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this is about the different theories related to planning in management practices. useful for freshers to mgmt. studies and also may be for Entrepreneur
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What Is Planning?Planning
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 workTypes of planning
Informal: not written down, short-term focus; specific to an organizational unit
Formal: written, specific, and long-term focus, involves shared goals for the organization
Purposes of Planning
Provides directionReduces uncertaintyMinimizes waste Sets the standards for controlling
Planning and PerformanceThe Relationship Between Planning and
PerformanceFormal planning is associated with:
Higher profits and returns on assets Other positive financial results
The quality of planning and implementation affects performance more than the extent of planning
The external environment can reduce the impact of planning on performance
How Do Managers Plan?Elements of Planning
Goals (also objectives) Desired outcomes for individuals, groups, or entire
organizations Provide direction and performance evaluation criteria
Plans Documents that outline how goals are to be
accomplished Describe how resources are to be allocated
Steps in Planning 1. Being Aware of Opportunities 2. Establishing Objectives or Goals3. Developing Premises 4: Determining Alternative Courses 5. Evaluating Alternative Courses 6. Selecting a Course 7. Formulating Derivative Plans8. Quantifying Plans by Budgeting
Types of Plans
Types of PlansBREADTH
Strategic PlansApply to the entire organizationEstablish the organization’s overall goalsSeek to position the organization in terms of its
environmentCover extended periods of time
Operational PlansSpecify the details of how the overall goals are to
be achievedCover short time period
Types of Plans (cont’d) TIME FRAME
Long-Term PlansTime frames extending beyond three years
Short-Term PlansTime frames of one year or less
SPECIFICITYSpecific Plans
Clearly defined and leave no room for interpretationDirectional Plans
Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation
Exhibit 3.4 Specific Vs. Directional Plans
Types of Plans (cont’d)FREQUENCY OF USE
Single-use PlanA one-time plan specifically designed to meet
the needs of a unique situationStanding Plans
Ongoing plans that provide guidance for activities performed repeatedly
Types of PlansPlans can be classified as (1) mission or purposes, (2) objectives or goals, (3) strategies, (4) policies, (5) procedures, (6) rules, (7) programs, and (8) budgets
Types of PlansThe mission, or purpose, identifies the basic
purpose or function or tasks of an enterprise or agency or any part of it
Objectives, or goals, are the ends toward which activity is aimed
Strategy is the determination of the basic long‑term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals
Policies are general statements or understandings that guide or channel thinking in decision making
Procedures are plans that establish a required method of handling future activities
Types of Plans – cont. Rules spell out specific required actions or
nonactions, allowing no discretionPrograms are a complex of goals, policies,
procedures, rules, task assignments, steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action
A budget is a statement of expected results expressed in numerical terms
Developing Plans
Contingency Factors in PlanningDegree of environmental uncertainty
Stable environment: specific plans Dynamic environment: specific but flexible
plansLength of future commitments
Current plans affecting future commitments must be sufficiently long-term to meet the commitments
Approaches to Establishing Goals
Traditional Goal SettingBroad goals are set at the top of the
organizationGoals are then broken into subgoals
for each organizational levelGoals are intended to direct, guide,
and constrain from above
Approaches to Establishing Goals (cont’d)
Management By Objectives (MBO)Specific performance goals are jointly
determined by employees and managersProgress toward accomplishing goals is
periodically reviewedRewards are allocated on the basis of
progress toward the goalsKey elements of MBO:
Goal specificity, participative decision making, an explicit performance/evaluation period, feedback
Steps in a Typical MBO Program
Specific objectivescollaboratively set
with employees
Objectives allocated todivisional and
departmental units
Action plansimplemented
Give Rewards forAchieved Objectives
Jointly Set Objectives
Overall objectivesand strategies of
organization
Develop Action Plansto Achieve Objectives
Managers andemployees work on
action plans together
Review Objectives andProvide Feedback
Does MBO Work?Reason for MBO Success
Top management commitment and involvement
Potential Problems with MBO ProgramsNot as effective in dynamic environments
that require constant resetting of goalsOveremphasis on individual
accomplishment may create problems with teamwork
Benefits of Management by Objectives
Clear goals: Motivate Improve managing through results-
oriented planning Clarify organizational roles, structures
and the delegation of authority Encourage personal commitment to
their own and organizational goals. Facilitate effective controlling,
measuring results, and leading to corrective actions
Failures of Management by ObjectivesList some failures and limitations of MBOWhat would you do to overcome the failures?
Criticisms of PlanningPlanning may create rigidityPlans cannot be developed for dynamic
environmentsFormal plans cannot replace intuition and
creativityPlanning focuses managers’ attention on
today’s competition, not tomorrow’s survivalFormal planning reinforces today’s success,
which may lead to tomorrow’s failure
Organizational StrategyStrategic Management
The set of managerial decisions and actions that determines the long-run performance of an organization
The Strategic Management Process
SWOT Analysis
Identify the
organization's
current mission, goals,
and strategies
Internal Analysis
• strengths
• weaknesses
External Analysis
• opportunities
• threats
Formulate
Strategies
Implement
Strategies
Evaluate
Results
Strategic Management ProcessStep 1: Identify the Organization’s Current
Mission, Objectives, and Strategies Mission: the firm’s reason for being
The scope of its products and services Goals: the foundation for further planning
Measurable performance targetsStep 2: Conduct an Internal Analysis
Assessing organizational resources, capabilities, activities, and culture: Strengths (core competencies) create value for the
customer and strengthen the competitive position of the firm
Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage
Strategic Management Process (cont’d)
Step 3: Conduct an External AnalysisThe environmental scanning of specific and
general environments Focuses on identifying opportunities and threats
Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)
Strategic Management Process (cont’d)
Step 4: Formulate StrategiesDevelop and evaluate strategic alternativesSelect appropriate strategies for all levels in
the organization that provide relative advantage over competitors
Match organizational strengths to environmental opportunities
Correct weaknesses and guard against threats
Strategic Management Process (cont’d)
Step 5: Implement StrategiesImplementation: effectively fitting organizational
structure and activities to the environmentThe environment dictates the chosen strategy;
effective strategy implementation requires an organizational structure matched to its requirements
Step 6: Evaluate ResultsHow effective have strategies been?What adjustments, if any, are necessary?
