C H A P T E R

Foundations
of Planning
In this chapter, we begin our study of
the first of the management functions:
planning.
Planning is important because it
establishes what an organization is
doing. Well look at how managers set
goals as well as how they establish
plans. Focus on the following learning
outcomes as you read and study this
chapter.

Learning Outcomes
7.1 Define the nature and purpose of
planning.
7.2 Classify the types of goals
organizations might have and the plans
they use.
7.3 Compare and contrast approaches
to goal setting and planning.
7.4 Discuss contemporary issues in
planning.

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S E V E N

Your students may be familiar with the

adage, If you fail to plan, you plan to
fail. Chapter 7 examines skills needed
for effectiveness in the first of the four
management functionsplanning. After
learning about the purposes of planning,
students will discover how managers at
different levels
of an organization
develop plans and empower employees
to participate in the planning process.
A Managers Dilemma tells the story of
Hong
Kong-based
Alibaba.com,
a
company providing internet solutions
through three of its online marketplaces.
Trudy Dai, vice president of Alibaba, is
tasked with the job of managing the
sales and customer service of this
growing company.
Alibaba faces a
problem common to other companies
included in chapter openings, the
challenge
of
establishing
and
maintaining
markets
in
overseas
locations. While these markets represent
great opportunity, they also present their
own unique demands and threats that
must be overcome.
Students
are
asked
to
imagine
themselves in Ms. Dais position as her
successful business makes plans for
expansion. What types of plans would
your students make to guide this
business? Why would knowledge and
understanding of the many facets of
planning be important for Alibaba.coms
success?

ANNOTATED OUTLINE
INTRODUCTION
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Planning is one of the four functions of management.

Fundamental information about managerial planning is
presented in this chapter; the text discusses the nature and
purposes of planning, strategies for effective planning, and
contemporary planning issues.
1.

THE WHAT AND WHY OF PLANNING

A.
What is Planning?
Planning involves defining the
organizations goals, establishing an overall strategy for
achieving these goals, and developing plans for
organizational work activities. The term planning as used
in this chapter refers to formal planning.
B.

Why Do Managers Plan? Planning serves a number of significant

purposes.
1.

C.

Planning gives direction to managers and

nonmanagers of an organization.
2.
Planning reduces uncertainty.
3.
Planning minimizes waste and redundancy.
4.
Planning establishes goals or
standards used in controlling.
Planning and Performance. Although organizations that use

formal planning do not always outperform those that do not plan,

most studies show positive relationships between planning and
performance.
1.

2.

Effective
planning
and
implementation play a greater part in high
performance than does the amount of planning
done.
2.
Studies have shown that when
formal planning has not led to higher performance,
the external environment is often the reason.
HOW DO MANAGERS PLAN?
Planning is often called the primary management function
because it establishes the basis for all other functions. Planning
involves two important elements: goals and plans.
A.
Types of Goals
1.
Goals (often called objectives) are desired
outcomes for individuals, groups, or entire
organizations.
2.
Types of goals
a.
Financial performance versus strategic
b.
Stated goals versus real goals
1)
Stated goals are official statements
of what an organization says and what
it wants its various stakeholders to
believe its goals are.

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2)

B.

3.

Real goals are those that an

organization actually pursues, as
defined by the actions of its members.
Types of Plans
Plans can be described by their
breadth, time frame, specificity, and frequency of use
(see Exhibit 7-1).
a.
Breadth: Strategic versus operational plans.
Strategic plans (long-term plans) are plans
that apply to the entire organization,
establish the organizations overall goals,
and seek to position the organization in
terms of its environment. Operational
plans (short-term plans) are plans that
specify the details of how the overall goals
are to be achieved.
b.
Time frame: Short-term versus long-term
plans. Short-term plans are plans that
cover one year or less. Long-term plans
are plans with a time frame beyond three
years.
c.
Specificity: Specific versus directional plans.
Specific plans are plans that are clearly
defined and leave no room for interpretation.
Directional plans are flexible plans that set
out general guidelines. (See Exhibit 7-3 and
PowerPoint slide 7-14 for illustrations on
how specific planning and directional
planning differ.)
d.
Frequency of use: Single-use versus standing
plans. A single-use plan is a one-time plan
specifically designed to meet the needs of a
unique situation. Standing plans are
ongoing plans that provide guidance for
activities performed repeatedly.

