4

Chapter

Foundations
Of
Planning

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Learning Objectives
• Discuss the nature and purposes of planning
• Explain what managers do in the strategic
management process
• Compare and contrast approaches to goal
setting and planning
• Discuss contemporary issues in planning

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What Is Planning?
• Planning is often called the primary
management function because it establishes
the basis for all the other things managers do
• It’s concerned with ends (what is to be done)
as well as with means (how it’s to be done)

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Why Do Managers Need to Plan?
• Managers should plan for at least four reasons
1. planning establishes coordinated effort
2. planning reduces uncertainty
3. planning reduces overlapping and wasteful
activities
4. planning establishes the goals or standards that
facilitate control

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What Are Some Criticisms of
Formal Planning?
• Critics have challenged some of the basic
assumptions of planning
1. Planning may create rigidity
2. Formal plans can’t replace intuition and
creativity
3. Planning focuses managers’ attention on today’s
competition, not on tomorrow’s survival
4. Formal planning reinforces success, which may
lead to failure

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What Do Managers Need to Know
About Strategic Management?
• Strategic Management
– What managers do to develop an organization’s strategies
• Strategies
– Plans for how the organization will do what it’s in business
to do, how it will compete successfully, and how it will
attract its customers in order to achieve its goals
• Strategic Management Process
– A six-step process that encompasses strategy planning,
implementation, and evaluation

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The Strategic Management Process
• STEP 1: Identifying the organization’s current
mission, goals and strategies
• STEP 2: Doing an external analysis
• STEP 3: Doing an internal analysis
• STEP 4: Formulating the strategies
• STEP 5: Implementing strategies
• STEP 6: Evaluating results

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Strategic Management Process
(cont.)
• Mission
– A statement of an organization’s purpose
• Capabilities
– An organization’s skills and abilities in doing the
work activities needed in its business
• Core Competencies
– The major value-creating capabilities of an
organization

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What is a SWOT Analysis?
• SWOT Analysis
– The combined external and internal analyses
• Strengths
– Any activities the organization does well or any
unique resources that it has
• Weaknesses
– Activities the organization doesn’t do well or
resources it needs but doesn’t possess

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SWOT Analysis (cont.)
• Opportunities
– Positive trends in the external environment
• Threats
– Negative trends in the external environment

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What Are Various Types of
Strategies?
• Corporate Strategy
– An organizational strategy that specifies what
businesses a company is in or wants to be in and
what it wants to do with those businesses
– The three main types of corporate strategies are
growth, stability, and renewal

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Growth Strategy
• Growth Strategy
– A corporate strategy in which an organization
expands the number of markets served or
products offered either through its current
business(es) or through new business(es).
• Some growth strategies include
– Concentration
– Vertical Integration
– Horizontal Integration
– Diversification

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Other Corporate Strategies
• Stability Strategy
– A corporate strategy in which an organization
continues to do what it is currently doing
• Renewal Strategy
– A corporate strategy that addresses declining
organizational performance

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Competitive Strategy
• Competitive Strategy
– An organizational strategy for how an organization
will compete in its business(es)
• Competitive Advantage
– What sets an organization apart; its distinctive edge
• Strategic Business units (SBUs)
– An organization’s single businesses that are
independent and formulate their own competitive
strategy

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Types of Competitive Strategies
• Cost Leadership Strategy
– Competing on the basis of having the lowest costs
in the industry
• Differentiation Strategy
– Competing on the basis of having unique products
that are widely valued by customers
• Focus Strategy
– Competing in a narrow segment or niche with
either a cost focus or a differentiation focus

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Functional Strategy

• Functional
Strategies
– The strategies used
in an organization’s
various functional
departments to
support the
competitive
strategy

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QUALITY AS A STRATEGIC WEAPON
• Many organizations are employing quality
practices to build competitive advantage and
attract and hold a loyal customer base
• Benchmarking
– The search for the best practices among
competitors or noncompetitors that lead to their
superior performance

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How Do Managers Set Goals and
Develop Plans?
• Goals (objectives)
– Desired outcomes or targets
• Stated Goals
– Official statements of what an organization says,
and wants its stakeholders to believe, its goals are
• Plans
– Documents that outline how goals are going to be
met

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SETTING GOALS
• Real Goals
– Those goals an organization actually pursues as
shown by what the organization’s members are
doing
• Traditional Goal Setting
– Goals set by top managers flow down through the
organization and become sub-goals for each
organizational area

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Goal Setting (cont.)
• Means-End Chain
– An integrated network of goals in which higher
level goals are linked to lower-level goals, which
serve as the means for their accomplishment
• Management By Objectives (MBO)
– A process of setting mutually agreed-upon goals
and using those goals to evaluate employee
performance

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

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Breadth
• Strategic Plans
– Plans that apply to the entire organization and
encompass the organization’s overall goals
• Tactical Plans
– Plans that specify the details of how the overall
goals are to be achieved

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Time Frame
• Long-term Plans
– Plans with a time frame beyond three years
• Short-term Plans
– Plans with a time frame of one year or less

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Specificity
• Specific Plans
– Plans that are clearly defined and leave no room
for interpretation
• Directional Plans
– Plans that are flexible and set general guidelines

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Plans By Frequency of Use
• Single-use Plan
– A one-time plan specifically designed to meet the
needs of a unique situation
• Standing Plans
– Plans that are ongoing and provide guidance for
activities performed repeatedly
• Commitment Concept
– The idea that plans should extend far enough to meet
those commitments made when the plans were
developed
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The Traditional Approach to
Planning
• In the traditional
approach planning is
done by top
management
• Formal Planning
department
– A group of planning
specialists whose sole
responsibility is to help
write the various
organizational plans

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How Can Managers Use
Environmental Scanning?
• Environmental Scanning
– An analysis of the external environment that
involves screening large amounts of information to
detect emerging trends
• Competitive Intelligence
– A type of environmental scanning that gives
managers accurate information about competitors

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Entrepreneurship Module

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What is Entrepreneurship?
• Entrepreneurship
– The process of starting new businesses, generally
in response to opportunities
• Entrepreneurial Ventures
– Organizations that pursue opportunities, are
characterized by innovative practices, and have
growth and profitability as their main goals

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What is a Small Business?
In contrast to entrepreneurial ventures:
• Small Business
– An independent business having fewer than 500
employees that doesn’t necessarily engage in any
new or innovative practices and that has relatively
little impact on its industry

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What Planning Do Entrepreneurs
Need to Do?
• Business Plan
– A written document that summarizes a business
opportunity and defines and articulates how the
identified opportunity is to be seized and
exploited

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What’s in a Full Business Plan?
• Executive Summary
– Summarizes the key points that the entrepreneur
wants to make about the proposed
entrepreneurial venture
• Analysis of Opportunity
1.Sizes up the market by describing the
demographics of the target market
2.Describes and evaluates industry trends
3.Identifies and evaluates competitors

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Business Plan (cont.)
• Analysis of the Context
– Describes the broad external changes and trends taking
place in the economic, political-legal, technological, and
global environments
• Description of the Business
– Describes how the entrepreneurial venture is going to be
organized, launched, and managed
• Financial Data and Projections
– Cover at least three years and contain projected income
statements ,cash flow analysis, balance sheets, breakeven
analysis, and cost controls.

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What Type of Personality Do
Entrepreneurs Have?
• Proactive Personality
– A personality trait describing those individuals
who are more prone to take actions to influence
their environment

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