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Management 201
Organization & Management
2nd Semester 2000-2001

 

 
 
 
   
   
LECTURE NOTES - PLANNING

 

OUTLINED NOTES IN PLANNING

Why plan?

  • It defines the organizationís objectives or goals
  • It establishes an overall strategy for achieving these goals
  • It develops a comprehensive hierarchy of plans to integrate and coordinate activities
  • It is concerned with both ends and means

Purposes of planning

  • Gives direction
  • Reduces the impact of change
  • Minimizes waste and redundancy
  • Sets the standards used in controlling
  • Reduces uncertainty
  • Establishes objectives or standards that are used in controlling
  • Formal planning is associated with higher profits, higher return on assets, and other positive financial results.
  • The quality of the planning process and the appropriate implementation of the plans probably contribute more to higher performance than does the extent of planning.
  • The environment affects formal planning to contributing to higher performance

Foundations of Good Planning

Forecasting: process of making assumptions about what will happen in the future

  • Quantitative forecasting: uses expert opinions to predict the future

  • Quantitative forecasting: uses mathematical and statistical analyses of data banks to predict future plans

  • Scenario planning: involves identifying several alternative future scenarios or states of affairs that may occur

    Benchmarking: technique that makes use of external comparisons to better evaluate oneís current performance and identify possible actions for the future. The purpose is to find what others are doing well in and plans how to incorporate these ideas into oneís own operations

    Participative planning: actively includes in the planning process as many people as possible who will be affected by the resulting plans and/or will be asked to help implement them

    Use of staff planners: staff planners are employed to take responsibility for leading and coordinating the planning system for the total organization or for one of its major components

    Myths of Planning

    • Planning that proves to be inaccurate is a waste of managementís time
    • Planning can eliminate change
    • Planning reduced flexibility

    The Planning Process

    1. Define objectives. Know where you want to go. Be specific enough that you will know you have arrived when you get there or how far you have gone at various points along the way
    2. Determine where you stand in terms of your objectives. Evaluate accomplishments versus desired result; analyze strengths and weaknesses in terms of being able to meet future objectives
    3. Develop your premises regarding future conditions. Identify and analyze things that may help or hinder accomplishment of objectives; generate alternative "scenarios" of how these factors may develop in the future
    4. Create plans for accomplishing objectives. Choose most likely scenarios; list and evaluate action alternatives for accomplishing objectives; select courses of action to achieve your objectives
    5. Implement the action plan and evaluate results. Do what the plan requires and carefully evaluate results to ensure accomplishment of objectives; follow through by planning the taking corrective actions as needed

     

    Approaches to Planning

    Inside-out: focuses on trying to do the best at what you are doing

    Outside-in: involves analysis of the external environment and making internal adjustments necessary to exploit the opportunities and minimize the problems it offers

    Top-down: top management sets the broad objectives and then allows lower levels to make plans within these constraints

    Bottom-up: plans are developed at lower levels without such constraints and are then sequentially passed up the hierarchy to top management levels

    Types of Plans

    • Breadth: strategic, operational
    • Time frame: long-term, short-term
    • Specificity: directional, specific
    • Frequency of use: single-use, standing

     

    Strategic plans: plans that are organization wide, establish overall objectives, and position an organization in terms of its environment. It covers an extensive time period of typically 5 or more years, covers broad issues and includes formulation of objectives

    Operational plans: plans that specify details on how overall objectives are to be achieved. It covers shorter periods of time, focuses on specifics, and assumes that objectives are already known

    Short-term plans: plans that cover less than one year

    Long-term plans: plans that extend beyond five years

    Specific plans: plans that are clearly defined and leave no room for specification

    Directional plans: flexible plans that set out general guidelines. These are preferred over specific plans when uncertainty is high and when the organization is in the formative and decline stages of its life cycle

    Single-use plans: a one-time plan specifically designed to meet the needs of a unique situation and is created in response to non-programmed decisions managers make

    Standing plans: ongoing plans that provide guidance for activities repeatedly performed in the organization and are created in response to programmed decisions managers make

    Production plans: dealing with the methods and technology needed by people in their work

    Financial plans: dealing the money required to support various operations

    Facilities plans: dealing with facilities and layouts required to support task activities

    Marketing plans: dealing with the requirements of selling and distributing goods or services

