foundation of planning week 3 tif-201


© 2007 Prentice Hall, Inc. All rights reserved. 7–2
L E A R N I N G O U T L I N E
Follllow tthiis Learniing Outtlliine as you read and sttudy tthiis chaptter..
What IIs Pllanniing?
• Define planning.
• Differentiate between formal and informal planning.
• Describe the purposes of planning.
• Discuss the conclusions from studies of the relationship
between planning and performance.
How Do Managers Pllan?
• Define goals and plans.
• Describe the types of goals organizations might have.
• Explain why it’s important to know an organization’s
stated and real goals.
• Describe each of the different types of plans.

© 2007 Prentice Hall, Inc. All rights reserved. 7–3
L E A R N I N G O U T L I N E (cont’d)
Follllow tthiis Learniing Outtlliine as you read and sttudy tthiis chaptter..
Establishing Goals and Developing Plans
• Diiscuss how tradiitiionall goall settiing works..
• Expllaiin the concept of the means–end chaiin..
• Descriibe the management by objjectiive (MBO) approach..
• Descriibe the characteriistiics of wellll-desiigned goalls..
• Expllaiin the steps iin settiing goalls..
• Diiscuss the contiingency factors that affect pllanniing..
• Descriibe the approaches to pllanniing..
Contemporary Issues in Planning
• Expllaiin the criitiiciisms of pllanniing and whether they’re valliid..
• Descriibe how managers can effectiivelly pllan iin today’s dynamiic
enviironment..

© 2007 Prentice Hall, Inc. All rights reserved. 7–4
What IIs Pllanniing?
• Pllanniing
_ A primary managerial activity that involves:
_ Defining the organization’s goals
_ Establishing an overall strategy for achieving those goals
_ Developing plans for organizational work activities.
_ Types 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.
Why Do Managers Pllan?
• Purposes of Planning
_Proviides diirecttiion
_Reduces uncerttaiintty
_Miiniimiizes wastte and redundancy
_Setts tthe sttandards ffor conttrolllliing

© 2007 Prentice Hall, Inc. All rights reserved. 7–5
Planning and Performance
• The Relationship Between Planning And
Performance
_Formall pllanniing iis associiatted wiitth::
_ Higher profits and returns on assets.
_ Positive financial results.
_The qualliitty off pllanniing and iimpllementtattiion affffectts
perfformance more tthan tthe exttentt off pllanniing..
_The extternall enviironmentt can reduce tthe iimpactt off
pllanniing on perfformance,,
_Formall pllanniing mustt be used ffor severall years
beffore pllanniing begiins tto affffectt perfformance..

© 2007 Prentice Hall, Inc. All rights reserved. 7–6
How Do Managers Pllan?
• Elements of Planning
_Goalls (allso Objjecttiives)
_ Desired outcomes for individuals, groups, or entire
organizations
_ Provide direction and evaluation performance criteria
_Pllans
_ Documents that outline how goals are to be accomplished
_ Describe how resources are to be allocated and establish
activity schedules

© 2007 Prentice Hall, Inc. All rights reserved. 7–7
Types of Goalls
• Financial Goals
_Are rellatted tto tthe expectted iintternall ffiinanciiall
perfformance off tthe organiizattiion..
• Strategic Goals
_Are rellatted tto tthe perfformance off tthe ffiirm rellattiive tto
ffacttors iin iitts extternall enviironmentt (e..g..,, compettiittors)..
• Stated Goals versus Real Goals
_Broadlly-worded offffiiciiall sttattementts off tthe organiizattiion
(iinttended ffor publliic consumpttiion) tthatt may be
iirrellevantt tto iitts reall goalls (whatt acttualllly goes on iin
tthe organiizattiion)..

© 2007 Prentice Hall, Inc. All rights reserved. 7–8
Exhiibiit 7–1 Stated Goalls of Large Glloball Companiies
Execute strategic roadmap—“Plan to Win.”
Grow the business profitably.
Identify and develop diverse talent.
Promote balanced, active lifestyles.
(McDonald’s Corporation)
Continue to win market share globally.
Focus on higher-value products.
Reduce production costs.
Lower purchasing costs.
Integrate diversity.
Gain ISO 14001 certification for all factories.
(L’Oreal)
Respect the environment.
Respect and support family unity and national
traditions.
Promote community welfare.
Continue implementing quality systems.
Continue to be a strong cash generator.
(Grupo Bimbo)
Control inventory.
Maintain industry’s lowest inventory shrinkage rate.
Open 25–30 new locations in fiscal 2006.
Live by the code of ethics every day.
(Costco)
Expand selection of competitively priced products.
Manage inventory carefully.
Continue to improve store format every few years.
Operate 2,000 stores by the end of the decade.
Continue gaining market share.
(Target)
Roll out newly-designed environmentally friendly
cup in 2006.
Open approximately 1,800 new stores globally in
2006.
Attain net revenue growth of approximately 20
percent in 2006.
Attain annual EPS growth of between 20 percent to
25 percent for the next 3 to 5 years.
(Starbucks)
Source: Information from company’s Annual Reports, 2004–2005.

© 2007 Prentice Hall, Inc. All rights reserved. 7–10
Types of Pllans
• Strategic Plans
_ Applly tto tthe enttiire organiizattiion..
_ Esttablliish tthe organiizattiion’s overallll goalls..
_ Seek tto posiittiion tthe organiizattiion iin tterms off iitts enviironmentt..
_ Cover exttended periiods off ttiime..
• Operational Plans
_ Speciiffy tthe dettaiills off how tthe overallll goalls are tto be achiieved..
_ Cover shortt ttiime periiod..
• Long-Term Plans
_ Pllans wiitth ttiime fframes exttendiing beyond tthree years
• Short-Term Plans
_ Pllans wiitth ttiime fframes on one year or lless
• Specific Plans
_ Pllans tthatt are cllearlly deffiined and lleave no room ffor iintterprettattiion
• Directional Plans
_ Fllexiiblle pllans tthatt sett outt generall guiidelliines,, proviide ffocus,, yett allllow
diiscrettiion iin iimpllementtattiion

© 2007 Prentice Hall, Inc. All rights reserved. 7–11
Types of Pllans (cont’d)
• Single-Use Plan
_A one-ttiime pllan speciiffiicalllly desiigned tto meett tthe
need off a uniique siittuattiion..
• Standing Plans
_Ongoiing pllans tthatt proviide guiidance ffor acttiiviittiies
perfformed repeattedlly..

© 2007 Prentice Hall, Inc. All rights reserved. 7–13
Establishing Goals and Devellopiing Pllans
• Traditional Goal Setting
_ Broad goals are set at the top of the organization.
_ Goals are then broken into subgoals for each organizational level.
_ Assumes that top management knows best because they can see the “big picture.”
_ Goals are intended to direct, guide, and constrain from above.
_ Goals lose clarity and focus as lower-level managers attempt to interpret and define the
goals for their areas of responsibility.
• Maintaining the Hierarchy of Goals
_ Means–Ends Chain
_ The integrated network of goals that results from establishing a clearly-defined hierarchy
of organizational goals.
_ Achievement of lower-level goals is the means by which to reach higher-level goals
(ends).
• Management By Objectives (MBO)
_ Specific performance goals are jointly determined by employees and managers.
_ Progress toward accomplishing goals is periodically reviewed.
_ Rewards are allocated on the basis of progress towards the goals.
_ Key elements of MBO:
_ Goal specificity, participative decision making, an explicit performance/evaluation period,
Feedback

© 2007 Prentice Hall, Inc. All rights reserved. 7–15
Exhiibiit 7–5 Steps iin a Typiicall MBO Program
1. The organization’s overall objectives and strategies are
formulated.
2. Major objectives are allocated among divisional and departmental
units.
3. Unit managers collaboratively set specific objectives for their
units with their managers.
4. Specific objectives are collaboratively set with all department
members.
5. Action plans, defining how objectives are to be achieved, are
specified and agreed upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and
feedback is provided.
8. Successful achievement of objectives is reinforced by
performance-based rewards.

© 2007 Prentice Hall, Inc. All rights reserved. 7–16
Does MBO Work?
• Reason for MBO Success
_Top managementt commiittmentt and iinvollvementt
• Potential Problems with MBO Programs
_Nott as effffecttiive iin dynamiic enviironmentts tthatt requiire
consttantt resettttiing off goalls..
_Overemphasiis on iindiiviiduall accomplliishmentt may
creatte probllems wiitth tteamwork..
_Allllowiing tthe MBO program tto become an annuall
paperwork shufffflle..

© 2007 Prentice Hall, Inc. All rights reserved. 7–17
Exhiibiit 7–6 Characteriistiics of Wellll-Desiigned Goalls
• Wriitttten iin tterms off
outtcomes,, nott acttiions
_ Focuses on the ends, not
the means.
• Measurablle and
quanttiiffiiablle
_ Specifically defines how the
outcome is to be measured
and how much is expected.
• Cllear as tto ttiime fframe
_ How long before measuring
accomplishment.
• Challllengiing yett attttaiinablle
_ Low goals do not motivate.
_ High goals motivate if they
can be achieved.
• Wriitttten down
_ Focuses, defines, and
makes goals visible.
• Communiicatted tto allll
necessary organiizattiionall
members
_ Puts everybody “on the
same page.”

© 2007 Prentice Hall, Inc. All rights reserved. 7–19
Devellopiing Pllans
• Contingency Factors in A Manager’s Planning
_Manager’s llevell iin tthe organiizattiion
_ Strategic plans at higher levels
_ Operational plans at lower levels
_Degree off enviironmenttall uncerttaiintty
_ Stable environment: specific plans
_ Dynamic environment: specific but flexible plans
_Lengtth off ffutture commiittmentts
_ Commitment Concept: current plans affecting future
commitments must be sufficiently long-term to meet those
commitments.

© 2007 Prentice Hall, Inc. All rights reserved. 7–21
Approaches to Pllanniing
• Establishing a formal planning department
_A group off pllanniing speciialliistts who hellp managers
wriitte organiizattiionall pllans..
_Pllanniing iis a ffuncttiion off managementt;; iitt shoulld never
become tthe solle responsiibiilliitty off pllanners..
• Involving organizational members in the process
_Pllans are develloped by members off organiizattiionall
uniitts att variious llevells and tthen coordiinatted wiitth otther
uniitts across tthe organiizattiion..

© 2007 Prentice Hall, Inc. All rights reserved. 7–22
Contemporary IIssues iin Pllanniing
• Criticisms of Planning
_ Planning may create rigidity.
_ Plans cannot be developed for dynamic environments.
_ Formal plans cannot replace intuition and creativity.
_ Planning focuses managers’ attention on today’s competition not tomorrow’s
survival.
_ Formal planning reinforces today’s success, which may lead to tomorrow’s
failure.
• Effffecttiive Pllanniing iin Dynamiic Enviironmentts
_ Devellop pllans tthatt are speciiffiic butt ffllexiiblle..
_ Understtand tthatt pllanniing iis an ongoiing process..
_ Change pllans when condiittiions warrantt..
_ Persiisttence iin pllanniing eventtualllly pay offff..
_ Fllatttten tthe organiizattiionall hiierarchy tto ffostter tthe devellopmentt off
pllanniing skiilllls att allll organiizattiionall llevells..

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