Introduction & Meaning:

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INTRODUCTION & MEANING:

Planning is the most basic of all managerial functions. Planning

involves selecting missions & objectives & the action to achieve them. Plans

provide rational approach to achieve pre-selected objectives. Planning also

strongly implies managerial motivation, planning bridges the gap from

where we are to where we want to go. Any attempt to control anything

without plans is meaningless.

Planning can also identify potential opportunities and threats.

Planning helps facilitates the other functions of management: organization,decision making, motivation and especially control because planning

establishes what needs to be done and how it is to be done and control looks

at how well we have done compared to how well we expected to do.

Planning involves selecting the various goals that the organizations

want to achieve and the actions (Objectives) to be taken that will ensure

those goals are accomplished. Goals are established for each of key

operating areas. Every manager does some form of planning whether

informal or formal.

With informal planning, nothing is written down, & there is little or

no sharing of goals with others in the organizations. The owner has a vision

of what he or she wants to accomplish and just goes ahead and does it. This

is frequently the situation in small businesses. The problem of informal

planning is that it lacks continuity. Formal planning occurs when specific

goals covering a period of up to several years are identified and shared with

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all associates and objectives or strategies are developed stating how each

goal will be reached.

Thus planning involves in all level of management.

IMPORTANCE OF PLANNING:

Planning gives direction not only to the top management, but to all

associates as they focus on goal accomplishment. The purpose of planning is

to determine the best strategies and goals to achieve organizational goals.

Planning provides the road map of where the organization is going. Planning

also helps coordinate the efforts of associates towards goal accomplishment.

Planning also assist in risk reduction by forcing managers to look ahead and

anticipate change, so they can plan scenarios to react to those potential

changes. Without planning, business decisions would become random, ad

hoc choices. Following are the paramount importance of planning:

1. MINIMISES RISK AND UNCERTAINTY:

In today’s increasingly complex organizations, intuitions alone can no

longer be relied upon as a means for decisions making. This is one reason

why planning has become so important. By providing a more rational, fact

based procedure for making decisions, planning allows managers and

organizations to minimize risk and uncertainty. In dynamic society such as

ours, in which social and economic conditions alter rapidly, planning helps

the manager to cope with and prepare for the changing environment.

Planning does not deal with future decisions, but with the futurity of present

decisions. It is like going out with an umbrella in cloudy whether.

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2. LEADS TO SUCCESS:

Planning leads to success by doing beyond mere adaptation to market

fluctuations. With the help of a sound plan, management can act proactively,

and not simply react. Planning does not guarantee success, but studies have

shown that, often things being equal, companies which plan not only

outperform the non planners but also outperform their own past such as

military historians attribute much of the success of the world’s greatest

generals to effective battles. It also attempt to shape the environment on the

belief that business is not just a creation of environment but its creator as

well.

3. FOCUSES ATTENTION ON THE ORGANISAION’S GOALS:

Planning helps the managers to focus attention on the organisation’s

goals and activities. The whole organization is forced to embrace identical

goals and collaborate in achieving them. It enables the manger to chalk-out

in advance an orderly sequence of steps for the realisation of the

organisation’s goals and to avoid a needless overlapping of activities.

4. FACILITATES CONTROL:

In planning, the manager sets goals and develops plans to accomplish

these goals. These goals and plans then become the standards or benchmarks

against which performance can be measured. The function of control is to

ensure that activities conform to the plans. Thus control can be exercised

only if there are plans.

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5. HELPS IN TRAINING EXECUTIVES:

Planning is also an excellent tool for training executives. They

become involved in the activities of the organisation; the plans arouse their

interest in the multifarious aspects of planning.

TYPES OF PLANS:

1. STRATEGIC PLANNING :

Strategic plans are business plans or feasibility studies, which deals

with the structure of the plan and provide the details necessary for obtaining

finance or other approvals for the operation. Strategic plans are the long

range plans for an organization.

