PLANNING

Planning It is a systematic attempt to look ahead in future to foresee

opportunities; by forecasting the likely possibilities and scenarios at different times and then devising means and actions to be taken to take advantage from them.
Planning is an exercise that determines in advance:

a. The ends (What is to be done or achieved?) b. The means (How it is to be done?) c. The timing (When to do what?) d. The responsibility (Who should do what?) e. The reason (Why it should be done?)

What Is Planning?
Planning
Managerial function that involves:

Defining the organizations goals Establishing an overall strategy for achieving those goals Developing a comprehensive set of plans to integrate and coordinate organizational work Types 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

Characteristics of Planning
Planning is primary function of management
Planning is an intellectual process Planning is goal oriented

Planning is future oriented and involves forecasting

Planning needs to be dynamic in nature (flexible) Planning involves choosing from among alternatives

Planning and control are inseparable

Importance of Planning
Direction Setting
Provides a Holistic Picture Planning Avoids Haphazard Actions Planning brings Economy in Operations Planning can minimize risk and uncertainties Estimation of the needed resources Better Decision-making

Facilitates Teamwork
Planning Provides basis for Control

Purposes of Planning
Provides direction Reduces uncertainty

Minimizes waste
Sets the standards for controlling

Planning and Performance

The Relationship Between Planning and Performance Formal planning is associated with: Higher profits and returns on assets Other 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

How Do Managers Plan?

Elements of Planning
Goals (also objectives)

Desired outcomes for individuals, groups, or entire organizations Provide direction and performance evaluation criteria Documents that outline how goals are to be accomplished Describe how resources are to be allocated

Plans

Steps in Formal Planning: The Planning Process

Step I: Environmental Scanning Step II: Constructing the Planning Premise Step III: Forecasting Outcomes and Events Step IV: Determining Objectives Step V: Search Alternative Courses of Action Step VI: Evaluation of Alternatives Step VII: Selecting an Alternative Step VIII: Formulation of Derivative Plans Step IX: Budgeting Step X: Building Agreement Step XI: Implementation Step XII: Review

Types of Plans
Breadth
Strategic

Time Frame
Long Term

Specificity

Frequency of Use
Single use

Directional

Operational

Short Term

Specific

Standing

Types of Plans
BREADTH
Strategic Plans
Apply to the entire organization Establish the organizations overall goals Seek to position the organization in terms of its

environment Cover extended periods of time

Operational Plans
Specify the details of how the overall goals are to be achieved Cover short time period

Types of Plans (contd)

TIME FRAME
Long-Term Plans
Time frames extending beyond three years

Short-Term Plans
Time frames of one year or less

SPECIFICITY
Specific Plans
Clearly defined and leave no room for interpretation

Directional Plans
Flexible plans that set out general guidelines, provide focus,

yet allow discretion in implementation

Exhibit 3.4 Specific Vs. Directional Plans

Types of Plans (contd)

FREQUENCY OF USE Single-use Plan A one-time plan specifically designed to meet the needs of a unique situation Standing Plans Ongoing plans that provide guidance for activities performed repeatedly

Types of Plans
Plans can be classified as (1) mission or purposes, (2) objectives or goals, (3) strategies, (4) policies, (5) procedures, (6) rules, (7) programs, and (8) budgets

Types of Plans
The mission, or purpose, identifies the basic purpose

or function or tasks of an enterprise or agency or any part of it Objectives, or goals, are the ends toward which activity is aimed Strategy is the determination of the basic long-term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals Policies are general statements or understandings that guide or channel thinking in decision making Procedures are plans that establish a required method of handling future activities

Types of Plans cont.

