Topic  Planning

3
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define planning;
2. State the four strengths and five weaknesses of planning;
3. Explain the five types of planning for organisational activities;
4. Define management by objectives;
5. Explain the nine steps of the strategic framework;
6. Explain what SWOT analysis is; and
7. Explain why quality is used as a strategy.

 INTRODUCTION
This topic will discuss the first component in the management process, which is
planning. If we make a comparison of accomplishments among companies, it is
most likely that successful companies have almost similar elements, i.e. each of
them does planning. Let us now look further into the advantages of planning.

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3.1 DEFINITION OF PLANNING

Planning encompasses defining organisational objectives and goals, formulating
overall strategies to achieve objectives and outlining comprehensive levels of planning
to be integrated and coordinated. It is related to the question of what needs to be done
and what are the best approaches that must be adopted to get it done.

Planning encourages coordination of activities. Knowing and understanding the

direction of the organisation and being aware of the things that must be done to
achieve the objectives will help the members of the organisation to coordinate all
their activities to achieve set objectives.

Planning reduces uncertainty. It is especially necessary when managing under

uncertain conditions. Besides this, planning also prevents work duplication and
wastage. Finally, planning will help to set objectives and standards, which in turn
will facilitate controlling.

3.1.1 Criticism Levelled at Planning

Although planning brings about several advantages, there is also criticism levelled
against planning. Some say planning results in inflexibility and rigidity. Formal
planning ties the organisation to set objectives and time schedules and the
assumption that the environment is static. If a managerÊs plan is based on incorrect
assumptions, then planning will also be inaccurate.

The second criticism is that planning cannot be done in a dynamic environment.

The current business scenario is very fluid and this tends to complicate forecasting
activities. In fact, managers in an ever-changing environment need to be flexible.

It is also said that formal planning restricts intuition (gut feeling) and creativity.
Vision, which is normally in the abstract form, and functions, as an indication of
the direction of the organisation, will eventually become formalised and routine
over time.

Besides this, planning also makes managers focus their attention on current
competition and not future challenges. A lot of planning activity focuses on taking
advantage of existing business opportunities in an industry. Normally, planning
does not encourage managers to create or penetrate a new industry, in other
words, pioneer into new markets or introduce new ideas and products.

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The last criticism is that formal planning gives an impetus for bogus successes,
which may lead to failure. We cannot deny that success can become failure in
conditions of uncertainty. It may become difficult or impossible to change
successful plans. A „successful‰ plan may be the basis of misleading guarantees of
success. There is a lot of evidence that excellent performance is obtained through
formal planning, as opposed to the views of the critics.

However, we cannot infer that all companies that plan are more successful when
compared to companies that do not plan. A company that plans normally records
higher profits and returns on investment. As a matter of fact, quality processes and
accurate planning are more effective for the performance of an organisation
compared to the role of planning.

Finally, blame will normally be accorded to environments of uncertainty if an

organisation that has formal planning does not succeed in accomplishing high
performance levels, for example change in government policies, entry of new
competitors etc.

3.2 TYPES OF PLANNING

After discussing the aims of planning and its pros and cons, let us now take a closer
look at the types of planning that can be used for our organisational activities.

3.2.1 Strategic Planning

Strategic planning are plans that involve the entire organisation. A strategic plan
outlines the overall objectives of the organisation and determines the position of
the organisation in the organisational scenario. This kind of planning focuses on
the efforts of the organisation to accomplish its goals. Strategic planning is the
foundation for the creation of tactical plans.

3.2.2 Tactical Planning

Tactical planning, or also known as operational planning, outlines in detail the
steps for achieving overall objectives.

Strategic planning and tactical planning differ in three aspects. Normally,

strategic planning encompasses a long period (five years or more), whereas
tactical planning involves short-term plans. Secondly, strategic planning focuses
on general issues, whereas tactical planning focuses on the details. Finally,
strategic planning involves expressing organisational objectives whilst tactical

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planning implements existing objectives and sets methods or approaches to

achieve these objectives.

Table 3.1 shows a comparison of these two types of planning.

Table 3.1: Types of Planning

Type Duration Time Frame Usage Frequency

Strategic Long-term Directional Once only
Tactical Short-term Specific As needed

3.2.3 Time-based Planning

Normally, short-term refers to a period of less than one year, whereas long-term
means a period of more than five years. The difference between short-term and
long-term planning depends on future commitments and the degree of change
faced by the organisation. The planning should cover the period during which the
commitments will be implemented.

