Fundamentals of Management

DMG 1043

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 Learning Outcomes
• Understand and explain the nature and purpose
of management
• Describe the structure and level of management
in organizations
• Identify the function of leadership, organizing,
controlling and planning in an organization
• Prepare on forming the strategic goal, setting
objectives and implementing and executing the
strategy
• Emphasis on issues related to environmental
scanning and industrial analysis and the
effectiveness of allocation of resources
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Recommended Texts

• Robbins & Decenzo (2010) Fundamentals of

Management, 7th ed Prentice Hall
• Daft R (2006) The New Era of Management
International edition, Thomson South-Western
• David C Thomas Essentials of International
Management , 1st ed, SAGE Publications

• Slides © Robbins & Decenzo (2010) Fundamentals

of Management, 7th ed Prentice Hall

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Unit 4: Basic Planning Process

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 What Is Planning?
Planning

• A basic managerial function that involves:

• Defining the organization’s goals.

• Establishing an overall strategy for achieving
those goals.
• Developing a comprehensive set of plans to
integrate and coordinate organizational work.

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 Types of planning
• Informal planning: • Formal planning:
• Not written down • Written down
• Short-term goals • Clearly defined long-
• Done in small term goals
businesses or in • Goals are shared
single with other
organizational units organizational
(little or no sharing members.
of goals with
others).

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 Why Do Managers Plan?
Four Purposes (reasons) of planning are
identified:

1. It Provides direction (a focus)

2. It Reduces uncertainty (being unsure)
3. It Minimizes waste, inefficiencies
and redundancy (unnecessary actions)
4. It Sets the standards (criteria) for
controlling

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 Planning and Performance
• Studies of the Relationship Between Planning And Performance
have concluded that:

• Formal planning is associated with positive financial results

• Higher profits.
• Higher returns on assets.
• The quality of planning and implementation is more closely
linked to high performance than the extent (how wide) of
planning.
• The external environment (e.g. government regulations)
constrains managers’ options (choices) and can reduce the
impact (effect) of planning on performance.
• Formal planning must be used for several years before it
begins to positively affect performance.

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 How Do Managers Plan?
• The Role of Goals and Plans in Planning

• Goals or Objectives are desired outcomes for individuals,

groups, or entire organizations.
• They provide direction (focus) for plans and decisions.
• They form the criteria for evaluating results.

• Plans are documents that outline (describe) how goals are

going to be met (accomplished).
• They determine resource allocations (distribution), timetables
and other necessary actions to accomplish the goals

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 Types of Goals
• Financial Goals
• Are related to the financial performance of the
organization.

• Strategic Goals
• Are related to the performance of the firm in
connection with its external environment (e.g.
customers, competitors).

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 Types of Goals
Stated Goals Real Goals
Official statements from The goals that an
the organization, saying organization actually
what it wants its pursues, as can be seen
stakeholders and the in the actions of its
public to believe. members
Knowing that an organization’s stated and real
goals are usually different is important to
understand what seems to be management
inconsistencies (contradictions).

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 Stated Objectives from Large U.S. Companies
Financial Objectives Strategic Objectives
• Faster revenue growth • A bigger market share
• Faster earnings growth • A higher more secure industry rank
• Higher dividends • Higher product quality
• Wider profit margins • Lower costs relative to key competitors
• Higher returns on invested capital • Broader or more attractive product line
• Stronger bond and credit ratings • A stronger reputation with customers
• Bigger cash flows • Superior customer service
• A rising stock price • Recognition as a leader in technology
• Recognition as a “blue chip” company and/or product innovation

• A more diversified revenue base • Increased ability to compete in international

markets
• Stable earnings during recessionary
periods • Expanded growth opportunities

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 Types of Plans

Long-Term Plans Short-Term Plans

• Plans with a time • Plans with a time

frame of more than frame of one year or
three years. less.

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 Types of Plans
Specific Plans Directional Plans
• Plans that are clearly • Flexible plans that set
defined and leave no out (indicate) general
room for guidelines, provide
interpretation. focus, yet allow
• There is no ambiguity discretion (freedom) in
and no problem with implementation.
misunderstanding. • They don’t force managers
into specific courses of
action.

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Specific Versus Directional Plans

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 Types of Plans
Single-Use Plans Standing Plans

• One-time plans that • Ongoing plans that

are specifically provide guidance for
designed to meet activities performed
the needs of a repeatedly.
unique situation. • They include policies, rules
and procedures.