SETTING GOALS AND DEVELOPING PLANS

A.
Approaches to Establishing Goals. Goals can be
established through the process of traditional goal setting
or through MBO (management by objectives).
1.
Traditional goal setting is an approach to setting
goals in which goals are set at the top level of the
organization and then broken into subgoals for
each level of the organization.
a.
Traditional goal setting assumes that top
managers know what is best because of their
ability to see the big picture. Employees
are to work to meet the goals for their
particular area of responsibility.
b.
This traditional approach requires that goals
must be made more specific as they flow
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2.

3.

B.

down to lower levels in the organization. In

striving to achieve specificity, however,
objectives sometimes lose clarity and unity
with goals set at a higher level in the
organization (see Exhibit 7-2).
c.
When the hierarchy of organizational goals is
clearly defined, it forms an integrated
means-end chainan integrated network
of goals in which the accomplishment of
goals at one level serves as the means for
achieving the goals, or ends, at the next
level.
d.
Management by objectives (MBO) is a
process of setting mutually agreed-upon
goals and using those goals to evaluate
employee performance. Exhibit 7-5 list the
steps in a typical MBO program.
e.
Studies of actual MBO programs confirm that
MBO can increase employee performance
and organizational productivity. However, top
management commitment and involvement
are important contributions to the success of
an MBO program.
Characteristics of Well-Designed Goals (See
Exhibit 7-4):
1
Written in terms of outcomes
2.
Measurable and quantifiable
3.
Clear as to a time frame
4.
Challenging, but attainable
5.
Written down
6.
Communicated
to
all
organizational
members
Five Steps in Goals Setting
1.
Review the organizations mission (the
purpose of the organization).
2.
Evaluate available resources.
3.
Determine the goals individually or with
input from others
4.
Write down the goals and communicate them
to all who need to know.
5.
Review results and whether goals are being
met. Make changes as needed.

Developing Plans
The process of developing plans is influenced by three
contingency factors and by the particular planning
approach used by the organization.
1.
Contingency Factors in Planning:
a.
Managers level in the organization (see
Exhibit 7-5). Operational planning usually
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2.

dominates the planning activities of lowerlevel managers. As managers move up

through the levels of the organization, their
planning becomes more strategy oriented.
b.
Degree of environmental uncertainty. The
greater the environmental uncertainty, the
more directional plans should be, with
emphasis placed on the short term.
1)
When uncertainty is high, plans should
be specific, but flexible.
2)
Managers must be prepared to rework
and amend plans, or even to abandon
their plans if necessary.
c.
Length of future commitments
1)
According to the commitment concept,
plans should extend far enough to
meet those commitments made today.
2)
Planning for too long or for too short a
time
period
is
inefficient
and
ineffective.
Approaches to Planning
a.
In the traditional approach, planning was
done entirely by top-level managers who
were often assisted by a formal planning
department.
b.
Another approach to planning is to involve
more members of the organization in the
planning process. In this approach, plans are
not handed down from one level to the next,
but
are
developed
by
organizational
members at various levels to meet their
specific needs.

Thinking Critically About

Ethics

Is MBO Manipulation?

