Chapter 7

What is planning?
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Foundations of Planning

Planning
m

A primary functional managerial activity that involves:

n n n

Defining the organisation s goals Establishing an overall strategy for achieving those goals Developing a comprehensive set of plans to integrate and coordinate organisational work.

Types of planning
n

Informal: not written down, short-term focus; specific to an organisational unit. Formal: written, specific, and long-term focus, involves shared goals for the organisation.

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Why do managers plan?

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Planning and performance

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Purposes of planning
m m m m

Provides direction Reduces uncertainty Minimises waste and redundancy Sets the standards for controlling

The relationship between planning and performance

m

Formal planning is associated with:

n n

Higher profits and returns of assets. Positive financial results.

m m m

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.

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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

How do managers plan?

l

Types of goals
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Elements of planning
m

Financial goals
m

Goals (also Objectives)

n

Desired outcomes for individuals, groups, or entire organisations Provide direction and evaluation performance criteria

Are related to the expected internal financial performance of the organisation. Are related to the performance of the firm relative to factors in its external environment (e.g., competitors). Broadly -worded official statements of the organisation (intended for public consumption) that may be irrelevant to its real goals (what actually goes on in the organisation).
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Strategic goals
m

Plans
n n

Documents that outline how goals are to be accomplished Describe how resources are to be allocated and establish activity schedules

Stated goals versus real goals

m

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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
Source:A.A. Thompson Jr. and A.J. Strickland III.Strategic Management 12th ed. (New York: McGraw -Hill/Irwin, 2001), p. 43.

Types of plans

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

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Figure 7.1

Types of plans (contd)

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Types of Plans (contd)

l

Strategic plans
m m m m

Long-term plans
m

Apply to the entire organisation. Establish the organisations overall goals. Seek to position the organisation in terms of its environment. Cover extended periods of time. Specify the details of how the overall goals are to be achieved. Cover short time period
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Plans with time frames extending beyond three years Plans with time frames on one year or less Plans that are clearly defined and leave no room for interpretation Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation.
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Short-term plans
m

Specific plans
m

Operational plans
m m

Directional plans
m

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Specific versus directional plans

Types of plans (contd)

l

Single-use plan
m

A one-time plan specifically designed to meet the need of a unique situation. Ongoing plans that provide guidance for activities performed repeatedly.

Standing plans
m

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Figure 7.2

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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Approaches to establishing goals

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Traditional objective setting

Traditional goal setting

m m m m m

Broad goals are set at the top of the organisation. Goals are then broken into subgoals for each organisational level. Assumes that top management knows best because they can see the big picture. Goals are intended to direct, guide, and constrain from above. Goals lose clarity and focus as lower-level managers attempt to interpret and define the goals for their areas of responsibility.
Figure 7.3

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Approaches to establishing goals (contd)

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Approaches to establishing goals (contd)

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Maintaining the hierarchy of goals

m

Management by objectives (MBO)

m m m m

MeansEnds Chain
n

The integrated network of goals that results from a establishing a clearly-defined hierarchy of organisational goals. Achievement of lower-level goals is the means by which to reach higher-level goals (ends).

Specific performance goals are jointly determined by employees and managers. Progress toward accomplishing goals is periodically reviewed. Rewards are allocated on the basis of progress towards the goals. Key elements of MBO:
n

Goal specificity, participative decision making, an explicit performance/evaluation period, feedback

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Steps in a typical MBO program

1. The organisations overall objectives and strategies are formulated. 2. Major objectives are allocated among divisional and departmental units. 3. Unit managers collaboratively set specific objectives for their units with their managers. 4. Specific objectives are collaboratively set with all department members. 5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employees. 6. The action plans are implemented. 7. Progress toward objectives is periodically reviewed, and feedback is provided. 8. Successful achievement of objectives is reinforced by performance-based rewards.

Does MBO work?

l l

Reason for MBO success

m

Top management commitment and involvement Not as effective in dynamic environments that require constant resetting of goals. Overemphasis on individual accomplishment may create problems with teamwork. Allowing the MBO program to become an annual paperwork shuffle.