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Types of Plans

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 Approaches to Establishing Goals
Traditional Goal Setting
• Broad (general) goals are set at the organization’s top
level and then split into sub goals for each lower level
of the organization.
• This approach assumes that top managers know what’s best
because they can see the “big picture.”
• The goals serve to direct, guide, and constrain from above.
• Goals lose clarity and focus as lower-level managers apply
their own interpretation (understanding) when defining and
applying them to their areas of responsibility.

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Traditional Objective Setting

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 Approaches to Establishing Goals
Means–Ends Chain
• Establishing a clearly-defined hierarchy (order of
accomplishment) of organizational goals that results in an
integrated (complete) network (system) of goals.

• Accomplishment of goals at a lower level is the

means (instrument) by which the goals (ends) at the
next higher level are achieved.

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 Approaches to Establishing Goals
• Management By Objectives (MBO)
• Specific performance goals are jointly (together)
determined by employees and their managers.
• Progress toward accomplishing goals is periodically
checked.
• Rewards are allocated (distributed) on the basis of
progress.
Key elements of MBO:
• Specific goals; employees motivation by participation in
decisions; explicit time period; performance
feedback/evaluation.

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 Steps in a Typical MBO Program
1. The organization’s overall objectives and strategies are formulated.
2. Major objectives are allocated among divisional and departmental
units.
3. Unit managers collaboratively set specific objectives for their units
with their managers.
4. Specific objectives are collaboratively set with all department
members.
5. Action plans, defining how objectives are to be achieved, are
specified and agreed upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and feedback is
provided.
8. Successful achievement of objectives is reinforced by performance-
based rewards.

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 Characteristics of Well-Designed Goals
• Written in terms of
outcomes, not actions
• Focuses on the ends, not
the means.
• Measurable and
quantifiable
• Specifically defines how
the outcome will be
measured/evaluated.
• Clear as to time frame
• Specify a time frame for
accomplishment.
• Challenging but attainable
• Low goals do not motivate.
• High goals motivate if they
can be achieved.
• Written down
• Forces people to focus
• Written goals become visible.
• Communicated to all
• Ensures that all members
work in ways to secure
accomplishment of goals.

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 Steps in Goal Setting
1. Review the organization’s mission statement.
1.Does the goal reflect the purpose of the organization?
2. Evaluate available resources.
1.Are resources sufficient to achieve the goal?
3. Determine goals individually or with others.
1.Does it conflict with other organizational goals?
4. Write down the goals and communicate them.
1.Is everybody on the same page?
5. Review results and whether goals are being met.
1.Are any changes needed?

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Planning in the Hierarchy of Organizations

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 Contemporary Issues in Planning
• Criticisms of Planning
• Planning may create rigidity: In achieving specific goals, managers may
not be able to cope with the changing environment.
• Plans cannot be developed for dynamic environments: These
conditions may mean not being tied to formal plans.
• Formal plans cannot replace intuition and creativity: They may
reduce intuition to programmed routine.
• Planning focuses managers’ attention on today’s competition not
tomorrow’s survival: They focus on existing business opportunities, not
creativity.
• Formal planning reinforces today’s success, which may lead to
tomorrow’s failure: Successful plans provide a false sense of security than
is warranted (justified, called for).
 Contemporary Issues in Planning
• Criticisms of Planning
• Planning may create rigidity: In achieving specific goals, managers may
not be able to cope with the changing environment.
• Plans cannot be developed for dynamic environments: These
conditions may mean not being tied to formal plans.
• Formal plans cannot replace intuition and creativity: They may
reduce intuition to programmed routine.
• Planning focuses managers’ attention on today’s competition not
tomorrow’s survival: They focus on existing business opportunities, not
creativity.
• Formal planning reinforces today’s success, which may lead to
tomorrow’s failure: Successful plans provide a false sense of security than
is warranted (justified, called for).

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 Contemporary Issues in Planning
Criticisms of Planning

How Valid are these criticisms?

They have some merit when plans are rigid and
inflexible. However, in today’s management effective
planners should understand dynamic, uncertain
environments.

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 Contemporary Issues in Planning
• Effective Planning in Dynamic Environments
• Develop plans that are specific but flexible.
• Understand that planning is an ongoing process.
• Make changes as needed if environmental conditions change.
• Continue in formal planning even in uncertain environment to
see any effect on performance.
• Push the responsibility to lower organizational levels by
training employees in setting goals and establishing plans.

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Summary
Planning – a basic managerial function
Types of Planning
Types of goals
Contemporary issues in planning

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Question and Answer Session

Q&A

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Next Lecture
• UNIT 5 – STRATEGIC MANAGEMENT

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