• Chapter -8

• Foundations of Planning

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 What Is Planning?
• Planning
 A primary functional managerial activity that involves:
 Defining the organization’s goals
 Establishing an overall strategy for achieving those
goals
 Developing a comprehensive set of plans to integrate
and coordinate organizational work.
Categories of planning
 Informal: not written down, short-term focus; specific to
an organizational unit.
 Formal: written, specific, and long-term focus, involves
shared goals for the organization.
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 Why Do Managers Plan?
• Purposes of Planning

 Provides direction – provides a clear sense of direction to the activities of the organization and to
the job behavior of managers and others..

 Reduces uncertainty – enables managers to look ahead, anticipate changes, consider the impact of
change, and develop appropriate responses.

 Minimizes waste and redundancy – when work activities are coordinated around plans,
inefficiencies become obvious and can be corrected or eliminated.

 Establishes the goals or standards for controlling – without planning, there would be no goals
against which to measure or evaluate work effort.

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Planning and Performance
Although most studies have shown generally positive relationship
between planning and performance, it cannot be said that
organizations that formally plan always outperform those that don’t
plan.

 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

 Formal planning must be used for several years before planning

begins to affect performance.
 GOALS AND PLANS
 Goals (also Objectives)
 Desired outcomes for individuals, groups, or entire
organizations
 Provide direction and evaluation performance criteria

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

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 Types of Goals
• Financial Goals
 Are related to the expected financial performance of the
organization.

• Strategic Goals
 Are related to all other areas of an organization’s performance
other than financial- ex: to beat the competitor

• Stated Goals versus Real Goals

 Stated: official statements of what an organization says – and
what it wants its stakeholders to believe – its goals are.
 Real: the goals that an organization actually pursues.
 Levels of Goals – Goals hierarchy
• 1. Strategic goals are broadly defined targets set by top
management.

• 2. Tactical goals are the targets usually set by middle

management for specific departments or units.

• 3. Operational goals are those targets set by lower

management that address specific, measurable outcomes
required from the lower levels.

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 Types of Plans

Exhibit 7.2
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Types of Plans
• 1. Strategic plans are detailed action steps mapped out to
reach strategic goals.
• a. Strategic plans are organizational wide and are developed by
top management.
• b. The time horizon tends to be long 3 to 5 years or more.

• 2. Tactical plans are the means charted to support

implementation of the strategic plan and achievement of tactical
goals.
• a. Tactical plans tend to be more specific than strategic plans.
• b. Tactical plans are important to the success of strategic plans.
• c. The time horizon tends to be intermediate in range 1 to 3
years.
Types of Plans
• 3. Operational plans are the means devised to support
implementation of tactical plans and achievement of
operational goals.
• a. Operational plans spell out specifically what must be
accomplished to achieve operational goals.
• b. The time horizon is relatively short-tem—usually less than 1
year as a maximum.
 Types of Plans (cont’d)
• Long-Term Plans
 Plans with time frames extending beyond three years
• Short-Term Plans
 Plans with time frames on one year or less
• Specific Plans
 Plans that are clearly defined and leave no room for
interpretation with clearly defined objectives
• Directional Plans
 Flexible plans that set out general guidelines, provide
focus, yet allow discretion in implementation.

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 Specific Versus Directional Plans

Exhibit 7.3
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 Types of Plans (cont’d)
• Single-Use Plan
 A one-time plan specifically designed to meet the
need of a unique situation- ex: business expansion

• Standing Plans
 Ongoing plans that provide guidance for activities
performed repeatedly- rules, policies etc. Ex:
employee recruitment, harassment law etc.

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 Approaches to Establishing Goals
• Traditional Goal Setting
 Broad goals are set at the top of the organization.
 Goals are then broken into subgoals 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
from above.
 Goals lose clarity and focus as lower-level managers
attempt to interpret and define the goals for their
areas of responsibility.

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 Traditional Objective Setting

Exhibit 7.4
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 Approaches to Establishing Goals
(cont’d)
• Management By Objectives (MBO)
 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:
 Goal specificity, participative decision making, an explicit
performance/evaluation period, feedback

Studies have shown that MBO can increase employee

performance and organizational productivity.
 Contingency Factors in A Manager’s
Planning
 Degree of environmental uncertainty
 Stable environment: specific plans
 Dynamic environment: specific but flexible plans

 Length of future commitments

 Plans should extend far enough to meet the commitments
made when the plans were developed.
 Planning for too long or too short a time period is inefficient
and ineffective.

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 Approaches to Planning
• In the traditional approach, planning is done entirely by top-level
managers who are often assisted by a formal planning department
•

• A second approach:
• 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.

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 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.
 Just planning is not enough

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 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.
 Change plans when conditions warrant.
 Persistence in planning contributes to significant
performance improvements.
 Flatten the organizational hierarchy to foster the
development of planning skills at all organizational
levels.
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