The first of Management Functions Planning Organizing Staffing Leading Controlling Selecting missions and objectives as well as the actions to achieve them, which requires decision making, i.e, choosing a course of action among alternatives
Planning is determining the objectives and formulating the methods to achieve them. It is more simply said than done. A job well planned is half done . DEFINITIONS: “ The selection from among alternatives for future courses of action for the enterprise as a whole and each department with it” - Harold Koontz & O’Donnell “ Planning is the selecting and relating of facts and the making and using of assumptions regarding the future in the visualization and formulation of proposed activities believed necessary to achieve desired results.” - George Terry
NATURE OF PLANNING
CONTRIBUTES TO OBJECTIVE :
INTELLECTUAL ACTIVITY :
HIGHER EFFICIENCY :
Guides to action
Rationale for decisions
Standard of performance.
Need for Planning - Provides direction - Reduces uncertainty - Minimizes waste and redundancy - Sets the standards for controlling
Defining the organization’s objectives or goals
Establishing an overall strategy for achieving those goals
Developing a comprehensive hierarchy of plans to integrate and coordinate activities Planning is concerned with ends (what is to be done) as well as with means (how it is to be done).
Reasons for Planning
Criticisms Of Formal Planning
Planning may create rigidity.
Plans can’t be developed for a dynamic environment.
Formal plans can’t replace intuition and creativity.
Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival.
Formal planning reinforces success, which may lead to failure.
Planning and Performance
Formal planning generally means higher profits, higher return on assets, and other positive financial results.
Planning process quality and implementation probably contribute more to high performance than does the extent of planning.
When external environment restrictions allowed managers few viable alternatives, planning did not lead to higher performance.
Strategic vs. Operational Plans
Apply to the entire organization.
Establish the organization’s overall goals.
Positions organization in terms of its environment
Cover extended periods of time.
Assumes objectives exist
Specifies details of how overall goals will be achieved
Cover short time period
TYPES OF PLANS
Mission or purposes
Objectives or goals
Mission or purpose The basic purpose or function or tasks of an enterprise or agency or any part of it Objectives or goals The end towards which activity is aimed Strategies 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 General statements or understanding that guide or channel thinking in decision making
Procedures Plans that establish a required method of handling future activities Rules Rules spell out specific required actions or nonactions allowing no discretion Programs A complex of goals, policies, procedures, rules, task assignments, steps to be taken, resources to be employed, an other elements necessary to carry out a given course of action Budgets A statement of expected results expressed in numerical terms
Being Aware of opportunities Market, competition, Customers, Strengths Weakness Establishing objectives Where we want to be, what to achieve and when Developing premises In what environment ( I & E), scenarios Determining alternative courses How many and which are most promising Evaluating alternative courses In the light of objectives Selecting a course Formulating derivative plans Quantifying plans by budgeting Steps in planning
OBJECTIVES The end towards which activity is aimed Nature & aspects of objectives Verifiable Achievability Hierarchy Multiplicity Key Result Areas
Areas for Organizational Objectives
Physical and financial resources
Managerial performance and development
Worker performance and attitude
Developing a Hierarchy of Objectives
A hierarchy of objectives is the overall organizational objectives and the sub objectives assigned to the various people or units of the organization.
Suboptimization is a condition wherein organizational subobjectives are conflicting or not directly aimed at accomplishing the overall organizational objectives.
Individual ( Performance, development) Division Objectives Specific objective Overall objectives Mission Socio-economic purpose Department Objectives Hierarchy of Objectives Top-down approach Bottom-top approach Board of Directors Top Management Middle Management First line management
Hierarchy of Objectives
Net profit of 10% or more
Provide customers with reliable products
Seek new market areas to grow sales by 15% annually
Maintain ad costs at 4% of sales
Keep cost of goods <50% of sales
Increase labor productivity by 3%/year
Keep scrappage to 2% of materials usage. Etc.
Working with Organizational Objectives Guidelines for Establishing Quality Objectives
Let the people responsible for attaining the objectives have a voice in setting them.
State objectives as specifically as possible.
Relate objectives to specific actions whenever necessary.
Pinpoint expected results
Working with Organizational Objectives Guidelines for Establishing Quality Objectives (Cont.)
