Planning

M B A

MANAGEMENT AND BEHAVIORAL PROCESSES

PLANNING

MODULE - 2

The first of The first of Management FunctionsManagement 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

Guides to actionRationale for decisionsStandard of performance.

Need for PlanningNeed for Planning

- Provides direction

- Reduces uncertainty

- Minimizes waste and redundancy

- Sets the standards for controlling

Planning ActivitiesPlanning Activities Defining the organization’s objectives or Defining the organization’s objectives or

goalsgoals Establishing an overall strategy for Establishing an overall strategy for

achieving those goalsachieving those goals Developing a comprehensive hierarchy of Developing a comprehensive hierarchy of

plans to integrate and coordinate activitiesplans to integrate and coordinate activitiesPlanning is concerned with ends (what Planning is concerned with ends (what

is to be done) as well as with means (how it is to be done) as well as with means (how it is to be done).is to be done).

Reasons for PlanningReasons for Planning

Criticisms Of Formal PlanningCriticisms Of Formal Planning Planning may create rigidity.Planning may create rigidity. Plans can’t be developed for a dynamic Plans can’t be developed for a dynamic

environment.environment. Formal plans can’t replace intuition and Formal plans can’t replace intuition and

creativity.creativity. Planning focuses managers’ attention on Planning focuses managers’ attention on

today’s competition, not on tomorrow’s today’s competition, not on tomorrow’s survival.survival.

Formal planning reinforces success, which Formal planning reinforces success, which may lead to failure.may lead to failure.

Planning and PerformancePlanning and Performance Formal planning generally means higher Formal planning generally means higher

profits, higher return on assets, and other profits, higher return on assets, and other positive financial results.positive financial results.

Planning process quality and implementation Planning process quality and implementation probably contribute more to high performance probably contribute more to high performance than does the extent of planning.than does the extent of planning.

When external environment restrictions When external environment restrictions allowed managers few viable alternatives, allowed managers few viable alternatives, planning did not lead to higher performance.planning did not lead to higher performance.

( NIB)

Strategic vs. Operational Plans• Strategic Plans

– Apply to the entire organization.– Establish the organization’s overall goals.– Positions organization in terms of its environment– Cover extended periods of time.

• Operational Plans– Assumes objectives exist– Specifies details of how overall goals will be

achieved– Cover short time period

( NIB)

TYPES OF PLANSTYPES OF PLANSMission or purposesObjectives or goalsStrategiesPoliciesProceduresRulesProgramsBudgets

(APB)

Mission or purpose The basic purpose or function or tasks of an enterprise or agency or any part of it

Objectives or goalsThe end towards which activity is aimed

StrategiesThe 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

PoliciesGeneral statements or understanding that guide or channel thinking in decision making

ProceduresPlans that establish a required method of handling future activities

RulesRules spell out specific required actions or nonactions allowing no discretion

ProgramsA 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

BudgetsA statement of expected results expressed in numerical terms

Being Aware of opportunitiesMarket, competition, Customers, Strengths Weakness

Establishing objectivesWhere we want to be, what to achieve and when

Developing premisesIn what environment ( I & E), scenarios

Determining alternative coursesHow many and which are most promising

Evaluating alternative coursesIn the light of objectives

Selecting a course

Formulating derivative plans

Quantifying plans by budgeting

Steps in planningSteps in planning

OBJECTIVESOBJECTIVES

The end towards which activity is aimed

Nature & aspects of objectives

VerifiableAchievability HierarchyMultiplicityKey Result Areas

Areas for Organizational Areas for Organizational ObjectivesObjectives

Market standingMarket standing InnovationInnovation ProductivityProductivity Physical and financial resourcesPhysical and financial resources ProfitabilityProfitability

Managerial performance and developmentManagerial performance and development Worker performance and attitudeWorker performance and attitude Public responsibilityPublic responsibility

Developing a Hierarchy of Developing a Hierarchy of ObjectivesObjectives

A hierarchy of objectivesA hierarchy of objectives is the overall is the overall organizational objectives and the organizational objectives and the subobjectives assigned to the various subobjectives assigned to the various people or units of the organization.people or units of the organization.