Rules spell out specific required actions or nonactions,

allowing no discretion Programs are a complex of goals, policies, procedures, rules, task assignments, steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action A budget is a statement of expected results expressed in numerical terms

Developing Plans
Contingency Factors in Planning
Degree of environmental uncertainty Stable environment: specific plans Dynamic environment: specific but flexible plans Length of future commitments Current plans affecting future commitments must be sufficiently long-term to meet the commitments

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 Goals are intended to direct, guide, and constrain from above

Approaches to Establishing Goals (contd)

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 toward the goals Key elements of MBO:

Goal specificity, participative decision making, an explicit performance/evaluation period, feedback

Steps in a Typical MBO Program

Jointly Set Objectives

Develop Action Plans to Achieve Objectives

Review Objectives and Provide Feedback

Give Rewards for Achieved Objectives

Overall objectives and strategies of organization

Managers and employees work on action plans together

Objectives allocated to divisional and departmental units

Action plans implemented

Specific objectives collaboratively set with employees

Does MBO Work?

Reason for MBO Success
Top management commitment and

involvement

Potential Problems with MBO Programs

Not as effective in dynamic environments that

require constant resetting of goals Overemphasis on individual accomplishment may create problems with teamwork

Benefits of Management by Objectives

Clear goals:

Motivate Improve managing through resultsoriented planning Clarify organizational roles, structures and the delegation of authority Encourage personal commitment to their own and organizational goals. Facilitate effective controlling, measuring results, and leading to corrective actions

Failures of Management by Objectives

List some failures and limitations of MBO
What would you do to overcome the failures?

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 todays

competition, not tomorrows survival Formal planning reinforces todays success, which may lead to tomorrows failure

Organizational Strategy
Strategic Management The set of managerial decisions and actions that determines the long-run performance of an organization

The Strategic Management Process

External Analysis opportunities threats

Identify the organization's current mission, goals, and strategies SWOT Analysis Formulate Strategies Implement Strategies Evaluate Results

Internal Analysis strengths weaknesses

Strategic Management Process

Step 1: Identify the Organizations Current Mission,

Objectives, and Strategies

Mission: the firms reason for being

The scope of its products and services Goals: the foundation for further planning Measurable performance targets

Step 2: Conduct an Internal Analysis

Assessing organizational resources, capabilities, activities, and

culture: Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage

Strategic Management Process (contd)

Step 3: Conduct an External Analysis The environmental scanning of specific and general environments

Focuses on identifying opportunities and threats

Steps 2 and 3 combined are called a SWOT analysis.

(Strengths, Weaknesses, Opportunities, and Threats)

Strategic Management Process (contd)

Step 4: Formulate Strategies Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organization that provide relative advantage over competitors Match organizational strengths to environmental opportunities Correct weaknesses and guard against threats

Strategic Management Process (contd)

Step 5: Implement Strategies
Implementation: effectively fitting organizational

structure and activities to the environment The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements

Step 6: Evaluate Results

How effective have strategies been? What adjustments, if any, are necessary?

Levels of Organizational Strategy

Corporate Level Business Level Functional Level Research and Development Strategic Business Unit 1

Multibusiness Corporation Strategic Business Unit 2 Strategic Business Unit 3 Human Resources

Manufacturing

Marketing

Finance

Types of Organizational Strategies

Corporate-level Strategy The companys grand strategy for the entire organization and its strategic business units Types of Grand Strategies Growth: expansion into new products and markets Stability: maintenance of the status quo Retrenchment: addresses organizational weaknesses that are leading to performance declines Combination: simultaneous pursuit of two or more of the strategies above

Corporate-Level Strategies
Growth Strategy
Seeking to increase the organizations business by

expansion into new products and markets

Stability Strategy
A strategy that seeks to maintain the status quo to

deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons

Corporate-Level Strategies (contd)

Retrenchment Strategy
Reduces the companys activities or operations Retrenchment strategies include: Cost reductions Closing underperforming units Closing entire product lines or services

Corporate-Level Strategies (contd)

Combination Strategy
Simultaneous pursuit by the organization of

two or more of growth, stability, and retrenchment strategies

Business-Level Strategy
Business-Level Strategy
A strategy that seeks to determine how an

organization should compete in each unit within the organization to create a competitive advantage Competitive advantage

