It can be either formal or informal, depending on the time frame and amount of documentation
Managers should plan for at least four reasons. (See Exhibit 4-1.)
Although it makes sense for an organization to establish goals and direction, critics have challenged some of the basic assumptions of planning. Plans can’t be developed for a dynamic environment.
The evidence is mostly positive and suggests several conclusions: Formal planning in an organization is frequently associated with positive financial results. In those organizations in which formal planning did not lead to higher performance, the environment was typically the culprit. The quality of the planning process and the implementation of the plans affect performance more than does the extent of the plans.
Strategic management is what managers do to develop an organization’s strategies. What are an organization’s strategies? They’re the plans for how the organization will do what it’s in business to do, how it will compete successfully, and how it will attract and satisfy its customers in order to achieve its goals
The strategic management process (see Exhibit 4-2) is a six-step process that encompasses strategy planning, implementation, and evaluation. Although the first four steps describe the planning that must take place, implementation and evaluation are just as important! Even the best strategies can fail if management doesn’t implement or evaluate them properly.
Every organization needs a mission—a statement of its purpose. Defining the mission forces managers to identify what it’s in business to do. For instance, the mission of Avon is “To be the company that best understands and satisfies the product, service, and self-fulfillment needs of women on a global level.” The mission of Facebook is “a social utility that connects you with the people around you.”
The combined external and internal analyses are called the SWOT analysis because it’s an analysis of the organization’s strengths, weaknesses, opportunities, and threats.
The short-term covers less than one year, the intermediate-term covers one to five years, and the long-term is five years or more. The commitment concept is relevant to classifying plans because the more current plans affect future commitments, the longer the time frame for which managers must plan. The length of the planning horizon increases up the management hierarchy and decisions of top management imply greater commitments of resources than decisions of lower managers. With respect to the degree of variability, the greater the uncertainty, the more plans should be of the short-term variety. This is so because shorter-term plans allow for better accommodation of change by providing more flexibility.
It appears intuitively correct that specific plans are always preferable to directional, or loosely guided plans. Specific plans have clearly defined objectives and leave no room for misinterpretation. However, specific plans are not without drawbacks. They require a clarify and predictability that often does not exist. When uncertainty is high and flexibility is needed, directional plans are preferable. Since directional plans identify general guidelines, they provide focus but do not lock managers into specific objectives or courses of action
Some plans are meant to be used only once; others are used repeatedly. A single-use plan is used to meet the needs for a particular or unique situation. A standing plan is ongoing and guides for actions that are performed repeatedly in an organization.
Management by objectives (MBO) emphasizes participation to set goals that are tangible, verifiable, and measurable. MBO’s appeal lies in its emphasis on converting overall organizational objectives into specific objectives for units and members of the organization.
Employees should understand what they are trying to accomplish. Managers can help employees set work goals by using the following guidelines: Identify an employee’s key job tasks . The employee’s job description can be used to define what he or she is supposed to accomplish. Establish specific and challenging goals for each key task . Performance levels, specific targets, and clear deadlines should be set for all employees. Allow the employee to actively participate . When employees participate in goal setting, they are more likely to accept the goals. Prioritize goals . The purpose of prioritizing goals in order of importance is to encourage the employee to take action and expend effort on each goal in proportion to its importance. Build in feedback mechanisms to assess goal progress . Feedback lets workers know whether their level of effort is sufficient to attain the goal. It should be frequent and recurring. Link rewards to goal attainment . Linking rewards to the achievements will help each employee to answer the question “What’s in it for me?
First, management must identify the mission, objectives, and strategies of the organization. A mission statement defines an organization’s purpose and provides guidance to managers and employees. A clear mission statement forces management to identify the scope of its products or services carefully It answers questions such as the following: What business are we in? What are we trying to accomplish? All organizations have strengths and weaknesses.
In step two, managers analyze the environment in which the organization operates: actions of competitors, pending government legislation, preferences of customers, and supply of labor. Managers use environmental scanning to anticipate and interpret environmental changes. The term refers to screening information to detect trends, monitor the actions of others, and create scenarios. This slide and the next one review four environmental-scanning techniques: competitive intelligence, scenario development, forecasting, and benchmarking. The seeking of basic information about competitors, competitive intelligence can allow managers to anticipate rather than react to the actions of competitors. Advertisements, promotional materials, press releases, governmental reports, annual reports, want-ads, newspaper articles, databases, trade shows, industry studies, and competitor’s products supply 95% of the data required for this technique to work.
To sustain a competitive advantage, managers create barriers to competition through patents, copyrights, or trademarks; using economies of scale to reduce price to boost volume; locking up suppliers with exclusive contracts and lobbying for government policies to limit foreign competition.
