Planning: Nature, significance

and process
 Introduction
• Planning is the most basic of all
management functions since it involves
deciding of future course of action.

• The other functions of management, vis.,

organizing, staffing, directing and control,
must reflect proper planning.
Concept and Nature of Planning
Definition of Planning
According to Killen, “ Planning is the process of
deciding in advance what is to be done, who is
to do it, how it is to be done and when it is to be
done.”
According to Koontz, O’Donnell and Weihrich,
“Planning is an intellectually demanding
process; it requires the conscious determination
of course of action and the bases of decisions
on purpose, knowledge and considered
estimates.”
 Nature of Planning
• Planning is an intellectual activity.
• Planning involves selection among
alternatives.
• Planning is forward-looking.
• Planning is related to objectives.
• Planning is the most basic of all
management functions.
• Planning is a pervasive function of
management.
 Significance of Planning
• Focus attention on objectives.
• Ensures economical operation.
• Reduces uncertainty.
• Facilitate control.
• Encourages innovation and creativity.
• Improves motivation.
• Improves competitive strength.
• Facilitates coordination.
 Process of Planning
• Establishing objectives.
• Collection of information and forecasting.
• Development of planning premises.
• Search of alternatives.
• Evaluation of alternatives.
• Selection of plan and development of
derivate plans.
 Difference between Planning &
Plan
• Planning is a process and plan is the
outcome of such a process.

• Planning involves various steps through

which we achieve the desired result.
Whereas, plan is a single activity or a medium
through which main objective is achieved.
 Types of Plan
1. On the basis of time
2. On the basis of managerial levels
3. On the basis of broadness
4. On the basis of use
 1. On the basis of time
a) Long-term Plans: more than 3 years,
formulated by top level managers.
b) Medium-term Plans: for a period
ranging b/w 1 to 3 years, formulated
by middle level managers.
c) Short-term Plans: less than one year
plan, formulated by lower level
managers to solve present and near
future problems.
 2. On the basis of managerial
levels
Level By Whom Examples

a) Top Directors, General Objectives,

Managers Policies, budgets

b) Middle Departmental managers Departmental plans

such as purchase prepared in the
managers, production context of main
managers, etc plan of the org.
c) Lower Foreman & Supervisors Directly related
with the actual
work
 3. On the basis of broadness
a) Corporate level plans or Corporate
Planning: These plans are prepared
for the development of the whole
organization keeping in view the long
term strategy.
b) Departmental level plans: Prepared
by various departments keeping in
view their immediate and near future
problems
 4. On the basis of use
a) Standing or Repeatedly Used Plans:
– These are the plans that are formulated once but are
used repeatedly.
– Serve as a standing guide to recurring problems
E.g. Mission, Objectives, Policy, Procedure, Rules &
Strategy
b) Special Use or Adhoc Plans:
– Connected with some special problems
– After being used once, there is no importance
of these plans
E.g. Programme, Budget, Projects & Schedules
 Standing or Repeatedly Used Plans
• Mission : Mission is the standing plan which justifies the establishment of
the organization. It clarifies the specialties of the business of the organization
& tells us in what ways organization is different from other organizations.
• Objectives: Objectives are those plans for the achievement of which
planning is done. They are determined in such a manner as to make the
mission of the organization meaningful.
• Policies: Policies are those plans which defines the limits within which
decisions regarding the achievement of the objectives of the organization can
be taken.
 Procedures: Procedures are plans in that they establish a sequence for
handling future activities. Ex. Procedure for the recruitment of employees.
• Rules: Rule is a pre-determined decision which has to be applied in special
circumstances.“ A rule requires that a specific and definite action to be taken
or not taken with respect to a solution”.- Koontz and O’Donnell
 Strategy: Strategy refers to a plan which takes into account the environment
opportunities and threats and the organizational strengths and weaknesses
and provides an optimal match between the organization and the
environment.
 Special or Single Use or Adhoc Plans
 Programme: Programmes are solid plans which are framed to achieve a
special purpose. It determines what is to be done, how it will be done,
who will do it and when it will be done. It is a brief plan of an activity.
 Budget: Budget refers to the Quantitative expression of plan of action.
A Budget presents all the resources in the form of figure. Ex.
Advertising Budget, Production Budget
 Projects: Different Independent parts of a programme are called
projects. They are framed to achieve the special objectives which are
different from the general objective of business. For e.g. programme is
increasing sales, projects can be building a new plant, marketing a new
product.
 Schedules: Schedules are those special plans which determine the time
that a particular activity will take. For e.g. Production of goods involve
many steps which is recorded in a schedule(time for all the steps is
fixed).
Management by objectives
Definition and Nature of Objectives
• Objectives are the desired state of affairs
which an organization attempts to realize.
• They are the end points towards which the
activities of the enterprise are aimed.
• They provide direction to various activity.
• Objectives make every human activity
purposeful.
Concept of Management by Objectives
(MBO)
The concept of management by objectives
was first used by Peter F. Drucker in
1954 and it was strongly advocated by
Douglas McGregor.
Drucker suggested that the manager
should devote attention to the
establishment of goals so that the
subordinate may exercise self-control in
pursuit of those goals.
This technique is known as goal setting
approach or managing by objectives.
It was called ‘work planning and review’
by the General Electronic Co. of U.S.A.
MBO is known by different names such as
“Management by Results’,
“Accountability management”,
“Performance results and Individual
Development Evaluation (PRIDE).”,
Work Planning Review, etc.
MBO is a way of thinking about
management.
 Features of MBO
• MBO represents a comprehensive management
philosophy.
• MBO emphasizes participative approach to
management.
• MBO focus on goals at each level of the
organization.
• MBO concentrates on key result areas.
• MBO is a system that allows management to
attain maximum results from available resources
by focusing on goals.
 Steps in MBO
• Defining overall corporate objectives.
• Setting departmental goals.
• Setting of targets for individuals.
• Establishing check-points.
• Review of performance.
• Employee counseling.
Advantages of MBO
1. Incentives for subordinates

