Chapter 3: Foundations of Planning

Section 3.1 – Planning

Key Terms
 Strategic plans
 Tactical plans
 Short-term plans
 Long-term plans
 Specific plans
 Directional plans
 Single-use plan
 Standing plans
 Management by objectives

Summary

Planning encompasses defining the organization’s objectives or goals, establishing an

overall strategy for achieving those goals, and developing a comprehensive hierarchy of
plans to integrate and coordinate activities.

Planning can be further defined in terms of whether it is informal or formal:

 In informal planning, very little, if anything, is written down. The organization’s
objectives are rarely verbalized.
 However with formal planning specific objectives are written down and made
available to organization members.

The environment managers face is too dynamic and has too great an effect on an
organization’s survival to be left to chance. Accordingly, contemporary managers must
plan—and plan effectively.
Managers should engage in planning for at least four reasons:
1. Planning provides direction
2. Reduces the impact of change
3. Minimizes waste and redundancy
4. Sets the standards to facilitate control

What are some criticisms of formal planning?

 Planning may create rigidity
 Plans can’t be developed for a dynamic environment
 Formal plans can’t replace intuition and creativity
 Planning focuses managers’ attention on today’s competition, not on tomorrow’s
survival
 Formal planning reinforces success, which may lead to failure
Many studies have explored the relationship between planning and performance. First,
formal planning in an organization generally means higher profits, higher return on
assets, and other positive financial results. Second, the quality of the planning process
and the appropriate implementation of the plans probably contribute more to high
performance than does the extent of planning. Finally, in those organizations in which
formal planning did not lead to higher performance, the environment was typically the
culprit.

The most popular ways to describe plans are in terms of their breadth (strategic versus
tactical), time frame (long-term versus short), specificity (directional versus specific), and
frequency of use (single use versus standing).

Plans that apply to the entire organization, that establish the organization’s overall
objectives, and that seek to position the organization in terms of its environment are
strategic plans. Tactical plans (sometimes referred to as operational plans) specify the
details of how the overall objectives are to be achieved. Strategic and tactical plans differ
in three primary ways–their time frame, scope, and whether they include a known set of
organizational objectives.

It appears intuitively correct that specific plans are always preferable to directional, or
loosely guided, plans. Specific plans have clearly defined objectives. Specific plans are
not without drawbacks. They require clarity and a predictability that often does not exist.
When uncertainty is high and management must maintain flexibility in order to respond
to unexpected changes, directional plans may be preferable. Directional plans, on the
other hand, identify general guidelines. They provide focus but do not lock managers into
specific objectives or specific courses of action.

Some plans are meant to be used only once; others are used repeatedly. A single-use plan
is used to meet the need of a particular or unique situation.
Standing plans, in contrast, are ongoing. They provide guidance for repeatedly performed
actions in the organization.

Many organizations today are helping their employees set performance. Management by
objectives (MBO), a system in which specific performance objectives are jointly
determined by subordinates and their superiors; progress toward objectives is periodically
reviewed, and rewards are allocated on the basis of that progress. Instead of using goals
to control, MBO uses them to motivate.
Four ingredients are common to MBO programs:
1. goal specificity
2. participative decision making
3. an explicit time period, and
4. performance feedback.

Assessing the effectiveness of MBO is a complex task. If factors such as a person’s

ability and acceptance of goals are held constant, more difficult goals lead to higher
performance.
Studies consistently support the finding that specific, difficult-to-achieve goals produce a
higher level of output than no goals or generalized goals such as “do your best.”
Feedback also favorably affects performance.

Studies of actual MBO programs confirm that MBO effectively increases employee
performance and organizational productivity.
Employees should have a clear understanding of what they are attempting to accomplish
 Identify an employee’s key job tasks.
 Establish specific and challenging goals for each key task.
 Allow the employee to actively participate.
 Prioritize goals.
 Build in feedback mechanisms to assess goal progress.
 Link rewards to goal attainment.

One of the most vocal critics of processes like MBO was the late W. Edwards Deming.
Deming argued that specific goals may, in fact, do more harm than good. He felt that
employees tend to focus on the goals by which they will be judged, so they may direct
their efforts toward quantity of output (what is being measured) and away from quality.
In addition, Deming believed that, when objectives are set, employees tend to view them
as ceilings rather than as floors.

Section Outline
I. Planning Defined
II. Planning in Uncertain Environments
A. Why should managers formally plan?
B. What are some criticisms of formal planning?
C. Does planning improve organizational performance?
III. Types of Plans
A. How do strategic and tactical planning differ?
B. In what time frame do plans exist?
C. What is the difference between specific and directional plans?
D. How do single-use and standing plans differ?
IV. Management By Objectives
A. What is MBO?
B. What are the common elements in an MBO program?
C. Does MBO work?
D. How do you set employee objectives?
E. Does setting objectives have a downside?