NEED OF PLANNINGDefinition: Planning is retraceable reasoning as
to why a company has specific aims, what these aims are and how
they are to be achieved. Relationship between objectives and
planning:Planning is the activity that leads to specific objectives
being chosen, as much as it is the scheduling and budgeting of the
actions needed to make the objectives become reality.In companies,
most often a person embraces within himself multiple and often
conflicting aims and thus makes for corporate confusion. Every
business unit defines its objectives for a certain time period and
makes plans accordingly.If business planning is to be a real tool
to fashion the corporate future it needs to be written. Only then
can the reasoning be clear to all over a period of time. The
writing process becomes more comprehensible and retraceable. It is
essential to generate clarity in all the employees of the
organisationImportance of planning1. Continuing changes in the
business environment. Eg technical change which has an important
effect on product life and development times. An individual acting
alone can often miss a factor of crucial importance.2. The time
over which a successful product earns major profits is declining.
Thus a greater investment needs to be recovered over a shorter
time. Companies can no longer allow themselves the luxury of
compensating for initial errors by changes introduced after a
product is launched. The time involved in the changes will bite
increasingly into the time the product has to repay the investment
and rink in undertaking it.3. Increasing rate of competitive
change. A direct competitor is now likely to be from Japan as from
Bengaluru.4. Competition from alternatives has also arisen. Eg
Sales of metal product decline as plastic and concrete increases.
Only by planning a companys whole effort to be value-oriented can
the threat of competition be reduced.5. Large companies need a
business plan that enables them to think big. Size is a competitive
disadvantage. Larger companies are rated by their customers as less
effective than the smaller companies or they are less efficient in
themselves. Large companies are not entrepreneurial. 6. A company
must consciously plan its human skills to be in line with its other
investments. 7. Those undertaking business planning will find their
greatest challenge in endeavouring to locate the alternative to the
current operations. In doing this the emphasis must be on
creativity. A company never makes above- average profit from a
machine, a factory, or a product. It is from the intangibles of
exclusiveness, creativity, knowhow and understanding of the
customers problem that above- average profits arise. There are
always alternative strategies and it is essential in planning to
identify them. (Business Planning for the Board)
Symbiotic relationship between Mission and Purpose
Every kind of organised operation has or at least should have if
it has to be meaningful, a mission or purpose. In every social
system, the enterprise have a basic function or task assigned to
them by society. While a business, for example may have a social
purpose of producing and distributing goods and services, it can
accomplish this by fulfilling a mission of producing certain lines
of products. The purpose of the state highway department is to
build and operate roads and highways. The purpose of university is
teaching and research. The mission of food processing company like
General Mills is to use innovation for Nourishing Lives. The
mission of worlds largest FMCG Company P&G is We will provide
branded products and services of superior quality and value that
improve the lives of the worlds consumers. As a result, consumers
will reward us with leadership sales, profit and value creation,
allowing our people, our shareholders, and the communities in which
we live and work to prosper. In many organisation, the difference
between mission and purpose becomes fuzzy. One of the main reasons
for this thin line to exist is due to large size of conglomerates.
Many of them define their objective to attaining synergy or as
Reliance defines it To achieve excellence in project execution,
quality, reliability, safety and operational efficiency. Objectives
or mission are not just the end point in planning but an end in
itself. It is the end towards which organising, staffing, leading,
and controlling are aimed. (Essentials of Management)Organisational
PlanningPlanning is a critical management activity regardless of
the type of organisation being managed. Modern managers face the
challenge of sound planning in small and relatively simple
organisations as well as in large, more complex ones, and in
non-profit organisation such as libraries as well as in for-profit
organisation Tata Motors. Organisational planning has two purposes:
protective and affirmative. The protective purpose of planning is
to minimize risk by reducing the uncertainty surrounding business
conditions and clarifying the consequences of related management
actions. The affirmative purpose is to increase the degree of
organisational success. (Management- Certo)StrategiesPlanning is
used to determine basic long-term objectives of an enterprise and
adoption of courses of action and allocation of resources necessary
to achieve goals. Plans are made in light of what a competitor
might or might not do. It could be used in a competitive sense or
broadly to reflect an enterprises operation. It could be done to
adopt a course of action or allocate resources necessary to achieve
goals.
PoliciesPlans are essential to define policy. Policy define an
area within which decisions are to be made and ensure that the
decisions are consistent with and contribute to goals. Policies
help define issues before they become problems, make it unnecessary
to analyse the same situation every time it comes up and unify
other plans, thus permitting managers to delegate authority and
still maintains and operate control over what their subordinates
do. ProceduresPlans can be used to establish procedures. Procedures
are plans that establish a required method of handling future
activities. They are chronological sequences of required
activities. Procedures cut across all functions and hence are very
important from the working of the organization. It is essential for
ensuring convergence in actions towards goal of the organization.
Eg. Hand-offs from one leader to the next are tricky because of the
politics and intrigue that surrounds them, the complex nature of
the CEO position and the dynamic nature of companies. For that
reason, they represent a time when the company is vulnerable. By
crafting a thoughtful, strategic approach to succession, the board
fully addresses its governance responsibilities and sets the new
leader on a firm course toward future success. Normally, these
executives lie beyond the companys reach in terms of development,
but in a best-practices approach to succession planning, companies
actually bring potential CEO successors in through other positions.
This allows the company to make a strategic investment in the new
executives development, as the board not only increases its
companys bench strength but also has a chance to explore the
executives likely effectiveness as CEO. BothJim Donald(Starbucks)
and John Chambers(Cisco) ascended to CEO positions this way. The
opportunity for the executive and the board to develop their
relationship greatly reduces transition risk. (Succession Planning,
OB)ProgramsPlans could be also used to define specific required
actions or non-actions, allowing no discretion. It reflects a
managerial decision that a certain action must or must not be
taken. Plans could define programs that will help improve the
quality of a service, morale of the workers, status and quality of
employee. BudgetThe budget is the fundamental planning instrument
in majority of the companies. It forces a company to make in
advance either for a week or for five years, a numerical
compilation of expected cash flow, expenses and revenues, capital
outflow, or labour or machine hour utilizations. Financial budget
are made using long term as well as short term sources of finance.
This requires the planners to work together for preparing the
budget. Formal PlanningIn formal planning, specific goals covering
a specific time period are defined. These goals are written and
shared with organizational members to reduce ambiguity and create a
common understanding about what needs to be done. Planning provides
direction to managers and non-managers alike. When employees know
what their organization or work unit is trying to accomplish and
what they must contribute in order to reach goals, they can
coordinate their activities, cooperate with each other, and do what
it takes to accomplish those goals. Without planning, departments
and individuals might work to cross-purposes and prevent the
organization from efficiently achieving its goals. Planning reduces
uncertainty by forcing managers to look ahead, anticipate change,
consider the impact of change, and develop appropriate responses.
Although planning wont eliminate uncertainty, managers plan so they
can respond effectively. In addition, planning minimizes wastes and
redundancy. When work activities are coordinated around plans,
inefficiencies become obvious and can be corrected or eliminated.
Finally, planning establishes the goals or standards used in
controlling. When managers plan, they develop goals and plans. When
they control, they see whether the plans have been carried out and
the goals met. Without planning, there would be no goals against
which to measure or evaluate work effort. Planning &
PerformanceNumerous studies have shown the relationship between
planning and performance. Some of the conclusions that can be
arrived at are given below. First generally speaking, formal
planning is associated with positive financial results higher
profits, higher returns on assets, and so forth. Second, it seems
that doing a good job planning and implementing those plans play a
bigger part in high performance than does how much planning is
done. Next, in studies where formal planning didnt lead to high
performance, the external environment often was the culprit. When
external forcessuch as government regulation or powerful labour
unionsconstrain managers option, they reduce the impact planning
has on an organisations performance. Finally, the planning
performance relationship seems to be influenced by the planning
time frame. It seems that at least four years of formal planning is
required before it begins to affect performance. (Management)Eg.
McDonalds entered India in the year 1996 when the fast food retail
market in India was at a nascent stage. Encountered with several
challenges in the beginning in terms of adapting to the tastes,
preferences and culture of the local customers, changing the
perception of Indian consumers towards American food habits,
obstruction from political parties, issues with distribution,
designing a proper supply chain to training the employees on
McDonalds standards, the fast food giant emerged to be the market
leader by 2011. Though McDonalds commands the leadership position
in the Indian fast food market their exists stiff competition from
the local traditional fast food retailers as well as other
multinational firms which entered the fast growing Indian fast food
market. This involved meticulous planning to be done by McDonalds.
(Prof. Bhattacharya)
Levels of planning There are four levels of planning Mission
statement Strategic planning Tactical planning Operational
planning
Mission Statement:Mission statement defines the basic purpose of
the organization, especially for external audiences. It
distinguishes the organization from others of a similar type. The
content of a mission statement often focuses on the market and
customers. Some mission statements describe company characteristics
such as corporate values, product quality, location of facilities,
and attitude toward employees. The mission is the basis for the
strategic (company) level plans, which in turn shapes the tactical
(divisional) level and the operational (departmental) level.
Examples of mission statement are: State Farms mission is to help
people manage the risks of everyday life, recover from the
unexpected, and realize their dreams. We are people, who make it
our business to be like a good neighbour; who built a premier
company by selling and keeping promises through our marketing
partnership; who bring diverse talents and experiences to our work
of serving the State Farm customer. Our success is built on a
foundation of shared values - quality service and relationships,
mutual trust, integrity, and financial strength. Volvo groups
mission statement - By creating value for our customers, we create
value for our shareholders. We use our expertise to create
transport-related products and services of superior quality, safety
and environmental care for demanding customers in selected
segments. We work with energy, passion and respect for the
individual. Toyotas mission statement is - "Toyota will lead the
way to the future of mobility, enriching lives around the world
with the safest and most responsible ways of moving people.Through
our commitment to quality, constant innovation and respect for the
planet, we aim to exceed expectations and be rewarded with a smile.
We will meet our challenging goals by engaging the talent and
passion of people, who believe there is always a better way." "The
mission of The Walt Disney Company is to be one of the world's
leading producers and providers of entertainment and information.
Using our portfolio of brands to differentiate our content,
services and consumer products, we seek to develop the most
creative, innovative and profitable entertainment experiences and
related products in the world."
Strategic Planning : Top managers are typically responsible for
establishing strategic plans. Strategy depends for success, on a
sound calculation and co-ordination of the end and the means.
Strategic plan mainly consists of : A clear definition of the
business and how it will operate A plan that lays out the major
goals, objectives, and the means for achieving them A set of
targets that guide operational execution and allow progress to be
tracked against the overall goals and objectivesThe strategic plan
is the blueprint that defines the organizational activities and
resource allocationsin the form of cash, personnel, space, and
facilitiesrequired for meeting these targets. Strategic planning
tends to be long term and may define organizational action steps
from two to five years in the future. The purpose of strategic
plans is to turn organizational goals into realities within that
time period. Implementation requires that the strategy be
communicated effectively to all the individuals and groups that
must contribute to its execution, including all the people within
the organization and increasingly extending into the organizations
suppliers and other business partners.
Tactical planningTactical goals and plans are the responsibility
of middle managers, such as the heads of major divisions or
functional units. A division manager will formulate tactical plans
that focus on the major actions the division must take to fulfil
its part in the strategic plan set by top management. Tactical
plans typically have a shorter time horizon than strategic
plansover the next year or so. In a business or non-profit
organization, tactical plans define what major departments and
organizational subunits will do to implement the organizations
strategic plan. Human resource managers will develop tactical plans
to ensure that the company has the dedicated order takers and
customer service representatives it needs during these critical
periods. Tactical plans might include cross-training employees so
they can switch to different jobs as departmental needs change,
allowing order takers to transfer to jobs at headquarters during
off-peak times to prevent burnout, and using regular order takers
to train and supervise temporary workers during peak seasons.13
These actions help top managers implement their overall strategic
plan. Normally, it is the middle managers job to take the broad
strategic plan and identify specific tactical plans. Tactical
planning is the process of defining the tactics, initiatives, and
allocation of resources required to meet agreed-on targets and
overall business objectives and strategies that have been defined
during the strategic planning and target-setting processes.
Tactical planning includes the development of tactics and
initiatives to sustain and improve current business operations and
the evaluation and prioritization of new initiatives and projects
at all levels of the organization to assess their ability to
contribute to the overall objectives and targets. This evaluation
will include the definition of activities that should be continued,
changed, commenced, or stopped and the impact on resource
requirements. Tactical planning begins after management has
completed the strategic planning process and established near-term
performance targets to guide more detailed planning. The tactical
plan provides a road map for the organization. It identifies a
destination, plots a course, defines intermediate checkpoints on
the journey, and estimates the resources required to complete the
journey. An effective plan also provides insight into alternative
routes that may be taken as obstacles or opportunities emerge
during the journey. The tactical planning and financial planning
processes are iterative as potential tactics are evaluated in terms
of their ability to contribute to meeting the organizations
strategic objectives and achieving the targeted financial
performance. Once the overall targets have been established, they
are cascaded and communicated throughout the organization. The
cascading of targets involves the allocation of targets to
individual businesses and the translation of a high-level target
into lower-level targets to guide the development of tactical
plans. For example, senior management may set an overall
profitability target for a business. The management team then works
to translate the overall profitability target into its component
parts.Defining tactical planning is as simple as asking following
question: What tactics will be pursued to meet the performance
targets emanating from the strategic plan? Tactical plans describe
the operations, initiatives, and actions that will be performed in
order to achieve agreed-upon performance targets. All planning must
be focused on a goal or target. The tactical planning process
starts with the issuance of targets that the plan needs to meet.
These targets are set around the key performance measures that the
organization has established during the strategic planning process
and should be agreed on before detailed planning begins.Tactical
plans typically address three different activities: Sustaining
current operations Improving current operations Embarking on new
ventures or initiatives
Sustaining current operations defines the actions required to
continue operating in the current way when no material change in
performance or behaviour is required. Improving current operations
defines those actions or projects that seek to improve the level of
performance of an existing part of the organization. It could
encompass a process change, an organizational change, adoption of a
new technology, a change of supplier, or a new marketing program.
New ventures or initiatives break new ground for the organization.
Perhaps the firm enters a new market, builds a new plant, launches
a new product line, or creates a new distribution channel. Most
tactical plans include actions that fall into all three categories.
Management will be required to make choices and trade-offs among
the categories and to assess the overall risk/return profile to
ensure that it is acceptable while offering a reasonable
probability of meeting the targets.
Companies consider three variables in determining the optimal
time horizon for tactical planning: 1. The normal cycle of product
development and selling within the industry. For example,
automotive companies typically plan anywhere from two to four model
years into the future, reflecting the elapsed time from conception
to market for a new product. Pharmaceutical companies adopt an even
longer time horizon driven by the time frame for the development
and approval of new drugs and the length of patent protection for a
drug once approved. A fashion retailer may look out only two
fashion seasons when developing detailed tactical plans. Toy
manufacturer Mattel focuses its detailed plans on the next two toy
selling seasons.2. The lead time required for making major resource
allocation decisions. Decisions that require significant capital
investment in new plant or facilities or those that have a long
cycle time before a return is realized, such as oil exploration,
will have a longer time frame than tactics that can be implemented
quickly and consequently must also be tested for validity under a
range of different future scenarios.3. The time period that
provides senior management, board members, and other stakeholders
with enough information to approve plans and expenditures. Roberto
Goizueta, the successful CEO of Coca-Cola who managed a rise in the
companys market value from $4 billion to $145 billion, was adamant
in his views on the role and time horizon for tactical planning.
David Greising described Goizuetas philosophy in this way:
Five-year plans, he felt, were a waste of time. No one could
predict with any accuracy what the world would look like in five
years. He wanted three-year plans, and he told the executives that
he would hold them accountable for meeting their three-year
targets.Balancing the needs of the business with the organizations
predictive capability defines the most practical time horizon.
Operational Planning:Operational plans identify the specific
procedures or processes needed at lower levels of the organization,
such as individual departments and employees. Front-line managers
and supervisors develop operational plans that focus on specific
tasks and processes and that help meet tactical and strategic
goals. The results expected from departments, work groups, and
individuals are the operational goals. They are precise and
measurable. Process 150 sales applications each week, achieve 90
percent of deliveries on time, reduce overtime by 10 percent next
month, and develop two new online courses in accounting are
examples of operational goals.Operational plans are developed at
the lower levels of the organization to specify action steps toward
achieving operational goals and to support tactical plans. The
operational plan is the department managers tool for daily and
weekly operations. Goals are stated in quantitative terms, and the
department plan describes how goals will be achieved. Operational
planning specifies plans for department managers, supervisors, and
individual employees. Schedules are an important component of
operational planning. Schedules define precise time frames for the
completion of each operational goal required for the organizations
tactical and strategic goals. Operational planning also must be
coordinated with the budget, because resources must be allocated
for desired activities. Operational goals need to be specific and
measurable. When possible, operational goals should be expressed in
quantitative terms, such as increasing profits by 2 percent, having
zero incomplete sales order forms, or increasing average teacher
effectiveness ratings from 3.5 to 3.7. Not all goals can be
expressed in numerical terms, but vague goals have little
motivating power for employees. By necessity, goals are qualitative
as well as quantitative. The important point is that the goals be
precisely defined and allow for measurable progress. Effective
goals also have a defined time period that specifies the date on
which goal attainment will be measured. School administrators might
set a deadline for improving teacher effectiveness ratings, for
instance, at the end of the 2009 school term.
Planning process:
The overall planning process, illustrated in Exhibit 6.2,
prevents managers from thinking merely in terms of day-to-day
activities. The process begins when managers develop the overall
plan for the organization by clearly defining mission and strategic
(company-level) goals. Second, they translate the plan into action,
which includes defining tactical plans and objectives, developing a
strategic map to align goals, formulating contingency and scenario
plans, and identifying intelligence teams to analyze major
competitive issues. Third, managers lay out the operational factors
needed to achieve goals. This involves devising operational goals
and plans, selecting the measures and targets that will be used to
determine if things are on track, and identifying stretch goals and
crisis plans that might need to be put into action. Tools for
executing the plan include management by objectives, performance
dashboards, single-use plans, and decentralized responsibility.
Finally, managers periodically review plans to learn from results
and shift plans as needed, starting a new planning cycle.
TYPES OF PLANNING
ParametersClassifications
TYPES OF PLANNINGBig Organizations use literally hundreds of
plans. Some are of paramount importance; others are not. These are
classified on the basis of Activity Covered, period, Usage,
importance and specificity. Planning on basis of Activity Covered
Planning is classified as corporate and functional planning based
on Activity.1. Corporate Planning:
a. Planning for the company as a whole is known as corporate
planning. It lays down objectives, strategies and policies for the
entire organization.b. Done at top level of management. It is very
broad and general in nature e.g. increasing the companys market
share by ten percent in next five years, becoming a technological
leader in industry, earning, a 25 per cent rate of return on
investment, a live example can be the company apple that have a
corporate plan of being technological leader in creating devices
that make life easy by the use of technology etc. Such Planning
serves as the basis for departmental or divisional planning.c. It
can be defined as a systematic and comprehensive process of laying
down the objectives, strategies and policies for the organization
as a whole in the light of the capabilities of the organization and
its environment
2. Functional planning:
a. It is also known departmental and divisional planning. It
includes plans formulated for various departments or divisions of
an enterprise.b. It determines the scope and activities of a
particular department. For example, sales budget, production
budget, finance budget are departmental plans. In a multi-product
company, there may be several product divisions e.g. sugar
division, textile divisions etc.c. These are formulated at the
middle level of management and approved by the top management.d.
These are known as functional plans because every department or
division is concerned with one particular major function of
business.
Planning on the basis of importancePlans are classified
strategic and operational planning1. Strategic Planning
a. These plans cover long period of time ranging in more than a
year time periodb. These plans have a scope covering the entire
enterprise.c. These are formulated at the top level of the
management.d. These are based on organizational wide objectives.e.
These are relatively broad and general in nature.f. They involve
acquisition and allocation of resourcesg. They involve analysis and
forecasting of external environment
2. Operational Planning
a. These plans are relatively of shorter time period with a time
span of one yearb. These plans cover a specific department or a
functional area of the enterprise.c. These are formulated at the
middle and the lower levels of management in the enterprise.d.
These are based on strategic plans.e. These are relatively detailed
and specific in nature.f. They involve the utilization of given
resources efficientlyThey involve analysis of internal environment
Planning on the basis on period.Planning is classified as long term
and short term planning.1. Long term planning:
a. These cover a long period future. It is prepared for a period
of 5, 10 or 15 years or more. It provides the overall targets
towards which all activities of the organization are to be
directed.b. It results in long-term commitment of resources. It
great deal of uncertainty because the period involvement is several
years.
2. Medium term Planning:
a. These cover a period more than one year but less than five
years.b. They are more specific and detailed than long term
planning.c. These are designed to implement strategic plans by
coordinating the work of different departments.d. They are drawn up
for short term moves and maneuvers within the broader and more
stable strategic plans.e. For ex.: A medium term or tactical plan
may be devised to meet the sudden slump in demand, shortage of
power etc.
3. Short term Planning:a. These plans are prepared for a period
up to one year. They are generally specific and detailed.b. These
plans provide form and content to long term plans. c. The main
purpose of these plans is to maximize efficiency in day-to-day
operations and to ensure uniformity of actions.d. For ex: repair
and maintenance plan, purchase plan, product plan
Planning on the basis of use
Planning is classified as single use and multi-use.
1. Multi use planning
a. These plans are also known as standing plans. These are made
for repeated use in the business.b. They are formulated to guide
managerial decisions and actions on problems which are of recurring
nature.c. These plans include: objectives, policies, procedures,
methods, and rules and regulations.
2. Single use Planning
a. These plans are made for handling non-recurring problems.
They are also known as specific plans as they are tailored to fit
the specific situations.b. Every single- use plan is formulated to
handle a non-repetitive, novel and unique problem. The examples of
such plans are strategies, programs, projects, and budget.Some
examples of multi-use plans are:Objectives: these are goals, aim
and purposes that an organization wishes to achieve over a period
of time. All the organization activities are aimed toward its
objectives. Planning is useless unless it is related to some
pre-determined objectives.Objectives are important not only in
planning but also in organizing, staffing, directing and
controlling. Peter drucker is of opinion that objectives are
essential to: Organize and explain the whole range of phenomenon by
such objectives, Verify the objectives in actual business
objectives, To predict employee behavior, To vouchsafe the
soundness of decisions, and To improve the performance of
decisions.
Policies: They are guiding principles which govern action
usually of routine and repetitive nature. A policy tells the
organizational members how to deal with a particular situation.A
policy is a verbal written or implied overall guide setting up
boundaries that supply the general limits and direction in which
managerial action will take placeProcedures: They involve a series
of related tasks that make up the chronological sequence and the
established way of performing the work to be accomplished.They are
operational guides to action as they routinize the way certain
recurring jobs are performed. The establishment of various
procedures tends to impart order in place of confusion in the
organization. They help in management by exception.Methods: They
are sub units of a procedure. They show how a step of procedure
should be performed. They indicate the techniques to be employed to
make a procedure effective.A method is the manual or mechanical
means by which each operation is performed.it means an established
manner of doing an operation.Some examples of single-use plans
are:Strategies: It means preparing oneself for unforeseen and
unpredictable events. In other words it is like placing oneself in
the position of competitors and seeing what ones own reaction will
be in a similar situation.They are useful framework for guiding an
enterprises thinking and action. They are single use plans because
they change quite frequently with changes in the market
conditions.Programmes: It is a single use plan laid down for a new
and competitive activity. It lays down definite steps in proper
sequence that will be taken for the purpose of achieving a specific
objective.The success of the programme depends on the ability of
the manager to divide total activity into distinct steps, fixing
responsibility for each step, establishing coordination among
different steps and fixing time for accomplishing each
step.Projects: It is a distinct cluster of functions and facilities
for a definite purpose. It is a part of general programme which can
be designed and executed as a distinct plan in itself.The task of
executing a project is put under the charge of a project manager.
The project manager formulated plans, programmes and policies which
are necessary to execute the project.Budgets: It is a statement of
expected results expressed in numerical terms like rupees, product
units, or man-hours. As it is a statement of expected results, it
is largely used as an instrument of managerial control.Budgeting is
essential for control, but it cannot serve as a control mechanism
unless it reflects plans. As a means of effective planning, the
process of budgeting may involve the preparation of budgets of
sales, purchase, materials, labour, manufacturing and other
expenses
g.
Planning on the basis of Specificity
1. Specific Planning
a. These plans are clearly defined and communicate the entire
interpretation.b. They have clearly defined objectives; hence there
is no ambiguity and no problem of misunderstanding.c. For. Ex: A
manager seeking to increase his output by 10 percent in next 12
months period may establish specific procedures, budget allocations
and schedules of activities to reach that goal.
2. Directional planning
a. These are somewhat flexible plans that set out the general
guidelines.b. They promote focus without locking the mangers into
specific goals or course of action.c. For ex. Sylvia Rhone,
president of Motown records, said she has a simple goal: to sign
great artists. So in order to achieve this instead of creating a
specific plan to produce and market 10 albums from the new artists
this year, she might formulate a directional plan to use a network
of people around the world to alert her to new and promising talent
so she can increase the number of new artists she has under
contract.d. The flexibility of the directional plan must weigh
against the lack of clarity of specific plans.
Role of Planning:Following are some important roles of planning:
It focuses attention on mission and objectives It reduces
uncertainty and change It provides sense of direction It helps in
coordination It guides decision making It provides a basis for
decentralization It provides economy in operation
1. Focuses attention on mission and objectives:Planning
concentrates attention on the dominant goals of the group and
organization. A managers essential task is to make sure that
everyone within the team knows about the objectives and mission.
Also he/she should have the methods for attaining them. People must
what they are trying to accomplish. So planning becomes important.
Planning involves deciding missions and objectives and actions to
accomplish them.Decide which actions will tend toward the ultimate
objective and missions and which are irrelevant. No decision should
be made today without some idea of how it will affect a decision
that might have to be made tomorrow. If the planning function is
not well executed, planning can have several disadvantages for the
organization. While deciding objectives and mission, it must be
taken care that the process does not take too much of time.
By focusing on mission and objectives, there is an increase in
chances of organizational success. Successful businesses have an
established plan, a formal statement that outlines the objectives
the organization is attempting to achieve.Planning reminds of
Managers what organization is trying to accomplish. Because
organizational objectives are the starting points for planning,
managers are continually reminded of exactly what their
organization is trying to accomplish.
2. Reduces uncertainty and change:Uncertainty and risks are
inevitable and planning cannot eliminate them but planning enables
an organization to cope with uncertainty and change . Planning does
not eliminate risk but it does help managers identify and deal with
organizational problems before they cause havoc in a business.
With the help of planning, an enterprise can predict future
opportunities and threats and make due provision for them. Plan
identifies future opportunities and suggests how to take advantage
of them. Plan emphasizes both internal and external
environments.
Planning helps to identify potential threats and opportunities
and also provides additional strength in the face of turbulence.
The protective purpose of planning is to minimize riskby reducing
the uncertainties surrounding business conditions and clarifying
the consequencesof related management actions. The affirmative
purpose is to increase the degree of organizational success.
3. Provides sense of direction:Planning saves an organization
from drifting and avoids aimless activities. By asking following
questions we can make sure that the organization is on the course
and is not drifting from the planned activities. a. In what
direction should the organization be going?b. In what direction is
the organization going now?c. Should something be done to change
this direction?d. Is the organization continuing in an appropriate
direction?Planning directs human efforts into activities that
contribute to the accomplishment of goals. Planning programs
continually emphasize what should be done in an organization to
achieve organizational goals. Planning process secures employee
commitment to attaining organizational goals.
It bridges the gap between where we are and where we want to go.
Planning creates a path which helps organization to reach its
mission and objectives. Without planning action is likely to become
random activity, producing only havoc. Planning does not eliminate
risk, of course, but it does help managers identify and deal with
organizational problems before they cause havoc in a business.
4. Helps in coordination:Planning is the best stage for the
integration of diverse forces at work. Planning establishes a
coordinated effort within the organization. Planning ensures
integration among various business units. Without integration,
managers of these units would pursue their own objectives.
Sound planning inter relates all the activities and resources of
an organization and also helps to relate internal conditions and
processes to external events and forces. It helps in making sure
that resources are utilized in an efficient way with coordination,
otherwise there would be too much use of resources which might not
be good for the organization.Planning leads to a consistent and
coordinated structure of operations
5. Guides decision making:Planned targets serve as the criteria
for the evaluation of different alternatives so that the best
course of action may be chosen. It helps in evaluating each and
every alternative to check its consistency of reaching the
organizational objectives. Evaluation of alternatives must include
evaluation of premises on which alternatives are based. A manager
usually finds that some premises are unreasonable and can therefore
be excluded from further consideration. This elimination process
helps the manager determine which alternative would best accomplish
organizational objectives.Planning helps in taking decisions that
are consistent with and contribute to objectives. A planning
program enhances decision coordination. No decision should be made
today without some idea of how it will affect a decision that might
have to be made tomorrow. The planning function pushes managers to
coordinate their decisions. Organizational objectives are the
starting points for planning, managers are continually reminded of
exactly what their organization is trying to accomplish.
Helps decide how a issue can be tackled before it becomes a
problem and make it unnecessary to analyze the same situation every
time it comes up. Planning in the form of policies help in defining
area in which decision is to be made and ensure that decision would
be consistent and contribute to an objective. Planning as policies
help decide issues before they become problems, make it unnecessary
to analyze the same situation every time it comes up, and unify
other problems. This helps managers to delegate authorities and
still keep the working of subordinates organization in check.
6. Provides a basis for decentralization:Planning helps in
coordination of decisions among different groups. Planning function
makes sure that complex work can be sub divided and assigned to
different competent groups and still make sure that each and every
group would work together to accomplish the objectives of
organization.Well-established plans serve as guides to subordinates
and reduce the risk involved in delegation of authority. Planning
makes sure that each and every subordinates area of work is defined
and the work is delegated in such a way that there is no conflict
between them.Planning also helps in setting objectives of employees
and improves the motivation and morale of employees by involving
them in the process. By assigning responsibility to each employee
his expertise is fully utilized and the relevant work is assigned
to him. His job function helps him determine what is expected from
him/her. As employee is aware of his expertise, he can have a say
in determination of his role so that he is happy doing his
work.
7. Provides economy in operation:Planning facilitates optimum
utilization of available resources. Planning makes sure that
resources are utilized effectively and efficiently. This helps in
making sure that resources are not wasted. There is appropriate
utilization of it between various groups who want to use them. In
effect, the cost of resources comes down substantially.It improves
the competitive strength of an organization by helping it to
discover and exploit opportunities a rational solution to problems,
planning results in the use of most efficient methods of work. By
planning it is made sure that the work that is to be done is
carried out in such a way that there would be minimum cost involved
and the quality of work is not compromised.Planning improves
organizational effectiveness. It promotes growth by increasing
profits.
Long Range Planning 19/31
Planning can also be differentiated based on the time frame.
Because of uncertainty in business and economic environment, the
number of years used to define short term and long term plans has
declined.Long term plan: Those plans which are implemented for more
than 3 years are called long term plans.
Short term Plan: Those plans which exist for a year or less are
classified as short term plans.Long range planning can be formally
defined as a process that organizations use to determine the best
strategy for success and to ensure they have the capabilities
needed to support their business objectives. It identifies the
opportunities for growth in market and works on expanding its
capacity to fulfill the demand and gain as much as profit.Major
steps involved in long range planning are as below: Sets long term
targets for the organization Formulates specific planning for the
accomplishments of these goals
Need for long range planning 20/321. To determine a desired
future state for a business entity Every organization has certain
mission and vision for which it exists. The long range planning is
necessary for achieving those business objectives and find out
where the firm stand in future.
2. To define overall strategies for accomplishing the desired
stateOnce the desired future state is obtained its essential to
draw a strategy to achieve the desired outcome. Long range planning
process helps in long term decision making process.
3. Specific direction and purpose to short term decisions Short
term plans must be coordinated with long term planning strategy.
With the long term plan already in place, short term decisions can
be made efficiently and in synchronized with long term plan. It
also gives specific to the short term decision made.
The planning period would be longer or shorter depending on the
flexibility of the project to be under consideration. For example
an airplane company working on new jet aircraft would plan some 12
years ahead with 5/6 years of conceptualization, designing,
engineering and few more years for selling, incurred the cost and
gaining reasonable profit. Whereas, an Instrument manufacturer with
already developed product would need short term plan for revenue,
calculating expenditure and providing the order specified by
customer.
Planning areas and time periods 20/33The figure describes how
the time allocated to each of the phases in planning and execution
varies. Initial tasks like provision of infrastructure facilities ,
organizing, product designing , financing consumes more time than
final tasks like raw material procurement, operating expenses
budgeting.More are the planning decision taken by considering
future conditions, managers need to have a regular check on those
plans, evaluate the same and redraw it in order to align with the
objectives, vision of the company.Criticality in long range
planning 20/35 1. Coordination of short term plans with long
term
Short term plans should be always integrated with long term
planning. Often short term plans are sketched with no reference to
long term strategies. This might implicate to a serious effect in
later stage. Short term plans made in haste sometimes not only fail
to contribute to long term plan but also cause to change the well
organized long term strategy. For example, if a small electric
switch making company accepts a large order without considering the
overall productive capacity and liquidity of the firm it may hamper
its expansion process to fulfill large demands as such in future.
Responsible managers should evaluate their decision on a regular
basis to ensure if they are on track with long term plans while
subordinate managers should be well informed with these long term
plans which would enable them to make correct short term
decisions.
2. Building Flexibility into plans
The principle of flexibility states that, if the plan built is
more flexible it would have less danger of incurring losses due to
unexpected errors. However, this cost of flexibility is measured on
the basis of risks involved in commitments made in future. Consider
a company introducing new product might use temporary tooling
rather than expensive permanent tooling. This is to avoid the huge
losses if the manufacturing costs increased and product failed in
market.One more example would be in early times of Unilever, the
company put extra $5 million to build soap and detergent making
factory which can also be converted to chemical manufacturing
plant.
Strategic Planning 21/35It deals with planning a structure to
implement the strategies made by the company to accomplish the
desired goals. The formal definition is; it is a long range
planning process analyzing overall corporate objectives, policies
strategies that regulate the utilization of resources to achieve
organizational goals. Managers can adjust their business plans
according to the fast changes in business Environment. Strategic
planning involves forecasted profit,capital expenditure required,
expansion plans,growth in management and organizational structure,
technical advancement. In recent times strategic planning has
gained importance due to below reasons: With the fast changing
technology new opportunities have been opened for growth. The job
profile of managers has become very dynamic, proactive due to
changing factors such as economic instability, social
responsibilities, inflation, focus on rural market banking and
government regulations
Strategic planning cycle The process of planning initiates with
formulation of goal statements which also specifies what is the
desired outcome at the end. The expected outcome tells us where
does the company want to land up at the end of specified time
frame. To achieve it, proper strategies should be designed to
direct the people on right path. The intermediate outcomes would be
measured, evaluated in a timely manner. The results are then
criticized to work on loopholes in the planning process and
redesigned the strategy if required.
Strategic and tactical planningStrategic PlanningIt ensures long
term effectiveness and growth of the company. It deals with how to
survive and compete in a fast changing world. As said earlier, it
is a long term planning process. Strategic planning is performed
usually with a gap of 1 to 3 years. It involves uncertainty and
high risk while planning. Middle to top management performs
strategic planning.Tactical PlanningThis kind of planning does step
by step implementation of a strategic plan. It focuses on how to
accomplish specific goals. Due to short life span it is a short
term planning process. Usually, it is carried out every 6 mm/1 yr.
Tactics are performed by employees or middle management. It
involves low to moderate risk.
Benefits of long range planning 22/37As the long range planning
is widely spread across a longer time frame (more than 3 years) the
cost involved in implementation also gets spread. Also the impact
due to risk factor gets reduced. If anything goes wrong at any
stage the long term plan can be rolled back with minimum effort.
Long term planning helps in test marketing. It makes roll out of
changes possible in phased manner. For example, if you change the
price of a product or add a new item to your line, do so in only
one or two geographic areas to check the results. This cuts your
losses if the initiative doesn't work, or allows you to make a
change to your strategy before you commit all of your funds.Outcome
is much more controllable and flexible. Due to quick adaptability
of long term planning, output is possible modify and improve at any
stage.
Short essay on the Planning of Business Management
Management thought Planning is the first management function to
be performed in the process of management. It is concerned with
deciding in advance what is to be done, where, how and by whom it
is to be done. Thus it is a predetermined course of action to
achieve a specified goal.Definitions:1. Alfred and Beatty:
"Planning is the thinking process, the organised foresight, the
vision based on facts and experience that is required for
intelligent action.".2 Koontz and 0'Donne: " Planning is deciding
in advance what to do , how to do it, who is to do it. Planning
bridges the gap from where we are, to where we want to go. It makes
it possible for things to occur which would not otherwise
happen".3. George R Terry: "Planning is selecting and relating of
facts and making use of assumptions regarding the future in the
visualisation and formulation of proposed activities believed
necessary to achieve the desired results".Nature or characteristics
of Planning1. Planning is an intellectual process: Planning is an
intellectual process. In other words, planning is mental exercise.
It requires thinking, reflection and judgement.2. Primacy of
planning: Planning is a primary function. A manager must do
planning before he can undertake the other management functions.3.
Goal - oriented: Planning is goal oriented. A plan starts with the
setting of objectives and then developing policies, procedure,
strategies, etc., to achieve the objectives.4. Pervasiveness of
planning: Planning is a pervasive function. It is done at all the
levels of management i,e., top, middle, and supervisory level.5.
Essentialy a decision making process: Planning is essentially a
decision making process, since it involves careful analysis of
various alternative courses of action and choosing the best.6.
Integrated process: Planning is an integrated process, i.e., it
facilitates all other functions of management.7. Selective process:
Planning is a selective process, i.e., it involves the selection of
the best course of action after a careful analysis of the various
alternative courses of action.8. Flexible: Planning is flexible.
The process of planning should be adaptable to the changes that
take place in the environment.9. Directed towards efficiency: The
main purpose of planning is to increase the efficiency of the
enterprise. That means, planning is directed towards efficiency.10.
Continuous process: Planning is continuous process. According to
Koontz and O' Donnell, "Effective planning requires continuous
checking of events and forecasts, and the redrawing of plans to
maintain a course towards a desired goal"
The Strategy And Corporate Planning Definition
It can be defined as the particular pattern of decisions and/or
actions taken by the managers with the help of core competence to
gain an advantage and perform better than competitors.
The first step involves the analysis of a company's current
mission along with its strategies. Generally, the tool used for
this process is the SWOT (Strengths, weaknesses, opportunities,
threats) analysis model. The external environment comprising of
threats and opportunities is analyzed by the examinination of
threats to the company's current position and newer opportunities.
The analysis is carried forward by examining the company's internal
environment and finding out its strengths and weakness. A
formulation of missions and strategy is needed, that matches
opportunities to the strengths and planning is done to strengthen
areas of weakness.
Step two involves the development of functional strategies which
support the overall business level competitive strategy.These
involve Marketing, Human Resource, Financial, Operations,
Information Systems, and R & D strategies, which are developed
to support the business unit strategy.
In the third and final step a control system or structure is
designed in order to insure that operational decisions are made
consistent with the business. When daily decisions are not inline
with the business and functional strategies, the Intended Strategy
turns into an Unrealized Strategy.
Emergent Strategies result from incremental decision-making that
are more or less consistent over time and launch the organization
into a direction. When decisions are made or solutions to problems
are reached,they have potential to create a strategic impact on the
business.
Three Levels of Strategy
Corporate Level Strategy-
The Strategic planning phase begins with the process of
corporate planning. This phase consists of all the management
approaches to an agreement as to the strategic objectives of the
company. Generally the strategic plans are made in order to deal
with market targets, product development issues and competitive
issues.
Competitive or Business Level Strategy-
Competitive strategies involve determining the basis of costumer
or client decision-making. Generally, they are based on some
combination of quality, service, cost, time, and quality of the
experience. There are many typologies of competitive strategies.
