Process (Exhibit 5-8)
Before we further probe the basics of planning, it is important to remind ourselves what
As mentioned in Chapter 1, “planning” if the managerial activity that defines the
organization’s objectives or goals, establishes an overall strategy for achieving those
goals, and develops a comprehensive set of plans to integrate and coordinate
activities. It is concerned with what is to be done as well as how it is to be done.
Planning can be either formal or informal, depending on the time frame and amount of
documentation. Because of the dynamic and unpredictable business environment, it is
important that managers plan and plan well. There are four reasons for planning.
First, planning coordinates effort by giving direction to managers and non-managers.
Second, planning reduces uncertainty by forcing managers to look ahead, anticipate change,
and develop appropriate responses.
Third, planning reduces redundancy.By coordinating efforts, wasteful and inefficient activities
can be prevented.
Fourth, planning establishes standards or objectives that facilitate control over the process of
Formal planning has been popular in business since the 1960s, but there have been criticisms of
• Planning may create rigidity. Assuming that conditions will remain relatively stable, formal
plans lock organizational units into specific goals and time frames.
• Plans can’t be developed for a dynamic environment. Managing chaos and turning
disasters into opportunities requires flexibility, not rigid, formal plans.
• Formal plans can’t replace intuition and creativity. Developing strategy depends as much
on intuition and creativity as it does on formal analysis. Because most successful strategies are
visions, not plans, merely following a systematic framework will not yield incisive thinking.
• Planning focuses a manager’s attention on today’s competition, not on tomorrow’s
survival. Formal planning stresses capitalizing on existing opportunities, not reinventing or
creating an industry.
• Formal planning reinforces success, which may lead to failure. Success can breed failure.
Since change is motivated by problems, success may not motivate managers to challenge the
The evidence is mostly positive and suggests several conclusions.
1. Formal planning in an organization is frequently associated with positive financial results.
2. In those organizations in which formal planning did not lead to higher performance, the
environment was typically the culprit.
3. The quality of the planning process and the implementation of the plans affect performance
more than does the extent of the plans.
The most popular ways to describe plans are by their breadth (strategic versus tactical), time
frame (long term versus short term), specificity (directional versus specific), and frequency of
use (single use versus standing). These classifications are not mutually exclusive.
Top-level managers typically develop strategic plans that apply to the entire organization.
These plans drive the organization’s efforts to achieve its goals. Lower-level managers
focus on tactical plans (sometimes called operational plans) that specify how the overall
objectives will be achieved. These plans differ in time frame and scope: operational plans are
limited in scope and are measured daily, weekly, or monthly; strategic plans are broader, less
specific and encompass five or more years.
Plans differ based on the time frame that the plan covers. Short-term plans typically cover less
than one year whereas long-term plans are five years or more.
The length of an organization’s plans tend to fit with future commitments and how much
uncertainty it faces. If current plans affect future commitments, the longer the time frame for
which managers must plan.
Likewise, the greater the uncertainty, the more plans should be of the short-term variety. This is
so because shorter-term plans allow for better flexibility to meet changing demands.
Specific plans may appear to be preferable over directional plans as they have clearly defined
objectives and leave no room for misinterpretation. However, specific plans may require clarity
and predictability that often does not exist. When uncertainty is high and flexibility is needed,
directional plans are preferable. Directional plans provide general guidelines, and therefore do
not lock managers into specific objectives or courses of action.
An example is using a map to get from Point A to Point B as is shown in Exhibit5-2 in your
text. The directional plan merely states that you want to go from Point A to Point B and you
are provided the flexibility to get there in a manner that you feel best fits the desired outcome.
However, if you were to follow a specific plan, you would go from Point A to Point B along
the exact streets as indicated. This would be fine unless there was a problem on one of the
streets that prevented you from getting to Point B.
Some plans are meant to be used only once while 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.
An example of a single-use plan would be the students planning a special event during
orientation week. Likewise, if you are graduating this year, your institution probably uses a
standing plan to execute the graduation ceremonies.
Management by objectives (MBO)is a system of allowing employees to work with their
supervisors in setting performance objectives in an effort to achieve organizational outcomes.
It 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.
As the figure above shows, the organization’s overall objectives are translated into
specific objectives for each succeeding level (divisional, departmental, or individual)
in the organization. But because lower-unit managers jointly participate in setting
their own goals, MBO works from the “bottom-up” as well as from the “top down.”
The result is a hierarchy of objectives that links objectives at one level to those at the
next level. And for the individual worker, MBO provides specific personal
performance objectives. So each person has an identified specific contribution to
make to his or her unit’s performance. If all individuals achieve their goals, then their
unit’s goals will be attained and the overall objectives of the organization will become
There are four ingredients common to MBO programs: participation in decision making,
specific goals, an explicit time period, and performance feedback.
