sevenFoundations of Planning1. INTRODUCTION.Planning is one of the four functions of management. The basics of planning are presented in this chapter. The text discusses what planning is, why managers plan, how they plan, and provides some contemporary issues related to planning.2. WHAT IS PLANNING?Planning involves defining the organization’s goals, establishing an overall strategy for achieving these goals, and developing a comprehensive set of plans to integrate and coordinate organizational work. The term planning as used in this chapter refers to formal planning.3. WHY DO MANAGERS PLAN?A. Purposes of Planning.Planning is important and serves many significant purposes.1. Planning gives direction to the organization.2. Planning reduces the impact of change.3. Planning establishes a coordinated effort.4. Planning reduces uncertainty.5. Planning reduces overlapping and wasteful activities.6. Planning establishes objectives or standards that are used incontrolling.B. Planning and PerformanceResearch has shown we cannot assume organizations with formalplanning processes always outperform those organizations that don’thave formal planning processes.1. Generally speaking, however, formal planning is associated withpositive financial results.C. The quality of the planning process and appropriate implementationprobably contribute more to high performance than does the extent ofplanning.D. When formal planning has been shown not to lead to higherperformance, the environment is usually the reason.4. HOW DO MANAGERS PLAN?Planning is often called the primary management function because it establishes the basis for all other functions. Planning involves two important elements: goals and plans.A. The Role of Goals and Plans in Planning.1. Goals—desired outcomes for individuals, groups, or entireorganizations.2. Goals are objectives—the two terms are used interchangeably.3. Types of goals.a. Financial performance versus strategic goals (seeExhibit7.1for a list of both financial and strategicgoals from well-known U.S. corporations).b. Stated versus Real.1) Stated goals are official statements of what anorganization says, and what it wants its variousstakeholders to believe, its goals are.2) Real goals are those that an organizationactually purses.4. Types of Plans.Plans can be described by their breadth, time frame, specificity,and frequency of use. (See Exhibit7.2)a. Breadth: strategic versus operational plans.Strategicplans (longer-term) are those that are organization wide,establish overall objectives, and position an organizationin terms of its environment. Operational plans (shorter-term) are plans that specify details on how overallobjectives are to be achieved.b. Time frame: short-term versus long-term plans.Short-term plans are plans that cover one year or less. Long-term plans are those that extend beyond three years.c. Specificity: specific versus directional plans.Specificplans are those that are clearly defined and leave noroom for interpretation. Directional plans are flexibleplans that set out general guidelines. (See Exhibit7.3for illustrations on how specific and directional planningdiffers.)d. Frequency of use: single-use versus standing plans.Asingle-use plan is a one-time plan that is specificallydesigned to meet the needs of a unique situation and iscreated in response to nonprogrammed decisions thatmanagers make. Standing plans are those ongoing plansthat provide guidance for activities repeatedly performedand that are created in response to programmeddecisions that managers make.5. ESTABLISHING GOALS AND DEVELOPING PLANS.A. Approaches to Establishing Goals.Goals can be established through a process of traditional goal setting orthrough management by objectives1. Traditional goal setting is defined as the process whereby goalsare set at the top of the organization and then broken down intosub goals for each level in an organization.a.Top managers are assumed to know what’s best becausethey see the “big picture.”b. These goals are also often largely nonoperational.c. Specificity is achieved as each manager applies his orher own set of interpretations and biases.d. However, what often results is that objectives loseclarity and unity as they move from top to bottom. (SeeExhibit7.4)e. When the hierarchy of objectives is clearly defined, itforms an integrated means-end chain in which higher-level objectives are linked to lower-level objectives.These lower-level objectives serve as the means for theaccomplishment of the higher-level objectives. And thegoals at the lower levels (means) must be achieved inorder to reach the goals at the next level (ends).2. Management by objectives (MBO)is defined as a system inwhich specific performance goals are jointly determined byemployees and their managers, progress toward accomplishingthese goals is periodically reviewed, and rewards are allocatedon the basis of this progress.a. MBO was first described by Peter Drucker and consistsof four elements:1. Goal specificity2. Participative decision-making3. Explicit time period4. Performance feedbackb. MBO makes objectives operational through the processby which they cascade down through the organization.c. Exhibit7.5 lists the steps in a typical MBO program.d. Does MBO work? Studies of actual MBO programsconfirm that MBO can increase employee performanceand organizational productivity. However, top-management commitment and involvement areimportant contributions to the success of an MBOprogram.3. Whether an organization uses a more traditional (top tobottom) approach to establishing objectives, uses