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

1. m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r Chapter 6: Planning

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

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 • 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 1-2 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 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? • 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 Functional Level

10. Interaction Between Plans and Levels Types of Plans Organizational Levels Strategic Plans Corporate Level Tactical Plans Business Level Operational Plans Functional Level Adapted from Exhibit 6.2

11. The Planning Process Analyze the External Environment Analyze Resources Set Objectives 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

13. The Planning Process: Assessing Internal Resources Resources available • Human capital • Financial resources • Technology

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

15. The Planning Process: Developing Action Plans • Sequence and timing • Gantt charts • Accountability • Who is accountable for which actions?

16. Gantt Chart 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

18. The Planning ProcessMonitoring Outcomes • Unanticipated consequences • Negative unanticipated consequences • Positive unanticipated consequences • Feedback loop • Apply what has been learned to modify and improve the planning process

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

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

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

22. Goal Setting Attributes of effective goals: • Specific • Measurable • Committed • Realistic • Time bound