MBO objectives should be concise statements of expected accomplishments or outcomes. It is
not enough merely to state the desire to cut costs, improve service, or boost quality. Such
desires have to be converted into tangible objectives that can be measured and evaluated. An
example of a specific goal is to increase product sales by 10%.
The objectives of MBO are not unilaterally set by the boss and then assigned to subordinates.
A key aspect of MBO is the manager and employees working together to identify and agree on
the goals and how the goals will be achieved.
Each objective has a specific time period in which it is to be completed. So managers have not
only specific objectives but also stipulated time periods in which to accomplish them. Linking
this with our first example, the organization may want to increase product sales during the next
6 months by 10%.
The final component in an MBO program is continuous feedback on progress toward goals so
that individuals can monitor and correct their own actions. Continuous feedback, supplemented
by more formal periodic management evaluations, takes place at all levels of the organization.
Research indicates that MBO is most effective if goals are difficult enough to require an
employee to “stretch.” While MBO promotes participative goal setting, when goal
difficulty is held constant, assigned goals often work just as well. But, participative
goal setting does induce individuals to set more difficult goals.
Studies of actual MBO programs confirm that MBO effectively increases employee
performance and organizational productivity. A review of 70 programs, for example, found
organizational productivity gains in 68 of them. The same review indicated that top
management commitment is critical for MBO to reach its potential. When top management was
committed to MBO, the average productivity gain was 56 percent.
Employees need to have a clear understanding of what is expected of them. Managers can
help employees set work goals by using the following guidelines:
• Identify an employee’s key job tasks. The best source for this can be information from the
person’s job description.
• Establish specific and challenging goals for each key task. Realistic performance levels,
specific targets, and clear deadlines should be set.
• Encourage the employee to actively participate. When employees participate in goal setting,
they are more likely to accept the goals. But the participation must be genuine and not just
going through the motions.
• 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 employees know
whether their level of effort is sufficient to attain the goal. And the feedback needs to be on a
regular and recurring basis.
• Link rewards to goal attainment. Linking rewards to the achievements will help each
employee to answer the question “What’s in it for me?”
Recall the discussion on TQM from Chapter 2. The architect of TQM, Edward Deming, felt
that MBO created more difficulties rather than solutions. He believed that using MBO created
an environment where employees paid more attention to quantity of output than quality. Also,
he criticized MBO because of the goals set with individual employees, rather than teams. And
lastly, he felt that once employees achieved the goals, that the employees would tend to relax.
These criticisms can be overcome by setting goals for quality improvements, by creating team
goals, and by ensuring that new goals are established once previously-established ones are
The strategic management process is a 9-step process involves strategic planning,
implementation and evaluation. This process is typically undertaken by the senior management
in the organization.
Determining the nature of one’s business is as important for not-for-profit organizations
as it is for business firms. Hospitals, government agencies, and educational
institutions must also identify their missions. What is the mission of your institution?
The first step in the strategic management process is to identify (or review) the organization’s
mission, objectives and strategies. The mission is the organization’s purpose--it
determines what business or businesses that it is in. By defining the mission it
forces the management to carefully identify the products or services. Whether the
organization is profit or not-for-profit, it is critical to clarify why the organization exists.
Once there is clarity on the business purpose, then the company can develop objectives and
strategies to achieve the business outcomes.
In step two, managers analyze the environment to anticipate and interpret changes in which the
organization operates. Large amounts of information are reviewed to detect emerging trends.
Information might be gathered on the actions of competitors, pending government legislation,
preferences of customers, and supply of labour.
One of the newer areas of environmental scanning is “competitive intelligence.” This
activity gets accurate and basic information about competitors so that managers can
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, Information on
the Internet, and competitor’s products supply 95% of the data required for this
technique to work. Some of the more widely-used data bases in Canada come from
Once the manager has done the scanning of the external environment, the next key steps in the
strategic management process is the SWOT analysis. This is where a detailed analysis is done
of the external factors and internal resources.
In looking at the external factors, you will assess the threats (negative) and opportunities
(positive) that face the organization. It is important to remember that what one organization
sees as a threat may in fact be an opportunity for another company.
The next step in the process is to look at the internal resources to determine the strengths and
weaknesses of those resources. From this, the organization will be able to identify its core
competency--the strengths that will provide the company with a competitive edge.
The purpose of doing a SWOT analysis is to align the company’s strengths with the
opportunities to find a particular niche in which to be successful. It is the area
shown above where the organization will want to focus its energies--where there is
an overlap between resources and external factors.
It will be at this step that the organization reevaluates its missions and objectives, and makes
the necessary changes.