2. Improvement in communication network

3. Better management of resources and

activities

4. Encourages Innovations

5. Minimizes ambiguity

6. Self control

7. Clarity of key result areas – KRAs

8. Easier to implement change

Limitations of MBO
1. More pressure on employees.

2. Wastage of time.

3. Wastage of valuable resources.

4. Incomplete support of top management.

5. Difficulty in objective setting.

6. More importance to short term objectives.

7. Lack of skilled staff.

8. Lack of subordinates’ participation.

Suggestion for improving the effectiveness of
MBO
1. Release pressure of employees

2. Understand value of time

3. Save valuable resources

4. Provide complete support by top management

5. Understand subordinates importance

6. Give due importance to long term objectives

7. Arrange training programme for staff

8. Develop participative nature

 SWOT Analysis

S W O T
 What is SWOT Analysis?

Strengths

Oppurtunity
SWOT Weakness
Analysis

Threats
 What is SWOT?
• SWOT is a business or strategic planning technique
used to summarise the key components of your
strategic environments.

• SWOT analysis (strengths, weaknesses,

opportunities, and threats analysis) is a
framework for identifying and analyzing the
internal and external factors that can have an
impact on the viability of a project, product, place
or person.
 SWOT Analysis

SWOT is a summary of your

• Strengths
Internal
• Weaknesses
• Opportunities
External
• Threats
 Internal vs. External
• Strengths and Weaknesses are considered
internal factors---meaning you as the
business owner can control them. How you
manage or market the business controls
whether it is a strength or weakness

• Opportunities and Threats are considered

external factors---meaning you have little
control over them. It is your job as a business
owner to respond appropriately .
SWOT analysis examines four elements…

• Strengths - internal attributes and resources that support

a successful outcome.

• Weaknesses - internal attributes resources that work

against a successful outcome.

• Opportunities - external factors the project can capitalize

on or use to its advantage.

• Threats - external factors that could jeopardize the

project.
What is SWOT Analysis?

STRENGTHS
Characteristics of the business or a team that
give it an advantage over others in the industry.

Positive tangible and intangible attributes, internal

to an organization.