Strategic planning creates long – range plans that steer an organization

toward its goals in the accomplishment of its mission & vision. The strategic

planning process involves top management, who, in simple terms identify

where the organization is and where it wants to go. There is a strong link

between strategic planning and strategic management. The planners figure

out what to do and management implements the plan. How does a large

hotel or restaurant company with the mission of being a global entity

determine which markets to focus on? In hospitality industry, strategies are

devised that become the road map of how to succeed in increasing guest

satisfaction, gaining market share, increasing profits & so on.

Strategic management develops mission, goals, objectives &

strategies by identifying the business of corporation today and the business it

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wants for the future, and then identifying the course of action it will pursue,

given its strength, weaknesses, opportunities and threats. Strategic planning

is a critical part of planning & management process. There are three main

strategic management tasks: first is to development of a vision & mission

statement, second is translating the mission into strategic goals, & third is

crafting objectives or strategy (course of action) to move the organization

from where it is today to where it wants to be.

Given the frequency of change in the environment, managers must

conduct effective strategic planning in order to respond to the challenges of

managing in a highly competitive environment. A good strategic plan should

include detailed prescription of how business wishes to implement its

mission in the highly competitive environment coupled with allowances for

responding to extraordinary events.

The difference between strategic planning and strategic management

is that strategic planning is a systematic process whereby the top

management of an organization charts the future course of the enterprise.

Strategic management is the process of shepherding the organizational

strategic plan and acquiring the necessary resources and the capabilities to

ensure the successful implementation of the plan in the context of the

emergent situations caused by the level of environmental turbulence.

A strategy is the “how to” action necessary to accomplish goals and

missions. In hotel industry, for instance, strategic issues have the following

characteristics:

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1. Strategic issues require decisions about them to be made by top

management because those decisions affect many areas of

organization’s operation.

2. Strategic issues involve the allocation of large amount of resources.

Resources must be found that will commit the organization to make a

reasonable return on investment.

3. Strategic issues are likely to affect the long term prosperity of the

business. Strategic decisions commit an organization to certain market

services, products & technologies. Once these decisions are made, they are

not easily reserved.

4. Strategic issues are future oriented. They are based on what an

organization predicts will happen in the future.

5. Strategic issues usually have major multifunctional consequences that

must be closely coordinated.

6. Strategic issues require consideration of the corporation’s external

environment and its strength, weakness, opportunities & threats. In a fast

changing business and economic environment, a careful analysis must be

made to align the organization with the best strategy for successful

accomplishment of its goals.

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STRATEGIC PLANNING

PROCESS

VISION

MISSION

GOALS

OBJECTIVES

STRATEGIC PLANNING PROCESS:

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Most of the strategic planning taking place at the top management level is

called corporate level strategies. It also contains SWOT analysis and

environment & scanning forecasting.

CORPORATE – LEVEL STRATEGIES:

At the highest corporate level many organizations consist of a

portfolio of several businesses or divisions. For example, Hilton hotel’s

profile includes Conrad Hotels, Doubletree, Embassy suites & Hotels,

Hampton Inn, Hampton Suites, Hilton Garden Inn. These and other

companies need a corporate level strategy to plan how to best meet the

mission of the company.

Most companies want to grow & need to plan a strategy for that

growth. There are four growth strategies. MARKET PENETRATION aims

to increase market share by promoting sales aggressively in existing

markets. GEOGRAPHICAL EXPANSION is a strategy in which company

expands its operations by entering new markets (this is in addition to

concentrating on existing markets). The third form of growth strategy is

PRODUCT DEVELOPMENT, such as Hilton’s Garden Inn or a new

restaurant menu item. The forth type of growth strategy is HORIZONTAL

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INTEGRATION, which is the process of acquiring ownership or control of

competitors with similar products in the same or similar markets.

STRATEGIC ALLIANCES or JOINT VENTURES are yet other

methods for corporation to fulfill its mission. Another strategy is

diversification where companies expand into other types of business related

or unrelated. Celebrity chef Emeril “Bam” Lagasse’s expansion into TV

dinners is an example of diversification.

