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#2 - Planning (Chapter 5)

Principles of Management (香港中文大學)

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MGNT 1020 – CHAPTER 2: Foundations of Planning

A. What is Planning?
 Planning – Defining the goals of an organization, establishing a strategy
for achieving the goals and developing plans to coordinate activities
B. The Three levels of Planning
 Strategic Plan – Plans that apply the entire organization and encompass
the organization’s overall goals
 Who: Top-level managers
 What: Designed with entire organization in mind to begin with
organization’s mission
 When: Long-term
 Tactical Plans
 Who: Middle-level managers
 What: Designed to support strategic plans by translating them into
specific plans relevant to distinct area of the organization
 When: Medium-term
 Operational Plans – Plans that specify the details of how overall goals are
to be achieved
 Who: Low-level managers
 What: Designed to focus on specific procedures and processes that
occur within the lowest levels of organization
 When: Short-term
C. Why do we need to Plan?
 Establishment of coordinated effort amongst the organizational members
on where the organization is going and what they must contribute to reach
the goals
 Forcing managers to anticipate changes, consider (possibly reduce) the
impact of change, and develop appropriate responses
 Reduces overlapping and wasteful activities, making the company more
efficient
 Establishment of goals and standards to what organizational members
want to achieve

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D. What: Situational Analysis

 External Environmental Analysis
1. Managers examine economic, demographic, political, sociocultural,
technological components to see the trends and changes
2. From the outcome of the analysis, they would pinpoint the opportunities
and be aware of the threats
 PEST Analysis describes a framework of macro-environmental factors
used in environmental scanning component of strategic management

 Porter Five Forces Analysis describes a framework to analyze the level

of competition within an industry and business strategy development
1. Threat of Entry – New entrants to an industry bring new capacity and
desire to gain market shares, thus leads to pressure on price and cost
to compete. If the threat is high, firms hold their prices low to deter new
competitor. The threat of entry depends on the height of entry barriers
and when it’s low, the profitability of the industry must be low due to
high competition in terms of prices.
2. Power of Suppliers – Powerful suppliers capture more value for
themselves by charging higher prices, limiting quality, and etc. Such
suppliers would be able to squeeze profitability out of an industry that’s
unable to pass on cost increases in its own prices.
3. Power of Buyers – Powerful customers can capture more value by
forcing down prices, demanding better quality at the expense of
industry profitability. The power increases when they have more ability

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to negotiate. When there are few buyers with large volume, they are
able to pull down the prices to a further extent.
4. Threat of Substitutes – A substitute performs similar function as the
industry’s product. When the threat is high, industry profitability suffers
as it is hard to raise prices. There are two possible conditions present
when the threat of substitute is high. Firstly, when a product offers
attractive price-performance trade-off to the industry’s product (skype
and video calls). Secondly, when it is easily able to switch to substitute,
the threat gets higher.
5. Rivalry among existing competitors – Rivalry exists in various forms
and it limits the profitability of an industry. When there are numerous
equal-sized competitors, or when exit barriers are high, the intensity of
rivalry is greatest. On the other hand, the price competition is most
liable when rival goods are identical, or when fixed and marginal costs
are low, and even when the product is perishable. If the rivalry gets
intense, companies tend to pass the value onto buyers in lower prices.

 Competitor Analysis is useful because the more you understand an

industry, then you know who are the key players and be prepared in how
to compete with them
 Internal Environmental Analysis
1. Company Background
2. Product Portfolio
3. Company Financial Performance

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4. SWOT Analysis is a useful tool in understanding and decision –

making. It analyzes the strengths, weaknesses, opportunities, and
threats of a company.
E. Where: Setting Goals
 Goals – Desired outcome for individuals, groups, or entire organization
 Type of Goals
1. Stated Goals – Official statements of what an organization says, and
wants its stakeholders to believe, its goals are
2. Real Goals – Those goals an organization actually pursues as shown
by what the organization’s members are doing
 Setting Goals
1. Traditional Goal Setting – Goals set by top managers flow down
through the organization and become sub goals for each organizational
area

2. SMART Goal
 Specific
 Measurable
 Achievable
 Relevant
 Time Bound
3. Management by Objectives (MBO) - A process of setting mutually
agreed-upon goals and using those goals to evaluate employee
performance

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4. Steps in MBO Process

 Review the organization’s mission and employees’ key job tasks
 Evaluate available resources
 Determine departmental goals by departmental manager
 Determine goals individually or with input from others
 Discuss whether the goals are well-written and then communicate
with those that need to know
 Build feedback to assess the goal progress
 Link rewards to goal attainment
5. Four Elements of MBO Program
 Goal Specificity
 Participative Decision Making
 Explicit Time Period
 Performance Feedback
6. Unlike traditional goal setting where “goal” is used to make sure that
employees are doing what they’re supposed to be doing

Benefits Limitations
Agreed by both manager and
subordinates
Difficult to target for long-term goals
Provide focus to individual’s main
responsibility in result
Regularly reviewed as performance
Difficult to implement fundamental
Personally committed changes

F. How: Executing Plans

 Company Level – Implements strategic level plans
 Department Level – Implements tactical level plans
 Operational Level – Implements operational level project plans

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