STEPHEN P.

ROBBINS MARY COULTER

Foundations of Planning
What Is Planning?
• Planning
 A primary managerial activity that involves:
 defining the organization’s goals,
 establishing strategies for achieving those goals,
 and developing plans to integrate and coordinate work
activities
 Types of planning
 Informal: Goals are not written down, have short-term focus;
and are specific to an organizational unit.
 Formal: Specific goals covering a specific time period are
defined.
 Written, specific, and long-term focus, involves
shared goals for the organization.
 Why Do Managers Plan?
• Purposes of Planning
 Provides direction
 When employees know what their organization or work
unit is trying to accomplish and what they must contribute
to reach goals, they can coordinate their activities,
cooperate with each other, and do what it takes to
accomplish those goals.
 Reduces uncertainty
 Planning forces managers to look ahead, anticipate
change, consider the impact of change, and develop
appropriate responses. Although planning won’t eliminate
uncertainty, managers plan so they can respond
effectively

© 2007 Prentice Hall, Inc. All rights reserved. 7–3

Why do managers plan

 Minimizes waste and redundancy

 When work activities are coordinated around plans,
inefficiencies become obvious and can be corrected or
eliminated.
 Sets the standards for controlling
 When managers plan, they develop goals and plans. When
they control, they see whether the plans have been carried
out and the goals met. Without planning, there would be no
goals against which to measure work effort.
Planning and Performance
• The Relationship Between Planning And
Performance
 Formal planning is associated with:
 Higher profits and returns on assets.
 Positive financial results.
 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,
 The planning-performance relationship seems to
be influenced by the planning time frame. Formal
planning must be used for several years before
planning begins to affect performance.
7–5
 How Do Managers Plan?
• Elements of Planning
 Goals (also Objectives)
 Desired outcomes for individuals, groups, or entire
organizations
 Provide direction and evaluation performance criteria
 You must have the desired target or outcome before establishing
plans for reaching it.
 Plans
 Documents that outline how goals are to be accomplished
 They usually include resource allocations, schedules, and
other necessary actions to accomplish the goals
 As managers plan, they develop both goals and plans.

© 2007 Prentice Hall, Inc. All rights reserved. 7–6

 Types of Goals
• Financial Goals
 Are related to the expected internal financial
performance of the organization.
• Strategic Goals
 Are related to the all other areas of an organization’s
performance.
• Stated Goals versus Real Goals
 Official statements of what an organization says, what
it wants its shareholders to believe.
 The goals an organization actually pursues, what
organizational members are doing.

© 2007 Prentice Hall, Inc. All rights reserved. 7–7

 Exhibit 7–1 Stated Goals of Large Global Companies

oExecute strategic roadmap—“Plan to Win.” Grow the business profitably.

oIdentify and develop diverse talent. Promote balanced, active lifestyles.
(McDonald’s Corporation)

oContinue to win market share globally. Focus on higher-value products.

oReduce production costs. Lower purchasing costs. Integrate diversity.
oGain ISO 14001 certification for all factories.
(L’Oreal)
oControl inventory.
oMaintain industry’s lowest inventory shrinkage rate. Open 25–30 new locations in fiscal
2006.
oLive by the code of ethics every day.
(Costco)

oRoll out newly-designed environmentally friendly cup in 2006.

oOpen approximately 1,800 new stores globally in 2006.
oAttain net revenue growth of approximately 20
opercent in 2006.
oAttain annual EPS growth of between 20 percent to 25 percent for the next 3 to 5 years.
(Starbucks)
7–8
Source: Information from company’s Annual Reports, 2004–2005.
 Exhibit 7–2 Types of Plans

© 2007 Prentice Hall, Inc. All rights reserved. 7–9

 Types of Plans
• Strategic Plans
 Plans that apply to the entire organization and establish the
organization’s overall goals
 Seek to best fit or position the organization in its environment.
 Broad and cover extended periods of time.
• Tactical Plans
• Plans that apply to the single area of a business as a whole (e.g. A
division of the company)
• Specific actions to support or work towards the strategic plans
• Operational Plans
 Plans that encompass a particular operational area of the organization
 Specify the details of how the overall goals are to be achieved.
 Narrow and cover short time period.
7–
10
 Types of Plans (cont’d)
• Long-Term Plans
 Plans with a time frames, beyond three years
• Short-Term Plans
 Plans with a time frames on one year or less
• Specific Plans
 Plans that are clearly defined and leave no room for
interpretation
 A specific plan states its objectives in a way that eliminates ambiguity
and problems with misunderstanding.
• Directional Plans
 Flexible plans that set out general guidelines, provide focus, but
don’t lock into course of action
 When uncertainty is high and managers must be flexible in order to
respond to unexpected changes, directional plans are preferable
Exhibit 7–3 Specific Versus Directional Plans
Types of Plans (cont’d)
• Single-Use Plan
 A one-time plan specifically designed to meet the
need of a unique situation.
 An example would be a plan to cut costs during the next
year.
• Standing Plans
 Ongoing plans that provide guidance for activities
performed repeatedly.
 An example would be a long-term plan to retain workers
instead of layoffs.
 Establishing Goals and
Developing Plans
• Traditional Goal Setting
An approach to setting goals in which top managers set goals that
flow down through organization and become sub goals for each
organizational area.
 Broad goals are set at the top of the organization.
 Goals are then broken into sub goals for each organizational
level.
 Assumes that top management knows best because they can
see the “big picture.”
 Goals are intended to direct, guide and constrain the lower level
staff.
Problems with Traditional goal setting
 Turning broad strategic goals into departmental, team, and
individual goals can be a difficult and frustrating process.
 Goals lose clarity and focus as lower-level managers attempt to
interpret and define the goals for their areas of responsibility.
 Exhibit 7–4 The Downside of Traditional Goal Setting