    Human resource plans: dealing with recruitment, selection, and placement of people into jobs

    Major Types of Single-Use and Standing Plans

    Single-Use Plans

    Standing Plans

    Program

    • Plans for attaining a one-time organizational goal

    • Major undertaking that may take several years to complete

    • Large in scope; may be associated with several projects

    Examples:
         Boeingís 777 aircraft
         NASA space station

    Policy

    • Broad in scope Ė a general guide to action

    • Based on organizationís overall goals / strategic plan

    • Defines boundaries within which to make decisions

    Examples:
        
    Drug-free workplace policies
         Sexual harassment policies
         Continuous improvement
         Shewhart cycle

    Project

    • Also a set of plans for attaining a one-time goal

    • Smaller in scope and complexity than a program; shorter time horizon

    • Often one part of a larger program

    Examples:
         Development of a rocket booster for NASA space station
         Development of external shell for NASA space station

    Rule

    • Narrow in scope

    • Describes how a specific action is to be performed

    • May apply to specific setting


    Example:
         No smoking rule in areas of plant where hazardous materials are stored

     

    Procedure

    • Sometimes called a standard operating procedure

    • Defines a precise series of steps to attain certain goals

    Examples
         Procedures for issuing refunds
         Procedures for handling employee grievances

     

    Contingency factors in planning

    • Managerís level in organization
    • Degree of environmental uncertainty
    • Length of future commitments

    Commitment concept Ė concerns the fact that a manager should plan just far enough ahead to make sure that commitments for the day are kept

     

    Objectives - the foundation of planning

    An organizationís stated objectives might not be its real objectives since management might want to tell people what they want to hear and also since it is easier to state a set of consistent, understandable objectives than to explain a multiplicity of objectives

    Financial objectives:

    • Faster revenue growth

    • Faster earnings growth

    • Higher dividends

    • Wider profit margins

    • Higher ROI

    • Stronger bond and credit ratings

    • Bigger cash flows

    • A rising stock price

    • Recognition as a "blue chip" company

    • A more diversified revenue base

    • Stable earnings during recessionary periods

    Strategic objectives:

    • Bigger market share
    • Higher, more secure industry rank
    • Better product quality
    • Lower costs than competitors
    • Broader/more attractive product line
    • Stronger reputation with customers
    • Superior customer service

    • Recognition as leader in technology and/or product innovation

    • Increased ability to compete in international markets

    • Expanded growth opportunities

     

    MANAGEMENT BY OBJECTIVE

    - a system in which specific performance objectives are jointly determined by subordinates and the superiors. Progress toward objectives is periodically reviewed and rewards are allocated on the basis of this progress

    MBO establishes goals as motivators by letting people know exactly what is expected of them, getting them to participate in setting their own goals, giving them continuous feedback on how well they are progressing toward their goals, and making their rewards contingent on achieving their goals. Such factors increase motivation.

    Steps in MBO:

    • Formulate organizationís overall objectives and strategies
    • Allocate major objectives among divisions and department units
    • Collaborate set specific objectives for units with superiors
    • Collaboratively set specific objectives for all department members
    • Specify and agree on action plans
    • Implement action plans
    • Review progress toward objectives and provide feedback
    • Reinforce successful achievement through performance-based rewards

     

    Benefits and Problems in MBO

    Benefits of MBO

    Problems with MBO

    1. Manager and employee efforts are focused on activities that will lead to goal attainment
    2. Performance can be improved at all company levels
    3. Employees are motivated
    4. Departmental and individual goals are aligned with company goals
    1. Constant change prevents MBO from taking hold
    2. En environment of poor employer-employee relations reduce MBO effectiveness
    3. Strategic goals may be displaced by operational goals
    4. Mechanistic organizations and values that discourage participation can harm the MBO process
    5. Too much paperwork saps MBO energy

     

    Model of the MBO Process

     

    The Shewhart Cycle of Continuous Improvement

     

    Strategies and Strategic Management

    A strategy is a comprehensive plan of action that sets a critical direction and guides the allocation of resources

    Levels of Strategy

    • Corporate strategy concerns the organization as a whole. The purpose is to set direction and guide resource allocation for the total enterprise
    • Business strategy is employed for a single business unit or product line
    • Functional strategy guides activities within a specific functional area of operations

