Chapter 8 Planning

Learning Objectives Define strategy Define planning and explain its purpose. Differentiate between strategic, operational, and tactical plans. Explain the planning process. After studying this chapter, you should be able to:

Define strategy

Define planning and explain its purpose.

Differentiate between strategic, operational, and tactical plans.

Explain the planning process.

Learning Objectives Identify key contingency factors in planning. Explain budgeting as a planning tool. Describe an MBO planning system. Describe effective goals. After studying this chapter, you should be able to:

Identify key contingency factors in planning.

Explain budgeting as a planning tool.

Describe an MBO planning system.

Describe effective goals.

Overview of Planning Objectives End states or targets Plans Means to hit the desired targets Planning Decision-making process focused on the future of an organization and how it will achieve its goals

Objectives

End states or targets

Plans

Means to hit the desired targets

Planning

Decision-making process focused on the future of an organization and how it will achieve its goals

Types of Plans Strategic plans Broad future of the organization External environmental demands Internal resources Tactical plans Translate strategic plans into specific goals Specific parts of the organization

Strategic plans

Broad future of the organization

External environmental demands

Internal resources

Tactical plans

Translate strategic plans into specific goals

Specific parts of the organization

Types of Plans Operational plans Translate tactical plans into specific goals and actions Small units of the organization Near term

Operational plans

Translate tactical plans into specific goals and actions

Small units of the organization

Near term

Time horizon Types of Plans Adapted from Exhibit 8.1: Types of Plans: Key Differences Strategic Plans Tactical Plans Operational Plans Scope Complexity Typically 3-5 years Often focused on 1-2 years in the future Usually focused on the next 12 months or less. Broadest,originating with a focus on the entire organization Rarely broader than a strategic business unit Narrower, usually cen- tered on departments or smaller units of the organization The most complex and general, because of the different industries and business potentially covered Somewhat complex but more specific, because of the more limited domain of application The least complex, because they usually focus on small homogenous units

Time horizon

Impact Types of Plans Interdependence Have the potential to dramatically impact, both positively and negatively, the fortunes and survival of the organization Can affect specific businesses but generally not the fortunes or survivability of the entire organization Impact is usually restricted to specific department or organization unit High interdependence, must take into account the resources and capabilities of the entire organization and its external environments Moderate interdepen-dence, must take into account the resources and capabilities of several units within a business Low interdependence, the plan may be linked to higher-level tactical and strategic plans but is less interdependent with them Strategic Plans Tactical Plans Operational Plans Adapted from Exhibit 8.1: Types of Plans: Key Differences

Impact

Organizational Levels Corporate level What industries should the firm be in? What markets should the firm be in? In which businesses should the firm invest money? Business level Who are our direct competitors? What are their strengths and weaknesses? What advantages do we have over them? What are our own strengths and weaknesses? What do customers value in our products/services?

Corporate level

What industries should the firm be in?

What markets should the firm be in?

In which businesses should the firm invest money?

Business level

Who are our direct competitors?

What are their strengths and weaknesses? What advantages do we have over them?

What are our own strengths and weaknesses?

What do customers value in our products/services?

Organizational Levels Functional level What activities must my unit perform well in order to meet customer expectations? What information about competitors does my unit need in order to help the firm compete effectively? What are our unit’s strengths and weaknesses?

Functional level

What activities must my unit perform well in order to meet customer expectations?

What information about competitors does my unit need in order to help the firm compete effectively?

What are our unit’s strengths and weaknesses?

Organizational Levels Corporate Level Business Level (Strategic Business Units) Functional Level Adapted from Exhibit 8.2: Organizational Levels Brunswich Marine Recreation Astro/Procraft Sea Ray U.S. Marine Finance department Human Resources department Marketing and Sales department

Business Plans and Levels Adapted from Exhibit 8.3: Interaction Between Business Plans and Levels Strategic Plans Tactical Plans Operational Plans Corporate Level Business Level Functional Level Organizational Levels Types of Plans

The Planning Process Analyzing the environment Forecasts Environmental uncertainty Contingency plans: identify key factors that could affect the desired results and specify what actions will be taken if key events change Benchmarking Investigation of the best results among competitors and noncompetitors and the practices that lead to those results Analyzing the Environment

Analyzing the environment

Forecasts

Environmental uncertainty

Contingency plans: identify key factors that could affect the desired results and specify what actions will be taken if key events change

Benchmarking

Investigation of the best results among competitors and noncompetitors and the practices that lead to those results