Set goals high enough that employees will have to strive to meet them.
Specify when goals are expected to be achieved
Set objectives only in relation to other organizational objectives
State objectives clearly and simply
MANAGEMENT BY OBJECTIVES: An alternative approach to goal setting and performance evaluation is Management by Objectives. MBO is a technique and philosophy of management based on converting an organizational objective into a personal objective on the presumption that establishing personal objectives makes an employee committed, which leads to a better performance. “ MBO is a comprehensive managerial system that integrates many key managerial activities in a systematic manner, consciously directed towards the effective and efficient achievement of organizational objectives”. -Koontz,
Management By Objectives (MBO)
MBO is a management approach that uses organizational objectives as the primary means of managing organizations.
The MBO Strategy
The MBO Process
Factors Necessary for a Successful MBO Program
MBO Programs: Advantages and disadvantages
Management By Objectives (MBO) The MBO Strategy
All individuals within an organization are assigned a specialized set of objectives that they try to reach during a normal operating period. These objectives are mutually set and agreed upon by individuals and their managers.
Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.
Rewards are given to individuals on the basis of how close they come to reaching their goals.
Management By Objectives (MBO) The MBO Process
Review organizational objectives
Set worker objectives
Management By Objectives (MBO) Factors Necessary for a Successful MBO Program
Top management commitment to the MBO process.
Setting appropriate objectives for the organization.
Managers and subordinates together must develop and agree on each individual’s goals.
Employee performance should be fairly evaluated against established objectives.
Management must follow through on employee performance evaluations by rewarding employees accordingly.
Management By Objectives (MBO) MBO Programs: Advantages and Disadvantages
MBO programs continually emphasize what should be done to achieve organizational goals.
MBO process secures employees commitment to attaining organizational goals.
Development of objectives can be time-consuming
Elaborate written goals, communication, and detailed performance evaluations increases the volume of paperwork.
Strategies, Policies, and Planning Premises
Strategies 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 General statements or understanding that guide or channel thinking in decision making
The set of managerial decisions and actions that determines the long-run performance of an organization.
Why Strategic Management Is Important
It results in higher organizational performance.
It requires that managers examine and adapt to business environment changes.
It coordinates diverse organizational units, helping them focus on organizational goals.
It is very much involved in the managerial decision-making process.
The Strategic Planning Process
Step 1: ID Current Mission, Goals, & Strategies
You know what goals and strategies look like from . What do missions look like?
A mission is the firm’s reason for being, and usually includes some of the following items…
Components of a Mission Statement
Customers: Who are the organization’s customers?
Products or services: What are the organization’s major products or services?
Markets: Where does the organization compete geographically?
Technology: How technologically current is the organization?
Concern for survival growth, and profitability: Is the organization committed to growth and financial stability?
Philosophy: What are the organization’s basic beliefs, values, aspirations, and ethical priorities?
Self-concept: What is the organization’s major competitive advantage and core competencies?
Concern for public image: How responsive is the organization to societal and environmental concerns?
Concern for employees: Does the organization consider employees a valuable asset?
The Marketing Environment and Competitor Analysis
Five forces analysis
Mc.Kinsey’s 7-s Model
Steps 2 and 3: SWOT ANALYSIS Strengths (internal) What does well? What is it’s “competitive advantage” (core strength)? What resources possess? Opportunities (external) (positive trends) Weaknesses (internal) What does poorly? What resources don’t have? Threats (external) (negative trends)
Identifying the Organization’s Opportunities Exhibit 8.3
Environmental protection laws
Energy availability and cost
Distribution of income
Levels of education
New discoveries and innovations
Speed of technology transfer
Rates of obsolescence
Forces in the Industry Analysis Porter’s 5 Forces
Five Forces Analysis: Key Questions and Implications
What are the key forces at work in the competitive environment?
Are there underlying forces driving competitive forces?
Will competitive forces change?
What are the strengths and weaknesses of competitors in relation to the competitive forces?
Can competitive strategy influence competitive forces (eg by building barriers to entry or reducing competitive rivalry)?
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 substitutes products and services.
Bargaining Power of Buyers
The degree to which buyers have the market strength to hold sway over and influence competitors in an industry.