Beneficial aspects of the organization or the

capabilities of an organization, which includes
human competencies, process capabilities,
financial resources, products and services,
customer goodwill and brand loyalty.

Examples -, Well-known brand name,, Lower costs

[raw materials or processes], Superior
management talent, Better marketing skills, Good
distribution skills, Committed employees.
 What is SWOT Analysis?

WEAKNESSES

Characteristics that place the firm at

a disadvantage relative to others.

Detract the organization from its ability to

attain the core goal and influence its
growth.

Weaknesses are the factors which do not

meet the standards we feel they should
meet. However, sometimes weaknesses are
controllable. They must be minimized and
eliminated.

Examples - Limited financial resources, Limited

distribution, Higher costs, Out-of-date
products / technology, Weak market image,
Poor marketing skills, Limited management
skills.
 What is SWOT Analysis?

OPPORTUNITIES

Chances to make greater profits in the environment -

External attractive factors that represent the reason for
an organization to exist & develop.

Arise when an organization can take benefit of

conditions in its environment to plan and execute
strategies that enable it to become more profitable.

Organization should be careful and recognize the

opportunities and grasp them whenever they arise.
Opportunities may arise from market, competition,
industry/government and technology.

Examples - Rapid market growth, Changing

customer needs/tastes, New uses for product
discovered, Economic boom, Sales decline for
a substitute product .
 What
SWOT is SWOT
ANALYSIS Analysis?
- THREAT

THREATS

External elements in the environment that could

cause trouble for the business - External
factors, beyond an organization’s control, which
could place the organization’s mission or !
operation at risk.

Arise when conditions in external environment

jeopardize the reliability and profitability of the
organization’s business.

Examples - Entry of foreign competitors,

Changing customer needs/tastes, Rival firms,
adopt new strategies, Increased government
regulation, Economic downturn.
STRENGTHS: WEAKNESS:
•Patents •Lack of patent protection
•Strong brand names •A weak brand name
•Good reputation among customer •Poor reputation among customers
•Cost advantages from proprietary •High cost structure
know how •Lack of access to best natural
•Exclusive access to high grade resources
natural resources •Lack of access to key distribution
•Favourable access to distribution channels
network

OPPORTUNITIES: THREATS:
•An unfulfilled customer need •Shift in consumer tastes away from
•Arrival of new technologies firm’s products
•Loosening of regulations •Emergence of substitutes products
•Removal of international trade barriers •New regulations
•Increased trade barriers
Tips & Exercise

EXAMPLE

Mc Donald’s SWOT Analysis

Tips & Exercise
Mc Donald’s
SWOT Analysis INTERNAL

STRENGTHS WEAKNESSES

• Community oriented • High training costs due to high turnover.

• Global operations all over the world • Not much variation in seasonal products .
• Cultural diversity in the foods • Quality concerns due to franchised operations.
• Excellent location • Focus on burgers / fried foods not on healthier
• Assembly line operations. options for their customers.

OPPORTUNITIES THREATS

• Opening more joint ventures.
• Being more responsive to healthier options.
• Expanding on the advertising on being
more socially responsible
• Expansions of business into newly developed
parts of the world.
• Marketing strategies that entice people from
small children to adults.
• Lawsuits for offering unhealthy foods.
• The vast amount of fast food restaurants that
are open as competition..
• Down turn in economy affecting the ability to eat
that much.

EXTERNAL
 Definition of Strategy:
• Glueck defines a strategy as “unified comprehensive and
integrated plan designed to assure that the basic
objectives of the enterprise are achieved”.
• McNichols defines strategy as “the science and art of
employing the skills and resources of an enterprise to
attain its basic objectives under the most advantageous
conditions.”
• Corporate strategy means strategy of corporate bodies. It
means the strategy of any enterprise, institution or
organization. Generally strategy is inferred as external to
the organization.
 Corporate Strategy

• At the corporate level, value creation can occur

if the individual parts of a firm are integrated into
a coherent whole.

• Corporate strategy is the way a company

creates value through the configuration and
coordination of its multi-market activities.

