LEARNING OBJECTIVES

When you have finished studying this chapter, you

should be able to:
1. Describe the managerial function of planning and
explain why planning is critical for effective
leadership.
2. Explain the benefits and costs of planning.
3. Discuss the potential advantages and
disadvantages of top-down and bottom-up planning.
4. Define strategic planning and describe the three
levels of strategic planning.
5. Define operational planning and distinguish
between standing and single-use plans.

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 LEARNING OBJECTIVES (cont’d)
When you have finished studying this chapter, you
should be able to:
6. Describe individual planning systems such as
management by objectives and the Balanced
Scorecard.
7. Describe common barriers to effective planning and
explain ways to reduce these barriers.

MGT 420 5–3

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

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

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 Figure 5.1 Planning as a Linking Mechanism

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Why Plan?
• Better Coordination
• Focus on Forward Thinking
• More Effective Control System

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

MGT 420 5–8

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

MGT 420 5–9

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

MGT 420 5–10

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

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

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Where Should Planning Begin?

↓Top-Down Planning↓
Planning efforts begin with the board of
directors and top executives of the firm

↑Bottom-Up Planning↑
Planning is initiated at the lowest level
in the organization

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

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 Table 5.1 Top-Down and Bottom-Up Planning

Top-Down Bottom-Up

Organizational CEO, Board of Directors People/department closest to product,

level service, customer.

Role of As the plan moves down the Units develop goals and plans. As plans
organizational hierarchy, units determine actions move up the hierarchy, they are evaluated
unit needed to support the plan. and adjusted for accuracy and feasibility.

Specificity Begins broad, becomes more Begins specific and probably fragmented;
of plan specific as it moves down the becomes cohesive and integrated as it
hierarchy. moves up the hierarchy.

Potential Plans are driven by top-level Those closest to customers, suppliers, and
advantages managers who are most operating systems provide focus of plans.
knowledgeable about all factors
affecting the organization.

Potential Top-level managers may be Lower-level managers may lack under-

disadvantages removed from the front line. standing of all factors affecting the
organization.

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Levels of Planning
• In general, most organizations engage in both
strategic planning and operational planning.
 Customizing the strategic planning process

A successful planning process must fit the

organization's focus on creating value for its
customers and its shareholders.
 It
must be customized for the organization based
on its specific and unique needs.

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

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Business Strategic Planning
• Business-level Strategy
 Focused plans that define how each business unit in
an organization’s corporate portfolio will operate in its
market arena.

• Strategic Business Unit (SBU)

 A part of an organization that is responsible for its
outcomes.

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 Table 5.2 Levels of Strategic Planning

Time
Focus Specificity Participants Horizon

Corporate To develop a mix of Broad Board of directors 5–10 years

strategy business units that meets Top-level executives
the company’s long-term
growth and profitability
goals

Business To develop and maintain More specific Top-level executives 1–5 years
strategy a distinctive competitive than the Managers within the
advantage that will ensure corporate business unit
long-term profitability strategy

Functional To develop action plans Very specific Middle-level managers 1–2 years
strategy that ensure that corporate Lower-level managers
and business strategies
are implemented

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

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 Table 5.3 Examples of Functional Strategies

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

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

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

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

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 Figure 5.2 Management by Objectives: The Cycle

Source: K. Davis and J. Newstrom, Behavior at Work: Organizational Behavior (New York:
McGraw-Hill, 1989), 209. Reproduced with permission of the McGraw-Hill Companies.
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Management by Objectives (MBO)
• A method for developing individualized plans
which guide the activities of individuals.
 MBO benefits:
 Provides
a foundation for a more integrated and
system-oriented approach to planning.
 Requirescommunication between employees and
their managers since they must agree on the
performance goals outlined in the plan.
 Creates a participatory work environment where
employees have a voice in the design of their jobs
and setting their performance targets.

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

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 Table 5.4 Potential Advantages and Disadvantages of MBO

• Potential Advantages • Potential Disadvantages

• Can result in better achievement • Requires time and commitment
of goals. of top-level managers.
• Forces managers to establish • May require excessive
priorities and measurable goals paperwork.
or standards of performance. • May create tendency to focus on
• Encourages participation of short-term goals.
employees and managers in • Can be difficult to establish and
establishing goals. put into operation.
• Facilitates control. • Goals of individuals may not be
• Lets individuals know what is coordinated with higher-level
expected. goals.
• Can help improve
communication.
• Increases motivation and
commitment of employees.

Source: Adapted from J. Gordon et al., Management and Organizational Behavior (Boston: Allyn and Bacon, 1990).
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The Balanced Scorecard (BSC)
• A system-wide performance measurement
process that aligns individual goals with the
strategic goals of the organization.
 Allows an organization to translate strategy into
operational actions at every level.
 Ensures employees that their individual action plans
and goals are consistent with the overall strategic
direction of the organization.

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 Table 5.5 Measuring Performance with the Balanced Scorecard

Key Principles Measurement Criteria Implications for Leaders

Align organization Customers Understand the “big

to the strategy picture.”

Translate the strategy Internal processes BSC measures performance

to operational terms. at all levels.

View strategy as a Innovation Execute strategy into action.

continual process.

Make strategy Growth Empower frontline

everyone’s job. employees.

Source: J. Steele, “Transforming the Balanced Scorecard into Your Strategy Execution System,” Manage 53 (September/October 2001): 22–23.
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Barriers to
Effective
Planning

• Demands on the manager’s time

• Ambiguous and uncertain operating
environments
• Resistance to change

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

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