Once the organization has identified its opportunities and re-confirmed or re-aligned its
mission, management must set strategies for all organizational levels. However, what is
focused on at this stage are organizational-wide strategies. There are 2 key theories about
strategies. One theory is called The Grand Strategies and it has four individual strategies
available to the firm: growth, stability, retrenchment, and combination.
The Growth Strategy. Organizations can grow through direct expansion, merger, and
acquisition. A direct expansion strategy involves increasing a company’s size,
revenues, operation, or workforce. A merger occurs when two companies combine
resources to form a new company. An acquisition occurs when a larger company
“buys” a smaller one and absorbs its operations.
The Stability Strategy. There is no significant change in a stability strategy. The
organization continues to serve the same market and customers with little change
occurring in the external environment. While it may seem that not many companies
pursue this strategy, there are some.
The Retrenchment Strategy. Characteristic of an organization that is downsizing--either
reducing its workforce or selling product lines. This strategy is used in an environment
of decline and began to surface about 20 years ago.
The Combination Strategy. This strategy is the simultaneous pursuit of two or more
strategies. For example, one part of the organization could be in a retrenchment while
another part is growing.
The other theory of strategy formulation was developed by Michael Porter at Harvard Business
School. He basically stated that organizations needed to only develop a competitive strategy
and that there were only 3 possibilities.
The organization could be a cost leader--producing the product or service at the lowest cost. Or
the organization could distinguish itself in same way--a small niche market that buyers highly
value. And the distinction could be on service surrounding the actual product.
Lastly, Porter stated that a company could have a focused strategy--one either focused on cost
or distinction but in a very narrow market segment. For example, an auto parts supplier for a
certain make of car.
No matter how good the plans are, the organization cannot succeed unless that plan is
implemented. Therefore, the last steps in the strategic management process are to implement
the plan and then to evaluate the results. Did the plan achieve what it set out to do.
Total Quality Management is a focus on quality and continuous improvement? This can be a
strategic weapon for an organization that imbeds a TQM philosophy throughout its operations.
There are 3 key tools that can be used in a TQM environment.
Benchmarking is identifying “best practices” among other businesses that have led to
superior performance. Those practices are then adapted to fit your organization.
ISO--the International Organization for Standardization--has created the an ISO 9000
certification. The certificate attests that the company has met rigorous world-wide standards for
quality and consistency. ISO 14000 deals with environmental standards.
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.
There is no shortage of definitions of entrepreneurship. For example, some people apply the
term to the creation of any new business. Others focus on intentions, claiming that
entrepreneurs seek to create wealth, which is different from starting businesses merely as a
means of income.
Most people use the following adjectives to describe entrepreneurs: bold, innovative, initiative
taking, venturesome, and risk taking. But there are 3 important themes: 1) the pursuit of
opportunities; 2) innovation; and 3) growth. Entrepreneurs are pursuing opportunities to grow
a business by changing, revolutionizing, transforming, or introducing new products or
Yes, there is an entrepreneurial process. It has four key steps that entrepreneurs must address
as they start and manager their venture.
Exploring the entrepreneurial context. The context includes the realities of the new
economy, society’s laws and regulations that compose the legal environment,
and the changing world of work.
Identifying opportunities and possible competitive advantages. It is through
exploring the entrepreneurial context that the entrepreneurs identify opportunities and
possible competitive advantages.
Starting the venture. Once entrepreneurs have explored the context and identified the
opportunities, they must look at actually starting the venture. This includes researching
the feasibility of the venture, planning, organizing, and launching the venture.
Managing the venture. The entrepreneurs does this by managing processes, people
As we conclude our discussions on strategic planning, it is important to review the difference
between entrepreneurs and traditional managers. While strategic questions may focus on the
same concerns, entrepreneurs and traditional managers approach strategy differently.
The entrepreneur is driven by perceived opportunity rather than available resources. Once an
opportunity is spotted, an entrepreneur will want to capitalize on it. Besides being confident
about succeeding, the entrepreneur is not afraid to risk financial security, career opportunities,
family relations, or psychic well-being to get the venture started. After obtaining the resources,
the entrepreneur will put together the components required to implement the overall strategy.
Today’s managers face the challenges of planning in an environment that[‘s both
dynamic and complex. One technique in making planning both effective and efficient
is project management--a process of quality control to ensure a project’s activities
are done on time, within budget, and according to specifications.
More and more organizations are using project management because the approach fits well
with the need for flexibility and rapid response to perceived market opportunities. When
organizations undertake projects that are unique, have specific deadlines, contain complex
interrelated tasks requiring specialized skills, and are temporary in nature, these projects often
do not fit nicely and neatly into the standardized planning procedures. Therefore, project
management enables effective and efficient accomplishment of project goals.