38
CORPORATE STRATEGY
• Every business concern, as a general rule has its
own aims and objectives and it is one of the
foremost duties of the management to fulfill
them. Executives formulate different policies and
plans as guidelines not only for themselves but
for their subordinates as well. How to implement
both policies and plans effectively, it is essential
to have further overall planning
 Need for Corporate Strategy
• All corporate bodies have their corporation can survive
without a strategy for itself. The need for corporate
strategy arises for the following reasons.
• Vary fast change of business conditions.
• To anticipate future problems and opportunities.
• To provide all employees with clear goals and directions
to the future of the enterprise.
• To make the business more effective
• To improve employee morale.
• To capture, retain and win markets.
 Types of Strategy:

A) Strategy based on purpose or objective

• efensive Strategies: Defensive strategies are followed by corporations as defense
against external forces. For e.g. the strategy followed may be for the purpose of
retaining the market by restricting the competitors from capturing the market.
• Offensive Strategies: Steps taken by the corporation in launching a new venture, a
new produce, advertisement campaign etc. constitute offensive strategies. They
mainly aim at expansion or capturing new markets.
• Strategy for Survival: Sometimes the corporation may find it desperate to win the
competition. During such times the measures undertaken for the very survival of the
corporation constitute survival strategies. Survival strategies not only aim at
strengthening the competition to withstand competition but are undertaken during
periods of financial, production and other crisis. Therefore, they are also called “Crisis
Strategies”.
B) Strategy based on Time element: Based on the time, strategy may be classified into
two types.
• Short term Strategy: Short term strategy concerns itself with the immediate goals.
• Long Term Strategy: Long term strategy generally involves foresight on the expansion
and development of the organization.
 C) Strategy based on the
nature
• Root Strategy: Root strategy aims at providing basic guidelines in terms of
nature and scope of its business commitment and the context of its skill and
resource development and allocation.
• Operation Strategy: Operation strategy flows from the root strategy and
guides the enterprise in its action commitment in the market place. The
blueprint for market penetration, coping with environmental changes and
directing day to day operations are part of a firms operating strategy.
• Organization Strategy: At the implementation phase the management has a
decision choice of alternative organizational strategies to provide the
guidelines, framework and communication network to complete and put into
effect the operating strategy.
• Control Strategy: In order to determine the effectiveness of the organizations
performance in relation to the predetermined objectives developed in the
formation and implementation phases.
• Recovery Strategy: Recovery strategy is developed for reformulating and
recycling the policy making process with the help of the data obtained
through the control strategy.
 LEVELS OF STRATEGY
(a) Corporate Level strategy: Strategy at corporate level is designated as
corporate strategy. It is the top management plan to direct and run the
enterprises as a whole. Corporate level strategy represents the pattern of
interest in different business, divisions, product-lines, customer groups and
technology etc. Corporate strategy emphasizes upon the fact that how one
should manage the scope, mix and emphasis of various activities and how
the resources should be allocated over the different priorities of the
corporation.
(b) Business Level Strategy: For many companies that are dealing in number
of product mix, dealing with different types of buyers and types of markets,
for them a single strategy is not only inadequate but also inappropriate. The
need is for multiple strategies at different levels. In order to segregate
different units or segments each performing a separate function, a seprate
strategy is required.
 Formulation of strategy
• Strategy is a broad plan developed by an organization to take it from
where it is to where it wants to be. A well-designed strategy will help
an organization reach its maximum level of effectiveness in reaching
its goals while constantly allowing it to monitor its environment to
adapt the strategy as necessary.
• Strategy Formulation is the process of developing the strategy. And
the process by which an organization chooses the most appropriate
courses of action to achieve its defined goals. This process is
essential to an organization’s success, because it provides a
framework for the actions that lead to the anticipated results.
• Strategy formulation refers to the process of choosing the most
appropriate course of action for the realization of organizational goals
and objectives and thereby achieving the organizational vision.
• Sometimes Strategic Formulation called “Strategic Planning”
 Process of strategy formulation
1. Define the organization : Define the Organization defining an organization is to identify
the company’s customers. Without a strong customer base, whose needs are being filled,
an organization will not be successful. A company must identify the factors that are