An organizations distinctive competitive edge that is sourced and sustained in its core competencies

Functional-Level Strategy
Functional-level strategies support the business-level strategy
i.e., Marketing, human resources, research and

development, and finance all support the business-level strategy Problems occur when employees or customers dont understand a companys strategy

Forces in an Industry Analysis (Five Forces Model Given by: Porter

New Entrants

Threat of New Entrants

Bargaining Power of Buyers Buyers

Suppliers Bargaining Power of Suppliers

Intensity of Rivalry Among Current Competitors

Threat of Substitutes Substitutes

Five Competitive Forces

Threat of New Entrants The ease or difficulty with which new competitors can enter an industry Threat of Substitutes The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services Bargaining Power of Buyers The degree to which buyers have the market strength to hold away over and influence competitors in an industry

Five Competitive Forces (contd)

Bargaining Power of Suppliers
The relative number of buyers to suppliers and

threats from substitutes and new entrants affect the buyer-supplier relationship

Current Rivalry
Intensity among rivals increases when industry

growth rates slow, demand falls, and product prices descend

Benchmarking
The search for the best practices among competitors

and noncompetitors that lead to their superior performance

By analyzing and copying these practices, firms can

improve their performance

Decision Making
Decision making is defined as the selection of a

course of action from among alternatives

Decision Making Process

1.
2. 3. 4. 5. 6. 7. 8.

Identification of problem Identification of decision Criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the Alternative Evaluation of decision effectiveness

Eg:
Purchase of raw material
Quantity, Quality, Time of delivery & mode of delivery Allocate the weights Search for various suppliers Analyze all Select one supplier Place a order

Rationality
Rational Decision Making
(leads to)
The problem is clear & unambiguous A single, well defined goal is to be achieved All alternatives & consequences are known Preferences are clear Preferences are constant & stable No time or cost constraints exist Final choice will maximize payoff

Limited, or "Bounded," Rationality

Limitations of information, time, and certainty limit

rationality, even though a manager tries earnestly to be completely rational Satisficing is picking a course of action that is satisfactory or good enough under the circumstances

Programmed And Nonprogrammed Decisions

Structured problems &Programmed decisions: Programmed decisions are used for structured or routine work Unstructured Problems & Nonprogrammed

decisions:
Nonprogrammed decisions are used for

unstructured, novel, and ill-defined situations of a nonrecurring nature

Types of decisions at various levels in the organization

Unstructured Top level

Non Programmed Decisions

Programmed Decisions

Structured

Lower Level

Simons model of decision making

1. 2. 3.

Contribution of Herbert Simon The decision making process can be broken into series of three sequential steps: Intelligent activity Design activity Choice activity

Intelligent activity refers to the initial phase of searching the environment for conditions calling for decisions. Design activity refers to the phase of inventing, developing, and analyzing possible course of action to take place. Choice activity refers to the final phase of actual choice selecting a particular course of action from those available.

Creativity and Innovation

Creativity refers to the ability and power to develop

new ideas
Conditions necessary for Creativity:

Expertise, Creative thinking skills, Internal Motivation, Environmental need, Tension & Encouragement from others

Innovation means the use of new ideas

Forecasting
It is the process of estimating the relevant events of

future, based on the analysis of their past and present behaviour Acc to Neter & Wasserman: Business forecasting refers to the statistical analysis of the past & current movement in the given time series so as to obtain clues about the future pattern of those movements

Features of forecasting
It relates to future events
Defines the probability of happening of future events Analysing the past & present relevant events Use of some statistical tools & techniques

Planning & Forecasting

Planning is more comprehensive and forecasting

involves the estimation of future events & provides parameters to planning

Importance of Forecasting
Promotion of organisation
Key to planning Coordination & control Success in organisation

Premising
Premises are the assumptions on which plans are

formulated A major source of premising is forecasting