental uncertainty, the more flexible the plans need to be. Contingency plans may be needed in case the primary plan doesn’t succeed.
Benchmarking involves investigating the best practices used by competitors and non-competitors and comparing your own practices to theirs. If you compare unfavorably, it might predict future failure in certain endeavors.

13. The Planning Process: Assessing Internal Resources
Resources available
Human capital
Financial resources
Technology
The next step in the planning process is to assess internal resources to determine what will be realistic to include in the plan. Some questions that managers might ask about their own resources include:
What human capital do we have currently?
Can people work on new and additional projects or will new people be needed?
Can we develop or acquire additional human capital if needed for new projects?
What financial resources do we have available? Can we obtain additional funding from the debt or equity markets if needed?
Do we have the cutting edge technology or can we gain access to it at a cost-effective price?

14. The Planning Process: Setting Objectives
Priorities and multiple objectives
Establish which objectives are most important
Measuring objectives
Financial performance
Profits relative to sales
Profits relative to assets
Many others
Non-financial performance
The next step in the planning process is to set objectives: what you want to achieve.
When setting objectives, managers must determine top priorities, as not all objectives are equally important. Some objectives are important now, while others are important later.
Managers must then measure objectives to see if they’ve been achieved. They must measure them as soon as they are in the process of being achieved rather than waiting until the end of the time period.
One of the most common objectives to measure is financial performance, including sales, profits relative to sales, profits relative to assets, etc.
Managers may also measure non-financial performance, such as quality control or customer service.

15. The Planning Process: Developing Action Plans
Sequence and timing
Gantt charts
Accountability
Who is accountable for which actions?
The next step in the planning process is to develop action plans to carry out the objectives.
The sequence and timing of the various steps in an action plan are very important. One of the tools used to bring order and timing to actions is a Gantt chart, which is illustrated on the next slide.
Also important is the accountability for the actions: who is responsible for completing which action?

16. Gantt Chart May June July Aug Sep Oct Nov Contact clients
Obtain contract specs
Submit bid
Receive feedback
Revise bid
Submit revised bid
Final approval or rejection
Complete bid review
Gantt charts are very helpful tools, as they can:
Sequence events (put events in the order in which they occur)
Tell when the actions take place and over what period of time
Indicate when one action must be completed before another starts and when two or more actions can be done simultaneously
Include the progress being made on the plan
Adapted from Exhibit 6.4

17. The Planning Process: Implementing Plans
Monitoring the implementation includes monitoring:
Progress of the plan and its implementation
Level of support for the plan and implementation
Level of resistance
Real-time adjustment
The next step in the planning process is implementing plans and monitoring their outcomes.
Monitoring the implementation is necessary, managers need to know along the way if the plan is working (i.e., achieving goals). They must monitor the progress of the plan, the level of support the plan is receiving, and the level of resistance.
By monitoring the implementation, managers can make real-time adjustments instead of making adjustments after the fact when it might be too late.

18. The Planning Process Monitoring Outcomes
Unanticipated consequences
Negative unanticipated consequences
Positive unanticipated consequences
Feedback loop
Apply what has been learned to modify and improve the planning process
The final step in the planning process is to monitor outcomes. If the objectives were well defined in the beginning, the outcomes to be measured should be the same as the objectives.
However, plans can have unanticipated outcomes that can be negative or positive. Either way, the organization can learn from these events by creating a feedback loop – that is, create a system by which feedback and information can be gathered to analyze results and make adjustments, as necessary.

19. Planning Tools: Budgets
Budgets quantify and allocate resources
Capital expenditure budget
Specifies amount of money to be spent on specific items that have long-term use
Expense budget
Includes primary activities on which a unit or organization plans to spend money and the amount allocated for the upcoming year
Managers use a variety of planning tools, and two are discussed in the textbook: budgets and goal setting.
Budgets are used to quantify and allocate resources to specific activities. There are different types of budgets:
Capital budgets, which specify amounts of money to be spent on specific items that have long-term use or require significant investments. Good examples are manufacturing equipment, a fleet of trucks, land, or buildings.
Expense budgets, which include primary activities on which a unit or organization plans to spend money. Examples are advertising expense, office supplies, and wages.

20. Planning Tools: Budgets
Proposed budget
Provides a plan for how much money is needed, and is submitted to a superior or budget review committee
Approved budget
Specifies what the manager is actually authorized to spend money on and how much
Both capital budgets and expense budgets can be proposed or approved budgets.
A proposed budget simply provides a plan for how much money is needed to support the plan.
An approved budget specifies what the manager is actually authorized to spend money on and how much

21. Planning Tools: Budgeting Approaches
Incremental budgeting
From the approved budget of the previous year present arguments for why the upcoming budget should be more or less
Zero-based budgeting approach
Justify all allocations of funds from zero each year
The textbook discusses two approaches to budgeting:
In incremental budgeting, managers use their approved budgets from their previous year as a starting point for developing the current year’s budget. Then they present arguments for why the upcoming budget should be more or less than the previous year’s budget.
In zero-based budgeting, all funding allocations must be justified starting at zero each year.

22. Goal Setting Attributes of effective goals: Specific Measurable
Committed
Realistic
Time bound
The planning tool is goal-setting, which is intended to manage performance of the organization. Goals should have the following attributes in order to be effective:
Specific: Goals should be specific, which often means that they should be numbers-oriented. For instance, “to increase sales” is not specific, but “to increase sales by 10 percent” is more specific.
Measurable: Goals should be measurable, which supports the fact that it should also be specific. The above goal “to increase sales by 10 percent” is measurable, as you can measure the achievement of that goal above, say, the previous year’s sales.
Committed: Those involved in achieving the goal must be committed to achieving it. If you have a goal of increasing sales by 10 percent but your salespeople balk at the aggressiveness of the goals, you will likely not succeed.
Realistic: Goals should be somewhat realistic; having a goal that is impossible to achieve is discouraging to everyone involved in achieving it.
Time-bound: Goals should have dates attached to them so that you know by when the goal should have been achieved. Thus, the 10 percent sales increase should have a time goal: “To increase sales by 10 percent by the end of the fiscal year” is an example.