UNIT II

PLANNING  AND
DECISION
MAKING
 PLANNING
v General Framework for Planning

v Planning Process

v Types of Plans and Types of Planning

v Management By Objectives(MBO)

v Strategic Planning Process

v Development of Business Strategy

v Environmental Scanning 

v Strategic Alternatives (Michael Porter Alternative, BCG Growth Share Matrix) in Planning
 DECISION MAKING
v Characteristics of Decision Making

v Types of Decisions

v Steps in Approaches to Decision Making

v Individual Decision Making and Group Decision Making

v Decision Making
 PLAN & PLANNING 
Plan: is essentially a process to determine and implement actions to achieve organizational objectives .

MC Farland defines, "Planning may be broadly defined as a • Determines -

concept of executive action that embodies the skills of
• Why an action
anticipating, influencing and controlling the nature and
• What action
direction of change."
• How to take an action
• Involves the determination of future course of action
• When to take an
• Is an activity
action
• Is a process
 PLAN & PLANNING 
Features

v Is goal oriented              v Is forward looking

      
v Is flexible
v Is primary function
v Involves choice
v Is pervasive
v Is integrated process
v Is a mental exercise
v Includes efficient and effective
v Is a continuous process
dimensions
 PLANNING -  Steps
 Establishing Objectives
 Developing Planning Premises                 Internal / External
                                                                            Tangible / Intangible
                                                                            Controllable/ Uncontrollable

 Evaluating alternative and Selection

 Formulating Derivative Plans –are plans derived from various dept.'s units, activities in a
detailed manner indicating time schedule and the sequence of performing various tasks.

 Securing cooperation and Participation

 Providing Follow up
 PLANNING - Approaches
 Top –Down Approach – Defines Mission, Lays down Strategies, specifies action plans to
achieve the stated goals.

 Bottom – Up Approach - Preparation and implementation of plans, their Loyalty,

Commitment  and Participation.

 Composite Approach – is a Middle path. Is chosen to facilitate the smooth

implementation of the plans. TLM offers guidelines, sets Boundaries and encourages
MLM and LLM to come with tentative plans. After discussion, such plans are approved.

 Team Approach - Is different from Composite Approach. Job Planning is assigned to Team

Managers having requisite experience in functional areas, prepare draft plans taking into
consideration internal and external factors for TLM approval
 PLANNING -Principles
 Principle of Contribution of Objectives

 Principle of Primacy of Planning

 Principle of Pervasiveness

 Principle of Flexibility

 Principle of Periodicity

 Principle of Planning Premises

 Principle of Limiting Factor

 PLANNING - Importance 
 Provides Direction

 Provides a unifying framework

 Is Economical

 Reduces the risk of uncertainty

 Facilitates Decision Making

 Encourages Innovation and Creativity

 Improves Morale

 Facilitates Control
 PLANNING - Criticism
 Rigidity

 Costly and time consuming

 Employee Resistance

 False sense of Security

 Managerial Deficiencies

 Planning prevents Innovation

 External Limitations
PLANNING - Steps to make it Effective
 Climate

 Top Management Support

 Participation

 Communication

 Integration

 Monitoring
 PLANNING – 6 rules in Learning Org
Learning Organization – is one in which everybody is engaged in identifying and solving
problems, enabling the organization to continuously  experiment, change and improve
thus increasing its capacity to grow, learn and achieve its purpose.

 Strong Mission

 Strech Goals

 Learning Environment

 Vital Information

 Improvement

 Planning starts and stops at TOP

 PLANNING - Forms (Types)
 Corporate Planning and Functional Planning 

 Long Range Planning and Short-Range Planning

 Strategic Planning and Operational Planning 

 Formal Planning and Informal Planning

 Proactive Planning and Reactive Planning

Corporate Planning
PLANNING- Corporate and Functional
 Denotes planning at Top level which covers the entire organizational activities.

 Focus is to determine the long-term activities

 Is further classified into Strategic Planning or Long term Planning and Operational Planning, Tactical or
Short range Planning.

Functional Planning

 Is unit planning, segmental and is undertaken for each major function of the organization such as
production, marketing, finance, HR etc.,

 Is undertaken for the sub functions of each function.

 Is derived out of the corporate planning and is achieved by integrating and coordinating with corporate
planning.
 PLANNING - Long Range and Short Range
Long Range Planning

 Covers relatively long period of time (Over 5 Years)

 Includes formulation of overall broad objectives and selection of appropriate means by

which they are to be achieved.

Short Range Planning (Operational Planning)

 Covers a period of 1 to 12 months

 Made in specific and detailed manner

 Emphasis is on flexible budgets, goals and targets expressed in clear and precise
language.
Strategic Planning
PLANNING-Strategic and Operational 
 Establishes master plans that shape the destiny of the firm.

 Is planning that is conceptually and functionally long- term, wide ranging and critical to the organizational
success.

Operational Planning (Short Range Planning)

 Identifies the specific procedures and actions required at the lower levels of management.

Tactical Planning

 Translates strategic plans into specific goals and plans that are almost relevant to a particular organizational unit.

 Are concerned with the implementation of Strategic plans by coordinating the work of different departments in
the organization.

 Integrate various organizational units and ensure commitment to strategic plans.

 PLANNING Formal and Informal
Formal Planning

 Is a well-documented, systematic and rational.

 Is a written record of what the organization intends to do within in a time frame.

 Managers are deliberately involved in the formulation and implementation process.

Informal Planning

 Does not offer written record, carried out without any direction.

 Do not find expression on paper.

 PLANNING  - Proactive and Reactive
This Classification is based  on the organization's response to environmental dynamics.

Proactive Planning

 Involves designing suitable course of action in anticipation of likely changes in the

relevant environment.

 Organizations do not wait for environment to change but take aaction in advance of the
environmental change.

Reactive Planning

 Organizations response happens after the environmental change.

 Is useful in an environment which is fairly stable over a long period of time.

 PLANS - Types
• Mission

Multi •
•
•
Objectives
Policies and Stratergies

Use Plans
Procedures
• Methods
• Rules

• Programmes

Single Use •
•
•
Schedules
Projects
Budgets

Plans
 Are also known as Standing Plans.
PLANS – Multi Use Plans
 Provide guidelines for further course of action.
 Are operational for a long period unless there is a change in the plans.
 Help managers to deal with routine matters in a pre-determined and consistent manner.
• Vision
• Mission
• Goals
• Objectives
• Policies and Strategies 
• Procedures
• Methods
• Rules
  Multi Use Plans - Mission
Vision

  Is an idealized picture of the future of the organization.

 Is a long-term goal describing what the organization wants to become.

 Elements of Vision statement

Organizations fundamental reason for existence beyond money

Organizations timeless and unchanging core values

Huge and audacious but achievable aspirations for its future

Mission

 Identifies the firm's purpose of existence.

 Describes the organizations values, aspirations and reason for being.

  Multi Use Plans - Mission
Qualities of a Mission Statement

 Clarity

 Broad and Enduring – Primary and Secondary mission 

 Identity and Image

 Realistic

 Specific

 Values, Beliefs and Philosophy

 In Synchronization with Vision

 Dynamic 
Components of a Mission Statement -- (David)
 Multi Use Plans - Mission
 Customers                             -Who are firm's Customers?

 Products or Services           -What are the firm's major products or Services?  

 Markets                                -What is the market place?

 Technology                          - Is the firm technologically current?

 Concern for Survival, Growth and Profitability –Is firm committed to growth and financial soundness? 

 Philosophy                             - What are the beliefs, values, aspirations and ethical priorities of the firm?

 Self- Concept                         - What is the firm's distinctive competence or competitive advantage?

 Concern for Public Image   - Is the firm responsive to Social, Community and Environmental Concerns?

 Concern for Employees      - Are employees a valuable asset for the firm?
Goals
Multi Use Plans- Objectives
 The target or purpose that a person imagines or plans to
accomplish or to reach or to achieve in future.

 Determines what the company is attempting to accomplish.

Objectives

 A specific result that a person or system aims to achieve within a

time frame and with available resources.

 Are Milestones that help to reach the goal.

 They are Precise, Measurable, Time based actions that assist in

goal achievement.

 Should be "SMART"
 Objectives 
Characteristics

 Form Hierarchy

 Form a Network

 Multiplicity of Objectives

 Long and Short-range Objectives

Importance

 Legitimacy

 Direction

 Coordination

 Benchmark for success

 Motivation
 Objectives -Approaches
 Traditional view
 It is one-way process. Believes TLM knows what is the best as they have a big picture.

 They formulate goals for MLM which in turn provide necessary platform  for LLM.

 Primary objective is to control behavior of organizational members.

 Goal setting process is Rational and there is no difference between Stated Goals and Operational Goals
which in fact is not possible.
 Stated Goals (Official Goals) are simply statements about desired results.

 Operational Goals indicate alternative means of achieving formal goals.

Environmental goals

Output goals

System goals

Product goals
Modern view – MBO
Objectives -Approaches
Management by Objectives – Peter. F.  Drucker (1909 – 2005)

 Also called as "Appraisal by Result"; "Planned by Objectives"; "Joint Target Setting".

 "Is a process whereby superior and subordinate managers of an organization jointly identify its common goals,

define each individual areas of major responsibility in terms of results of him and use these measures as
guides for operating the unit and assessing the contribution of each of its members".

Features

 Emphasizes participations in setting goals that are tangible, verifiable and measurable.

 Focuses attention on what must be accomplished (Goals) rather than how it is to be accomplished (Methods).

 Is a systematic and rational technique by focusing on achievable goals.

 Translates the abstract philosophy of management into concrete phraseology.

Process

 Set Organizational Goal      

MBO
 Joint Goal Setting Limitations
 Performance Reviews
 Pressure Oriented
 Set Check Points
 Time Consuming
 Feedback
 Increases Paperwork
Benefits
 Goal Setting Problem
 Clear goals

 Better Planning  Organizational Problems

 Facilitates Control

 Objective Appraisal

 Motivational Force

 Better Morale

 Result oriented Philosophy

Policies
Multi Use Plans –Policies
Is a basic statement that guides decision making
Objectives Policies

They set Behavioral limits. Are basic for existence Guide Executive thinking-  not
basic
Policies may be Written  or Unwritten.

Characteristics: Are Focal points for the efforts of Route or means for the
the organization  accomplishment
Related to Objectives

 Planned Formulation Set by top management Set by Top and Middle

Management 
 Fair Amount of Clarity

 Consistency
Determine what is to be done Determine how the work is to
be done
 Balanced

 Written and Communication.

 Multi Use Plans –Strategies
Strategies

Are unified, integrated and comprehensive plan of action to achieve an objective or set of objectives.

Is an integrated and coordinated set of commitments and actions designed to exploit a firm's internal
strengths and external opportunities with a view to gain a competitive advantage.

Key Elements
 Scope

 Goals

 Comprehensive

 Competitive advantage

 Terrain

 Logic

 Is all about winning, capturing mindshare and conquering markets.

 Procedures, Methods and Rules
Procedures: is a well thought out course of action. It prescribes the way in which a piece of work is to be done. 

 Are also called " Action Guidelines" and are generally derived from Policies.

 They establish a customary method of handling future activities.

 Are used in all functional areas and help in integrating organizational efforts and facilitates control process.

Methods: are subunits of a procedure. They indicate the techniques to be employed to make the procedure
effective.

 Primary focus is on finding out the best way of doing a piece of work.

Rules: is a very specific and detailed guide of action. Is established to direct or restrict action in a fairly narrow
manner.

 No scope for discretion or judgement.

 Calls for strict adherence.

 PLANS – Single Use Plans
 Are Non-Recurring in nature.

 Deals with problems that probably will not be repeated in nature.