TQM focuses on quality and continuous improvement. If integrated into ongoing operations, incremental improvement can accumulate into a competitive advantage that others cannot steal. Benchmarking is the practice of using a measurable scale to compare key business operations with those of successful organizations. It involves four steps. (1) Form a team to identify the following: benchmarking targets, “best practices” of other organizations, and data collection methods. (2) Collect data from internal operations and external organizations. (3) Analyze data to identify performance gaps and determine their causes. (4) Prepare and implement an action plan to meet or exceed performance standards. To show that its products meet world standards for quality management, a company must gain ISO 9000 certification. The certificate attests that the company has met rigorous standards for quality and consistency as defined by the International Organization for Standardization in Geneva.
The six sigma philosophy was developed in the 1980s at Motorola. Its premise is to “design, measure, analyze, and control the input side of a production process.” Rather than measuring the quality of a product after it is produced, six sigma uses statistical models, specific quality tools, high levels of rigor, and process improvement “know how” to design in quality as the product is being made. Accordingly, six sigma is designed to decrease defects to fewer than four per million items produced.
PRINCIPLES OF MANAGEMENT (MGT301)MODULE 3 (Textbook : Chapter 4) Foundations of Planning 4-1
Learning Objectives• Define planning• Identify and explain the potential benefits and drawbacks of planning• Describe the strategic management process and explain what managers do in the strategic management process• Describe the types of plans managers use and how do they develop those plans• Explain SWOT analysis Prepared/compiled by FadzillahFaruk 4-2
What Is Planning? • Planning is often called the primary management function because it establishes the basis for all the other things managers do • Planning encompasses defining the organization’s goals or objectives; establishing an overall strategy for achieving those goals; developing a comprehensive hierarchy of plans to integrate and coordinate activities • It’s concerned with ends (what is to be done) as well as with means (how it’s to be done) • Planning can be formal or informal(For further reading please refer to Robbins, DeCenzo & Coulter; Fundamentals of Management; Chp 4; Pg 110-112) Prepared/compiled by FadzillahFaruk 4-3
Why Do Managers Need to Plan?• Managers should plan for at least four reasons – planning establishes coordinated effort : provides direction to managers & nonmanagerial employees; coordinate activities thus fostering teamwork & cooperation – planning reduces uncertainty : look ahead, anticipate change, consider the impact of change, and develop appropriate responses; clarifies the consequences of the actions managers might take in response to change – planning reduces overlapping and wasteful activities : coordination before the fact is likely to uncover waste and redundancy; when means and ends are clear, inefficiencies become obvious – planning establishes the goals or standards that facilitate control : when managers plan, they develop goals and plans. When they control, they see whether the plans have been carried out and the goals met. If significant deviations are identified, corrective action can be taken. Without planning, there would be no goals against which to measure or evaluate work efforts Prepared/compiled by FadzillahFaruk 4-4
What Are Some Criticisms of Formal Planning?• Critics have challenged some of the basic assumptions of planning 1. Planning may create rigidity 2. Formal plans can’t replace intuition and creativity 3. Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival 4. Formal planning reinforces success, which may lead to failure Prepared/compiled by FadzillahFaruk 4-6
The Bottom Line: Does Planning ImproveOrganizational Performance?• Formal planning means higher profits, higher return on assets, and other positive financial results.• Planning process quality and implementation 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. Prepared/compiled by FadzillahFaruk 4-7
What Do Managers Need to Know About Strategic Management? • Strategic Management – What managers do to develop an organization’s strategies • Strategies – Plans for how the organization will do what it’s in business to do, how it will compete successfully, and how it will attract its customers in order to achieve its goals • Strategic Management Process – A six-step process that encompasses strategy planning, implementation and evaluation(For further reading please refer to Robbins, DeCenzo & Coulter; Fundamentals of Management; Chp 4; Pg 112-121) Prepared/compiled by FadzillahFaruk 4-8
The Strategic Management Process• STEP 1: Identifying the organization’s current mission, goals and strategies• STEP 2: Doing an external analysis• STEP 3: Doing an internal analysis• STEP 4: Formulating the strategies• STEP 5: Implementing strategies• STEP 6: Evaluating results Prepared/compiled by FadzillahFaruk 4-9
Strategic Management Process (cont.)• Mission – A statement of an organization’s purpose• Capabilities – An organization’s skills and abilities in doing the work activities needed in its business• Core Competencies – The major value-creating capabilities of an organization Prepared/compiled by FadzillahFaruk 4-11
What is a SWOT Analysis?• SWOT Analysis – The combined external and internal analyses• Strengths – Any activities the organization does well or any unique resources that it has• Weaknesses – Activities the organization doesn’t do well or resources it needs but doesn’t possess• Opportunities – Positive trends in the external environment• Threats – Negative trends in the external environment Prepared/compiled by FadzillahFaruk 4-13
Reference :Basic Text : Stephen P. Robbins, David A. DeCenzo & Mary Coulter; Fundamentals of Management; 2011; 7th Edition; Pearson Prentice Hall; Chapter 4. Prepared By : Fadzillah Mohd Faruk@Feb’2011 4-33