Organizational Goal Setting & Planning

Organizational Goal Setting & Planning Chapter 7

Microsoft’s Windows Is everywhere… Revenues & stock prices are at an all time high • If Bill plans succeed, one wont be able to escape Microsoft • Software will follow you on vacations • Riding along in your car to map out the best travel route • Control your appliances & feed programs & information to an entire city’s television sets

Why should Bill Gate’s worry about the future & suffer new product setbacks rather than concentrate on the business that has made Microsoft a dominant corporate Power?

Difficult for employees & top executives to see the need to contemplate future developments when a Company is successful like Microsoft • Bill Gate’s as a leader to decide where he wants the Company to be in future & how to get there

If you were in gate’s position, how would you make sure Microsoft employees keep today’s business healthy while also taking a long-range view toward an uncertain future?

Companies like Shell, IBM, managers follow a well-defined planning framework. • Mission----Develop Formal Goals------Strategic Plans • These companies undertake a strategic planning exercise each year– reviewing their missions, goals, and plan to meet environmental changes • In this chapter “we are going to explore the process of planning & whether it can help bring needed rain” • Goals & goal setting • Types of plans organizations can use to achieve those goals

OVERVIEW OF GOALS & PLANS Goal • Desired future state that Organization attempts to realize • Goals are important because Organization exists for a purpose & goals define and state that purpose • Example: P&G set goal of doubling its revenues over a 10 year period GE: every business owned by the firm would be either number 1 or number 2 in its industry

PLAN • Is a blue print for goal achievement & specifies the necessary resource allocations, schedule, tasks & other actions • Goals specify future ends • Plans specify today’s means Planning: incorporates both ideas determining the Organization’s Goals defining the means for achieving them

Planning Example: • Compaq Goal – to transform itself from a supplier of PC’s to corporations into a maker of Machines for every market • From small pocket communicators to home computers, all at high competitive price

How to achieve this Outcome ? • Began running factories around the clock • Changed manufacturing system to a “build-on-order” model • Added thousands of retailers (Wal-Mart) • Began working with Microsoft to become the biggest maker of servers to anchor office networks • Launched a sub notebook “stunning turnaround at Compaq in only 2 years”

Levels of Goals

The importance of Goals & Planning • Developing explicit goals and plans at each level is important because of the external and internal audiences and provide important benefits for the Org Legitimacy for investors,Customer, suppliers, community External Message Legitimacy, motivation, guides, rationale, standards Internal Message

Legitimacy • Org mission describes what the org stands for and its reason for existences • Symbolizes legitimacy to external audiences such as investors, customers and suppliers • A strong mission also has an impact on employees enabling them to become committed to the organization because they can identify with its overall purpose & reason for existence Example: Main Street Muffins

Main Street Muffins • Things went great when Co. first began branching into new lines of business • New opportunities turned into problems • Employee morale sank, calling sick at 3am, walking off the job without no notice • heading towards bankruptcy • owner developed a mission statement to remind themselves the main goal of MSM “ To profitably improve an organization that overwhelms the food industry with its devotion to high-quality products & services”

Source Of Motivation & Commitment • Goal statement describes the purpose of the Org to employees • A goal provides the “ Why” of an Org’s existence • A plan tells employees what actions to undertake, “How” to achieve the goal • Goals & plans help motivate them by reducing uncertainty & Clarifying what the should accomplish Example: Italian Furniture manufacturer

Italian Furniture Manufacturing Co • Each craftsperson has a goal for how long it should take to perform his/her job • Sewing leather sheets together to make sofa cushion etc • At the completion of tasks worker enter their ID numbers & job numbers into the firms computer • If , They get the job done faster than their goal, a bonus is automatically added to their paycheck

Guides to Action • Goals and plans provide a sense of direction. • They focus attention on specific and direct employee efforts toward important outcomes

Rationale For Decisions • Through goal setting and planning managers learn what the Org is trying to accomplish • They can make decisions to ensure that internal policies, performance, products and expenditure will be made in accordance with desired outcomes • Decisions throughout the Org will be in alignment with the plan

Standard Of Performance • Goals define desired outcomes for the Org, they also serve as performance criteria. • They provide standard of assessment • When Organizations drift away from goals and plans, they typically get into trouble • Du Pont example Example: United Way of America set a goal of collecting $250,000 from a particular small community If midway through the campaign, they raised only $50000 they know that they need to change their efforts If they succeed in raising $265000, evaluation of their efforts will take on an entirely different character

Goals In Organizations Organizational Mission • The Organization reason for existence • Describes the Organization’s values, aspirations and reason for being • Well-defined mission is the basis for development of all subsequent goals and plans • More than half of the companies in the US now have a formal statement of some kind

Mission Statement • Broadly stated definition of basic business scope and operations that distinguishes the organization from others of a similar type • Mission statements often reveal the company’s philosophy as well as purpose • Describes company characteristics such as corporate values, product quality, location of facilities and attitude toward employees

Goals & Plans • Strategic Goals / Plans • Tactical Goals / Plans • Operational Goals / Plans

Strategic Goals • Broad statement describing where the organization wants to be in the future • They pertain to the Org as a whole rather than to specific divisions or departments • Also called official goals, because they are the stated intentions of what the organization wants to achieve • Ex: P&G goal to double the sales revenues

Strategic Plans • The action steps by which the company intends to attain strategic goals • The strategic plan is the blueprint that defines the organizational activities and resource allocations– in the form of cash, personnel, space & facilities – required for meeting these targets • The purpose of strategic plans is to turn organizational goals into realities within that time period • Plans are set by BOD & Top management • Have extended time Horizon

Tactical Goals • The results that major divisions and departments within the organization intend to achieve • These goals apply to middle management and describe what major subunits must do in order for the Org to achieve its overall goal • Ex: P&G might center on which new products to launch, which existing products to revise, and so forth

Tactical Plans • Designed to help execute major strategic plans & to accomplish a specific part of the company’s strategy • Have a shorter time horizon than strategic plans • The word tactical comes from the military • Define what the major departments & organizational subunits will do to implement the overall strategic plan • It involves middle management

Operational Goals • Are set by and for lower level managers • Specific results are expected from departments, work groups and individuals • They are precise and measurable “ Process 150 sales applications each week” “ achieve 90 % of deliveries on time” Example: P&G might target number of new products to launch each of the next five years

Operational Plans • Developed at the lower levels of the Org to specify action steps toward achieving operational goals & to support tactical plans • Have a short-term focus & relatively narrow in scope • Is the departments managers tool for daily & weekly operations • Goals are stated in quantitative terms & the departments plan describes how goals will be achieved • Operational planning specifies plans for supervisors, deptt managers and individuals employees • Example: ICM (individual career mangt) program at Du Pont involves series of discussions that define what each managers new goals should be & whether last year’s Operational goals were met- if yes rewards to whose who excelled

Mission Statement

Hierarchy Of Goals • Effectively designed Organizational goals fit into a hierarchy; that is the achievement of goals at low levels permits the attainment of high-level goals • Means-ends chain : low level goals lead to accomplishment of high-level goals • Shrinking of middle mangT combined with a new emphasis on employee in goal setting & planning at each level

Goal Hierarchy • Example : Strategic goal translate – Lower mangT level “ Excellence service to customers” “ Open new sales office” “Respond to customer inquiries within two hours”

Kinds of Organizational Goals for a Regional Fast Food Chain (McDonald’s- Burger king) Mission Statement Our mission is to operate a chain of restaurants that will prepare & serve high quality food on timely basis & at reasonable prices • Start or purchase new restaurant • Chain within few years • Provide 14% return to investors for at least 10 years Strategic Goals(President & CEO) VP-Operations VP-Marketing VP- Finance • Open 150 new restaurants during next five years • Decrease average customer wait by 30 seconds this year • Increase per store sales 5% per year for 10 years • Target & attract two new market segments during next 5 years • Develop new promotional strategy for next year • Keep corporate debt to no more than 20% of liquid assets for next ten years • Revise computerized accounting system with in five years Restaurant Manager Advertising Director Accounting Manager • Hire & train new assistant manager • Decrease waste by 5% this year • Implement incentive system within 1 year • Implement this year’s promotional strategy • Develop regional advertising campaigns with in 1 year • Negotiate 5 % lower advertising rates next yr • Competitive payroll system for each restaurant this year • Pay all invoices within thirty days

Criteria For Effective Goals • Specific & Measurable • Cover Key Result Areas • Challenging But Realistic • Defined Time Period • Linked To Rewards

Specific & Measurable • Goals should be expressed in quantitative terms such as increasing profits by 2%, decreasing scrap by 1% • Not all goals can be expressed in numerical terms but vague goals have little motivating power for employees • At the Top Org, goals often are qualitative as well as quantitative • Example (Book): Trimming workforce b 8500, decentralizing into smaller units: Employee satisfaction

Cover Key Result Areas • Goals cannot be set for every aspect of employee behavior or Organizational performance • Managers should identify a few key result areas—4 or 5 for any Organizational dept or job • Example: Marketing dept for ALLTEL • key result areas for which goals were specified 1. identify emerging areas of service opportunities 2.Improve marketing of existing products 3. develop a strategic market plan based on customer needs

Challenging but Realistic • Goals should be challenging but not unreasonably difficult • When goals are unrealistic, they set employees up for failure and lead to decreasing employee morale (staff working 100-hour weeks to accomplish everything expected of them) • How ever if goals are too easy, employee may not feel motivated • Managers should, however make sure that goals are set within the existing resource base, not beyond dept’s time, equipment & financial resource ( Kmart: set a goal to have more revenues than Wal-Mart next year)

Defined Time Period • Goals should specify the time period over which the will be achieved • A time period is a deadline specifying the date on which goal attainment will be measured • Example: Strategic sales goals could be established on a three-year time horizon 1st year target $100 million 2nd year target $129 million 3rd year target $165 million

Linked To Rewards • The ultimate impact of goals depends on the extent to which salary increases, promotions and awards are based on goal achievement • People who attain goals should be rewarded • Rewards give meaning & significance to goals and help commit employee to achieving goals • Failure to attain goals often is due to factors outside employees control • Example: Federal Express stated goal of encouraging risk Lost $233 M on an unsuccessful service called Zapmail, no one was punished

Planning Types & ModelsSingle-Use & Standing Plans • Single Use Plans: developed to achieve a set of goals that are not likely to be repeated in the future • Example: Disney theme park in Honk Kong- individuals rides, attractions & hotels\ Programs Projects

Programs • A single use plan for a large set of activities • Example: Black & Decker brought GE small appliance business: largest brand name switch in history 140 steps were used for each product Projects • similar to projects but is generally of less scope and complexity • Project may be a part of broader program • Conversion of each of the 150 product was a separate project

Standing Plans • Are the ongoing plans that are used to provide guidance for tasks performed repeatedly within the organization • Policies • Standing Operating Procedures • Rules & Regulations

Policy: Organizations general response to a designated problem or situation McDonald’s will not grant a franchise to an individual who already owns another fast-food restaurant University admission will be granted only to applicants with a min SAT score • Standing Operating Procedures:More specific than policy, in that it outlines the steps to be followed in particular circumstances • McDonald’s has SOP’s explaining how Big Macs are to be cooked, how long they can stay in the warming rack and so forth • Rules & Regulations : Narrowest of the standing plans, describe exactly how specific activities are to be carried out • McDonald’s prohibiting customers from using its telephones

Contingency Planning & Crisis Management • Crisis Management : set of procedures the org uses in the even of disaster • Example: 911 • Contingency Planning: Company responses to be taken in the case of emergencies or setbacks • Determination of alternative course of action to be taken if an intended plan of action is unexpectedly disrupted • Example: Y2K Bug: banks, hospital Org

Planning Types & Models Management by Objectives (MBO) • Setting Goals • Developing Action Plans • Reviewing Progress • Appraising overall Performance

MBO • Is a method whereby managers and employees define goals for every department, project, and person and use them to monitor subsequent performance • Setting Goals • Developing Action Plans • Reviewing Progress • Appraising overall Performance

Setting Goals • This is the most difficult step in MBO • Setting goals involves employees at all levels and looks beyond day-to-day activities to answer the question “What are we trying to accomplish?” • A good goal should be concrete & realistic, provide a specific target & time frame & assign responsibility • Goals maybe quantitative or qualitative, depending on whether outcomes are measurable • Example: “salesperson Jones will obtain 16 new accounts in December” Quantitative terms “Marketing will reduce complaints by improving customer service next year” Qualitative terms • Mutually agreed : All members should participate in setting goals

Developing Action plans • Defines the course of action needed to achieve the stated goals • Action plans are made for both individuals and departments

Reviewing progress • A periodic progress review is important to ensure that action plans are working. • These reviews can occur informally between managers and subordinates (Org may wish to conduct 3, 6, 9 month reviews during the year) • this checkup allows managers & employees to see whether they are on target or whether corrective action is necessary • The point of MBO is to achieve goals • The Action plan can be changed whenever goals are not being met

Appraising overall performance • The final step in MBO is to carefully evaluate whether annual goals have been achieved for both individuals and departments • Success or failure to achieve goals can become part of the performance appraisal system and the designation of salary increases & other rewards • This appraisal of departmental & overall corporate performance shapes goals for next year • MBO cycle repeats itself on an annual basis • Example: High employee accident rate: Gas Company

Organizational Goal Setting & Planning