Chapter 4: Planning

• Part 1: Goal setting and Organizational planning

• Part 2: Strategy formulation and implementation

Lecturer: Duong Thi Hoai Nhung (MBA)Faculty of Business AdministrationForeign Trade University

Email: nhungdth@ftu.edu.vnMobile: 0985 867 488

Part 1: Organizational planning and goal setting

Learning objectives• Define goals and plans, and explain the relationships

between them• Explain the concept of organizational mission and the

way it influences goal setting and planning• Describe the types of goals an organization should

have and why they assemble a hierarchy • Define the characteristics of effective goals• Describe the four essential steps in the process of

management by objectives (MBO)• Describe how responsibility can be allocated to

accomplish planning and goal setting

Outline

1. Goals and plans in organization

a. Definition of goals and plans

b. Types of goals and plans

2. Planning types and models

a. Traditional approaches to planning

b. Modern approaches to planning

1. Goals and plans in organization

a. Definition of goals and plans• A goal is a desired future statement that the organization

attempts to realize.

• A plan is a blueprint for goal achievement: it specifies the necessary resource allocations, schedules, tasks and other actions.

Planning means determining the organization’s goals and defining the means for achieving them.

Reasons for Planning?????

The levels of goals and plans in an organization Missi

on statement

Strategic goals/plansSenior management(Organization as a

whole)

Tactical goals/plansMiddle management

(Major divisions, functions)

Operational goals/plansLower management

(Departments, individuals

Internal messageLegitimacy, motivation,

guides, rationale, standards

External messageLegitimacy for investors,

customers, suppliers, community

a. Definitions of goals and plans

Organizational mission - The mission describes the organization’s value, aspirations

and reason for being- the organization’s reason for existence

- A well-defined mission:

+ the basis for development of all subsequent goals and plans

+ a clear mission

+ short and straightforward

+ describing basic business activities and purposes as well as the values that guide the organization

b. Types of Goals and plans

Types of Goals• Strategic goals

- Broad statements describing where the organization wants to be in the future

• Tactical goals- The results that major divisions and departments within the organization intend to achieve

• Operational goals- The specific results expected from departments, work groups and individuals

b. Types of goals and plans

Types of Plans

BREADTH TIME FREQUENCY OF USE FRAME SPECIFICITY OF USE

Strategic Long term Directional Single use

(beyond 5 years)(beyond 5 years)

Tactical Short term Specific Standing

(less than 1 year)(less than 1 year)

Operational Short term Specific StandingOperational Short term Specific Standing

Planning: Focus and TimePlanning: Focus and Time

• Strategic PlansStrategic Plans-- The action steps by which the organization The action steps by which the organization

intends to attain strategic goals.intends to attain strategic goals. • Tactical PlansTactical Plans

– Specify the details of how an organization’s Specify the details of how an organization’s overall objectives are to be achieved.overall objectives are to be achieved.

• Operational plans - Specify action steps towards achieving

operational goals and to support tactical plans

Manufacture both standard and custom metal products for various applications in the machine tool industry

CEO• 12% return on investment• 5% growth• No employee layoffs• Excellent service to customers

Production Executive

- Manufacture 1,200,000 products at average cost of $19- Scrap rate of 3% or less - Increase manufacturing productivity by 2%- Resolve employee grievances within 3 working days

Finance Executive

- Keep outstanding accounts below $500,000- Keep borrowing below $1,250,000- Provide monthly budget statements for departments- Have delinquent accounts of no more than 2% of total

Supervisor- Automatic Machines

- Produce 150,000 standard units at average cost of $16- Have machine downtime of less than 7%- Achieve scrap rate of 3% or less- Respond to employee grievances within 24 hours

Accounts Receivable Manager

- Issue invoices within 5 days of sale- Check new customers’ credit within 1 working day- Allow no account to be overdue more than 5 months- Call delinquent accounts weekly

Sales Manager- Region 1

- Respond to customer inquiries within 2 hours- Meet sales quota of 120,600 units - Work with salespeople to:+ Visit 1 new customer each day+ Call on each large customer every 4 weeks+ Call on each small customer every 8 weeks

Marketing Executive

- Sell 1,200,000 units at average price of $27- Introduce 1 new product line- Increase sales by 5% in new market areas- Open 1 new sales office- Attain market share of 19%

Mission

Strategic goals

Operational goals

Tactical goals

Planning in the Hierarchy of Organizations

EFFECTIVE GOAL

pecific

easurable

greement

ealistic

ime-framed

SS

MM

AA

RR

TT

2. Planning types and models

a. Traditional approaches to planning

- Central Planning has been done entirely by top executives, consulting firms or, most commonly, by central planning departments

Managing Director

Line managers

Planning Department

Frozen foodsBreakfast cereals

Finance

Division Head

Canned foods

Production Marketing FinanceFinance ProductionProduction Marketing Marketing

Structural location of central planning department

a. Traditional approaches to planning

Disadvantages- Planners may be out of touch with day-to-day realities - Formal plans may inhibit flexibility - Formal plans may limit creativity and learning

b. Modern approaches to planning

- Decentralized planning: assigned to major departments and divisions to help managers develop their own strategic plans

Managing Director

Line managers

Planning support staff member

Frozen foodsBreakfast cereals

Finance

Division Head

Canned foods

Production Marketing FinanceFinance ProductionProduction Marketing Marketing

Structural location of decentralized planning department

Management by Objectives

• Peter Drucker published ‘The Practice of Management,’ which included his theory of Management by Objectives (MBO)

b. Modern approaches to planning

b. Modern approaches to planning

• Management by objectives (MBO)- MBO is a method whereby managers and employees

defines goals for every department, project and person, and use them to monitor subsequent performance

Management by objectives (MBO)

Common Elements in an MBO Program

Goal Specificity

Participative Decision Making

Explicit Performance

Period

Performance Feedback

Model of the MBO process

- Corporate strategic goals- Departmental goals- Individual goals

Action plans

Take corrective action

Review progress

Appraise performance

Step 1: Set goals

Step 4:Appraise overall performance

Step 2: Develop action plan

Step 3:Review progress

Model of the MBO process

1. Set goals- To answer the question: what are we trying to

accomplish? - A good goal should be + concrete and realistic+ a specific target+ time frame+ assign responsibility+ quantitative or qualitative

2. Develop action plansAn action plan defines the course of action needed to achieve the sated goals. An action plans are made for both individuals and departments

Model of the MBO process

3. Review progress- To ensure that action plans working. - Occurring informally between managers and

employees - The action plan can be changed whenever goals

are not being met4. Appraise overall performance- Evaluate whether annual goals have been part

for both individuals and departments The MBO cycle repeats itself on an annual

basis

Benefits and problems with MBO

• Benefits of MBO1. Managers’ and employee efforts are focused

on activities that will lead to goal attainment.

2. Performance can be improved at all company levels.

3. Employees are motivated.

4. Department and individual goals are aligned with company goals.

Benefits and problems with MBO

• Problems with MBO1. Constant change prevents MBO from taking

hold

2. An environment of poor employer-employee relations reduces MBO effectiveness.

3. Strategic goals may be displaced by operational goals.

4. Mechanistic organization and values that discourage participation can harm the MBO process.

5. Too much paperwork saps MBO energy