CHAPTER SUMMARY – CHAPTER 7

What Is Planning and Why Do Managers Plan?

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.

Planning involves defining the organization’s goals, establishing an overall strategy for achieving those goals, and developing plans for organizational work activities.

Formal planning has three characteristics: (1) specific goals cover a defined period of years, (2) these goals are written and shared with organizational members, and (3) specific action plans exist for achieving these goals. Informal planning is general and lacks continuity. Also, nothing is written down and there is little or no sharing of goals.

The four purposes of planning include: provides direction, reduces uncertainty, minimizes waste and redundancy, and establishes the goals or standards used in controlling.

Conclusions from studies of the planning-performance relationship include the following: for the most part, formal planning is associated with positive financial performance; it’s more important to do a good job of planning and implementing the plans than having more and extensive planning done; the external environment is usually the reason why companies don’t achieve high levels of performance even when planning; and the planning/performance relationship seems to be influenced by the planning time frame.

How Do Managers Plan?

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.

Goals are desired outcomes. Plans are documents that outline how goals are going to be met.

Organizations do have multiple goals. These goals might be strategic or financial and they might be stated or real. It’s important to know the stated and real goals to help understand what might appear to be management inconsistencies.

Strategic plans apply to the entire organization while operational plans specify how the overall goals are going to be achieved. Long-term plans are those with a time frame beyond three years. Short-term plans are those covering one year or less. Specific plans are clearly defined and leave no room for interpretation. Directional plans are flexible and set out general guidelines. A single-use plan is a one-time plan designed to meet the needs of a unique situation. Standing plans are ongoing plans that provide guidance for activities performed repeatedly. (See Exhibit 7-2.)

Establishing Goals and Developing Plans

Discuss how traditional goal setting works.

Explain the concept of the means-end chain.

Describe the management by objectives (MBO) approach.

Describe the characteristics of well-designed goals.

Explain the steps in setting goals.

Discuss the contingency factors that affect planning.

Describe the approaches to planning.

In traditional goal setting, goals are set at the top of the organization and then broken into subgoals for each organizational level. (See Exhibit 7-4.)

The means-end chain is an integrated network of goals, which means that higher-level goals (or ends) are linked to lower-level goals, which serve as the means for their accomplishment.

MBO (management by objectives) is a process of setting mutually-agreed upon goals and using those goals to evaluate employee performance. (See Exhibit 7-5.)

Well-designed goals have six characteristics: (1) written in terms of outcomes, (2) measurable and quantifiable, (3) clear as to time frame, (4) challenging but attainable, (5) written down, and (6) communicated to all organizational members who need to know them. (See Exhibit 7-6.)

To set goals, follow these steps: review the organization’s mission; evaluate available resources; determine the goals individually or with input from others; write down the goals and communicate them to all who need to know them; and review results and change goals as needed.

The contingency factors that affect planning include a manager’s level in the organization; the degree of environmental uncertainty; and the length of future commitments. (See Exhibit 7-7.)

The two main approaches to planning include the traditional approach, which uses a formal planning department and has plans developed by top managers that flow down through other organizational levels. The other approach is to involve more organizational members in the planning process.

Contemporary Issues in Planning

Explain the criticisms of planning and whether they’re valid.

Describe how managers can effectively plan in today’s dynamic environment.

The main criticisms of planning are: (1) planning may create rigidity; (2) plans can’t be developed for a dynamic environment; (3) formal plans can’t replace intuition and creativity; (4) planning focuses managers’ attention on today’s competition, not tomorrow’s; (5) formal planning reinforces success, which may lead to failure; and (6) just planning isn’t enough. These criticisms are valid if planning is rigid and inflexible.

Managers can effectively plan in today’s dynamic environment using plans that are specific but flexible. It’s also important to “shove” responsibility for establishing goals and developing plans to lower organizational levels.