CHAPTER 4

Foundations of Planning
Content

ü The What And Why Of Planning

ü Goals And Plans

ü Setting Goals and Developing Plans
ü Contemporary Issues in Planning
4.1. Introduction to Planning
v What Is Planning?
Ø A primary managerial activity that involves:
ü Defining the organization’s goals
ü Establishing an overall strategy for achieving those goals
ü Developing plans for organizational work activities

v Formal planning
Ø Specific goals covering a specific time period
Ø Written and shared with organizational members
4.1. Introduction to Planning
v Why Do Managers Plan?

ü Provides direction
ü Reduces uncertainty

ü Minimizes waste and redundancy

ü Sets the standards for controlling

4.1. Introduction to Planning
v Planning and Performance
ü Formal planning is positively associated with
financial results.
ü The quality of planning and implementation affects
performance more than the extent of planning. quality > quantity

ü The external environment can reduce the impact of

planning on performance. goverment regulations, powerful labour union,...

ü Formal planning must be used for several years

before planning begins to affect performance.
planning-performance relationship is likely to be influenced by the planning time frame.
4.2. How Do Managers Plan?
v Goals/Objectives
ü Desired outcomes for individuals, groups, or entire
organizations.
ü Direction and evaluation performance criteria.
v Plans
ü Resource allocation
ü Activity schedules
4.2.1. Types of Goals
v Financial Goals vs. Strategic Goals
Ø Volkswagen: Selling 10 million cars and trucks
annually with a pretax profit margin over 8%.
Ø Uniqlo: No.1 apparel retailer in the US.
v Stated Goals versus Real Goals
Ø Broadly-worded official statements of the
organization that may be irrelevant to its real goals.
No.1 in the industry vs. Survival in the industry
4.2.2. Types of Plans
4.2.3. Setting Goals
v Traditional Goal Setting
4.2.3. Setting Goals
v Management By Objectives (MBO)
Ø Process of mutually agreed-upon goals and using
those goals to evaluate employee performance.
Ø Specific performance goals are jointly determined by
employees and managers.
Ø Progress toward accomplishing goals is periodically
reviewed.
Ø Rewards are allocated on the basis of progress
towards the goals.
MBO has 4 elements: goal specificity, participative decision making,
an explicit time period, and performance feedback.
Does MBO Work?

Ø Potential Problems with MBO

ü Not as effective in dynamic environments that require

constant resetting of goals.

ü Overemphasis on individual accomplishment may create

problems with teamwork.

v Well-Written Goals
• Written in terms of
outcomes, not actions
Ø Focuses on the ends, not the
means.
• Measurable & quantifiable
Ø Specifically defines how the
outcome is to be measured
and how much is expected.
• Clear as to time frame
Ø How long before measuring
accomplishment.
• Challenging yet attainable
Ø Low goals do not motivate.
Ø High goals motivate if they can be
achieved.
• Written down
Ø Focuses, defines, and makes goals
visible.
• Communicated to all necessary
organizational members
Ø Puts everybody “on the same
page.”
4.2.3. Setting Goals
Steps in Goal Setting
1. Review the organization’s mission statement.
Do goals reflect the mission?
2. Evaluate available resources.
Are resources sufficient to accomplish the mission?
3. Determine goals individually or with others.
Are goals specific, measurable, and timely?
4. Write down the goals and communicate them.
Is everybody on the same page?
5. Review results and whether goals are being met.
What changes are needed in mission, resources, or goals?
4.2.4. Developing Plans
v Contingency Factors in Planning
Ø Manager’s level in the organization
ü Strategic plans at higher levels
ü Operational plans at lower levels
Ø Degree of environmental uncertainty
ü Stable environment: specific plans
ü Dynamic environment: specific but flexible plans
Ø Length of future commitments
ü Current plans affecting future commitments must be sufficiently
long-term to meet those commitments.
4.2.4. Developing Plans
v Planning in the Hierarchy
4.2.4. Developing Plans
v Criticisms of Planning
ü Planning may create rigidity.
ü Plans can’t be applicable in dynamic environments.

ü Restricts creativity.

ü Formal planning reinforces today’s success, which

may lead to tomorrow’s failure.
4.2.4. Developing Plans
v Effective Planning in Dynamic Environments
ü Develop plans that are specific but flexible.
ü Change plans when conditions warrant.

ü Flatten the organizational hierarchy to foster the

development of planning skills at all organizational

levels.