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Chapter 7: Foundations of Planning


Chapter 7: Foundations of Planning Definition of planning Formal vs. informal planning Purposes of planning Planning: Concerned with ends or means? – PowerPoint PPT presentation

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Title: Chapter 7: Foundations of Planning

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
  • Types of goals
  • How plans differ
  • Traditional goal-setting vs. Management By
  • Characteristics of well-defined goals
  • Tips for effective planning

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?

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

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

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
  • 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.

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).

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

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)!

Types of Plans
Exhibit 7.2
Strategic vs. Operational Plans
  • Strategic Plans
  • Apply to the entire organization.
  • Establish the organizations overall goals.
  • Positions organization in terms of its
  • Cover extended periods of time.
  • Operational Plans
  • Assumes objectives exist
  • Specifies details of how overall goals will be
  • Cover short time period

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

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

Specific Versus Directional Plans
Exhibit 7.3
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.

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

Problems With Traditional Objective Setting
Exhibit 7.4
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)

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
MBO Goes One Step Further
  • Establishes means-ends chain, but is also
  • 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

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
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.

Planning in the Hierarchy of Organizations
Exhibit 7.7
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
  • 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
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