In terms of the speed of change, the faster the occurrence of change, the shorter
should be the duration of the plan. This is because this kind of planning will allow
flexibility in the face of change.

3.2.4 Specific and Directional Planning

In general, specific planning is preferred over directional planning. Specific
planning has clearly defined objectives but this certainly does not mean it does not
have weaknesses. Clear and detailed information must exist to make plans,
especially if such information is difficult to obtain. When uncertainty is high, the
management must make allowances for flexibility to face unexpected changes and
it is at this point that directional planning is preferred.

Directional planning identifies general guidelines. It provides focus or attention

and not detailed objectives and achievement measures. For example, a specific
plan will aim to reduce costs by 10 per cent and increase profits by 8 per cent within
6 months, whereas a directional plan will aim to increase profits by 6 to 12 per cent
within a period of 6 months.

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3.2.5 Single-use Plan and Standing Plan

A single-use plan is used for a specific or unique situation. It is a detailed action
plan which may not be repeated in the same way in the future. There are three
types of single-use planning, i.e. for programmes, projects and budgets.

Programmes are single-use plans which consist of several activities to achieve a

specific organisational goal. Projects are plans that direct an individualÊs or
groupÊs work towards a certain purpose. Meanwhile, budgets are plans which
channel financial resources for other plans.

For example, a manager of a tea plantation in Peninsular Malaysia is instructed to

expand the plantation into Sabah and Sarawak. He will probably not use a
standing plan for acquiring the land because the area under question may have
unique needs in terms of location, cost of opening a plantation, readiness of the
workforce, obstacles, need for legislation and other factors.

A standing plan comprises plans that are already available, which have guidelines
for repetitive steps or processes. For example, for registration in universities, the
dates may differ but the processing steps remain the same every semester.
Standing plans include policies, procedures and rules.

ACTIVITY 3.1
Produce a conceptual map about the types of planning that can be used
for the activities in your organisation. Post your answers in myINSPIRE
online forum for sharing and comparing.

3.3 MANAGEMENT BY OBJECTIVES (MBO)

In this subtopic, we will be exploring the definition of management by objective
(MBO) and its effectiveness.

3.3.1 What is MBO?

MBO is not something foreign in the world of management. For many people
involved in planning, the term MBO is often a topic of conversation. The attraction
is that it interprets overall objectives into specific objectives. MBO operationalises
objectives by cascading them to the entire organisation. MBO has a two-way
function, i.e. from bottom-up and from top-down. The result is a hierarchy which

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links objectives at one level to the next level. For workers, MBO represents a personal
performance objective (refer to Figure 3.1).

Figure 3.1: Cascading objectives

What are the common elements of an MBO programme? There are four common
ingredients in all MBO programmes, i.e. specific purposes, participative decision
making, explicit time-frame and performance feedback. These four elements are
described further in Table 3.2.

Table 3.2: Elements in MBO

Element Description
Specific purposes MBO objectives must be contained in brief statements which
outline expected outcomes.
Participative Objectives are not only made by the employer to be adhered to
decision making by the employees. In addition, the management together with the
workers identify the goals and determine the best methods to
achieve those goals.
Explicit time-frame Each objective has its own time duration for achievement.
Performance MBO always provides continuous feedback on the achievement
feedback of goals. In the perfect sense, it is implemented by providing
continuous feedback to every individual. An evaluation meeting
over a formal time period completes this process.

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3.3.2 Is MBO Effective?

Evaluating the effectiveness of MBO is a complicated process. Challenging specific
goals is found to produce higher output when compared to organisations that do
not have goals or have unclear goals or purposes. At the same time, feedback also
motivates performance. These decisions are consistent with MBO principles which
emphasise the importance of having specific objectives and feedback. MBO can be
even more effective if the goals set are extremely challenging.

3.4 STRATEGIC FRAMEWORK – STRATEGIC

MANAGEMENT PROCESS
Strategic Management Process is a 9-step process which includes planning,
implementation and evaluation of strategies. Strategic Planning involves the first
seven steps.

Step 1: Identifying Mission, Objectives and Current Strategies

Every organisation has a mission statement that outlines the purpose and answers
the question „what is the nature of our business?‰. For example, the mission of a
college would probably be to provide training for students to prepare them for the
career world. By defining the organisational mission, the organisation identifies
the detailed scope of its products and services.