SWOT ANALYSIS:

A major strategic planning technique that is widely used in hospitality

& tourism industry is SWOT analysis: an analysis of strength, weaknesses,

opportunities & threats. A SWOT analysis is used to access the company’s

internal & external strengths & weaknesses, to seek out opportunities and to be aware of threats. A SWOT analysis is conducted in comparison with a

company’s main competitors. This makes it easier to see the competitor’s

SWOT. It also makes company easier to plan a successful strategy. Each

operator can decide what the key points are for inclusion in the SWOT

analysis.

ENVIORNMENTAL SCANNING & FORECASTING:

Environmental scanning is the process of screening large amounts of

information to anticipate and interpret changes in environment.

Environmental scanning creates the basis of forecast. Forecasting is the

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prediction of future outcomes. Information gained through scanning is used

to form scenarios. These, in turn, establish premises for forecasts, which are

predictions of future outcomes. The two main types of outcomes that

managers seek to forecast are future ventures and technology breakthroughs.

However, any component in the organization’s general or specific

environment may receive further attention.

An analysis of relevant environment results in the identification of

threats & opportunities. Environment of the company is the pattern of all

external influences that affects its life and development. There are four main

factors which can be considered:

1. POLITIACAL & LEGAL FACTORS:

Stability of the government and its political philosophy.

Taxation & industrial licensing laws.

Monetary & fiscal policies.

Reconstructions on capital movement, state trading etc.

2. ECONOMIC FACTORS:

Level of economic development and distribution of personal income.

Trend in prices, exchange rates, balance of payments etc.

Supply of labour, raw material, capital etc.

3. COMPETITIVE FACTORS:

Identification of principal competitors.

Anti monopoly laws & rules of competition.

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Protection of patents, trade marks, brand names & other industrial

property rights.

4. SOCIAL & CULTURAL FACTORS: Literacy level of population.

Religious & social characteristics.

Extent & rate of urbanisation.

Rate of social change.

2. OPERATIONAL PLANNING:

Operational planning involves deciding specifically how the resources

of the organisation will be used to help the organisation achieve its strategic

goals. Operational plans are generally created for periods of up to one year

and dovetail with strategic plan. If the organisation has prepared a ten year

strategic plan which envisages a profit rate of 25% on capital employed in

the tenth year, it is also necessary to prepare more detailed tactical plan for

the next year, with target of say 10% profit on the capital employed.

Operational plan provide managers with a step-by-step approach to

accomplish goals or objectives. The overall purpose of planning is to havethe entire organization moving harmoniously towards the goal. There are

seven steps involved in operational planning are as follows:

1. Setting objectives.

2. Analyzing & evaluating the environment.

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3. Determining alternatives.

4. Evaluating alternatives.

5. Selecting the best solutions.

6. Implementing the Plans.

7. Controlling & evaluating results.

OPERATIONAL GOAL SETTING:

Goal setting is the process of determining outcomes for each area and

associates. Once the vision & mission have been determined, organizations

set goals in order to meet the mission. The goals are set for each of key

operating areas. No one can work effectively without specific goals and

monthly evaluation reports to gauge whether the effort is moving toward

goal accomplishment or not.

OPERATIONAL OBJECTIVES:

Objectives state how the goals will be met. Some years ago this leads

to MANAGEMENT BY OBJECTIVES (MBO), a managerial process that

determines the goals of the then plans the objectives, that is, the how- tos of

reaching the goals. MBO works because associates have been involved with

the goal and objective setting and are likely to be motivated to see them

successfully achieved. MBO goals need to be specific and measurable,

challenging but attainable just as any other goals. The main purpose of MBO

program is to integrate the goals of the organization and the goals of the

associates so that they are in focus. In some organizations MBO was

suppress by TOTAL QUALITY MANAGEMENT (TQM).

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Total Quality Management (TQM) involves not only planning but

also touches on the other functions of management. The idea of improving

efficiency & increasing productivity while placing a larger emphasis on

quality has caught on fast.