valued by its customers. Is the value based on a superior product or service relative to the
competition? Are your customers buying your products for your low prices? Do you
produce products meet image needs of your customers?
2. Define the strategic mission: An organization’s strategic mission offers a long-range
perspective of what the organization strives for going forward. A clearly stated mission will
provide the organization with a guide for carrying out its plans. Elements of a strong
strategic mission statement should include the values that the organization holds the
nature of the business, special abilities or position the organization holds in the
marketplace, and the organization’s vision for where it wants to be in the future.
3. Define the strategic objectives: This third step in the strategic formulation process
requires an organization to identify the performance targets needed to reach clearly
stated objectives. These objectives may include market position relative to the
competition, production of goods and services, desired market share, improved customer
services, corporation expansion, advances in technology, and sales increases.
4. Define the competitive strategy : Its requires an organization to
determine where it fits into the marketplace. This applies not only to the
organization as a whole, but to each individual unit and department
throughout the enterprise. Each area must be aware of its role within the
company and how those roles enable the organization to maintain its
competitive position.
5. Developing a strategy is only effective if it is put into place. An
organization may take all the necessary steps to understand the marketplace,
define itself, and identify the competition. However, without implementing the
strategy, the organization’s work will be of little to no value. The methods
employed for implementing strategies are known as tactics. These individual
actions enable an organization to build a foundation for implementation.
Companies are able to identify which of their efforts are more successful than
others and will uncover new methods of implementation, if necessary.
6. Evaluate Progress : As in any plan, a regular evaluation of processes and
results is vital to ongoing success. An organization must keep track of the
progress it is making as defined by its strategic plan.
 Policy
• A definite course of action adopted for the sake of
usefulness facility, etc. We have a new company policy.
• a set of ideas or a plan of what to do in particular
situations that has been agreed to officially by
a group of people, a business organization,
a government, or a political party
• The set of basic principles and associated guidelines,
formulated and enforced by the governing body of an
organization, to direct and limit its actions in pursuit of
long-term goals.
 Nature of policy
1. Policy is an expression of intentions of top
management.
2. It serves as a guide to decision making in an
organization.
3. It should be planned after taking into consideration
the long range plans and needs of an organization.
4. As policies live longer than the people therefore the
policies should be framed after serious thinking and
participation of the top executives.
5. Policies take a concrete step when they are put in
writing.
 TYPES OF POLICIES
1. Basic or top management policy: laid by
the top management like product
selection, size of business, budgeting etc.
2. Middle management policies: general
policies affecting a large part of
organization. E.g. purchase policy
3. Departmental Policies: applies to routine
activities e.g. workers related matters
4. Written and verbal policies
 TYPES OF POLICIES
5. Implied policies: which actually exist in a
company. Such policies can be known
only by watching the actual working of an
organization.
6. Functional policies: e.g. marketing
policies, finance policies, research
policies, and recruitment policies.
7. Policy manual: where all policies are
compiled in the form of a book is called a
policy manual.
 Types of Personnel Policies
• Originated Policies – established formally by top
management
• Appealed Policies – formulated on requests of subordinates
who want to know handle some situations.
• Imposed Policies – An organization accepts these policies
due to external agencies like govt.,trade association .
Eg- Not to accept any one below the age of 14 according to
the factories act.
• General Policies – These policies do not relate to specific
issues in particular
• Specific Policies – Policies relating to specific issue like
staffing compensation , collective bargaining etc
• Written or Implicit Policies – are inferred from behavior
of managers.
 Principles of Policy Formulation
1) It must be specific, clear, easy and simple.
2) It should be flexible so that it can adapt to changing circumstances. But it
should also be stable.
3) It must consider internal factors.
4) It may be written or verbal.
5) It must reflect the objective of the company.
6) There should be a line of communication in the implementation cell.
7) There should be evaluation at certain intervals.
8) There should be coordination among all the policies. It must not be
contradictory with each other.
9) A policy should relate one objective with other.
10) One policy should be complementary with each other.
11) Policies should be based on justifiability and honesty.
12) Policies should be clearly explained to staff. Objective must be clear so that
they
help implement.