Bargaining Power of Suppliers
The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship.
Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.
Steps 4, 5, 6
Step 4: Formulate strategy (develop strategic alternatives and pick best one)
Step 5: Implement strategy
Step 6: Evaluate strategy (how effective were they? What adjustments are needed?
Levels of Organizational Strategy Exhibit 8.4
Strategic Business Unit
Levels of Organizational Strategies
Corporate: what businesses should we be in?
Business: How should we compete in each of our businesses?
Functional-Level Strategies: How can we support the business-level strategy?
Types of Corporate Strategies
Types of Growth Strategies
Seeks to maintain the status quo possibly to:
Deal with the uncertainty of a dynamic environment
Cope with industry slow- or no-growth
Owners of firm don’t want to grow for personal reasons
Strategies to counter organization weaknesses that are leading to performance declines.
Retrenchment: eliminate non-critical weaknesses and restoring strengths
Turnaround: strong cost elimination measures and large-scale organizational restructuring solutions
Competitive Basic Strategies
Cost Leadership Strategy
Seeking to attain the lowest total overall costs relative to other industry competitors.
Attempting to create a unique and distinctive product or service for which customers will pay a premium.
Using a cost or differentiation advantage to exploit a particular market segment rather a larger market.
The Tools of Strategic Planning Boston Consulting Group – Portfolio Matrix SWOT Analysis McKinsey’s 7-S framework
The BCG Matrix –Boston Consulting Group Exhibit 8.5
The businesses in high market share and enjoying high growth rate are undoubtedly ‘stars’. These give rise to opportunities for growth and profit. Orgainsations with a relatively high market share and a low growth rate called ‘cash cows’ are well entrenched in the market. Such an orgainsation provide the cash inflow needed for their activities.
Companies with low market share and low growth rate as well are branded as ‘dogs’. They may be the burden on the other business units and are mostly non-profitable. In all probability they can and generally should be disposed of.
The business in the quadrant of low market share but with a high growth rate. They really form the ‘ question marks’. They may move to the left to become the stars or downwards to go to the dogs. However they may need some financial investment and some time before a decision is made.
Reasons why strategic planning may fail
1. Managers are inadequately prepared for strategic planning.
2. The premises or the information for preparing the plans is insufficient for planning for action.
3. The objectives of the organization are too vague.
4. The SBU’s are not clearly defined.
5. The lack of control on the SBU’s. In other words insufficient reviews of the strategic plans.
6. The link between the planning and control is insufficient.
Steps to be adopted to successful strategic planning.
1.Communicating strategies to all key decision making managers.
2. Ensuring that the action plans contribute to and reflect major objectives and strategies.
3. Reviewing strategies regularly.
4. Developing contingency strategies.
5. Making the orgainsation structure fit planning needs.
6. Continuing to emphasize planning and implementing strategy.
7. Creating a company climate that forces planning.
Policies also are plans in that they are general statements or understanding that guide or channel thinking in decision making.
: “ Policy is a verbal, written or implied overall guide setting up boundaries that supply the general limits and direction in which managerial action will take place”.
- George R Terry
Type of policies:- POLICIES On the basis of source 1.Originated policies 2.Applied policies 3.External or imposed policies On the basis of Function 1.Production policies 2.Manketing policies 3.Financial policies 4.Personnel policies On the basis of level 1.Basic policies 2.General policies 3.Departmental policies
It is defined as the anticipated environment in which plans are expected to operate. Planning premises in simpler words is the assumptions that are made about the various elements of the environment. It is important for all the managers involved in planning to agree on the premises.
Internal premises include sales forecasts and policies of the organisation.
External premises are those factors that are out side the orgainisation such as technological changes, general economic conditions etc.
Objectives are the ends towards which the activities of an organization are directed.
Robert C. Appleby - “Objectives are the goals, they are aims which management wish organizations to achieve”.
CHARACTERISTICS OF OBJECTIVES:
1 . Multiple in Nature:
2. Objectives have Hierarchy:
3. Objectives may be Long-range or Short-range:
4. Objectives are Interdependent
5. Objectives are either tangible or intangible:
6. Objectives have a priority:
7. Objectives sometimes may clash with each other: