Chapter 5

Principles of Planning

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Chapter 5 Planning
5.1. General Characteristics of Planning
5.1.1. Defining Planning
5.1.2. Purposes of Planning
5.1.3. Planning: Advantages and Potential Disadvantages
5.1.4. Primacy of Planning
5.2. Steps in the Planning Process
5.3. The Planning Subsystem
5.4. Organizational Objectives: Planning’s Foundation
5.4.1. Definition of Organizational Objectives
5.4.2. Areas for Organizational Objectives
5.4.3. Working with Organizational Objectives
5.4.4. Guidelines for Establishing Quality Objectives
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Chapter 5 Planning
5.5. Management by Objectives (MBO)
5.5.1. Factors Necessary for a Successful MBO Program
5.5.2. MBO Programs: Advantages and Disadvantages
5.6. Planning and the Chief Executive
5.6.1. Final Responsibility
5.6.2. Planning Assistance
5.7. The Planner
5.7.1. Qualifications of Planners
5.7.2. Evaluation of Planners
5.8. Strategic Planning
5.8.1. Fundamentals of Strategic Planning
5.8.2. Strategic Management
3
Target Skill
Planning skill: the ability to take action to
determine the objectives of the organization
as well as what is necessary to accomplish
these objectives.

4
Defining Planning

Planning is the process of determining how the

organization can get where it wants to go, and what it
will do to accomplish its objectives

Planning is “the systematic development of action

programs aimed at reaching agreed-upon business
objectives by the process of analyzing, evaluating, and
selecting among the opportunities which are foreseen”
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Purposes of Planning

 The fundamental purpose of planning is to help

the organization reach its objectives.

 All other purposes of planning are spin-offs of

this fundamental purpose.

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 Advantages and Potential Disadvantages
Advantages:
 It helps managers be future-oriented.
 A sound planning program enhances decision coordination.
 Planning emphasizes organizational objectives
Disadvantages:
 If the planning function is not well executed, planning can have
several disadvantages for the organization.
 An overemphasized planning program can take up too much
managerial time.

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Primacy of Planning

 Planning is the primary management function, and is

the basis for the organizing, influencing, and
controlling functions of managers.

 Planning is the foundation function and the first one to

be performed. Organizing, influencing, and controlling
are all based on the results of planning. Figure7.1
shows this interrelationship.

8
Figure 7.1
Planning as the
foundation for
organizing,
influencing, and
controlling

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5.2. Steps in the Planning Process

Figure 7.4
Elements of
the planning
process

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5.3. The Planning Subsystem

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The Planning Subsystem

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5.4. Organizational Objectives: Planning’s
Foundation

5.4.1. Definition of Organizational Objectives

5.4.2. Areas for Organizational Objectives
5.4.3. Working with Organizational Objectives
5.4.4. Guidelines for Establishing Quality Objectives

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An organizational objective is a target
toward which the open management
system is directed

14
 Organizational Objectives: Planning’s Foundation

Figure 7.5
How an open
managementsystem
operates to reach
organizational
objectives

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Organizational Objectives: Planning’s
Foundation

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5.4.2. Areas for Organizational Objectives
Areas in which Peter Drucker advised managers to set
management system objectives:

1. Market Standing
2. Innovation
3. Productivity
4. Physical and Financial Resources
5. Profitability
6. Managerial Performance and Development
7. Worker Performance and Attitude
8. Public Responsibility

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5.4.3. Working with Organizational Objectives

An organization should set three types of objectives:

1. Short-term objectives—targets to be achieved in one year or less

2. Intermediate-term objectives—targets to be achieved in one to
five years
3. Long-term objectives—targets to be achieved in five to seven
years

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Developing a Hierarchy of Objectives
5.4.4. Guidelines for Establishing Quality Objectives
1. Let the people responsible for attaining the objectives have a voice in
setting them

2. State objectives as specifically as possible

3. Relate objectives to specific actions whenever necessary

4. Pinpoint expected results

5. Set goals high enough that employees will have to strive to meet them
but not so high that employees give up trying to meet them.