Porter's generic strategy typology has received the most
attention.Cost Leadership StrategiesWith this strategy you are
competing on price. Your various functional strategies all
emphasize cost reduction. This is an effective strategy when the
market is comprised of many price sensitive buyers.Some risks
involved in this strategy are that competitors may imitate the
strategy, hence driving overall industry profits down. The low cost
leader in any market gains competitive advantage of lowest cost
production.However, low cost does not always lead to low price
there by exploiting the benefits of a better margin than
competitors. E.g. Toyota, are good not only at producing high
quality cars and at a low price but they also have the brand and
marketing skills to use a premium pricing policy.Differentiation
StrategiesDifferentiation strategies rely on some basis of product
differentiation such as flexibility, specific features, service,
time and availability, low maintenance, etc. as the basis for
competition. Product development and market research are generally
necessary components of a differentiation strategy.Generally, a
successful differentiation strategy allows a firm to charge a
higher price for its product. Organizations generally need strong R
& D departments with strong coordination between R & D and
marketing departments.Focus or Niche StrategiesA successful focus
strategy depends upon an industry segment that is of sufficient
size, has good growth potential, and it not crucial to the success
of other major competitors. Focus strategies are pursued in limited
markets in conjunction with cost leadership and/or differentiation
strategies.Focus strategies are the most effective when consumers
have distinctive preferences or requirements and when rival firms
are not attempting to specialize in the same target segment. Risks
of pursuing a focus strategy include the possibility that numerous
competitors recognize the successful focus strategy and copy the
strategy, or that consumer preferences drift towards those of the
market as a whole. Customer groups, geographic areas, and specific
product lines are some bases of focus strategies. Firms using the
focus strategy are Red Lobster, Federal Express, MCI, Coors, and
URI (EMBA).Where an organization can afford neither a wide scope
cost neither leadership nor a wide scope differentiation strategy,
a niche strategy could be more suitable. Here an organization
focuses effort and resources on a narrow, defined segment of a
market. Competitive advantage is generated specifically for the
niche. Smaller firms often use a niche strategy.A company could use
either a cost focus or a differentiation focus. With a cost focus a
firm aims at being the lowest cost producer in that niche or
segment. With a differentiation focus a firm creates competitive
advantage through differentiation within the niche or segment.
There are potentially problems with the niche approach. Small,
specialist niches could disappear in the long term. Cost focus is
unachievable with an industry depending upon economies of scale
e.g. telecommunications.Generic Business Strategies ModelFunctional
Strategies:A plan of action to strengthen an organizations
functional and organizational resources to coordinate its abilities
in order to create core competence.These strategies answer as to
how do organizational functional units contribute to the business
level strategies and how can functional strategies be integrated to
achieve competitive advantage.ConclusionIn brief, a strategic
planning requires simultaneous consideration of both external
(business strategy) and internal (consistency) requirement leads to
superior performance of the firm. This performance advantage is
achieved by:Marshaling resources that support the business strategy
and implementing the chosen strategy, efficiently and
effectively.Utilizing the full potential of the human resources to
the firms advantage.Leveraging other resources such as physical
assets and capital to complement and augment the human resources
based advantage.
Phases of Corporate and Strategic Planning :An effective
strategic plan must contain three elements,which are
1. A clear definition of the business and its operation.
2. A plan that displays the main goals, objectives, and the
means for achieving those goals
3. A target set that guides operational execution and allows for
the progress to be tracked with respect to the overall goals and
objectives
In other words,strategic planning is a leadership tool which
helps leaders in direction setting,communicating intent, describing
desired behaviors, and also guiding implementation. In order to be
effective, planning needs to describe both a framework for the
organization and provide guidance on execution
Corporate Planning Steps :
1.Being aware of opportunities The first step of planning
involves being aware of both the internal and external
opportunities for a business. Managers should be farsighted about
the future problems and strength areas.
2.Establishing objectives Its very important to determine the
objectives of the company as a whole,and also each subgroup in
particular.This has to be done both in case of Short Range and Long
Range planning. This helps in specifying end results that are
desirable.
3.Considering Planning premises It basically involves the
determination of the internal as well as external environments in
which the plans / strategies are to be operated. Forecasting is an
important activity in premise determination , where the volume of
sales, prices, products and market behaviour is assumed in
advance.
4.Determining Alternative courses This involves the examination
of alternative courses of action which are not currently evident.
Analysis of the most practical and feasible alternative is the
critical part in this step.
5.Evaluating Alternative courses Evaluating the alternative
courses with respect to the goals and objectives is done over
here.The weighing of strong and weak points of the course is very
important in this analysis.
6.Selecting a Course The final selection of one or multiple
alternative courses is done by the manager.
7.Formulating Derivative plans Derivatives are required to
support the chosen plan.8.Quantifying plans by budgeting
Suitability of a plan to a particular business can only be
determined with the help of instruments of measurement such as
balance sheets.
Benefits of Planning by setting objectives :
Improvement of management through result oriented planning
Clarification of organisational roles and structures apart from
designation of authority to people on the basis of how they perform
in their roles Encouragement to alignment of personal and
organisational goals Development of effective controls which are
used to measure result
Drawbacks of setting objectives :
Shortcomings in applying Management by Objectives management
concept Failure to teach the philosophy of MBO in certain programs
Failure to give proper guidelines to the goalsetters Managers may
not be aware of company policies Difficulty in setting verifiable
goals with correct degree of flexibility Overuse of quantitative
goals where they are inapplicable
The Management By Objective (MBO) process :
Final Responsibility of Corporate Managers :
Chief executives have the final responsibility for
organizational planning.As planners, chief executives should try to
answer the following broad questions:
1. In what direction should the organization be going?
2. In what direction is the organization going now?
3. Should something be done to change this direction?
4. Is the organization continuing in an appropriate
direction?
Keeping updated and abreast about social, political, and
scientific trends is of great importance inhelping chief executives
solve these questions.
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