3.5 ANALYSIS OF STRENGTHS, WEAKNESSES

OPPORTUNITIES AND THREATS (SWOT)
Please do not be surprised by the previous subtopic which seems to bring the topic
on strategic framework to a sudden end. SWOT Analysis is actually a part of the
strategic framework which is being discussed.

SWOT Analysis encompasses Steps 2 and 3 which study external factors of the
organisation and Steps 4 and 5 which analyse the internal factors. This is discussed
separately. SWOT is the analysis of the strengths, weaknesses, opportunities and
threats of the organisation.

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(a) Step 2: Analysing the Environment

Organisations should be aware of their competitors, new legislation which
influence organisations, customer needs and other relevant factors.

By analysing the environment, managers will be better equipped to define

existing strategies – i.e. strategies that are compatible with the environment.
This step will be complete after the organisation carefully identifies what is
happening in the external environment and is sensitive to new directions
which will have an effect on the operations of the organisation.

(b) Step 3: Identifying Opportunities and Threats

The environment comprises positive and negative factors which will
influence the organisation. Opportunities are positive factors whilst threats
are negative factors.

For example, telecommunications technology is an opportunity for

telecommunication companies like Maxis. However, it is a threat to courier
service companies like Federal Express.

(c) Step 4: Analysing the Organisational Resources

Every organisation faces financial and resource constraints. An analysis of
this will provide information about the resources available. The availability
or otherwise of resources and skills in an organisation will determine the
strengths and weaknesses of that organisation.

(d) Step 5: Identifying Strengths and Weaknesses

Strengths are internal resources that exist in an organisation or activities that
the organisation carries out well. Core competencies of an organisation
means that the organisation has strengths or extraordinary skills that enable
it to have a competitive advantage.

Weaknesses are the lack of resources or poorly conducted activities carried

out by the organisation.

(e) Step 6: Re-evaluation of Mission and Objectives of the Organisation

After analysing the resources and the environment, the outcomes of existing
strategies can be forecasted. Managers must decide if strategies which were
decided earlier, or their implementation, need to be amended. This decision
must be based on the performance deficiency.

Performance deficiency is the difference between the objectives that have

been set to accomplish goals and the actual outcome achieved. This
performance deficiency could be the result of selecting objectives which are

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more difficult to achieve or there are unforeseen changes to the environment

or an inaccurate inference of the strategies.

(f) Step 7: Strategy Formulation

After carrying out an assessment by comparing the actual outcome with the
standards, the following four grand strategies can be practised.

(i) Growth Strategy

The philosophy of the growth strategy is „the bigger the better‰. Under
this strategy, the organisation tries to enhance organisational operations.
The growth is done by increasing sales, manpower or market share. This
strategy can be achieved by direct expansion, new product development,
quality improvement and diversification. Direct expansion could
involve increasing organisational size and returns on investment while
diversification could involve mergers and acquisitions.

(ii) Stability Strategy

This strategy is based on a stable environment (no change). This is most
appropriate when the organisation exists in an environment that is
stable and unchanging. Satisfactory organisational performance, a clear
or critical absence of strengths and weaknesses are suitable indicators
to adopt this strategy. The presence of threats and opportunities that
are not clearly manifested also encourage this strategy.

(iii) Retrenchment Strategy

This strategy is implemented as a direct result of technological
advancement, globalisation, changing environment, mergers and
acquisitions. When growth and stability strategies are no longer
efficient, this strategy becomes appropriate. It has certain features like
size reduction and sale of less profitable products.

(iv) Combination Strategy

This strategy encompasses a combination of the previous strategies.
Some sections of an organisation can adopt the growth strategy whilst
others may embark upon retrenchment. For example, Proton may take
the step of increasing production of the Proton Wira but reduce
production of the Proton Satria.

Besides the abovementioned strategies, organisations also need

competitive strategies which can enable them to face market
competition. According to Michael Porter, there are three strategies for
competitive edge, i.e. leadership costs, being different and being
focused. Leadership costs refer to savings in output costs, being

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different refers to quality of the product and being focused refers to the
company focusing on markets in which they have the edge.

(g) Step 8: Implementation of Strategy

The next step in the strategic management process is implementation. As
mentioned at the commencement of this topic, it does not matter how good
a strategy is, its success cannot be measured until it is implemented well. The
main ingredient of planning is the leadership of the organisation. Not only is
top management important in successful implementation but the presence of
a motivated middle management and first-line management is also vital.