© 2007 Prentice Hall, Inc. All rights reserved. 7–15

 Establishing Goals and Developing
Plans (cont’d)
• Maintaining the Hierarchy of Goals
 Means–Ends Chain
An integrated network of goals in which the
accomplishment of goals at one level serves as the
means for achieving the goals at the next level.
 Achievement of lower-level goals is the means by which to
reach higher-level goals (ends).

© 2007 Prentice Hall, Inc. All rights reserved. 7–16

Establishing Goals and Developing
Plans (cont’d)
• Management By Objectives (MBO)
A process of setting mutually agreed upon goals and using these
goals to evaluate employee performance.
MBO programs have four elements: goal specificity, participative
decision making, an explicit time period, and performance
feedback
 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.
 Exhibit 7–5 Steps in a Typical MBO Program

1. The organization’s 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 a 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.

© 2007 Prentice Hall, Inc. All rights reserved. 7–18

Does MBO Work?
• Reason for MBO Success
 Top management commitment and involvement
 Instead of using goals to make sure employees are
doing what they’re supposed to be doing, MBO uses
goals to motivate them as well
• Potential Problems with MBO Programs
 Not as effective in dynamic environments that require
constant resetting of goals.
 Emphasizes on the setting of goals to attain objectives,
rather than working on a systematic plan to do so.
 Emphasis on short term goals goes against the
organizational efficiency and effectiveness
 Exhibit 7–6 Characteristics of Well-Designed Goals

• Written in terms of • Challenging yet attainable

outcomes, not actions  Low goals do not motivate.
 Focuses on the ends, not  High goals motivate if they
the means. can be achieved.
• Measurable and • Written down
quantifiable  Focuses, defines, and
 Specifically defines how the makes goals visible.
outcome is to be measured • Communicated to all
and how much is expected.
necessary organizational
• Clear as to a time frame members
 How long before measuring  Puts everybody “on the
accomplishment. same page.”

© 2007 Prentice Hall, Inc. All rights reserved. 7–20

 Steps in Goal Setting
• Review the organization’s mission, or purpose
 A mission is a broad statement of an organization’s
purpose that provides an overall guide to what
organizational members think is important.
Do goals reflect the mission?
• Evaluate available resources.
Are resources sufficient to attain the mission?
• Determine goals individually or with others.
Are goals specific, measurable, and timely?
• Write down the goals and communicate them.
Is everybody on the same page?
• Review results and whether goals are being met.
What changes are needed in mission, resources, or goals?
Developing Plans
• Three Contingency Factors that affect a
Manager’s Planning
 Manager’s level in the organization
 Strategic plans at higher levels
 Operational plans at lower levels
 Degree of environmental uncertainty
 Stable environment: specific plans
 Dynamic environment: specific but flexible plans (Managers
must be prepared to change or amend plans as they’re
implemented.)
 Length of future commitments
 Commitment Concept: current plans should extend far enough
to meet those commitments made when the plans were
developed.
 Exhibit 7–7 Planning in the Hierarchy of Organizations

© 2007 Prentice Hall, Inc. All rights reserved. 7–23

 Approaches to Planning
• Establishing a formal planning department
 A group of planning specialists who help managers write
organizational plans.
 Plans developed by top-level managers flow down
through other organizational levels
 As they flow down through the organization, the plans
are tailored to the particular needs of each level

• Involving organizational members in the process

 Plans are developed by members of organizational units at
various levels and then coordinated with other units across
the organization.
 Teams coordinate to make plans and track their
performance.
 Contemporary Issues in Planning
• Criticisms of Planning
 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 tomorrow’s survival.
 Formal planning reinforces today’s success, which
may lead to tomorrow’s failure.

© 2007 Prentice Hall, Inc. All rights reserved. 7–25

Contemporary Issues in Planning
(cont’d)
• Effective Planning in Dynamic Environments
 Develop plans that are specific but flexible.
 Understand that planning is an ongoing
process as the plans are framed, executed and
followed by another plan.
 Change plans when conditions warrant.
 Persistence in planning eventually pay off.
 Flatten the organizational hierarchy to foster the
development of planning skills at all organizational
levels.
Contemporary Issues in Planning
(cont’d)
oManagers and Environmental Scanning
•Manager’s analysis of the external environment, which
involves screening information to detect emerging trends

•Competitor intelligence is gathering information about

competitors that allows managers to anticipate
competitors’ actions rather than merely react to them