Strategic Management

Chapter 7

Foundations of Planning

Establishing goals and developing plans

Approaches to establishing goals

2 main approacheso Traditional goal settingo Management by objectives

Traditional goal setting = an approach to setting goals in which the goals are set at the top level of the organisation and then broken down into sub goals for each level of the organisation

o Assumes that the top managers know what is best for the organisation

o Managers may define organisational goals in broad terms which are then interpreted differently at different levels

When the hierarchy of goals is clearly defined it forms an integrated network of goals or a means-ends chain.

o Means-ends chain = an integrated network of goals in which the accomplishment of goals at one level serves as the means for achieving the foals or ends at the next level

Management by Objectives = a process of setting mutually agreed upon goals and using those goals to evaluate employee performance

o Four elements: Goal specificity Participative decision making An explicit time period Performance feedback

o Increase employee performance and organisational productivityo May not be as effective in times of dynamic change because

employees need some stability to work towards achieving their set goals

Characteristics of Well-Designed Goals

Written in terms of outcomes rather than actions Measurable and quantifiable Clear as to time frame Challenging yet attainable

Written down – forces people to think them through Communicated to all necessary organisational members

Steps in goal setting

1. Review the organisations missioni. Mission = a statement of the purpose of an organisation

ii. The goals reflect what the mission statement says2. Evaluate available resources

i. Goals should be realistic3. Determine the goals individually or with input from others4. Write down the goals and communicate them to all who need to know5. Review results to see whether goals are being met

Developing Plans

Contingency factors in planning

Three contingency factors affect planningo Level in the organisation

Lower level = operational planning Higher level = strategy orientated

o Degree of environmental uncertainty High uncertainty = specific but flexible plans Should continue formal plans because they take 4 years to

take tollo Length of future commitments

The more current plans affect future commitments, the longer the time frame managers should plan.

Commitment concept = plans should extend far enough to meet those commitments made today

Approaches to planning

Traditional approach – planning completely done by top-level managers who were assisted by formal planning department

o Formal planning department = a group of planning specialists whose sole responsibility is helping to write the various organisational plans

o Plans flow down through the organisation and are tailored to particular needs at each level

o Managers need to understand the importance of a workable, usable document that organisational members actually draw on for direction and guidance

Another approach is to involve more members in the process – develop plans at each organisational levels

Contemporary Issues in planning

Criticism of planning (primary arguments)

Planning may create rigidity – forma planning can lock an organisation into specific goals to be achieved in specific timetables

Plans cannot be developed for a dynamic environment – planning relies on the assumption that the environment won’t change, but in reality is constantly changing and there is a need for flexibility

Formal plans cannot replace intuition and creativity Planning focuses managers’ attention on today’s competition, not on

tomorrow’s survival – formal planning has a tendency to focus on how best to capitalise on existing business opportunities rather than creating or reinventing an industry

Formal planning reinforces success, which may lead to failure – It is difficult to discard or change previously successful plans

Just planning is not enough – actions need to be taken to compliment the planning

Effective planning in dynamic environments

Need to develop plans that are specific but flexible Recognise that planning is an ongoing process Willingness to change should the environmental conditions warrant it Stay alert to environmental change that could have an impact Flattening the organisational hierarchy – train employees in setting

goals and establishing plans