SINGLE USE PLANS:

PROGRAMMES, PROJECT MANAGEMENT & BUDGETS:

Programmes are precise plans or definite steps in proper sequence

which need to be taken to discharge a given task. Programmes are drawn in

conformity with the objectives and are made up of policies, procedures,

budgets etc. The essential ingredients of every programme are time phasing

& budgeting. This means that specific dates should be laid down for the

completion of each successive stage of a programme. Often single step in

programme is set up as a project.

Project management is the task completing the project on time &

within the budget. Hospitality companies increasingly using project

management because the approach well fits with the need for flexibility and

rapid response to perceived market opportunities.

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Budget is a plan allocating money to specific activities. Budgets are

very useful for an enterprise. Being expressed in numerical terms, they

facilitate comparison of actual results with planned ones and thus, serve a

control device & yardstick for measuring performance. Budgets are

important because they are applicable to a variety of applications and they

can be used all over the world in any country. Budgets are planning

techniques that force managers to be fiscally responsible.

STANDING PLANS:

POLICIES, PROCEDURES & RULES:

Policies, Procedures & Rules are examples of standing plans. A policy

is a general guideline in decision making. Policies provide the framework

within which decisions must be made by the management in different

spheres. It should be noted that both policies & objectives guide thinking

and action, but with difference. Objectives are end points are planning while

policies channelise decisions to these ends.

Policies are carried out by means of more detailed guidelines called

“PROCEDURES”. Procedure provides a detailed set of instructions for performing a sequence of actions involved in doing a certain piece of work. .

Procedures indicate a standard way of performing a task. They results in

work simplification & elimination of unnecessary steps & overlapping. They

facilitate executive control over performance. They enables employees to

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improve their efficiency by providing them with knowledge about the entire

range of work.

Rules are detailed and recorded instructions that a specific action must

or must not be performed in a given situation. The rules are made to ensure

that job is done in same manner every time, bringing uniformity in efforts &

results. They make sure that a job is done in same manner every time,

bringing uniformity in efforts & results.

STEPS IN PLANNING:

1. ESTABLISHING VARIFIABLE GOALS :

The first step in planning is to determine the enterprise objectives.

These are most often set by upper level or top manger, usually after anumber of possible objectives have been carefully considered. There are

many types of goals & the types of goal depend upon many factors.

2. ESTABLISHING PLANNING PREMISES:

The second step in planning is to establish planning premises i.e.

certain assumptions about the future on the basis of which the plan will beultimately formulated. Planning premises are vital to success of planning as

they supply pertinent facts & information relating to future.

3. DECIDING THE PLANNIG PEROD:

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The third step in planning is to decide the period of the plan.

Businesses vary considerably in their planning periods. In some instances

plans are made for a year only while in others they span decades. In each

case, however, there is always some logic in selecting a particular time range

for planning.

4. FINDING ALTERNATIVE COURSE OF ACTION:

The forth step in planning is to search for and examine alternative

course of action. There is seldom a plan for which reasonable alternatives do

not exist, & quite often an alternative that is not obvious proves to be best.

5. EVALUATING AND SELECTING COURSE OF ACTION:

Having sought alternative courses, the fifth step is to evaluate them in

the light of premises & goals and to select the best courses of action. This is

done with the help of quantitative techniques and operations research.

6. DEVELOPING DERIATIVE PALNS:

This involves middle level & lower level managers. They must draw

up the appropriate plans, programmes and budgets for their sub units. These

are described as derivative plans.

7. MEASURING AND CONTROLLING PROGRESS:

Obviously, it is foolish to let a plan its course without monitoring its

progress. Hence the process of controlling is a critical part of any plan.

Managers need to check the progress of their plans so that they can take

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whether remedial action to make the plan work or change the original plan if

it is unrealistic.

LIMITATIONS OF PLANNING:

1. Planning is an expensive and time consuming process. It involves

significant amounts of money, energy and also risk, without any assurance

of the fulfillment of the organisation’s objectives.

