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Elements of Planning Chapter 5 Copyright Atomic Dog Publishing, 2003 Planning—First Step in Management Process Planning is one tool management needs to adapt to change Every manager plans Formal planning vs. informal planning Planning attempts to define the organization Planning includes all activities that lead to the definition of objectives and to the determination of appropriate courses of action 2/43 Copyright Atomic Dog Publishing, 2003 Benefits of Planning Forces managers to think ahead Leads to the development of performance standards Forces management to articulate clear objectives Enables an organization to be better prepared for sudden developments 3/43 Copyright Atomic Dog Publishing, 2003 Factors in Understanding the Need for Planning Increasing time spans between present decisions and future results Increasing organization complexity Increasing external change 4/43 Copyright Atomic Dog Publishing, 2003 Types of Planning Planning activity differs in scope, time frame, and level of detail Research has shown that organizational effectiveness declines for companies that don’t integrate (to some extent) the various types of planning 3 types of planning are: Strategic Planning Operational Planning Tactical Planning 5/43 Copyright Atomic Dog Publishing, 2003 Strategic Planning Comprehensive, long term, and relatively general Focuses on the broad, enduring issues for ensuring a firm’s effectiveness over a long period of time Necessary in order to create the organization’s mission and a set of goals 6/43 Copyright Atomic Dog Publishing, 2003 Operational Planning Focused, short term, and specific Translates the broad concepts of the strategic plan into clear numbers, specific steps, and measurable objectives for the short term Requires efficient, cost-effective application of resources to solving problems and meeting objectives 7/43 Copyright Atomic Dog Publishing, 2003 Tactical Planning Falls on the continuum between the strategic and operational planning processes Is more specific than strategic planning Deals more with issues of efficiency than with long-term effectiveness 8/43 Copyright Atomic Dog Publishing, 2003 Deciding on What Plan to Use Type of planning managers engage in is determined by the type of goals and/or objectives to be achieved by the plan Higher management levels deal with plans with longer time frames, greater scope, and less detail than lower-level managers Participation usually doesn’t work in reverse; however, it would be highly unusual for a company executive to be involved in shortrange tactical planning 9/43 Copyright Atomic Dog Publishing, 2003 What Plan to Use (cont.) Single Use Plans Have clear time frame for their usefulness Include detailed goals and objectives concerning quality, primary markets, roll out schedule, etc. Standing Plans Ongoing meaning and applications for an organization 10/43 Copyright Atomic Dog Publishing, 2003 The Elements of Planning Objectives Actions Means to achieve the objectives Resources Conditions of the future that the planner deems satisfactory Constraints on the courses of actions Implementation Assignments and direction of personnel to achieve the plan 11/43 Copyright Atomic Dog Publishing, 2003 Objectives Copyright Atomic Dog Publishing, 2003 Establishing Objectives Establishing objectives begins with the determination of future objectives, which must satisfy expectations of the organization’s environment Corporate management has turned more and more to formal planning techniques Organizations that use formal approaches to planning are more profitable than those that do not Establishing objectives means to determine the priority and timing of objectives, resolve conflict between objectives, and provide measurement of objectives so results can be evaluated 13/43 Copyright Atomic Dog Publishing, 2003 Priority of Objectives At a given time, accomplishing one objective is more important than accomplishing any of the others Prioritization reflects the relative importance of certain objectives, regardless of time Balanced scorecard approach provides a balanced picture of current operating performance as well as drivers of future performance 14/43 Copyright Atomic Dog Publishing, 2003 Time Frame of Objectives Develop different plans for different periods of time Definitions of long-run and short-run plans vary widely Examples of long-run plans: Aircraft or automobile business—5+ years Women’s fashion business—1 or 2 years Children’s toy business—1 selling season The organization’s product, technology, and market will dictate what long-term and shortterm plans are 15/43 Copyright Atomic Dog Publishing, 2003 Conflicts Among Objectives Include and integrate all groups’ interests into corporate plans, e.g., stockholders (owners), employees (including unions), customers, suppliers, creditors, and governmental agencies Most common planning trade-offs faced by managers: Short-term profits vs. long-term growth Profit margin vs. competitive position Direct sales effort vs. development effort Greater penetration of present markets vs. developing new markets Achieving long-term growth through related businesses vs. unrelated businesses 16/43 Copyright Atomic Dog Publishing, 2003 Conflicts Among Objectives (cont.) Present and potential customers hold ultimate power over the firm Suppliers hold power over firms, too. They can disrupt the flow of materials to express disagreement with the firm’s activities Government agencies have the power to enforce the firm’s compliance with regulations More successful firms consistently emphasize profitseeking activities that maximize the stockholders’ wealth 17/43 Copyright Atomic Dog Publishing, 2003 Measurement of Objectives Well-managed business organizations have at least five categories of objectives: Profitability Competitiveness Efficiency Flexibility Quality 18/43 Copyright Atomic Dog Publishing, 2003 Profitability The most important objective Return on investment—net profit divided by the capital invested in the organization or some similar measure Earnings provide the return on investment— the reason that shareholders are willing to supply capital 19/43 Copyright Atomic Dog Publishing, 2003 Competitiveness It focuses on prospects for long-term profitability It measures the competitive strength of the organization Competitiveness depends on a number of factors, including: Customer values Shareholder values The ability to act and react within a competitive environment 20/43 Copyright Atomic Dog Publishing, 2003 Efficiency Organization must maintain certain types of short-run efficiencies to bring about the prospect of long-run profitability Measures of efficiency reflect how well the organization’s resources are employed Efficiency directly influences performance and involves both the human and nonhuman resources of the organization 21/43 Copyright Atomic Dog Publishing, 2003 Efficiency (cont.) Factors of efficiency: Quality of management Employee turnover Succession of management Age and condition of the plant and equipment Depth of critical personnel Teamwork 22/43 Copyright Atomic Dog Publishing, 2003 Flexibility Continually develop new strategies, adapt to new market realities, and then shift all aspects of the organization so that they are congruent with the new strategies Flexible organizations use their structure as a source of competitive advantage 23/43 Copyright Atomic Dog Publishing, 2003 Quality Experts have specified fundamental principles or guides for quality management Deming prepared the list of 14 Points of Quality Drucker, Deming, Crosby, Juran, and others offer a mix of goals and procedures that provide managers with guidance for planning Dimensions of corporate objectives are profit, market share, and return on assets 24/43 Copyright Atomic Dog Publishing, 2003 Quality (cont.) Proactive, quality-based planning involves setting objectives that add value by exceeding mandated standards or even setting standards of quality where none had previously existed Objectives need to emphasize quality over quantity 25/43 Copyright Atomic Dog Publishing, 2003 Quality (cont.) Garvin identified 6 planning values that are the basis of a quality-based system: Performance Features Reliability Conformance Aesthetics Perceived quality (customer perception) 26/43 Copyright Atomic Dog Publishing, 2003 Quality (cont.) Establish planning values that are responsive to both the internal and external environments of the organization Internal—people, processes, and practices External—customer satisfaction Drucker developed a set of 8 planning objectives that managers must keep in mind 27/43 Copyright Atomic Dog Publishing, 2003 Actions Copyright Atomic Dog Publishing, 2003 Actions are . . . Specific, prescribed means to achieve objectives Determinates of the success or failure in meeting objectives Directed toward changing a future condition—that is, achieving an objective Causally related to objectives, i.e., the objectives are caused to occur by the courses of action 29/43 Copyright Atomic Dog Publishing, 2003 Forecasting Forecasting is the process of using past and current information to predict future events Forecasting models range from the subjective to the sophisticated: Hunches Market surveys Time-series analysis Econometric forecasting 30/43 Copyright Atomic Dog Publishing, 2003 Resources Copyright Atomic Dog Publishing, 2003 Resources are . . . Defined as the financial, physical, human, time or other assets of an organization Usually controlled by use of a budget—a predetermined amount of resources linked to an activity Compared with the budgeted (planned) results, which may lead to corrective action, as is the management function of controlling 32/43 Copyright Atomic Dog Publishing, 2003 Implementation Copyright Atomic Dog Publishing, 2003 Implementation of Plans Planning won’t help an organization realize objectives if plans cannot be implemented Manager must implement plans through other people, motivating them to accept and carry out the plan Means of implementing plans: Authority Persuasion Policy 34/43 Copyright Atomic Dog Publishing, 2003 Authority is . . . A legitimate form of power, in the sense that it accompanies the position not the person The right to make decisions and to expect compliance to the implications of these decisions 35/43 Copyright Atomic Dog Publishing, 2003 Persuasion is . . . A process of selling a plan to those who must implement it, i.e., communicating relevant information so individuals understand all implications Convincing others to base acceptance of the plan upon its merits rather than upon the authority of the managers 36/43 Copyright Atomic Dog Publishing, 2003 Policy Policy encompasses written statements that reflect the basic objectives of the plan and provide guidelines for selecting actions to achieve the objectives Effective policies have these characteristics: Flexible Comprehensive Coordination Ethics Clarity Ultimate test of the effectiveness of a policy is whether the objective is attained 37/43 Copyright Atomic Dog Publishing, 2003 Policy (cont.) If the policy does not lead to the objective, the policy should be revised Managers must provide information that reports actual performance and permits comparison of the performance against standards 38/43 Copyright Atomic Dog Publishing, 2003 Time-Based Planning Speed can often determine the success or failure of a plan’s implementation Important period between the time a product is first considered and the time it is sold to the customer is called concept to customer Speed in planning and delivering a product or service can be a strategic competitive advantage Paying attention to time usually forces the firm to look at other issues affecting products’ and services’ quality, e.g., designing, staffing, and inspecting 39/43 Copyright Atomic Dog Publishing, 2003 Time-Based Planning (cont.) Paying attention to production speed can lead to reductions in idle periods Pace of innovation varies by industry Important variations exist in the pace of innovation within industries By eliminating the time when a product or process lies idle, speed is added to the planning process. Much improvement stems from simply not wasting time 40/43 Copyright Atomic Dog Publishing, 2003 Final Thoughts on Planning Copyright Atomic Dog Publishing, 2003 In Summary Planning, a fundamental activity of managers, can cover any time span from the short run to the long run Planning is the essence of management; all other managerial functions stem from planning Managers begin the planning process by asking the appropriate questions Fundamental questions are appropriate regardless of the type and size of the organization 42/43 Copyright Atomic Dog Publishing, 2003 End of Chapter 5 Copyright Atomic Dog Publishing, 2003