4Topic

Foundations of Planning

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Learning Outcomes

After studying this chapter, you will be able to:

• Discuss the nature and purposes of planning.• Explain what managers do in the strategic

management process.• Compare and contrast approaches to goal

setting and planning.• Discuss contemporary issues in planning.

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What Is Planning?

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•Planning is often called the primary management function because it establishes the basis for all the other things managers do•It’s concerned with ends (what is to be done-goal) as well as with means (how it’s to be done-strategy)

Why Do Managers Need to Plan?

• Managers should plan for at least four reasons1. planning establishes coordinated effort

(Direction) (stimulates intra & inter-dept coordination, fosters teamwork and coop., establish ind. & group contribution -> goals)

2. planning reduces uncertainty (anticipate change & dev. Response)

3. planning reduces overlapping and wasteful activities

4. planning establishes the goals or standards that facilitate control

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Reasons for Planning

Criticisms of Formal Planning

Formal planning may:1. Create rigidity (assume no env. Change)

2. Can’t Replace intuition and creativity3. Focus managers’ attention on today’s competition,

not on tomorrow’s survival4. Reinforce success, which may lead to failure

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Shld enhance & support

Lost opportunity

Formal Planning and Organizational PerformanceFormal planning generally results in:

– Higher profits– Higher return on assets

(ROA)– Positive financial results

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Strategic Management

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What do managers need to know about strategic management?Strategic Management

What managers do to develop an organization’s strategies

Strategies–Plans for how the organization will do what it’s in business to do, how it will compete successfully, and how it will attract its customers in order to achieve its goals

Strategic Management ProcessA six-step process that encompasses strategy planning, implementation, and evaluation

The Importance of Strategic Management

• Has positive impact on org performance

• Prepares managers to cope with changing situations

• Guides managers to examine relevant factors in planning future action

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The Strategic Management Process

• STEP 1: Identifying the organization’s current mission, goals and strategies

• STEP 2: Doing an external analysis• STEP 3: Doing an internal analysis• STEP 4: Formulating the strategies• STEP 5: Implementing strategies• STEP 6: Evaluating results

Steps in the Strategic Management Process

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•Corporate•Business/competitive•functional

Step 1: Identifying the organization’s current mission, goals and strategies

• Every organisation need mission – a statement of its purpose– Defining the mission forces managers to identify what it’s

in business to do– Facebook “ a social utility that connects you with the

people around you”

• Managers needs to identify the current goals and strategies – basis for assessing whether they need to be change?

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Step 1: Identifying the organization’s current mission, goals and strategies

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• Managers needs to identify the current goals and strategies – basis for assessing whether they need to be change?

Step 2 & 3: What is a SWOT Analysis?

SWOT Analysis – The combined external and internal analyses

• Strengths– Any activities the organization does well or any unique

resources that it has• Weaknesses

– Activities the organization doesn’t do well or resources it needs but doesn’t possess

• Opportunities– Positive trends in the external environment

• Threats– Negative trends in the external environment

Design, inv. Mgmt.Capital, mktg, N/working

Step 2 Doing and external analysisStep 3 Doing an internal analysis

External Environment Internal Environment

General environment-Legal-Political-Economics-Socio-cultural-Technological-International

- Resources (tangibles and intangibles- capabilities- Core competencies

Task environment- Customers- Competitors- Suppliers- Labor Market

Opportunities and Threats Strengths and weaknesses

PEST

Step 4, 5, & 6 :Formulating, Implementing, and Evaluating ResultsSTEP 4: Formulating Strategies• Corporate• Business• Functional

STEP 5: Implementing Strategies

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STEP 6: Evaluating Results• How effective have

the strategies been?• What adjustments

are necessary?

Strategies Managers Use

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What Strategies Do managers Use?Three Levels of Strategy in Organizations

competitive

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Corporate Strategy

– An organizational strategy that specifies what businesses a company is in or wants to be in and what it wants to do with those businesses

– Based on mission & goalsThe three main types of corporate strategies arei. Growthii.stabilityiii.renewal

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(i) Growth Strategy

• Coporate strategy - An organization expands the number of markets served or products offered (current or new buss.)

