PLANNINGPLANNING

Prof. Preeti BhaskarProf. Preeti BhaskarSymbiosis Centre for Management studiesSymbiosis Centre for Management studies

CHAPTER OUTLINECHAPTER OUTLINE Meaning, features and importanceMeaning, features and importance

Planning processPlanning process

Limitations of planningLimitations of planning

Types of planningTypes of planning

Strategy-Corporate level, Business level, Functional levelStrategy-Corporate level, Business level, Functional level

Strategic planning processStrategic planning process

PlanningPlanning

? 12 miles

?? 15 miles

? 7 miles

(Current status) (Current status) where we are ?where we are ?

(future image) (future image) where we want to where we want to go ?go ?

How to bridge the gap ?

Objective

Procedure

Time duration

Employee

MEANINGMEANINGPlanning is deciding in advance what to do and how to Planning is deciding in advance what to do and how to do. It is one of the basic managerial functions. do. It is one of the basic managerial functions.

Before doing something, the manager must formulate Before doing something, the manager must formulate an idea of how to work on a particular task. an idea of how to work on a particular task.

Thus, planning is closely connected with creativity and Thus, planning is closely connected with creativity and innovation. innovation.

It involves setting objectives and developing It involves setting objectives and developing appropriate courses of action to achieve these appropriate courses of action to achieve these objectives.objectives.

DEFINITIONDEFINITION According to Koontz & O’Donell ,According to Koontz & O’Donell ,

“ “Planning is deciding in advance what to do, Planning is deciding in advance what to do, how to do and who is to do it. Planning bridges how to do and who is to do it. Planning bridges the gap between where we are to, where we the gap between where we are to, where we want to go. It makes possible things to occur want to go. It makes possible things to occur which would not otherwise occur”.which would not otherwise occur”.

Characteristics of Planning Planning is goal-oriented. Planning is goal-oriented. Planning is looking ahead. Planning is looking ahead. Planning is an intellectual process. Planning is an intellectual process. Planning involves choice & decision making. Planning involves choice & decision making. Planning is the primary function of management / Planning is the primary function of management / Planning is a Continuous Process.Planning is a Continuous Process. Planning is all Pervasive. Planning is all Pervasive. Planning is designed for efficiency. Planning is designed for efficiency. Planning is Flexible.Planning is Flexible.

Advantages of Planning

External Limitations

Internal Limitations

LIMITATION OF PLANNING

Making Planning EffectiveMaking Planning Effective Linked to Long term objectivesLinked to Long term objectives

Consistency Consistency

Everyone participates Everyone participates

Feasible Feasible

Flexible Flexible

Top Management SupportTop Management Support

Successful Planning Process

Everyone participatesEveryone participates

Board and staff educated about planningBoard and staff educated about planning

Board and staff explore new ideas Board and staff explore new ideas

Board takes advantages of opportunities Board takes advantages of opportunities

Necessary resources available Necessary resources available

PLANNING PROCESSPLANNING PROCESS

Step -1 Step -1 Identifying opportunitiesIdentifying opportunities In light of :In light of : The marketThe marketCompetition Competition Customer needs wants & demandCustomer needs wants & demandCompany strength and weaknessCompany strength and weakness

Step -2 Step -2 Establishment of Establishment of objectivesobjectives Where we want to be ?Where we want to be ?

What we want to accomplish ?What we want to accomplish ?

When we want to accomplish ?When we want to accomplish ?

Step -3 Step -3 Determining limitation or Determining limitation or PremisesPremises

Planning premises are assumption Planning premises are assumption relating to the future condition and relating to the future condition and events which are likely to have an events which are likely to have an effect on the achieving of goals.effect on the achieving of goals.

In what environment (internal or In what environment (internal or external ) will our plan operate ?external ) will our plan operate ?

Step -4Step -4Identifying alternative Identifying alternative course of actioncourse of action

What are the most promising What are the most promising alternatives to accomplish our alternatives to accomplish our objectives ?objectives ?

Such as : Such as : • By expanding the existing capacityBy expanding the existing capacity• By taking over some other By taking over some other

enterpriseenterprise• By producing new productsBy producing new products

Step -5Step -5Evaluating alternative Evaluating alternative coursescourses

Identifying the positive and Identifying the positive and negative aspects of each negative aspects of each alternative or proposal are alternative or proposal are evaluated evaluated

Which alternative will give us the Which alternative will give us the best chance of meeting our goals best chance of meeting our goals at the lowest cost and highest at the lowest cost and highest profit?profit?