6. Specify when goals are expected to be achieved

7. Set objectives only in relation to other organizational objectives

8. State objectives clearly and simply

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 5.5. Management by Objectives (MBO)
The MBO strategy has three basic parts:
1. All individuals are assigned a specialized set of objectives
2. Performance reviews are conducted periodically
3. Rewards are given to individuals

The MBO process consists of five steps (Figure 7.6):

1. Review organizational objectives
2. Set worker objectives
3. Monitor progress
4. Evaluate performance
5. Give rewards

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 Management by Objective (MBO)

Figure 7.6
The MBO process

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5.1. Factors Necessary for a Successful MBO Program

1. Top management must be committed to the MBO process and

set appropriate objectives for the organization.
2. Managers and subordinates together must develop and agree on
individual’s goals.
3. Employees performance should be conscientiously evaluated
against established objectives.
4. Management must follow through on employees performance
evaluations by rewarding employees accordingly.

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 5.5.2. MBO Programs: Advantages and Disadvantages

Advantages:
1) Continually emphasizes what should be done in an organization to
achieve organizational goals
2) Secures employee commitment to attaining organizational goals

Disadvantages:
1) Development of objectives can be time consuming, leaving both
managers and employees less time in which to do their actual work
2) Increases the volume of paperwork in an organization

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 5.6. Planning and the Chief Executive

• Final Responsibility
As planners, chief executives seek answers to the following
broad questions:
1. In what direction should the organization be going?
2. In what direction is the organization going now?
3. Should something be done to change this direction?
4. Is the organization continuing in an appropriate direction?

• Planning Assistance

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5.7. The Planner

5.7.1. Qualifications of Planners

Planners should have four primary qualifications:

- have considerable practical experience within their
organization
- know how all parts of the organization function and
interrelate
- have some knowledge of and interest in the social,
political, technical, and economic
- be able to work well with others
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 5.7.2. Evaluation of Planners
Guidelines for evaluating the planners’ performance:
1. Organizational plan is in writing
2. Plan is the result of all elements of management team working
together
3. Plan defines present and possible future business of the organization
4. Plan specifically mentions organizational objectives
5. Plan identifies future opportunities and suggests how to take
advantage of them
6. Plan emphasizes both internal and external environments
7. Plan describes the attainment of objectives in operational terms
whenever possible
8. Plan includes both long- and short-term recommendations

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5.8. Strategic planning
5.8.1. Fundamentals of Strategic Planning

 Strategic planning is long-range planning that

focuses on the organization as a whole.
 Strategy is defined as a broad and general plan
developed to reach long-term objectives.
 Strategy is actually the end result of strategic
planning. Strategy must be consistent with
organizational objectives.
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5.8. Strategic planning
5.8.2. Strategic Management

Strategic management is the process of ensuring

that an organization possesses and benefits from the
use of an appropriate organizational strategy.

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The strategic management process
1. Environmental analysis
2. Establishment of an organizational direction
3. Strategy formulation
4. Strategy implementation
5. Strategic control

30
Step 1. Environmental Analysis

Figure 9.2
The
organization,
the levels of
its
environment,
and the
components
of those
levels
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Step 2. Establishing Organizational Direction
- organizational mission
- organizational objectives.
Step 3: Strategy Formulation
Strategy formulation is the process of determining appropriate
courses of action for achieving organizational objectives and
thereby accomplishing organizational purpose.
Special tools to assist formulating strategies:
1. Critical question analysis
2. SWOT analysis
3. Business portfolio analysis, e.g. The BCG Growth-Share
Matrix
Critical question analysis
• What are the purposes and objectives of the
organization?
• Where is the organization presently going?
• In what kind of environment does the organization now
exist?
• What can be done to better achieve organizational
objectives in the future?

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Figure 9.4
The BCG
Growth-Share
Matrix

35
Figure 9.5
GE’s
Multifactor
Portfolio
Matrix

36
Step 4: Strategy implementation
The successful implementation of strategy requires four basic skills.
1. Interacting skill is the ability to manage people during
implementation.
2. Allocating skill is the ability to provide the organizational
resources necessary to implement a strategy.
3. Monitoring skill is the ability to use information to determine
whether a problem has arisen that is blocking implementation.
4. Organizing skill is the ability to create throughout the
organization a network of people who can help solve
implementation problems as they occur.
Step 5: Strategic control
- monitoring
- evaluating (the strategic management process)
Any questions?

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