 INTRODUCTION & MEANING:

Planning is the most basic of all managerial functions. Planning

involves selecting missions & objectives & the action to achieve them. Plans
provide rational approach to achieve pre-selected objectives. Planning also
strongly implies managerial motivation, planning bridges the gap from
where we are to where we want to go. Any attempt to control anything
without plans is meaningless.

Planning can also identify potential opportunities and threats.

Planning helps facilitates the other functions of management: organization,
decision making, motivation and especially control because planning
establishes what needs to be done and how it is to be done and control looks
at how well we have done compared to how well we expected to do.

Planning involves selecting the various goals that the organizations

want to achieve and the actions (Objectives) to be taken that will ensure
those goals are accomplished. Goals are established for each of key
operating areas. Every manager does some form of planning whether
informal or formal.

With informal planning, nothing is written down, & there is little or

no sharing of goals with others in the organizations. The owner has a vision
of what he or she wants to accomplish and just goes ahead and does it. This
is frequently the situation in small businesses. The problem of informal
planning is that it lacks continuity. Formal planning occurs when specific
goals covering a period of up to several years are identified and shared with

1
all associates and objectives or strategies are developed stating how each
goal will be reached.
Thus planning involves in all level of management.

 IMPORTANCE OF PLANNING:

Planning gives direction not only to the top management, but to all
associates as they focus on goal accomplishment. The purpose of planning is
to determine the best strategies and goals to achieve organizational goals.
Planning provides the road map of where the organization is going. Planning
also helps coordinate the efforts of associates towards goal accomplishment.
Planning also assist in risk reduction by forcing managers to look ahead and
anticipate change, so they can plan scenarios to react to those potential
changes. Without planning, business decisions would become random, ad
hoc choices. Following are the paramount importance of planning:

1. MINIMISES RISK AND UNCERTAINTY:

In today’s increasingly complex organizations, intuitions alone can no

longer be relied upon as a means for decisions making. This is one reason
why planning has become so important. By providing a more rational, fact
based procedure for making decisions, planning allows managers and
organizations to minimize risk and uncertainty. In dynamic society such as
ours, in which social and economic conditions alter rapidly, planning helps
the manager to cope with and prepare for the changing environment.
Planning does not deal with future decisions, but with the futurity of present
decisions. It is like going out with an umbrella in cloudy whether.

2
 2. LEADS TO SUCCESS:

Planning leads to success by doing beyond mere adaptation to market

fluctuations. With the help of a sound plan, management can act proactively,
and not simply react. Planning does not guarantee success, but studies have
shown that, often things being equal, companies which plan not only
outperform the non planners but also outperform their own past such as
military historians attribute much of the success of the world’s greatest
generals to effective battles. It also attempt to shape the environment on the
belief that business is not just a creation of environment but its creator as
well.

3. FOCUSES ATTENTION ON THE ORGANISAION’S GOALS:

Planning helps the managers to focus attention on the organisation’s

goals and activities. The whole organization is forced to embrace identical
goals and collaborate in achieving them. It enables the manger to chalk-out
in advance an orderly sequence of steps for the realisation of the
organisation’s goals and to avoid a needless overlapping of activities.

4. FACILITATES CONTROL:

In planning, the manager sets goals and develops plans to accomplish

these goals. These goals and plans then become the standards or benchmarks
against which performance can be measured. The function of control is to
ensure that activities conform to the plans. Thus control can be exercised
only if there are plans.

3
 5. HELPS IN TRAINING EXECUTIVES:

Planning is also an excellent tool for training executives. They

become involved in the activities of the organisation; the plans arouse their
interest in the multifarious aspects of planning.

 TYPES OF PLANS:

1. STRATEGIC PLANNING :

Strategic plans are business plans or feasibility studies, which deals

with the structure of the plan and provide the details necessary for obtaining
finance or other approvals for the operation. Strategic plans are the long
range plans for an organization.