Levels of Organizational Strategy
Research andDevelopment
Manufacturing Marketing HumanResources
Finance
StrategicBusiness Unit 1
StrategicBusiness Unit 2
StrategicBusiness Unit 3
MultibusinessCorporation
FunctionalLevel
BusinessLevel
CorporateLevel
Types of Organizational StrategiesCorporate-level Strategy
The company’s grand strategy for the entire organization and its strategic business units
Types of Grand StrategiesGrowth: expansion into new products and
marketsStability: maintenance of the status quoRetrenchment: addresses organizational
weaknesses that are leading to performance declines
Combination: simultaneous pursuit of two or more of the strategies above
Corporate-Level StrategiesGrowth Strategy
Seeking to increase the organization’s business by expansion into new products and markets
Stability StrategyA strategy that seeks to maintain the status
quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons
Corporate-Level Strategies (cont’d)
Retrenchment StrategyReduces the company’s activities or
operationsRetrenchment strategies include:
Cost reductions Closing underperforming units Closing entire product lines or services
Corporate-Level Strategies (cont’d)
Combination StrategySimultaneous pursuit by the
organization of two or more of growth, stability, and retrenchment strategies
Business-Level StrategyBusiness-Level Strategy
A strategy that seeks to determine how an organization should compete in each unit within the organization to create a competitive advantage
Competitive advantage An organization’s distinctive competitive edge that is
sourced and sustained in its core competencies
Functional-Level StrategyFunctional-level strategies support the
business-level strategyi.e., Marketing, human resources,
research and development, and finance all support the business-level strategy
Problems occur when employees or customers don’t understand a company’s strategy
Forces in an Industry Analysis(Five Forces Model Given by: Porter
Substitutes
Buyers
BargainingPower ofBuyers
Threat ofSubstitutes
Suppliers
BargainingPower ofSuppliers
NewEntrants
Threat ofNew Entrants
Intensity ofRivalry Among
CurrentCompetitors
Five Competitive ForcesThreat of New Entrants
The ease or difficulty with which new competitors can enter an industry
Threat of SubstitutesThe extent to which switching costs and
brand loyalty affect the likelihood of customers adopting substitute products and services
Bargaining Power of BuyersThe degree to which buyers have the
market strength to hold away over and influence competitors in an industry
Five Competitive Forces (cont’d)Bargaining Power of Suppliers
The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship
Current RivalryIntensity among rivals increases when
industry growth rates slow, demand falls, and product prices descend
BenchmarkingThe search for the best practices among
competitors and noncompetitors that lead to their superior performance
By analyzing and copying these practices, firms can improve their performance
Decision MakingDecision making is defined as the selection
of a course of action from among alternatives
Decision Making Process1. Identification of problem2. Identification of decision Criteria3. Allocation of weights to criteria 4. Development of alternatives5. Analysis of alternatives 6. Selection of an alternative 7. Implementation of the Alternative8. Evaluation of decision effectiveness
Eg:Purchase of raw materialQuantity, Quality, Time of delivery & mode of
deliveryAllocate the weightsSearch for various suppliersAnalyze allSelect one supplierPlace a order
Rationality
Limited, or "Bounded," Rationality Limitations of information, time, and
certainty limit rationality, even though a manager tries earnestly to be completely rational
Satisficing is picking a course of action that is satisfactory or good enough under the circumstances
Programmed And Nonprogrammed Decisions
Structured problems &Programmed decisions:Programmed decisions are used for
structured or routine work Unstructured Problems &
Nonprogrammed decisions: Nonprogrammed decisions are used for
unstructured, novel, and ill-defined situations of a nonrecurring nature
Types of decisions at various levels in the organization
Non Programmed Decisions
Programmed Decisions
Unstructured
Structured
Top level
Lower Level
Simon’s model of decision making Contribution of Herbert Simon The decision making process can be broken
into series of three sequential steps:1. Intelligent activity2. Design activity3. Choice activity
Intelligent activity refers to the initial phase of searching the environment for conditions calling for decisions.
Design activity refers to the phase of inventing, developing, and analyzing possible course of action to take place.
Choice activity refers to the final phase of actual choice selecting a particular course of action from those available.
Creativity and Innovation Creativity refers to the ability and power to
develop new ideasConditions necessary for Creativity: Expertise, Creative thinking skills, Internal
Motivation, Environmental need, Tension & Encouragement from others
Innovation means the use of new ideas
ForecastingIt is the process of estimating the relevant
events of future, based on the analysis of their past and present behaviour
Acc to Neter & Wasserman: Business forecasting refers to the statistical analysis of the past & current movement in the given time series so as to obtain clues about the future pattern of those movements
Features of forecastingIt relates to future eventsDefines the probability of happening of future
eventsAnalysing the past & present relevant eventsUse of some statistical tools & techniques
Planning & ForecastingPlanning is more comprehensive and
forecasting involves the estimation of future events & provides parameters to planning
Importance of ForecastingPromotion of organisationKey to planningCoordination & controlSuccess in organisation
PremisingPremises are the assumptions on which plans
are formulatedA major source of premising is forecasting