Step -6Step -6choosing alternative choosing alternative course of actioncourse of action

The various alternatives identified are The various alternatives identified are evaluated and compared in terms of evaluated and compared in terms of their expected costs and benefits. their expected costs and benefits.

quantitative and qualitative techniques quantitative and qualitative techniques are available to evaluate alternatives.are available to evaluate alternatives.

Step -7Step -7Formulating supporting Formulating supporting plansplans Selecting an alternative course of Selecting an alternative course of

action in case of failure in the main action in case of failure in the main plan?plan?

Step -8 Implementing Step -8 Implementing plansplans Plan is put into action.Plan is put into action.

Plan is communicated by Plan is communicated by managers to all the employees managers to all the employees very clearly to motivate them.very clearly to motivate them.

Step -9 Step -9 Follow up and actionFollow up and actionTo ensure the plans are proceeding To ensure the plans are proceeding along the right lines, the actual along the right lines, the actual performance is compared with the performance is compared with the planned performance. planned performance.

In this way, any short coming can be In this way, any short coming can be noted and suitable remedial action noted and suitable remedial action can be taken. can be taken.

Proper planning accomplishes the following :  UncertaintyUncertainty

Better Focus Better Focus

Improves Coordination Improves Coordination

Basis for Control Basis for Control

Improves EffectivenessImproves Effectiveness

Plan your Plan your work.work.

Work your Work your plan.plan.

STRATEGY

What’s Strategy?• Strategy is management’s overall plan and

actions for deploying resources and skills taking into consideration opportunities and threats in the environment– to achieve it’s mission, vision and objectives– to establish a favorable competitive position.

• Strategy involves:– An organization’s goals– A series of related decisions & actions– Takes into account key internal strengths &

weaknesses and external opportunities threats– Analysis, communication, coordination, & action

Importance of Strategy• Provides systematic approach to

uncertainties that organizations face

– Competitive & global environment are dynamic

– Change, whether significant of minor, must be recognized and analyzed, & dealt with

– Strategic management allows for the analysis of the situation (identifying the sources of change in environment)

Strategic planning

• Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy

• Used by community groups, government departments, organizations and businesses to develop blueprint for action and change

Strategic planning deals three key questions:

•"What do we do?“

•"For whom do we do it?“

•"How do we excel?"

Benefits of Strategic Planning• Defines mission, vision & values• Establishes realistic goals, objectives

& strategies• Ensures effective use of resources• Provides base to measure progress• Develops consensus on future

direction• Builds strong teams• Solves major problems

Three Levels of Strategy in Organizations

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Corporate-Level Strategy: What business are we in?

Corporation

Business-Level Strategy: How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy: How do we support the business-level strategy?

Finance R&D Manufacturing Marketing

Level of Strategy Definition Example

Corporate strategy Market definitionDiversification into new product or geographic markets

Business strategy Market navigation

Attempts to secure competitive advantage in existing product or geographic markets

Functional strategySupport of corporate strategy and business strategy

Information systems, human resource practices, and production processes that facilitate achievement of corporate and business strategy

Corporate-Level Strategy• Corporate level strategy fundamentally is concerned

with selection of businesses in which your company should compete and with development and coordination of that portfolio of businesses.

• Corporate level strategy occupies the highest level of strategic decision-making and covers actions dealing with the objective of the firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance.

Corporate-Level Strategy• What should be the scope of operations; i.e.;

what businesses should the firm be in?

• How should the firm allocate its resources among existing businesses?

• What level of diversification should the firm pursue; i.e., which businesses represent the company's future?

Business-Level Strategy: • Business-level strategy is – applicable in those

organizations, which have different businesses-and each business is treated as strategic business unit (SBU).

• The fundamental concept in SBU is to identify the discrete independent product/market segments served by an organization.

• Since each product/market segment has a distinct environment, a SBU is created for each such segment

Business-Level Strategy:

• For example,

• Reliance Industries Limited operates in textile fabrics, yarns, fibers, and a variety of petrochemical products. For each product group, the nature of market in terms of customers, competition, and marketing channel differs.

Functional-Level Strategy• Concerned with coordinating the functional areas of

the organization (marketing, finance, human resources, production, research and development, etc.) so that each functional area upholds and contributes to individual business-level strategies and the overall corporate-level strategy.