someform of MBO, or has it own approach, managers mustdefine objectives before they can effectively andefficiently complete other planning activities.B. Characteristics of Well-Designed Goals (see Exhibit7.6).1 Written in terms of outcomes2. Measurable and quantifiable3. Clear as to a time frame4. Challenging but attainable5. Written down6. Communicated to all organizational membersC. Steps in Goals Setting—Five Steps.1. Review the organization’s mission.Goals should reflect what the mission statement says.2. Evaluate available resources.3. Determine individually, or with input from others, the goals.4. Write down the goals and communicate them to all who need toknow.5. Review results and whether goals are being met.D. Developing Plans.The process of developing plans is influenced by three contingencyfactors and by the planning approach followed.1. Contingency Factors in Planning.a. Manage r’s level in the organization. (See Exhibit7.7)Operational planning usually dominates the planningactivities of lower-level managers. As managers moveup through the levels of the organization, their planningbecomes more strategy oriented.b. Degree of environmental uncertainty. The greater theenvironmental uncertainty, the more plans should bedirectional and emphasis placed on the short term.1) When uncertainty is high, plans should bespecific, but flexible.2) Managers must be prepared to rework andamend plans, or even to abandon their plans.c. Length of Future Commitments.1) Commitment concept means that plans shouldextend far enough to meet those commitmentsmade when the plans were developed.2) Planning for too long or for too short a timeperiod is inefficient and ineffective.2. Approaches to Planning.a. Traditional Approach—planning was done entirely bytop-level managers who were often assisted by a formalplanning department.b. Organizational Member Involvement—plans aren’thanded down from one level to the next, but aredeveloped at the various levels to meet specific needs. 6. CONTEMPORARY ISSUES IN PLANNING.This section looks at criticisms of planning and how managers can plan effectively in dynamic environments.A. Criticisms of Planning.Although planning is an important and popular managerial function, fivemajor arguments have been directed against planning.1. Planning may create rigidity.Formal planning may “lock” anorganization into specific goals and specific timetables that wereestablished under certain environmental conditions. If theenvironment changes, managers may believe they’re locked intothe current plans.2. Plans can’t be developed for a dynamic environment. Managingunder chaotic environmental conditions requires flexibility, andthat may mean not being tied to formal plans.3. Formal plans can’t replace intuition and creativity. The formalplanning process may emphasize the mechanics and routines ofplanning and ignore important aspects.4. Planning focu ses managers’ attention on today’s competitionnot on tomorrow’s survival. Formal planning has a tendency tomake managers focus on today’s realities, not on tomorrow’spossibilities.5. Formal planning reinforces success, which may lead to failure.Because the "plans" have led to success, there may be areluctance on the part of managers to change or discardpreviously successful plans. "If it ain’t broke, why fix it?"B. Effective Planning in Dynamic Environments. The external environmentis constantly changing.1. Managers want to develop plans that are specific, but flexible.2. Managers must recognize that planning is an ongoing process,and they should be willing to change directions if environmentalconditions warrant.3. Flexibility is particularly important.4. Managers must stay alert to environmental changes that couldimpact the effective implementation of plans and make changesas needed.1. Will planning become more or less important to managers in the future? Why?Planning will probably become more important to managers in the future because of the uncertainty present in the environment. There are so many changes taking place in both the general and specific environments of organizations, and many of these changes are taking place rapidly. Planning helps managers cope with the uncertainties by forcing managers to look ahead, anticipate change, consider the impact of the change, and develop appropriate responses.2. If planning is so crucial, why do some managers choose not to do it? Whatwould you tell these managers?Managers may choose not to do it because they don’t know how or they claim they don’t have the time to do it. Others may say that it’s a waste of time, that the future is going to happen whether or not they plan. But, all of these reasons do not discount the importance of planning. Every manager should engage in planning.3. Explain how planning involves decisions today that will have an impact later.Decisions that managers make as they plan will influence how activities are organized, how employees are managed, and what controlling is performed. So even as managers look to the future by planning, the decisions they’re making as they plan will have an effect on the other managerial activities.4. How might planning in a not-for-profit organization such as the AmericanCancer Society differ from planning in a for-profit organization such as Coca-Cola?The process of planning itself won’t differ, but the content of the plans will differ. The types of objectives that are established and the plans that are formulated will be different because a not-for-profit organization isn’t focused on profit objectives like the for-profit organization.。