 Are also known as "SPECIFIC PLANS"

Programmes

Schedules

Projects

Budgets
 Single Use Plans – Programmes and Schedules 
Programmes: is a comprehensive plan that indicates a complex set of goals,
procedures, rules, work assignements, resource flow 

 Is a series of steps, taken together, to achieve a desired result.

 It is an aggregate of several related action plans.

Schedules: Implies fixing of time to commence the work, reading through the
different processes and finishing the task.

 They translate programmes into action in an orderly fashion.

 Single Use Plans – Projects and Budgets
• Projects: is a small Programme. • Budgets: is a numerised programme

 The project itself may consist of several designed primarily to allocate the resources

sub -  plans. of an organization.

 Features: § Is the blueprint of future course of action

  has a clear objective in time, man hours etc.,

 unique and unfamiliar to existing § Features : 

organization §  in terms of money or quantity or both
  is  complex and critical to the organization §  is prepared for definite period

  is temporary with respect to the duration §  is prepared in advance

of need. §  aims at achieving given objective
Strategic Management                   
Definition: Is a Process through which managers formulate
and implement strategies geared to optimizing strategic
goal achievement given environmental and internal conditions.
 Elements Effective strategies focus on
 Strategic Analysis Core Competence

 Strategic Choice Synergy

 Strategic Implementation Value Creation

 Strategic Evaluation
Strategic Planning
 Strategic Management Process
 Establishment of Mission, Vision, Strategic Goals and Objectives

 Environmental Scanning

 Develop strategy alternatives

 Strategy Variations

 Strategy Choice

 Allocation of resources and development of organizational structure

 Formulation of policies, plans, programmes and administration

 Strategy implementation
Environmental Scanning
 Is a process that systematically surveys and
interprets relevant data to identify external
opportunities and threats that could influence
future decisions.

 Is related to TOWS or SWOT analysis.

 The primary objective of a SWOT analysis is to

help organizations develop a full awareness of
all the factors involved in making a business
decision.

 PESTEL analysis
 Strategic Formulation
 Corporate Strategy – pertains to the organization as a whole and combination of business
units and product lines that make up the corporate entity. It is also called Grand Strategy.

 Portfolio Strategy – pertains to the mix of the business units and product lines that fit
together in a logical manner to offer synergy and competitive advantage for the corporation.

 Business Level Strategy – deals with how a particular business concept and principal focus is
on meeting competition, protecting market share and earning profit at the business unit
level.

 Functional Level Strategy – are formulated in each area of a business and outlines the action
plans that must be put into practice to execute business level strategy.
CORPORATE STRATEGY
Intensification Ansoff Product/ Market  Expansion Grid

 Concentration or Market Penetration-  is strategy of a

firm that directs its resources to the profitable growth of
a single product, in a single market, with a single
dominant technology.

 Market Development -  consists of marketing existing

products in new markets.

 Product Development - tries to achieve growth

through new products in existing markets.

 Innovation- organization tries to develop new  products.

There could be radical innovations, where the firm tries
to focus on the new products or services that modify the
existing ones.
Diversification – Describes the different businesses that an organization is engaged in and the extent to
which these businesses are related to one another.

 Horizontal –takes place when firms  Vertical -  takes place when one firm
acquire other companies in the same line acquires another firm is involved either in
of business with a purpose to create and an early stage of the production process or
exploit synergies. a later stage of the production process.
 Concentric or Related –occurs when an  Forward or downstream- helps firm gain control
organization diversifies into a related but over sales and prices of its existing products.
distinct business.  Backward or upstream – occurs when the

 Conglomerate or unrelated- takes place companies acquired when the companies

when an organization diversifies into acquired supply the firm with products,

areas that are unrelated to the organization. components or raw materials.

Stability
Involves maintaining a Status Quo or growing in a methodical but slow manner.

Follows safety, oriented, Staus Quo without bringing about any major changes in

the present operations.

Primary focus is on current products, market and functions, maintaining the

same level of efforts as present.
Incremental Growth

Profit

Sustainable Growth

Pause Strategy
 Retrenchment / Defensive 
Divestment -  takes place when the company sells or spins off one of its business units.
Involves dropping of products, markets, functions or redefining the business as a whole.

Forms of Divestment
 Outright sale to another Company

 Leveraged Buyout

 Spinoff

Is adapted 
 when the business unit drains resources from other profitable units

 Where the business unit is not as efficient as alternatives in the marketplace.

 Where the unit's interdependence with other units  is not synergetic

 Where the company needs funds urgently to focus on more profitable areas.

 Retrenchment / Defensive 
Turn around- is designed to reverse a negative trend and bring the organization back to normal  health and

profitability.
 Involves getting rid of unprofitable products, trimming the work force, pruning distribution outlets.

 If turnaround is successful, organization will focus on Growth Strategy.

Liquidation - is used when neither turnaround nor a divestment seems feasible.
 Involves selling or disposing of, all or part of an organization's assets.

Bankruptcy - is a means whereby an organization that is unable to pay its debt, can seek court protection from

creditors and from certain contract obligations.

 Liquidating Bankruptcy – the liquidating firm agrees to distribute all assets to creditors, most of whom receive a small fraction of the

amount they owed. 

 Reorganization Bankruptcy – this comes into existence when the firm can convince the creditors about revival of the firm in the near

future.
 Combination
 Use of Stability, Expansion or Retrenchment Strategies by Large, Diversified organizations .

 They adapt them Simultaneously ( at the same time in various businesses) or Sequentially (at
different times in the same business).

 Joint Ventures - is a business preparation in which more than two organizations or parties share
the ownership, expense, return of investments, profit, governance, etc.
 Companies involved  have EQUITY.

 Strategic Alliances - Partners contribute their skills and expertise to a cooperatively

conceived and executed project for a specified period.
 Partners keep with each other technical know- how and learn from each other.
 It might be in the form of Licensing and / or Outsourcing.

 Consortia – are interlocking relationships between businesses of an industry.

 PORTFOLIO STRATEGY
 This pertains to the mix of business units and product lines
that fit together in a logical manner to offer synergy and
competitive advantage for the corporation.

 Diversified corporations like to have a balanced divisions

called SBU.

 SBU is a division of the organization that has a

unique business Mission, product line, competitors and
market relative to other SBU's in the same Corporation.

 It can be single business unit or a collection of related

businesses.

 BCG analysis is a chart that was created

by Bruce.D.Henderson  in 1970 to help corporations to
 BUSINESS LEVEL STRATEGY
 Principal focus is on meeting competition,
protecting market share and earning profit at the
business unit level.

 Michael.E.Porter proposed Competitive analysis

and three general alternative business strategies
derived from it.
 Differentiation 

 Cost Leadership 

 Focus 
 BUSINESS LEVEL STRATEGY
 Differentiation – Involves attempting to develop products and services that are unique for the industry. 
 It may be brand image, technology, customer service, unique channels, unique features, quality etc.

 It allows business to charge premium prices leading to above average profits.

 Their price offering  is high which might lead to change in tastes and preferences of the consumers.

 Businesses need to evaluate their strategy carefully to avoid shifting of the customers.

 Cost Leadership – Is a strategy that focuses on making an organization more competitive by producing its products
more cheaply than competitors.
 Its strategy is to produce products more cheaply than competitors, offer at lower prices than competitors and try to increase their
market share.
 Need to improve the quality of the product and maintain the low price of the product to keep the customers from shifting to firms on
differentiation strategy.

 Focus - is also known as NICHE Strategy.

 emphasizes making an organization more competitive by targeting  a specific regional market, product line or buyer group. 
 Can adapt to either differentiation or low-cost approach but not both.
FUNCTIONAL  LEVEL STRATEGY

 Are formulated by specialists in each area of a

business.

 They outline the action plans that must be put into

practice to execute business level strategy.

 Business level and Functional level specialists must

coordinate their activities to ensure that the
strategies pursued by them are consistent and lead
to achievement of overall goals.
 Strategic Management Process
v Strategy Variations

v Strategy Choice

v Allocation of resources and development of

organizational structure

v Formulation of
policies, plans, programmes and
administration

v Strategy implementation