The document discusses various aspects of planning in organizations, including: - The benefits and costs of planning - Top-down vs bottom-up planning approaches - Strategic, operational, and individual planning - Management by objectives and the balanced scorecard - Contingency planning and how IT has affected planning - Common barriers to planning and how to overcome them

1. Planning in the Contemporary Organization Chapter 5 Part 2 Planning Challenges in the 21st Century

2. Describe the managerial function of planning and explain why planning is critical for effective leadership. Explain the benefits and costs of planning. Discuss the potential advantages and disadvantages of top-down and bottom-up planning. Define strategic planning and describe the three levels of strategic planning. Define operational planning and distinguish between standing and single-use plans. LEARNING OBJECTIVES When you have finished studying this chapter, you should be able to:

3. Describe individual planning systems such as management by objectives and the Balanced Scorecard. Define contingency planning and identify the circumstances under which contingency planning would be appropriate. Discuss how advances in information technology have affected operational planning. Describe common barriers to effective planning and explain ways to reduce these barriers. LEARNING OBJECTIVES (cont’d) When you have finished studying this chapter, you should be able to:

4. Managerial Planning Planning Defined The process of outlining the activities that are necessary to achieve the goals of the organization. A Plan A blueprint for action that prescribes the activities necessary for an organization to realize their goals. Purpose of Planning The purpose of planning is simple — to ensure that the organization is both effective and efficient in its activities.

5. Goals and Controls Goals Provide a clear, engaging sense of direction and specify what is to be accomplished. Control Monitor the extent to which goals have been achieved and ensure the organization is moving in the right direction.

6. Figure 5.1 Planning as a Linking Mechanism

7. Why Plan? Better Coordination Focus on Forward Thinking Participatory Work Environment More Effective Control System

8. The Benefits of Planning Better Coordination Planning provides a foundation for the coordination of a broad range of organizational activities. A plan helps to define the responsibilities of individuals and work groups and helps coordinate their activities. Focus on Forward Thinking The planning function forces managers to think ahead and consider resource needs and potential opportunities or threats that the organization may face in the future.

9. The Benefits of Planning (cont’d) Participatory Work Environment Successful planning requires the participation of a wide range of organizational members. More access to a broad base of experience and knowledge in the planning process. More “buy in” — organizational members are more likely to accept a plan that they have helped develop.

10. The Benefits of Planning (cont’d) More Effective Control Systems An organization’s plan provides a foundation for control of the processes and progress of the company. The implementation of the plan can be evaluated and progress toward the achievement of performance objectives can be monitored. Controls provide mechanism for ensuring that the organization is moving in the right direction and making progress toward achieve its goals.

11. The Costs of Planning Management Time Done properly, the planning process requires a substantial amount of managerial time and energy. Delay in Decision Making Planning can result in delays in decision making, which must be weighed against the importance of speed in response time.

12. Planning: Benefits Versus Costs In the final analysis, managers plan because planning leads to higher performance. Planning also helps managers cope with the challenges they face and ensures the long-term success of their companies.

13. Where Should Planning Begin? ↓ Top-Down Planning ↓ Planning efforts begin with the board of directors and top executives of the firm ↑ Bottom-Up Planning ↑ Planning is initiated at the lowest level in the organization

14. Advantages of Each Planning Approach Top-Down Planning Top managers, who are the most knowledgeable about the firm as a whole, drive the development of the plan. Bottom-Up Planning The people closest to the operating system, customers, and suppliers drive the development of the plan.

15. Table 5. 1 Top-Down and Bottom-Up Planning Top-Down Bottom-Up Organizational CEO, Board of Directors People/department closest to product, level service, customer. Role of As the plan moves down the Units develop goals and plans. As plans organizational hierarchy, units determine actions move up the hierarchy, they are evaluated unit needed to support the plan. and adjusted for accuracy and feasibility. Specificity Begins broad, becomes more Begins specific and probably fragmented; of plan specific as it moves down the becomes cohesive and integrated as it hierarchy. moves up the hierarchy. Potential Plans are driven by top-level Those closest to customers, suppliers, and advantages managers who are most operating systems provide focus of plans. knowledgeable about all factors affecting the organization. Potential Top-level managers may be Lower-level managers may lack under- disadvantages removed from the front line. standing of all factors affecting the organization.

16. Levels of Planning In general, most organizations engage in both strategic planning and operational planning. Customizing the strategic planning process A successful planning process must fit the organization's focus on creating value for its customers and its shareholders. It must be customized for the organization based on its specific and unique needs.

17. Corporate Strategy Diversification An organization adding new products, services, or businesses. Unrelated diversification Adding products, services, or businesses that are different from the ones an organization currently has. Related diversification Adding products, services, or businesses that have some relationship to the ones an organization currently has or share a core competency.

18. Business Strategic Planning Strategic Planning The process by which an organization makes decisions and takes actions that affect its long-run performance. The purpose of strategic planning is to move the organization from where it is to where it wants to be. A strategic plan is the output of the strategic planning process that defines both the markets in which the firm competes and the ways in which it competes in those markets.