The Planning Process Adapted from Exhibit 8.4: Planning Process Analyze environment (forecasts, benchmarks, contingencies, competitor analysis, scenarios) Set objectives Determine requirements Assess resources Develop action plans Implement plans Monitor outcomes Feedback Feedback

The Planning Process Setting objectives Priorities and multiple objectives Establish which objectives are most important and which have temporal priorities, Measuring objectives Setting Objectives Financial performance Profits relative to sales Profits relative to assets Many others Non-financial performance

Setting objectives

Priorities and multiple objectives

Establish which objectives are most important and which have temporal priorities,

Measuring objectives

Financial performance

Profits relative to sales

Profits relative to assets

Many others

Non-financial performance

The Planning Process Determining requirements Assess current performance What will it take in order to get from current levels of performance to that level specified in the objectives? What drives market share? What capital will be required? Determining Requirements

Determining requirements

Assess current performance

What will it take in order to get from current levels of performance to that level specified in the objectives?

What drives market share?

What capital will be required?

The Planning Process Assessing resources Resources required What resources are needed to achieve the stated objectives? Resources available Do we have the needed human talent to meet the requirements? Do we have the financial resources available? Do we have the required technology? Assessing Resources

Assessing resources

Resources required

What resources are needed to achieve the stated objectives?

Resources available

Do we have the needed human talent to meet the requirements?

Do we have the financial resources available?

Do we have the required technology?

The Planning Process Developing action plans Sequence and timing Raw materials, manpower and components must be brought together in the right amounts and sequences Accountability Who is accountable for which actions? Developing Action Plans

Developing action plans

Sequence and timing

Raw materials, manpower and components must be brought together in the right amounts and sequences

Accountability

Who is accountable for which actions?

Gantt Chart Contact clients Obtain contract specifications Submit bid Receive feedback Revise bid Submit revised bid Final approval or rejection Complete bid review Adapted from Exhibit 8.5: Gantt Chart Nov Oct Sept August July June May

The Planning Process Implementing Plans Monitoring the implementation Monitor the progress of the plan and its implementation Monitor the level of support that the plan receives as it is being implemented Monitor the level of resistance Real-time adjustment Implementing Plans

Implementing Plans

Monitoring the implementation

Monitor the progress of the plan and its implementation

Monitor the level of support that the plan receives as it is being implemented

Monitor the level of resistance

Real-time adjustment

The Planning Process Monitoring outcomes Unanticipated consequences Negative unanticipated consequences Positive unanticipated consequences Feedback loop Apply what has been learned to modify and improve the planning process Monitoring Outcomes

Monitoring outcomes

Unanticipated consequences

Negative unanticipated consequences

Positive unanticipated consequences

Feedback loop

Apply what has been learned to modify and improve the planning process

Planning Tools Budgets Capital expenditure budget Specifies the amount of money to be spent on specific items that have long-term use and require significant amounts Expense budget Includes all primary activities on which a unit or organization plans to spend money and the amount allocated for the upcoming year

Budgets

Capital expenditure budget

Specifies the amount of money to be spent on specific items that have long-term use and require significant amounts

Expense budget

Includes all primary activities on which a unit or organization plans to spend money and the amount allocated for the upcoming year

Planning Tools Proposed budget Provides a plan for how much money is needed, and is submitted to a superior or budget review committee Approved budget Specifies what the manager is actually authorized to spend money on and how much Budgets

Proposed budget

Provides a plan for how much money is needed, and is submitted to a superior or budget review committee

Approved budget

Specifies what the manager is actually authorized to spend money on and how much

Budgets

Planning Tools Two budgetary approaches Incremental budgeting approach From the approved budget of the previous year present arguments for why the upcoming budget should be more or less Zero-based budgeting approach Justify all allocations of funds from zero each year

Two budgetary approaches

Incremental budgeting approach

From the approved budget of the previous year present arguments for why the upcoming budget should be more or less

Zero-based budgeting approach

Justify all allocations of funds from zero each year

Goal Setting Attributes of effective goals Specific Measured Agreed Realistic Time bound

Attributes of effective goals

Specific

Measured

Agreed

Realistic

Time bound

MBO Process Adapted from Exhibit 8.6: The Process of MBO Organization Strategy Strategic plan Tactical plan Operational plan Jointly set goals Goal acceptance Goal difficulty Goal specificity Explicit time period Individual motivation and ability Top management support and involvement Performance Periodic review and evaluation Feedback