Strategic planning creates long – range plans that steer an organization

toward its goals in the accomplishment of its mission & vision. The strategic
planning process involves top management, who, in simple terms identify
where the organization is and where it wants to go. There is a strong link
between strategic planning and strategic management. The planners figure
out what to do and management implements the plan. How does a large
hotel or restaurant company with the mission of being a global entity
determine which markets to focus on? In hospitality industry, strategies are
devised that become the road map of how to succeed in increasing guest
satisfaction, gaining market share, increasing profits & so on.

Strategic management develops mission, goals, objectives &

strategies by identifying the business of corporation today and the business it

4
wants for the future, and then identifying the course of action it will pursue,
given its strength, weaknesses, opportunities and threats. Strategic planning
is a critical part of planning & management process. There are three main
strategic management tasks: first is to development of a vision & mission
statement, second is translating the mission into strategic goals, & third is
crafting objectives or strategy (course of action) to move the organization
from where it is today to where it wants to be.

Given the frequency of change in the environment, managers must

conduct effective strategic planning in order to respond to the challenges of
managing in a highly competitive environment. A good strategic plan should
include detailed prescription of how business wishes to implement its
mission in the highly competitive environment coupled with allowances for
responding to extraordinary events.

The difference between strategic planning and strategic management

is that strategic planning is a systematic process whereby the top
management of an organization charts the future course of the enterprise.
Strategic management is the process of shepherding the organizational
strategic plan and acquiring the necessary resources and the capabilities to
ensure the successful implementation of the plan in the context of the
emergent situations caused by the level of environmental turbulence.

A strategy is the “how to” action necessary to accomplish goals and

missions. In hotel industry, for instance, strategic issues have the following
characteristics:

5
 1. Strategic issues require decisions about them to be made by top

management because those decisions affect many areas of

organization’s operation.

2. Strategic issues involve the allocation of large amount of resources.

Resources must be found that will commit the organization to make a
reasonable return on investment.

3. Strategic issues are likely to affect the long term prosperity of the
business. Strategic decisions commit an organization to certain market
services, products & technologies. Once these decisions are made, they are
not easily reserved.

4. Strategic issues are future oriented. They are based on what an

organization predicts will happen in the future.

5. Strategic issues usually have major multifunctional consequences that

must be closely coordinated.

6. Strategic issues require consideration of the corporation’s external

environment and its strength, weakness, opportunities & threats. In a fast
changing business and economic environment, a careful analysis must be
made to align the organization with the best strategy for successful
accomplishment of its goals.

6
 STRATEGIC PLANNING PROCESS:

STRATEGIC PLANNING
PROCESS

VISION

MISSION

GOALS

OBJECTIVES

7
 Most of the strategic planning taking place at the top management level is
called corporate level strategies. It also contains SWOT analysis and
environment & scanning forecasting.

 CORPORATE – LEVEL STRATEGIES:

At the highest corporate level many organizations consist of a
portfolio of several businesses or divisions. For example, Hilton hotel’s
profile includes Conrad Hotels, Doubletree, Embassy suites & Hotels,
Hampton Inn, Hampton Suites, Hilton Garden Inn. These and other
companies need a corporate level strategy to plan how to best meet the
mission of the company.

Most companies want to grow & need to plan a strategy for that
growth. There are four growth strategies. MARKET PENETRATION aims
to increase market share by promoting sales aggressively in existing
markets. GEOGRAPHICAL EXPANSION is a strategy in which company
expands its operations by entering new markets (this is in addition to
concentrating on existing markets). The third form of growth strategy is
PRODUCT DEVELOPMENT, such as Hilton’s Garden Inn or a new
restaurant menu item. The forth type of growth strategy is HORIZONTAL

8
INTEGRATION, which is the process of acquiring ownership or control of
competitors with similar products in the same or similar markets.

STRATEGIC ALLIANCES or JOINT VENTURES are yet other

methods for corporation to fulfill its mission. Another strategy is
diversification where companies expand into other types of business related
or unrelated. Celebrity chef Emeril “Bam” Lagasse’s expansion into TV
dinners is an example of diversification.

 SWOT ANALYSIS:

A major strategic planning technique that is widely used in hospitality

& tourism industry is SWOT analysis: an analysis of strength, weaknesses,
opportunities & threats. A SWOT analysis is used to access the company’s
internal & external strengths & weaknesses, to seek out opportunities and to
be aware of threats. A SWOT analysis is conducted in comparison with a
company’s main competitors. This makes it easier to see the competitor’s
SWOT. It also makes company easier to plan a successful strategy. Each
operator can decide what the key points are for inclusion in the SWOT
analysis.

 ENVIORNMENTAL SCANNING & FORECASTING:

Environmental scanning is the process of screening large amounts of

information to anticipate and interpret changes in environment.
Environmental scanning creates the basis of forecast. Forecasting is the

9
prediction of future outcomes. Information gained through scanning is used
to form scenarios. These, in turn, establish premises for forecasts, which are
predictions of future outcomes. The two main types of outcomes that
managers seek to forecast are future ventures and technology breakthroughs.
However, any component in the organization’s general or specific
environment may receive further attention.

An analysis of relevant environment results in the identification of

threats & opportunities. Environment of the company is the pattern of all
external influences that affects its life and development. There are four main
factors which can be considered:

1. POLITIACAL & LEGAL FACTORS:

 Stability of the government and its political philosophy.
 Taxation & industrial licensing laws.
 Monetary & fiscal policies.
 Reconstructions on capital movement, state trading etc.

2. ECONOMIC FACTORS:
 Level of economic development and distribution of personal income.
 Trend in prices, exchange rates, balance of payments etc.
 Supply of labour, raw material, capital etc.

3. COMPETITIVE FACTORS:
 Identification of principal competitors.
 Anti monopoly laws & rules of competition.

10
  Protection of patents, trade marks, brand names & other industrial
property rights.

4. SOCIAL & CULTURAL FACTORS:

 Literacy level of population.
 Religious & social characteristics.
 Extent & rate of urbanisation.
 Rate of social change.

2. OPERATIONAL PLANNING:

Operational planning involves deciding specifically how the resources

of the organisation will be used to help the organisation achieve its strategic
goals. Operational plans are generally created for periods of up to one year
and dovetail with strategic plan. If the organisation has prepared a ten year
strategic plan which envisages a profit rate of 25% on capital employed in
the tenth year, it is also necessary to prepare more detailed tactical plan for
the next year, with target of say 10% profit on the capital employed.

Operational plan provide managers with a step-by-step approach to

accomplish goals or objectives. The overall purpose of planning is to have
the entire organization moving harmoniously towards the goal. There are
seven steps involved in operational planning are as follows:
1. Setting objectives.
2. Analyzing & evaluating the environment.

11
 3. Determining alternatives.
4. Evaluating alternatives.
5. Selecting the best solutions.
6. Implementing the Plans.
7. Controlling & evaluating results.

 OPERATIONAL GOAL SETTING:

Goal setting is the process of determining outcomes for each area and
associates. Once the vision & mission have been determined, organizations
set goals in order to meet the mission. The goals are set for each of key
operating areas. No one can work effectively without specific goals and
monthly evaluation reports to gauge whether the effort is moving toward
goal accomplishment or not.

 OPERATIONAL OBJECTIVES:

Objectives state how the goals will be met. Some years ago this leads
to MANAGEMENT BY OBJECTIVES (MBO), a managerial process that
determines the goals of the then plans the objectives, that is, the how- tos of
reaching the goals. MBO works because associates have been involved with
the goal and objective setting and are likely to be motivated to see them
successfully achieved. MBO goals need to be specific and measurable,
challenging but attainable just as any other goals. The main purpose of MBO
program is to integrate the goals of the organization and the goals of the
associates so that they are in focus. In some organizations MBO was
suppress by TOTAL QUALITY MANAGEMENT (TQM).

12
 Total Quality Management (TQM) involves not only planning but
also touches on the other functions of management. The idea of improving
efficiency & increasing productivity while placing a larger emphasis on
quality has caught on fast.

 SINGLE USE PLANS:

 PROGRAMMES, PROJECT MANAGEMENT & BUDGETS:

Programmes are precise plans or definite steps in proper sequence

which need to be taken to discharge a given task. Programmes are drawn in
conformity with the objectives and are made up of policies, procedures,
budgets etc. The essential ingredients of every programme are time phasing
& budgeting. This means that specific dates should be laid down for the
completion of each successive stage of a programme. Often single step in
programme is set up as a project.

Project management is the task completing the project on time &

within the budget. Hospitality companies increasingly using project
management because the approach well fits with the need for flexibility and
rapid response to perceived market opportunities.

13
 Budget is a plan allocating money to specific activities. Budgets are
very useful for an enterprise. Being expressed in numerical terms, they
facilitate comparison of actual results with planned ones and thus, serve a
control device & yardstick for measuring performance. Budgets are
important because they are applicable to a variety of applications and they
can be used all over the world in any country. Budgets are planning
techniques that force managers to be fiscally responsible.

 STANDING PLANS:

 POLICIES, PROCEDURES & RULES:

Policies, Procedures & Rules are examples of standing plans. A policy

is a general guideline in decision making. Policies provide the framework
within which decisions must be made by the management in different
spheres. It should be noted that both policies & objectives guide thinking
and action, but with difference. Objectives are end points are planning while
policies channelise decisions to these ends.

Policies are carried out by means of more detailed guidelines called

“PROCEDURES”. Procedure provides a detailed set of instructions for
performing a sequence of actions involved in doing a certain piece of work. .
Procedures indicate a standard way of performing a task. They results in
work simplification & elimination of unnecessary steps & overlapping. They
facilitate executive control over performance. They enables employees to

14
improve their efficiency by providing them with knowledge about the entire
range of work.

Rules are detailed and recorded instructions that a specific action must
or must not be performed in a given situation. The rules are made to ensure
that job is done in same manner every time, bringing uniformity in efforts &
results. They make sure that a job is done in same manner every time,
bringing uniformity in efforts & results.

 STEPS IN PLANNING:

1. ESTABLISHING VARIFIABLE GOALS :

The first step in planning is to determine the enterprise objectives.

These are most often set by upper level or top manger, usually after a
number of possible objectives have been carefully considered. There are
many types of goals & the types of goal depend upon many factors.

2. ESTABLISHING PLANNING PREMISES:

The second step in planning is to establish planning premises i.e.

certain assumptions about the future on the basis of which the plan will be
ultimately formulated. Planning premises are vital to success of planning as
they supply pertinent facts & information relating to future.

3. DECIDING THE PLANNIG PEROD:

15
 The third step in planning is to decide the period of the plan.
Businesses vary considerably in their planning periods. In some instances
plans are made for a year only while in others they span decades. In each
case, however, there is always some logic in selecting a particular time range
for planning.

4. FINDING ALTERNATIVE COURSE OF ACTION:

The forth step in planning is to search for and examine alternative

course of action. There is seldom a plan for which reasonable alternatives do
not exist, & quite often an alternative that is not obvious proves to be best.
5. EVALUATING AND SELECTING COURSE OF ACTION:

Having sought alternative courses, the fifth step is to evaluate them in

the light of premises & goals and to select the best courses of action. This is
done with the help of quantitative techniques and operations research.

6. DEVELOPING DERIATIVE PALNS:

This involves middle level & lower level managers. They must draw
up the appropriate plans, programmes and budgets for their sub units. These
are described as derivative plans.

7. MEASURING AND CONTROLLING PROGRESS:

Obviously, it is foolish to let a plan its course without monitoring its

progress. Hence the process of controlling is a critical part of any plan.
Managers need to check the progress of their plans so that they can take

16
whether remedial action to make the plan work or change the original plan if
it is unrealistic.

 LIMITATIONS OF PLANNING:

1. Planning is an expensive and time consuming process. It involves

significant amounts of money, energy and also risk, without any assurance
of the fulfillment of the organisation’s objectives.

2. Planning sometimes restricts the organisation to the most rational and

risk free opportunities. Sometimes planning may cause delay in decision

making.

3. The scope of planning is said to be limited in case of organisations

with rapidly changing market situations.

4. Establishment of advance plans tends to make administration flexible.

When unforeseen changes in the environment, such as a business recession,

17
change in government policy etc. take place, the original plan loses its value
& there is need to draw up a fresh plan.

5. Another limiting factor in planning is the difficulty of formulating

accurate premises. Since the future cannot be known with accuracy,
premising must be subject to a margin of error.

6. Planning may sometimes face people’s resistance too. In old,

established organisations, managers are often frusteted in instituting a new
plan simply by unwillingness or inability of people to accept it.

 CASE STUDY

McDonald's was started as a drive-in restaurant by two brothers, Richard

and Maurice McDonald in California, US in the year 1937. The business,
which was generating $200,000 per annum in the 1940s, got a further boost
with the emergence of a revolutionary concept called ‘self-service.' The
brothers used assembly line procedures in their kitchen for mass production.
Prices were kept low. Speed, service and cleanliness became the critical
success factors of the business. By mid-1950s, the restaurant's revenues had
reached $350,000. As word of their success spread, franchisees started
showing interest.

However, the franchising system failed because the McDonald brothers

observed very transparent business practices. As a consequence, imitators

18
copied their business practices and emerged as competitors. The franchisees
also did not maintain the same standards of cleanliness, customer service
and product uniformity.

At this point, Ray Kroc (Kroc), distributor for milkshake machines

expressed interest in the business, and he finalized a deal with the McDonald
brothers in 1954. He established a franchising company, the McDonald
System Inc. and appointed franchisees. In 1961, he bought out the
McDonald brothers' share for $2.7 million and changed the name of the
company to McDonald's Corporation. In 1965, McDonald's went public.

By the end of the 1960s, Kroc had established over 400 franchising
outlets. McDonald's began leasing/buying potential store sites and then
subleased them to franchisees initially at a 20% markup and later at a 40%
markup. Kroc set up the Franchise Realty Corporation for this. The real
estate operations improved McDonald's profitability. By the end of the
1970s, McDonald's had over 5000 restaurants with sales exceeding $3
billion.

However, in the early 1990s, McDonald's was in trouble due to

changing customer preferences and increasing competition. Customers were
becoming increasingly health-conscious and wanted to avoid red meat and
fried food. They also preferred to eat at other fast food joints that offered
discounts. There was also intense competition from supermarkets,
convenience stores, mom and dad delicacies, gas stations and other outlets

19
selling reheat able packaged food. In 1993, McDonald's finalized an
arrangement for setting up restaurants inside Wal-Mart retail stores.

The company also opened restaurants in gas stations owned by

Amoco and Chevron. In 1996, McDonald's entered into a $1 billion 10-year
agreement with Disney. McDonald's agreed to promote Disney through its
restaurants and opened restaurants in Disney's theme parks. In 1998,
McDonald's took a minority stake in Chipotle Mexican Grill – an 18-
restaurant chain in the US.

In October 1996, McDonald's opened its first restaurant in India. By

1998, McDonald's had 25,000 restaurants in 116 countries, serving more
than 15 billion customers annually. During the same year, the company
recorded sales of $36 billion, and net income of $1.5 billion. McDonald's
overseas restaurants accounted for nearly 60% of its total sales. Franchisees
owned and operated 85% of McDonald's restaurants across the globe.

However, much to the company's chagrin, in 1998, a survey in the US

revealed that customers rated McDonald's menu as one of the worst-tasting
ever. Undeterred by this the company continued with its expansion plans and
by 2001, it had 30,093 restaurants all over the world with sales of $ 24
billion (Refer Exhibit I for key statistics of McDonald's). By mid 2001, the
company had 28 outlets in India.

20
21