SuboptimizationSuboptimization is a condition wherein is a condition wherein organizational subobjectives are organizational subobjectives are conflicting or not directly aimed at conflicting or not directly aimed at accomplishing the overall organizational accomplishing the overall organizational objectives.objectives.

Individual ( Performance, development)

Division Objectives

Specific objectives ( e.g. KRA)

Overall objectives

Mission

Socio-economic purpose

Department Objectives

Hierarchy of ObjectivesHierarchy of ObjectivesTo

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Bottom-top approach

Board of Directors

Top Management

Middle Management

First line management

Hierarchy of ObjectivesHierarchy of ObjectivesTop Management

•Net profit of 10% or more

•Provide customers with reliable products

Sales Department

•Seek new market areas to grow sales by 15% annually

•Maintain ad costs at 4% of sales

Production Department

•Keep cost of goods <50% of sales

•Increase labor productivity by 3%/year

Supervisors

•Keep scrappage to 2% of materials usage. Etc.

Working with Organizational ObjectivesWorking with Organizational Objectives

Guidelines for Establishing Guidelines for Establishing Quality ObjectivesQuality Objectives

Let the people responsible for attaining Let the people responsible for attaining the objectives have a voice in setting the objectives have a voice in setting them.them.

State objectives as specifically as State objectives as specifically as possible.possible.

Relate objectives to specific actions Relate objectives to specific actions whenever necessary.whenever necessary.

Pinpoint expected resultsPinpoint expected results

Working with Organizational ObjectivesWorking with Organizational Objectives

Guidelines for Establishing Guidelines for Establishing Quality Objectives (Cont.)Quality Objectives (Cont.)

Set goals high enough that employees Set goals high enough that employees will have to strive to meet them.will have to strive to meet them.

Specify when goals are expected to be Specify when goals are expected to be achievedachieved

Set objectives only in relation to other Set objectives only in relation to other organizational objectivesorganizational objectives

State objectives clearly and simplyState objectives clearly and simply

Management By Objectives Management By Objectives (MBO)(MBO)

MBO is a management approach that uses MBO is a management approach that uses organizational objectives as the primary organizational objectives as the primary means of managing organizations.means of managing organizations.

The MBO StrategyThe MBO Strategy The MBO ProcessThe MBO Process Factors Necessary for a Successful MBO Factors Necessary for a Successful MBO

ProgramProgram MBO Programs: Advantages and MBO Programs: Advantages and

disadvantagesdisadvantages

Management By Objectives (MBO)Management By Objectives (MBO)

The MBO StrategyThe MBO Strategy All All individualsindividuals within an organization are within an organization are

assigned a specialized set of assigned a specialized set of objectivesobjectives that that they try to reach during a normal operating they try to reach during a normal operating period. These objectives are mutually set and period. These objectives are mutually set and agreed upon by individuals and their managers.agreed upon by individuals and their managers.

Performance reviewsPerformance reviews are conducted periodically are conducted periodically to determine how close individuals are to to determine how close individuals are to attaining their objectives.attaining their objectives.

RewardsRewards are given to individuals on the basis of are given to individuals on the basis of how close they come to reaching their goals.how close they come to reaching their goals.

Management By Objectives (MBO)Management By Objectives (MBO)

The MBO ProcessThe MBO Process

Review organizational objectivesReview organizational objectives Set worker objectivesSet worker objectives Monitor progressMonitor progress Evaluate performanceEvaluate performance Give rewardsGive rewards

Management By Objectives (MBO)Management By Objectives (MBO)

Factors Necessary for a Factors Necessary for a Successful MBO ProgramSuccessful MBO Program

Top management commitment to the MBO Top management commitment to the MBO process.process.

Setting appropriate objectives for the Setting appropriate objectives for the organization.organization.

Managers and subordinates together must Managers and subordinates together must develop and agree on each individual’s goals.develop and agree on each individual’s goals.

Employee performance should be fairly Employee performance should be fairly evaluated against established objectives.evaluated against established objectives.

Management must follow through on employee Management must follow through on employee performance evaluations by rewarding performance evaluations by rewarding employees accordingly.employees accordingly.

Management By Objectives (MBO)Management By Objectives (MBO)

MBO Programs: Advantages and MBO Programs: Advantages and DisadvantagesDisadvantages

AdvantagesAdvantages– MBO programs continually emphasize what should MBO programs continually emphasize what should

be done to achieve organizational goals.be done to achieve organizational goals.– MBO process secures employees commitment to MBO process secures employees commitment to

attaining organizational goals.attaining organizational goals.

DisadvantagesDisadvantages– Development of objectives can be time-consumingDevelopment of objectives can be time-consuming– Elaborate written goals, communication, and Elaborate written goals, communication, and

detailed performance evaluations increases the detailed performance evaluations increases the volume of paperwork.volume of paperwork.

Strategies, Policies, and Planning Premises

StrategiesThe 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

PoliciesGeneral statements or understanding that guide or channel thinking in decision making

Strategic ManagementStrategic Management

The set of managerial decisionsThe set of managerial decisions and actions that determines and actions that determines

the long-run performance the long-run performance of an organization. of an organization.

Why Strategic Management Is Why Strategic Management Is ImportantImportant

1.1. It results in higher organizational It results in higher organizational performance.performance.

2.2. It requires that managers examine and It requires that managers examine and adapt to business environment changes.adapt to business environment changes.

3.3. It coordinates diverse organizational units, It coordinates diverse organizational units, helping them focus on organizational goals.helping them focus on organizational goals.

4.4. It is very much involved in the managerial It is very much involved in the managerial decision-making process.decision-making process.

The Strategic Planning ProcessThe Strategic Planning Process

Step 1: ID Current Mission, Step 1: ID Current Mission, Goals, & StrategiesGoals, & Strategies

You know what goals and strategies You know what goals and strategies look like from . What do missions look look like from . What do missions look like?like?

A mission is the firm’s reason for being, A mission is the firm’s reason for being, and usually includes some of the and usually includes some of the following items…following items…

Components of a Mission StatementComponents 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 The Marketing Environment and Competitor Analysisand Competitor Analysis

SWOT analysisSWOT analysisPEST analysisPEST analysisFive forces analysisFive forces analysis

SWOT analysisSWOT analysis

Strengths (internal)Strengths (internal)Weaknesses (internal)Weaknesses (internal)Opportunities (external)Opportunities (external)Threats (external)Threats (external)

Steps 2 and 3: SWOT Steps 2 and 3: SWOT ANALYSISANALYSIS

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)

Exhibit 8.3Exhibit 8.3

Identifying the Organization’s Identifying the Organization’s OpportunitiesOpportunities

PEST analysisPEST analysis

Political factorsPolitical factorsEconomic factorsEconomic factorsSocio-cultural factorsSocio-cultural factorsTechnological factorsTechnological factors

Political/legalPolitical/legal

Monopolies legislationMonopolies legislation Environmental protection lawsEnvironmental protection laws Taxation policyTaxation policy Employment lawsEmployment laws Government policyGovernment policy LegislationLegislation Others?Others?

Economic FactorsEconomic Factors

InflationInflation EmploymentEmployment Disposable incomeDisposable income Business cyclesBusiness cycles Energy availability and costEnergy availability and cost Others?Others?

Sociocultural factorsSociocultural factors

DemographicsDemographics Distribution of incomeDistribution of income Social mobilitySocial mobility Lifestyle changesLifestyle changes ConsumerismConsumerism Levels of educationLevels of education Others?Others?

TechnologicalTechnological

New discoveries and innovationsNew discoveries and innovations Speed of technology transferSpeed of technology transfer Rates of obsolescenceRates of obsolescence InternetInternet Information technologyInformation technology Others?Others?

Forces in the Industry AnalysisForces 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 ForcesFive Competitive Forces Threat of New EntrantsThreat of New Entrants

– The ease or difficulty with which new competitors can enter an The ease or difficulty with which new competitors can enter an industry.industry.