2. Planning sometimes restricts the organisation to the most rational and

risk free opportunities. Sometimes planning may cause delay in decision

making.

3. The scope of planning is said to be limited in case of organisations

with rapidly changing market situations.

4. Establishment of advance plans tends to make administration flexible.

When unforeseen changes in the environment, such as a business recession,

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change in government policy etc. take place, the original plan loses its value

& there is need to draw up a fresh plan.

5. Another limiting factor in planning is the difficulty of formulating

accurate premises. Since the future cannot be known with accuracy,

premising must be subject to a margin of error.

6. Planning may sometimes face people’s resistance too. In old,

established organisations, managers are often frusteted in instituting a new

plan simply by unwillingness or inability of people to accept it.

CASE STUDY

McDonald's was started as a drive-in restaurant by two brothers, Richard

and Maurice McDonald in California, US in the year 1937. The business,

which was generating $200,000 per annum in the 1940s, got a further boost

with the emergence of a revolutionary concept called ‘self-service.' The

brothers used assembly line procedures in their kitchen for mass production.

Prices were kept low. Speed, service and cleanliness became the critical

success factors of the business. By mid-1950s, the restaurant's revenues had

reached $350,000. As word of their success spread, franchisees started

showing interest.

However, the franchising system failed because the McDonald brothers

observed very transparent business practices. As a consequence, imitators

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copied their business practices and emerged as competitors. The franchisees

also did not maintain the same standards of cleanliness, customer service

and product uniformity.

At this point, Ray Kroc (Kroc), distributor for milkshake machines

expressed interest in the business, and he finalized a deal with the McDonald

brothers in 1954. He established a franchising company, the McDonald

System Inc. and appointed franchisees. In 1961, he bought out the

McDonald brothers' share for $2.7 million and changed the name of the

company to McDonald's Corporation. In 1965, McDonald's went public.

By the end of the 1960s, Kroc had established over 400 franchising

outlets. McDonald's began leasing/buying potential store sites and then

subleased them to franchisees initially at a 20% markup and later at a 40%

markup. Kroc set up the Franchise Realty Corporation for this. The real

estate operations improved McDonald's profitability. By the end of the

1970s, McDonald's had over 5000 restaurants with sales exceeding $3

billion.

However, in the early 1990s, McDonald's was in trouble due to

changing customer preferences and increasing competition. Customers were

becoming increasingly health-conscious and wanted to avoid red meat and

fried food. They also preferred to eat at other fast food joints that offered

discounts. There was also intense competition from supermarkets,

convenience stores, mom and dad delicacies, gas stations and other outlets

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selling reheat able packaged food. In 1993, McDonald's finalized an

arrangement for setting up restaurants inside Wal-Mart retail stores.

The company also opened restaurants in gas stations owned by

Amoco and Chevron. In 1996, McDonald's entered into a $1 billion 10-year

agreement with Disney. McDonald's agreed to promote Disney through its

restaurants and opened restaurants in Disney's theme parks. In 1998,

McDonald's took a minority stake in Chipotle Mexican Grill – an 18-

restaurant chain in the US.

In October 1996, McDonald's opened its first restaurant in India. By1998, McDonald's had 25,000 restaurants in 116 countries, serving more

than 15 billion customers annually. During the same year, the company

recorded sales of $36 billion, and net income of $1.5 billion. McDonald's

overseas restaurants accounted for nearly 60% of its total sales. Franchisees

owned and operated 85% of McDonald's restaurants across the globe.

However, much to the company's chagrin, in 1998, a survey in the US

revealed that customers rated McDonald's menu as one of the worst-tasting

ever. Undeterred by this the company continued with its expansion plans and

by 2001, it had 30,093 restaurants all over the world with sales of $ 24

billion (Refer Exhibit I for key statistics of McDonald's). By mid 2001, the

company had 28 outlets in India.

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Introduction & Meaning: