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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? Relationship between planning and organizational performance Types of goals How plans differ

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Chapter 7: Foundations of Planning

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

  2. What Is Planning? • Defining the organization’s 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?

  3. 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

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

  5. 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 planning. • 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.

  6. 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).

  7. Stated Objectives from Large U.S. Companies • 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 markets • Expanded growth opportunities • 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 Source: A.A. Thompson Jr. and A.J. Strickland III. Strategic Management 12th ed. (New York: McGraw-Hill/Irwin, 2001), p. 43.

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

  9. 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)!

  10. Types of Plans Exhibit 7.2

  11. Strategic vs. Operational Plans • Strategic Plans • Apply to the entire organization. • Establish the organization’s overall goals. • Positions organization in terms of its environment • Cover extended periods of time. • Operational Plans • Assumes objectives exist • Specifies details of how overall goals will be achieved • Cover short time period

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

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

  14. Specific Versus Directional Plans Exhibit 7.3

  15. 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.

  16. 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 hierarchy

  17. Problems With Traditional Objective Setting Exhibit 7.4

  18. 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)

  19. 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%

  20. MBO Goes One Step Further… • Establishes means-ends chain, but is also MOTIVATING, not just CONTROLLING! • 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

  21. 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.” Characteristics of Well-Designed Goals Exhibit 7.6

  22. Contingency Factors in A Manager’s Planning • Manager’s 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.

  23. Planning in the Hierarchy of Organizations Exhibit 7.7

  24. Tips For Effective Planning… • Don’t let plans create rigidity -- develop plans that are specific but flexible • Focus on quality and implementation, not quantity • Don’t relegate planning to “planning department” – it should become an integrated part of management • 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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