Threat of SubstitutesThreat of Substitutes– The extent to which switching costs and brand loyalty affect the The extent to which switching costs and brand loyalty affect the

likelihood of customers adopting substitutes products and services.likelihood of customers adopting substitutes products and services. Bargaining Power of BuyersBargaining Power of Buyers

– The degree to which buyers have the market strength to hold sway The degree to which buyers have the market strength to hold sway over and influence competitors in an industry.over and influence competitors in an industry.

Bargaining Power of SuppliersBargaining Power of Suppliers– The relative number of buyers to suppliers and threats from The relative number of buyers to suppliers and threats from

substitutes and new entrants affect the buyer-supplier relationship.substitutes and new entrants affect the buyer-supplier relationship. Current RivalryCurrent Rivalry

– Intensity among rivals increases when industry growth rates slow, Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend.demand falls, and product prices descend.

Steps 4, 5, 6Steps 4, 5, 6

Step 4: Step 4: FormulateFormulate strategy (develop strategy (develop strategic alternatives and pick best one)strategic alternatives and pick best one)

Step 5: Step 5: ImplementImplement strategy strategy

Step 6: Step 6: EvaluateEvaluate strategy (how effective strategy (how effective were they? What adjustments are were they? What adjustments are needed?needed?

Exhibit 8.4Exhibit 8.4

Levels of Organizational StrategyLevels of Organizational Strategy

Levels of Organizational Levels of Organizational StrategiesStrategies

Corporate: what businesses should we Corporate: what businesses should we be in?be in?

Business: How should we compete in Business: How should we compete in each of our businesses?each of our businesses?

Functional-Level Strategies: How can Functional-Level Strategies: How can we support the business-level strategy?we support the business-level strategy?

Types of Corporate StrategiesTypes of Corporate Strategies

GrowthGrowth

StabilityStability

RenewalRenewal

Types of Growth Strategies Types of Growth Strategies

– ConcentrationConcentration

– Vertical integrationVertical integration

»Forward, backwardForward, backward

– Horizontal integrationHorizontal integration

– DiversificationDiversification

»Related, unrelatedRelated, unrelated

Stability StrategyStability Strategy

– Seeks to maintain the status quo possibly Seeks to maintain the status quo possibly to:to:» Deal with the uncertainty of a dynamic Deal with the uncertainty of a dynamic

environmentenvironment» Cope with industry slow- or no-growthCope with industry slow- or no-growth» Owners of firm don’t want to grow for personal Owners of firm don’t want to grow for personal

reasonsreasons

Renewal StrategiesRenewal Strategies

– Strategies to counter organization Strategies to counter organization weaknesses that are leading to weaknesses that are leading to performance declines.performance declines.

» Retrenchment:Retrenchment: eliminate non-critical eliminate non-critical weaknesses and restoring strengthsweaknesses and restoring strengths

» Turnaround:Turnaround: strong cost elimination measures strong cost elimination measures and large-scale organizational restructuring and large-scale organizational restructuring solutionssolutions

Product Strategies

BCG – Portfolio Matrix

Exhibit 8.5Exhibit 8.5

The BCG MatrixThe BCG Matrix

Competitive Basic StrategiesCompetitive Basic Strategies

Cost Leadership StrategyCost Leadership Strategy

– Seeking to attain the lowest total overall costs relative to Seeking to attain the lowest total overall costs relative to other industry competitors.other industry competitors.

Differentiation StrategyDifferentiation Strategy

– Attempting to create a unique and distinctive product or Attempting to create a unique and distinctive product or service for which customers will pay a premium.service for which customers will pay a premium.

Focus StrategyFocus Strategy

– Using a cost or differentiation advantage to exploit a Using a cost or differentiation advantage to exploit a particular market segment rather a larger market.particular market segment rather a larger market.

Porter’s Strategies

The Rule of ThreeThe Rule of Three

The competitive forces in an industry, if The competitive forces in an industry, if unfettered, will inevitably create a unfettered, will inevitably create a situation where three companies (full-situation where three companies (full-line generalists) will dominate any given line generalists) will dominate any given marketmarket

Some firms in the same market become Some firms in the same market become super niche players and while others super niche players and while others end up as “stuck-in-the-ditch” bottom end up as “stuck-in-the-ditch” bottom dwellers.dwellers.