(h) Step 9: Evaluation of Strategy

Finally, the strategic results must be evaluated. How effective is the strategy
that has been implemented? Is this strategy really necessary? This will be
discussed in greater detail in Topic 12, on the controlling process. The
concepts and techniques which will be introduced in Topics 9 to 12 can be
used to evaluate the strategic results and make the necessary corrections.

SELF-CHECK 3.1

Write about the four strategies that can be practised by managers after
assessment has been done by comparing actual output with standards.

ACTIVITY 3.2

Draw a flow chart of the nine strategic management steps. Post your
answers in myINSPIRE online for sharing and comparing.

3.6 QUALITY AS A STRATEGY

In this subtopic, we will be discussing the practice of quality as competitive edge,
how benchmarking promotes quality and the ISO 9000 Series.

3.6.1 Practice of Quality as Competitive Edge

We have completed the discussion on the process of strategy formulation. The
following concepts related to the practice of quality as a strategy are
interconnected to the concept of strategic planning. As managers, we should also
consider the possibility of practising this strategy.

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The concept of marketing nowadays emphasises satisfying customer needs and at

the same time, endeavours to retain customer loyalty. In this discussion of strategy,
companies can choose to adopt quality as a strategy. When we talk about National,
Nike (see Figure 3.2), Gucci and BMW, they all seem to have one commonality,
which is quality.

The ability of an organisation to satisfy customer needs based on quality allows it

to differentiate itself from its competitors. In this way, the organisation can attract
and retain customers. An organisation that consistently improves the quality and
reliability of its products and services will have a competitive edge. It must be
remembered here that product innovation cannot be sustained as it can easily and
quickly be emulated by competitors.

Figure 3.2: Nike Shoes

3.6.2 How Does Benchmarking Help Promote

Quality?
Benchmarking refers to the identification of best practices in doing something to
enable the organisation to accomplish excellent performance levels. The
management can improve the quality of its products and services by analysing and
emulating the examples of leaders in industry.

For example, many universities try to benchmark their resources, services and
achievements, with renowned universities like Oxford and Cambridge University.

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3.6.3 ISO 9000 Series

In the 1980s, there was a call at the global level for organisations to improve the
quality of their products and services. As such, in 1987, the ISO 9000 series came
about which was designed by the International Organisation of Standardisation in
Geneva, Switzerland.

The ISO standards is a process, i.e. a body or accredited auditors who will certify
if a factory, laboratory or office of a company has achieved a certain quality
management level. This level of standard ensures customers that the organisation:

(a) Uses specific measures to test its products prior to sale;

(b) Continuously trains its workers;
(c) Maintains satisfactory operational records; and
(d) Solves problems when they occur.

Another international standard is the ISO 14000. It provides certification in terms

of environmental preservation.

 Organisational success begins with effective planning. An organisational

plan that is well understood by employees will bring members of the
organisation together towards achieving the organisational goals through
coordination of work, establishment of work standards and implementation
of control mechanisms.

 Although planning provides various advantages to an organisation, managers

must at the same time be aware of its limitations. For this reason, managers
must take necessary steps to ensure organisational activities are not totally
dependent or constrained by the plan established.

 A good plan is flexible in nature as it provides avenue for change and

adaptation to the organisational environment.

 There are five types of planning in management; Strategic Planning, Tactical

Planning, Time-based Planning, Specific and Directional Planning and Single-
use Plan and Standing Plan.

 Management by Objectives or MBO operationalises objectives by cascading

them to the entire organisation; from bottom-up and from top-down.
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 The result is a hierarchy which links objectives at one level to the next level.
Challenging specific goals are found to produce higher output.

 Strategic Management Process consists of nine steps which include planning,

implementation and evaluation of strategies.

 A SWOT Analysis is part of a strategic plan. This type of plan is deemed critical
to the survival of an organisation.

 Management today has also incorporated quality perspectives in strategic

planning to boost the competitive advantage of an organisation.

Management by objectives (MBO) Strategic planning

Single-use plan Tactical planning
Specific and Directional planning Time-based planning
Standing plan

ISO 9000. (1987). International Organisation of Standardisation. Geneva,

Switzerland.
ISO 14000 series of standards. (1996). International Organisation of
Standardisation.

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