• Some growth strategies include1) Concentration (focused on primary line buss)2) Vertical Integration (backward & forward)3) Horizontal Integration (combining competitors)4) Diversification (related & unrelated)

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(ii) Stability Strategy– A corporate strategy in which an organization continues to

do what it is currently doing

(iii) Renewal Strategy– A corporate strategy that addresses declining organizational

performance– 2 things : cut cost and restructuring organisation

• Retrenchment strategy - short-run renewal strategy used for minor performances problems

– Helps in stabilize operation, revitalize organisational resources and capabilities to compete once again

• Turnaround strategy – more drastic measures

Corporate Strategy cont..

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(ii) Competitive Strategy

• Competitive Strategy– An organizational strategy for how an organization

will compete in its business(es)• Competitive Advantage

– What sets an organization apart; its distinctive edge

• Strategic Business units (SBUs)– An organization’s single businesses that are

independent and formulate their own competitive strategy

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Types of Competitive Strategies1.Cost Leadership Strategy

– Competing on the basis of having the lowest costs in the industry

2.Differentiation Strategy– Competing on the basis of having unique products

that are widely valued by customers

3.Focus Strategy– Competing in a narrow segment or niche with

either a cost focus or a differentiation focuseg. BMW

Eg. Giant, Tesco, AirAsia

Jusco, MAS, POLO

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(iii) Functional Strategy

• Functional Strategies– The strategies used in an

organization’s various functional departments to support the competitive /SBU strategy

– Mktg dept., production, finance, legal, HR…logistic

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Compare and Contrast Approaches to Goal Setting and Planning

Planning involves 2 important aspects:• Goals (objectives)

– Desired outcomes or targets– They guide managers’ decision and form criteria

against which work results are measured

• Plans– Documents that outline how goals are going to be

met– Eg: budget, schedules etc.

Characteristics of Well-Written Goals

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SMART

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Steps in Goal Setting

1.Review the organization’s mission and employees’ key job tasks.2.Evaluate available resources. Goals should be challenging but realistic with regards to available resources3.Determine the goals individually or with input from others.4.Make sure goals are well-written and then communicate them to all who need to know.5.Build in feedback mechanisms to assess goal progress. 6.Link rewards to goal attainment.

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TYPES OF PLANS

• The most popular ways to describe plans are in terms of their – Breadth (strategic versus tactical)– Time frame (long term versus short term)– Specificity (directional versus specific)– Frequency of use (single use versus standing)

Breadth (Wide range or scope)

• Strategic Plans– Plans that apply to the entire organization and

encompass the organization’s overall goals

• Tactical Plans– Plans that specify the details of how the overall

goals are to be achieved– Operational plan

Time Frame

• Long-term Plans– Plans with a time frame beyond three years

• Short-term Plans– Plans with a time frame of one year or less

Specificity

• Specific Plans– Plans that are clearly defined and leave no room

for interpretation

• Directional Plans– Plans that are flexible and set general guidelines

Frequency of Use

• Single-use Plan– A one-time plan specifically designed to meet the

needs of a unique situation– Eg. project

• Standing Plans– Plans that are ongoing and provide guidance for

activities performed repeatedly– Eg. How to make travelling claims, return goods

Developing Plans

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Long termSingle usedirectional

Approaches to Planning

• “Top-down” traditional approach – Top-level managers plan; plans flow down to the different levels.

• Development by organizational members – Employees at various levels and in various work units develop plans to meet their specific needs.

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MBO-bottom up

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4.4 Contemporary Issues in Planning

How Can Managers Plan Effectively in Dynamic Environments?Managers should develop plans that are specific,

but flexible.Managers need to stay alert to environmental

changes that may impact implementation and respond.

A flatter organizational hierarchy helps to effectively plan in dynamic environments

• Environmental scanning—screening large amounts of information to detect emerging trends and create a set of scenarios. Competitive intelligence - It seeks basic information about

competitors that gives managers accurate information about competitors

How Can Managers Use Environmental Scanning?

Summary

Foundations of Planning • What is planning and why do managers need

to plan?• What do managers need to know about

strategic management?• How do managers set goals and develop

plans?• What contemporary planning issues do

managers face?