Potential problems with MBO programs

m m m

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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Characteristics of well-designed goals

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Steps in goal setting

1. Review the organisation s mission statement.
Do goals reflect the mission? Are resources sufficient to accomplish the mission? Are goals specific, measurable, and timely? Is everybody on the same page?

Written in terms of outcomes, not actions m Focuses on the ends, not the means. Measurable and quantifiable m Specifically defines how the outcome is to be measured and how much is expected. Clear as to time frame m How long before measuring accomplishment.

Challenging yet attainable m Low goals do not motivate. m High goals motivate if they can be achieved. Written down m Focuses, defines, and makes goal visible. Communicated to all m Puts everybody on the same page.

2. Evaluate available resources. 3. Determine goals individually or with others. 4. Write down the goals and communicate them. 5. Review results and whether goals are being met.
What changes are needed in mission, resources, or goals?
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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Developing plans
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Planning in the hierarchy of organisations

Contingency factors in a managers planning

m

Managers level in the organisation

n n

Strategic plans at higher levels Operational plans at lower levels Stable environment: specific plans Dynamic environment: specific but flexible plans

Degree of environmental uncertainty

n n

Length of future commitments

n

Current plans affecting future commitments must be sufficiently long-term to meet the commitments.

Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Figure 7.6

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Approaches to planning
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Contemporary Issues in planning

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Establishing a formal planning department

m

Criticisms of Planning
m m

A group of planning specialists who help managers write organisational plans. Planning is a function of management; it should never become the sole responsibility of planners.

Planning may create rigidity. Plans cannot be developed for dynamic environments. Formal plans cannot replace intuition and creativity. Planning focuses managers attention on today s competition not tomorrows survival. Formal planning reinforces today s success, which may lead to tomorrows failure.
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Involving organisational members in the process

m

Plans are developed by members of organisational units at various levels and then coordinated with other units across the organisation.
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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

Contemporary issues in planning (contd)

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Building for the Future

Effective planning in dynamic environments

m m m m m

Develop plans that are specific but flexible. Understand that planning is an ongoing process. Change plans when conditions warrant. Persistence in planning eventually pay off. Flatten the organisational hierarchy to foster the development of planning skills at all organisational levels.

1. What role do you think goals play in planning done at Lend Lease? Explain. 2. How does Lend Lease illustrate effective planning in a dynamic environment? 3. What approach to developing plans does Lend Lease appear to follow? Explain. 4. Would Lend Leases approach work in other organisations? Why or why not? 5. Lend Lease has a strong commitment to environmentally sustainable development. (Check out its website for information on its core values.) How might these core values affect planning efforts?
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Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson E ducation Australia

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Lend Lease: Core Values

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Lend Lease and its employees actively subscribe to a set of Core Values. These values are adopted and promoted across all of our businesses around the world. They underpin the way in which we conduct our business, interact with our stakeholders and operate as individuals or teams within the Lend Lease Group. The values also relates to our Code of Conduct which provides guidance for , employees in relation to the standards that the Company expectsin the conduct of its operations. Respect Respectfor all people - their ideas, their culture, their views, their health and safet , and their y knowledge. Integrity Integrity is non -negotiable. We don't do it if it compromises the individual or the company's integrity. In particular, we will not compromise on safety either within ou organization or in doing business with r any of our clients or suppliers. Innovation Challenge and seek to find a better solution, think outside thebox and dare to do things differently. Be innovative and creative- don't just do it because we did it yesterday. Collaboration Redefine the way our business works by truly sharing knowledge, building on this and drawing insights. Through teamwork we value the insights of others and b uild on them - we must truly take the time to help. Excellence We strive for excellence in all we do. It is evident not only in the products and services we deliver, but in how we deliver them. Our employees embody excellence- whether it be in the decisions they make, the products they build, or the service they deliver. On c onstruction sites in particular, but everywhere, excellence equals zero incidents.

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