CHAPTER 5

PLANNING
Lecturer: Dr. Ong Quoc Cuong
 Learning Outline
What Is Planning?
• Define planning.
• Differentiate between formal and informal planning.
• Describe the purposes of planning.
• Discuss the conclusions from studies of the relationship
between planning and performance.
How Do Managers Plan?
• Define goals and plans.
• Describe the types of goals organizations might have.
• Explain why it’s important to know an organization’s stated
and real goals.
• Describe each of the different types of plans.
 Learning Outline

Establishing Goals and Developing Plans

• Discuss how traditional goal setting works.
• Explain the concept of the means–end chain.
• Describe the management by objective (MBO) approach.
• Describe the characteristics of well-designed goals.
• Explain the steps in setting goals.
• Discuss the contingency factors that affect planning.
• Describe the approaches to planning.
 What Is Planning?

• Planning
– A primary managerial activity that involves:
• Defining the organization’s goals
• Establishing an overall strategy for achieving those goals
• Developing plans for organizational work activities.
– 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.
 Why Do Managers Plan?

• Purposes of Planning
– Provides direction to managers and nonmanagers
– Reduces uncertainty
– Minimizes waste and redundancy activities
– 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.
• 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.
 How Do Managers Plan?

• Elements of Planning
– 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
 Types of Goals

• Financial Goals
– Are related to the expected internal financial performance
of the organization.
• Strategic Goals
– Are related to the performance of the firm relative to
factors in its external environment (e.g., competitors).
 Types of Goals

• Stated Goals versus Real Goals

– Stated goals: official statements of what an organization
says, and what it wants its various stakeholders to
believe, its goals are.
– Real goals: goals that an organization actually pursues, as
defined by the actions of its members.
– Broadly-worded official statements of the organization
(intended for public consumption) that may be irrelevant
to its real goals (what actually goes on in the
organization).
 Exhibit 5–1 Stated Goals of Large Global Companies

• Roll out newly-designed environmentally friendly cup

in 2006.
• Open approximately 1,800 new stores globally in 2006.
• Attain net revenue growth of approximately 20 percent
in 2006.
• Attain annual EPS growth of between 20 percent to 25
percent for the next 3 to 5 years.
(Starbucks)
 Exhibit 5–1 Stated Goals of Large Global Companies

• Continue to win market share globally.

• Focus on higher-value products.
• Reduce production costs.
• Lower purchasing costs.
• Integrate diversity.
• Gain ISO 14001 certification for all factories.
(L’Oreal)
Exhibit 5–2 Types of Plans
 Types of Plans

• Strategic Plans
– Apply to the entire organization.
– Establish the organization’s overall goals.
– Seek to position the organization in terms of its environment.
– Cover extended periods of time.
• Operational Plans
– Encompass a particular operational area of the organization
– Specify the details of how the overall goals are to be
achieved.
– Cover short time period.
 Types of Plans

• 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
• Directional Plans
– Flexible plans that set out general guidelines, provide focus,
yet allow discretion in implementation.
Exhibit 5–3 Specific Versus Directional Plans
 Types of Plans

• Single-Use Plan
– A one-time plan specifically designed to meet the
need of a unique situation.
• Standing Plans
– Ongoing plans that provide guidance for activities
performed repeatedly.
 Establishing Goals and Developing Plans

• 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.
Exhibit 5–4 The Downside of Traditional Goal Setting
 Establishing Goals and Developing Plans

• Means–Ends Chain
– The integrated network of goals that results from
establishing a clearly-defined hierarchy of
organizational goals.
– Achievement of lower-level goals is the means by
which to reach higher-level goals (ends).
 Establishing Goals and Developing Plans

• 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 time period, performance feedback.
 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 all 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.
 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.
– Allowing the MBO program to become an annual
paperwork shuffle.
 Characteristics of Well-Designed Goals

• Written in terms of outcomes, • Challenging yet attainable

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

1. Review the organization’s mission statement.

Do goals reflect the mission?
2. Evaluate available resources.
Are resources sufficient to accomplish the mission?
3. Determine goals individually or with others.
Are goals specific, measurable, and timely?
4. Write down the goals and communicate them.
Is everybody on the same page?
5. Review results and whether goals are being met.
What changes are needed in mission, resources, or goals?
 Developing Plans

• The process of developing plans is influenced by:

➢Three contingency factors;
➢The planning approach.
 Contingency Factors in 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
➢ Length of future commitments
– Commitment Concept: plans should extend far enough to
meet those commitments made today.
Exhibit 7–6 Planning in the Hierarchy of Organizations
 Approaches to Planning

• Establishing a formal planning department

– A group of planning specialists who help managers write
organizational plans.
– Planning is a function of management; it should never
become the sole responsibility of planners.
• 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.
The end