    Grand or Master Strategies

    • Growth strategies seek and increase in size and the expansion of current operations
    • Retrenchment strategies sometimes called defensive strategies reduce the scale of operations in order to gain efficiency ad improve performance
    • Stability strategy maintains the current course of action without commitment to any major operating changes
    • Combination strategy simultaneously employs more than one of the other strategies

    The Strategic Management Process

    Strategy formulation: the process of analyzing the current situation, selecting strategies that seem to best fit organizational needs and making plans to pursue those strategies

    Strategy implementation: the process of putting strategies into action

     

    Strategy Formulation

    Mission: an organizationís reason for existence; reflects the organizationís basic purpose as a supplier of goods or services to society

    Operating objectives are key and specific result that organizations seek to achieve as part of their mission commitment

    • Probability producing at a net profit in business

    • Market share gaining and holding a specific share of a product market
    • Human talent recruiting and maintaining a high-quality workforce
    • Financial health acquiring financial capital and earning positive returns
    • Cost efficiency using resources well to operate at low cost
    • Product quality producing high quality goods or services
    • Innovation achieving a desired level of new product or process development
    • Social responsibility making a positive contribution to society

     

    SWOT analysis Ė involves the overall analysis of organizational strengths and weaknesses as well as environmental opportunities and threats

     

    Portfolio planning

    Choosing among alternative stocks to create a personal investment portfolio. The goal of portfolio strategy is to identify a mix of investments that best serve organizational objectives

     

    Boston Consulting Group (BCG) approach

    • developed & popularized the growth matrix
    • the market growth rate refers to the growth rate of the market in w/c the business operates
    • the relative market share refers to the Strategic Business Units (SBUs) market share relative to that of its largest competitor (the leader). It serves as the measure of the companyís strength in the relevant market
    • can only be used in companies with several Strategic Business Units

    The BCG Growth-Share Matrix:

     

    Question marks - high growth rate, low market share
                                - most businesses start off as question marks as the company tries to enter a high-growth market wherein there is already a market leader
                                - requires a lot of cash to keep up w/ the fast-growing market & because it wants to overtake the leader
                                - company has to think hard whether to keep pouring money into business

    Stars - if question mark business becomes successful, it becomes a star
              - company must spend substantial funds to keep up w/ the high market growth rate & fight off competitors

    Cash cows - star becomes cash cow if growth rate falls to less than 10
                        - market leader, produces a lot of money for the company
                        - used to pay bills & support other businesses

    Dogs - cash cow becomes dog if it starts losing market share
              - weak market share, low market growth rate
              - generate low profits that turn to losses

     

    Porterís Competitive Model

    Michael Porter criticizes the portfolio approaches for leading corporate strategies into unwarranted diversification. His model gives specific attention to the organizationís current and potential competitive environment

     

    Porterís starting point for strategic thinking (3 generic types):

    1. Overall cost leadership
    • in order to sell at lower prices than its competitors & w/in a large market share, the firm works hard to achieve the lowest production & distribution costs
    • firms which pursue this strategy must be good at engineering, purchasing, manufacturing & physical distribution and will give it a competitive advantage in one or more benefits (e.g. Canon for copy machine field)
    • key is for the firm to achieve the lowest costs among those competitors adopting a similar differentiation or focus strategy
    1. Differentiation
    • here the business concentrates on achieving superior performance in an important customer benefit are valued by a large part of the market
    • it can strive to be the service leader, the quality leader, the style leader, etc.
    • the firm should cultivate those strengths that will contribute to the intended differentiation
    1. Focus
    • "niching"

    Michael Porterís Structural Analysis Model
    (adapted from ME Porter, Competitive Strategy, Free Press, 1980)

     

    Strategy Implementation

    Double-checking a strategy

    1. Is the strategy consistent with organizational purpose and mission?
    2. Is the strategy feasible given organizational strengths and weaknesses?
    3. Is the strategy responsive to environmental opportunities and threats?
    4. Does the strategy offer a sustainable competitive advantage?
    5. Is the "risk" in the strategy a reasonable link?
    6. Does the strategy have an appropriate time horizon?
    7. Is the strategy flexible enough?


    © Mgt 201 2nd Semester 2000-2001