• This involves coordinating the various functions and operations needed to design, manufacturer, deliver, and support the product or service of each business within the corporate portfolio.

Functional-Level Strategy are primarily concerned with:

• Efficiently utilizing specialists within the functional area.

• Integrating activities within the functional area (e.g., coordinating advertising, promotion, and marketing research in marketing; or purchasing, inventory control, and shipping in production/operations).

• Assuring that functional strategies mesh with business-level strategies and the overall corporate-level strategy.

Strategic Planning Process

Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems

SWOTFormulate Strategy – Corporate, Business, Functional

Define new Mission Goals, Grand Strategy

Identify Strategic Factors – Strengths, Weaknesses

Identify Strategic Factors – Opportunities, Threats

Scan Internal Environment – Core Competence, Synergy, Value Creation

Evaluate Current Mission, Goals, Strategies

Scan External Environment – National, Global

Mission, Vision & Objectives• A company’s mission is a statement of

– the basic purpose or reason for its existence

• The vision goes beyond the mission statement– clarifies the long-term direction of the

company (where the company is going)

– reflects management’s aspirations for the company

Mission, Vision & Objectives

• Objectives are yardsticks for tracking a company’s performance or end result.

– Financial performance objectives (e.g., ROA, ROI, ROE, Dividend growth, Stock price, etc.).

– Strategic performance objectives (e.g., market share, growth, innovation leader, customer service, community & environmental responsibility, etc.)

Examples of Mission & Vision• Southwest Airlines:

– Mission: To provide high quality service at a lower price in the airline industry.

– Vision: Opening air travel to a wider group of leisure travelers while infusing the organization with a sense of fun.

• Apple Computer:

– Mission: To bring the best personal computing products and support to consumers around the world.

– Vision: One person, one computer.

Environmental Analysis• Involves the evaluation of the business

environment of the organization.

– All external influences that impact a company’s decision and performance.

• Environment of firm classified by proximity into(1) Macro-environment; and (2) Micro-environment or task environment.

Cont.…..• The macro-environment consists of

– The international/national economy; changes in demographic structures; social and political trends; technology; and the natural environment.

• The micro-environment consists of

– The industry environment such as competitors, suppliers, customers; unions and employees; owners and shareholders, etc.

Internal Analysis• Involves the evaluation of the inventory of

the firm’s resources and capabilities.

• Resources/Capabilities can be classified as:– Tangible resources: Financial or physical

assets– Intangible resources: brand name, reputation

(product & firm), organizational culture, etc.– Capabilities or competencies: managerial

ability, specialized skill & knowledge base of employees, etc.

Checklist for AnalyzingOrganizational Strengths and Weaknesses

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Management and Organization

Management qualityStaff qualityDegree of centralizationOrganization chartsPlanning, information, control systems

FinanceProfit marginDebt-equity ratioInventory ratioReturn on investmentCredit rating

Marketing Distribution channelsMarket shareAdvertising efficiencyCustomer satisfactionProduct quality Service reputation Sales force turnover ProductionPlant location Machinery obsolescencePurchasing systemQuality controlProductivity/efficiency

Human ResourcesEmployee experience, education

Union status

Turnover, absenteeism

Work satisfaction Grievances

Research and DevelopmentBasic applied researchLaboratory capabilitiesResearch programsNew-product innovationsTechnology innovations

Strategy Formulation• The strategy formulation process

– involves designing a course of action for addressing strategic issues facing the firm after going through the external and internal evaluation processes.

• Actual strategy of a company involves:– Planned or Intended Actions (Deliberate &

purposeful actions).– Reactive or Emergent Actions (As-need

reactions to unanticipated events in firm’s micro and macro environments).

Strategy Formulation• Strategy formulation is concerned with the

following parts of a company:– Corporate (whole company) -- Corporate strategies:

Deals with businesses company wants to be in & how to manage those businesses

– Businesses -- Competitive strategies: How to compete in specific business or industry

– Functional areas -- Functional strategies: short goal-directed decisions & actions of an organization’s various functional departments.

Strategy Implementation

• Strategy implementation is the process of putting a company’s various strategies into action– development of programs, policies, budgets

& procedures.

• It can take several months to years to complete.

Strategic Control & Evaluation

• Process by which desired outcomes (mission, vision, & objectives) are compared with realized outcomes to determine if there are gaps.

• Initiate corrective actions by monitoring changes in environment - competitor actions, new market opportunities, customer needs & expectations.