CHAPTER 7 PLANNING AND DECISION MAKING Decision Making and Planning Decision Making is the cornerstone of planning is the catalyst that drives the planning process Underlies every aspect of setting goals and formulating plans Planning All organizations plan but not in the same fashion All planning occurs within an environmental context All goals require plans to guide in their achievement all goals are tied higher goals and plans Organizational Goals Purposes of Goals 1 Provide guidance and a unified direction for people in the organization 2 Strong effect on the quality of other aspects of planning 3 Serve as a source of motivation for employees 4 Goals provide an effective mechanism for evaluation and control Kinds of Goals By Level Mission statement is a statement of an organization s fundamental purpose Strategic goals are goals set by and for top management of the organization that address broad general issues Typically 5 years or more to fulfull Tactical goals are set by and for middle managers their focus is on how to operationalize actions to strategic goals Typically 1 5 years to fulfill Operational goals are set by and for lower level managers to address issues associated with tactical goals Less than 1 year to fulfill By Area Different functional areas of the organization By Time Frame explicit time frame open ended time horizon long term 10 intermediate term 5 Short term 1 Responsibilities of Setting Goals Who Sets Goals All managers Managerial responsibility for goal setting should correspond to the manager s level in the organization Managing Multiple Goals Optimizing allows managers to balance and reconcile inconsistent or conflicting goals Managerial responsibility for goal setting should correspond to the manager s level in the organization Kinds of Organizational Plans Strategic Plans A general plan set by and for top management that outlines resource allocation priorities and action steps to achieve strategic goals Tactical Plans A plan aimed at achieving the tactical goals set by and for middle management Operational Plans focuses on carrying out tactical plans to achieve operational goals Developed my middle and lower level managers short term focus narrow in scope Time Frames for Planning The Time Dimension of Planning Planning must provide sufficient time to fulfill the managerial commitments involved Long range Plans Covers many years perhaps decades Any plan beyond 5 years Must monitor environment for possible changes Intermediate Plans Usually cover from 1 to 5 years and parallel tactical plans Short range Plans Short range operational action and contingency plans of 1 year or less Criteria for Effective Goals Specific and measurable not always quantifiable o Ex Increase profit by 2 etc Cover key result areas o Ex Financial Performance customer satisfaction etc Challenging but realistic o Ex 3M 30 sales must come from products introduced in the past 4 years Defined time period Linked to Rewards o Tie back to something you value and will work for to try and achieve not necessarily o Ex Pay increase promotion Responsibilities for Planning Planning Staff Gather information coordinate planning activities and take a broader view than individual managers Planning Task Force Line managers w a special interest in the relevant area of planning Created when the organization wants to address a special circumstance Gather info coordinate planning activities and take broader view than individual managers Board of Directors Establishes corporate mission and strategy May engage in strategic planning Chief Executive Officer May serve as president or board chair has a major role in planning and implementing the strategy Executive Committee Is composed of top executives Meets regularly with the CEO to review strategic plans Line Management Have formal authority and responsibility for management of the organization Help to formulate strategy by providing information Are responsible for executing the plans of top management Contingency Planning and Crisis Management Contingency Planning The determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate These plans help managers to cope with uncertainty and change Crisis Management The set of procedures the organization uses in the event of a disaster or other unexpected calamity Difficult to anticipate Apollo 13 is a good example Apollo 13 clip shows crisis management due to lack of contingency planning on what to do if there is a problem with CO buildup 2 Managing Goal Setting and Planning Processes Barriers to Goal Setting and Planning As part of managing the goal setting and planning process managers must also know how to overcome them Major Barriers Inappropriate goals improper reward system dynamic and complex environment reluctance to establish goals resistance to change Overcoming the barriers Understanding the purposes of goals and planning communication and participation consistency revision and updating effective reward system Using Goals to Implement Plans Management by Objectives MBO A technique for integrating formal goal setting and planning by giving subordinates a voice and clarifying what they are expected to accomplish Purpose is to give everyone a voice and thereby increasing buy in Formal goal setting is better than traditional goal setting The Effectiveness of Formal Goal Setting Strengths Success Improved employee motivation Enhances communication Fosters more objective performance appraisals Focuses attention on appropriate goals and plans Helps identify managerial talent Provides a systematic management philosophy Facilitates control of the organization Weaknesses Failure Poor implementation of the goal setting process Lack of top management support for goal setting Delegation of the goal setting process to lower levels Overemphasis on quantitative goals Too much paperwork and record keeping Managerial resistance to goal setting Ch 8 Managing Strategy and Strategic Planning The nature of strategic management strategy o is a comprehensive plan for accomplishing an organization s goals strategic management o involves formulating and implementing strategies to take advantage of business opportunities and meet competitive challenges effective strategies o promote superior alignment between an organization its environment and its goals Components of strategy distinctive competence o something an organization does exceptionally well