19. Table 5. 2 Levels of Strategic Planning Time Focus Specificity Participants Horizon Corporate To develop a mix of Broad Board of directors 5–10 years strategy business units that meets Top-level executives the company’s long-term growth and profitability goals Business To develop and maintain More specific Top-level executives 1–5 years strategy a distinctive competitive than the Managers within the advantage that will ensure corporate business unit long-term profitability strategy Functional To develop action plans Very specific Middle-level managers 1–2 years strategy that ensure that corporate Lower-level managers and business strategies are implemented

20. Functional Strategic Planning Functional strategy specifies activities necessary to implement the organization's corporate and business strategies. Operations Research and Development (R&D) Financial Human resource management Marketing

21. Table 5. 3 Examples of Functional Strategies

22. Operational Planning Operational Planning Focuses on the day-to-day activities that are necessary to achieve the long-term goals of the organization. Operational Plans Are more specific, address shorter-term issues, and are formulated by mid- and lower-level managers who are responsible for the work groups in the organization. Can be categorized as either standing or single-use plans.

23. Standing Plans Standing Plans Designed to deal with organizational issues or problems that recur frequently. They include: Policies: general guidelines that govern how certain organizational situations will be addressed. Procedures: more specific and are designed to give explicit instructions on how to complete a recurring task. Rules: provide detailed and specific guidelines and limits for action.

24. Single-Use Plans Single-Use Plans Are developed to address a specific organizational situation. They include: Programs: govern a relatively comprehensive set of activities that are designed to accomplish a particular set of goals. Projects: direct the efforts of individuals or work groups toward the achievement of specific, well-defined objectives. Budgets: specify how financial resources should be allocated.

25. Individual Plans Increasingly, organizations are looking for ways to translate boarder organizational plans to the level of individual employees. Two approaches for doing so include: Management by Objectives The Balanced Scorecard

26. Figure 5. 2 Management by Objectives: The Cycle Source: K. Davis and J. Newstrom, Behavior at Work: Organizational Behavior (New York: McGraw-Hill, 1989), 209. Reproduced with permission of the McGraw-Hill Companies.

27. Management by Objectives (MBO) A method for developing individualized plans which guide the activities of individuals. MBO benefits: Provides a foundation for a more integrated and system-oriented approach to planning. Requires communication between employees and their managers since they must agree on the performance goals outlined in the plan. Creates a participatory work environment where employees have a voice in the design of their jobs and setting their performance targets.

28. MBO Disadvantages Requires time and commitment of top management. May require excessive paperwork. May create a tendency to focus on short-term planning rather than long-term planning. Can be difficult to establish and operationalize.

29. Table 5. 4 Potential Advantages and Disadvantages of MBO Source: Adapted from J. Gordon et al., Management and Organizational Behavior (Boston: Allyn and Bacon, 1990). Potential Advantages Can result in better achievement of goals. Forces managers to establish priorities and measurable goals or standards of performance. Encourages participation of employees and managers in establishing goals. Facilitates control. Lets individuals know what is expected. Can help improve communication. Increases motivation and commitment of employees. Potential Disadvantages Requires time and commitment of top-level managers. May require excessive paperwork. May create tendency to focus on short-term goals. Can be difficult to establish and put into operation. Goals of individuals may not be coordinated with higher-level goals.

30. The Balanced Scorecard (BSC) A system-wide performance measurement process that aligns individual goals with the strategic goals of the organization. Allows an organization to translate strategy into operational actions at every level. Ensures employees that their individual action plans and goals are consistent with the overall strategic direction of the organization.

31. Table 5. 5 Measuring Performance with the Balanced Scorecard Source: J. Steele, “Transforming the Balanced Scorecard into Your Strategy Execution System,” Manage 53 (September/October 2001): 22–23. Key Principles Measurement Criteria Implications for Leaders Align organization Customers Understand the “big to the strategy picture.” Translate the strategy Internal processes BSC measures performance to operational terms. at all levels. View strategy as a Innovation Execute strategy into action. continual process. Make strategy Growth Empower frontline everyone’s job. employees.

32. Contingency Planning Contingency Planning Requires the development of two or more plans, each of which is based on a different set of strategic or operating conditions that could occur. When Is Contingency Planning Needed? Necessary in business environments that change rapidly and in unpredictable ways. Useful when a firm’s effectiveness is dependent on a particular set of business conditions.

33. The Impact of Information Technology on Planning Advances in information technology have improved both the effectiveness and efficiency of the planning function. Information technology can be used to establish and implement the strategic and operational plans of an organization.

34. Barriers to Effective Planning Demands on the manager’s time Ambiguous and uncertain operating environments Resistance to change

35. Overcoming the Barriers to Planning Involve Employees in Decision Making Input from all levels of a firm is essential for successful planning. Take Advantage of a Diversity of Views Diverse views lead to a broader assessment of organizational problems and opportunities. Encourage Strategic Thinking Effective strategic thinking can be developed through training and practice.

36. Precursors of Effective Planning Recognize and communicate the importance of planning in achieving organizational success. Understand and appreciate the relationship between strategic and operational planning. Involve those responsible for implementing the plan in the planning process. Use contingency planning as a means of maintaining flexibility in rapidly changing business environments.

37. Precursors of Effective Planning Utilize technology to enhance the effectiveness and efficiency of the planning process. Remove the barrier to planning at the work group and individual levels. Reward those who think strategically and follow through with operational planning.