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m a n a g e m e n t 2e H i t t / B l a c k / P o r t e r. Chapter 6: Planning. Learning Objectives. After studying this chapter, you should be able to: Define planning and explain its purpose Differentiate between strategic, operational, and tactical plans

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learning objectives
Learning Objectives

After studying this chapter, you should be able to:

  • Define planning and explain its purpose
  • Differentiate between strategic, operational, and tactical plans
  • Describe the interrelationship between an organization’s types of plans and the levels at which they are developed
  • Explain the planning process
learning objectives3
Learning Objectives
  • Discuss budgeting as a planning tool
  • List and explain the five characteristics of effective goals
overview of planning
Overview of Planning
  • Objectives
    • End states or targets
  • Plans
    • Means to hit the desired targets
  • Planning
    • Decision-making process focused on the future of an organization and how it will achieve its goals
types of plans
Types of Plans
  • STRATEGIC PLANS
  • Broad future of the organization
  • External environmental demands
  • Internal resources
  • TACTICAL PLANS
  • Translate strategic plans into specific goals
  • Specific parts of the organization
  • OPERATIONAL PLANS
  • Translate tactical plans into specific goals and actions
  • Small units of the organization
  • Near term
types of plans6
Types of Plans

STRATEGIC

PLANS

TACTICAL

PLANS

OPERATIONAL

PLANS

Time

Horizon

Typically 3-5 years

Often focused on 1-2 years in the future

Usually focused on the next 12 months or less

Scope

Broadest,

originating with a focus on the entire organization

Rarely broader than a strategic business unit

Narrower, usually centered on departments or smaller units of the organization

Complexity

The most complex and general, because of the different industries and business potentially covered

Somewhat complex but more specific, because of the more limited domain of application

The least complex, because they usually focus on small homogenous units

Adapted from Exhibit 6.1

types of plans continued
Types of Plans (continued)

STRATEGIC

PLANS

TACTICAL

PLANS

OPERATIONAL

PLANS

Impact

Have potential to dramatically impact the fortunes and survival of the organization

Can affect specific businesses but generally not the fortunes or survivability of the entire organization

Impact is usually restricted to specific department or organization unit

Low interdependence, the plan may be linked to higher-level tactical and strategic plans but is less interdependent with them

Interdepen-

dence

High interdependence, must take into account the resources and capabilities of the entire organization and its external environments

Moderate interdependence, must take into account the resources and capabilities of several units within a business

Adapted from Exhibit 6.1

organizational levels
Organizational Levels
  • CORPORATE LEVEL
  • What industries should the firm be in?
  • What markets should the firm be in?
  • In which businesses should the firm invest money?
  • BUSINESS LEVEL
  • Who are our direct competitors?
  • What are their strengths/weaknesses? What advantages do we have over them?
  • What are our own strengths and weaknesses?
  • What do customers value in our products/services?
  • FUNCTIONAL LEVEL
  • What activities must my unit perform well to meet customer expectations?
  • What competitor information do we need compete effectively?
  • What are our unit’s strengths and weaknesses?
organizational levels9
Organizational Levels

Corporate

Level

Business

Level

Functional

Level

interaction between plans and levels
Interaction Between Plans and Levels

Types of Plans

Organizational Levels

Strategic Plans

Corporate Level

Tactical Plans

Business Level

Operational Plans

Functional Level

Adapted from Exhibit 6.2

the planning process
The Planning Process

Analyze the

External Environment

Analyze Resources

Set Objectives

Develop Action Plans

Monitor Outcomes

Adapted from Exhibit 6.3

the planning process analyzing the external environment
The Planning Process: Analyzing the External Environment
  • Forecasts
  • Environmental uncertainty
    • The more uncertainty, the more flexible the plans
    • Contingency plans
  • Benchmarking
    • Investigating the best practices by competitors and noncompetitors and comparing your practices
the planning process assessing internal resources
The Planning Process: Assessing Internal Resources

Resources available

  • Human capital
  • Financial resources
  • Technology
the planning process setting objectives
The Planning Process:Setting Objectives
  • Priorities and multiple objectives

Establish which objectives are most important

  • Measuring objectives
    • Financial performance
      • Profits relative to sales
      • Profits relative to assets
      • Many others
    • Non-financial performance
the planning process developing action plans
The Planning Process: Developing Action Plans
  • Sequence and timing
    • Gantt charts
  • Accountability
    • Who is accountable for which actions?
gantt chart
Gantt Chart

Adapted from Exhibit 6.4

the planning process implementing plans
The Planning Process: Implementing Plans
  • Monitoring the implementation includes monitoring:
    • Progress of the plan and its implementation
    • Level of support for the plan and implementation
    • Level of resistance
  • Real-time adjustment
the planning process monitoring outcomes
The Planning ProcessMonitoring Outcomes
  • Unanticipated consequences
    • Negative unanticipated consequences
    • Positive unanticipated consequences
    • Feedback loop
      • Apply what has been learned to modify and improve the planning process
planning tools budgets
Planning Tools: Budgets

Budgets quantify and allocate resources

  • Capital expenditure budget
    • Specifies amount of money to be spent on specific items that have long-term use
  • Expense budget
    • Includes primary activities on which a unit or organization plans to spend money and the amount allocated for the upcoming year
planning tools budgets20
Planning Tools: Budgets
  • Proposed budget
    • Provides a plan for how much money is needed, and is submitted to a superior or budget review committee
  • Approved budget
    • Specifies what the manager is actually authorized to spend money on and how much
planning tools budgeting approaches
Planning Tools: Budgeting Approaches
  • Incremental budgeting
    • From the approved budget of the previous year present arguments for why the upcoming budget should be more or less
  • Zero-based budgeting approach
    • Justify all allocations of funds from zero each year
goal setting
Goal Setting

Attributes of effective goals:

  • Specific
  • Measurable
  • Committed
  • Realistic
  • Time bound