In this critical thinking exercise, students are asked to consider an ethical dilemma
faced by Proctor & Gamble during a bird-flu pandemic in Asia. At that time, Asian
countries were horrified by the prospect of a deadly disease passed by one of the
planets most potentially mobile carriers. The dilemma occurs when Proctor & Gamble
considers reserving a drug treatment for their employees at the cost of distributing it
to those who may need it.
You might want to address this ethical dilemma by asking students to place
themselves in the position of a Proctor & Gamble employee or someone infected with
the bird-flu virus. Ask students to go through a scenario of a) Proctor & Gamble
reserving treatment and any potential negative press that would occur if lives were
lost that could have been saved by the treatment, and b) what would happen if Proctor
& Gamble had employees who contracted the virus and the company did nothing to
help.

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4.

CONTEMPORARY ISSUES IN PLANNING

The concluding section of Chapter 7 examines criticisms of
planning and addresses how managers can plan effectively in
dynamic environments.
A.
Criticisms of Planning.
Although
planning
is
an
important managerial function with widespread use, 6
major arguments have been directed against planning:
1.
Planning may create rigidity. Formal planning may
lock an organization into specific goals and
specific timetables that were established under
certain
environmental
conditions.
If
the
environment changes, managers may believe they
are locked into the current plans.
2.
Plans cant be developed for a dynamic environment. Managing
under chaotic environmental conditions requires flexibility, and
this may mean not being tied to formal plans.
3.
Formal plans cant replace intuition and creativity.
The formal planning process may emphasize the
mechanics and routines of planning, sometimes
inhibiting creativity and innovation.
4.
Planning focuses managers attention on todays
competition, not on tomorrows survival. An
organization that uses formal planning has a
tendency to focus on existing opportunities rather
than on creating or reinventing an industry, and
competitors may take the lead.
5.
Formal planning reinforces success, which may
lead to failure. Because the existing plans have led
to success, managers may be reluctant to change
or discard previously successful plans. The
mentality may be, If its not broken, why fix it?
6.
Planning isnt enough. The work doesnt stop when
the plan is done. The next step is implementing
the plan.
B.
Effective Planning in Dynamic Environments. The external
environment is constantly changing.
1.
Managers should develop plans that are specific,
but flexible.
2.
Managers must recognize that planning is an
ongoing process, and they should be willing to
change directions if environmental conditions
warrant.
3.
Flexibility is particularly important.
4.
Managers must remain alert to environmental
changes
that
could
impact
the
effective
implementation of plans, and they must be
prepared to make changes as needed.
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Answers to Thinking About Management

Issues

1.

Will planning become more or less important to managers in the

future? Why?
Planning will become more important to managers in the future
because of the uncertainty in an increasingly dynamic
environment. Changes constantly occur in both the general and
specific environments of organizations, and many of these
changes take place rapidly. Planning helps managers cope with
the uncertainty by forcing managers to look ahead, anticipate
change, consider the impact of the change, and develop
appropriate responses.

2.

If planning is so crucial, why do some managers choose not to

do it? What would you tell these managers?
Managers may choose not to devote time to planning because
they do not know how to plan or feel that they do not have the
necessary time. Others may say that planning is a waste of
time, that the future is going to happen whether or not they
plan. However, these reasons do not discount the importance of
planning. Every manager should engage in planning.

3.

Explain how planning involves decisions today that will have an

impact later.
As managers plan, they make decisions that influence how
activities are organized, how employees are managed, and what
control mechanisms are implemented. As managers look to the
future by planning, the decisions they make as they plan will
have an impact on their other managerial activities.

4.

How might planning in a not-for-profit organization such as the

American Cancer Society differ from planning in a for-profit
organization such as Coca-Cola?
The process of planning is similar, but the content of the plans
will differ. The types of objectives that are established and the
plans that are formulated will be influenced by the fact that a
not-for-profit organization does not have profit as its major
objective. However, a not-for-profit organization must devote
efforts and resources to planning how to raise funds and to
recruit volunteers to achieve its mission.

5.

What types of planning do you do in your personal life? Describe

these plans
in terms of being (a) strategic or operational
plans, (b) short or long term plans, and (c) specific or directional
plans.

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Students responses to this question will, of course, vary.

Students may mention their planning to meet educational and
career goals. Encourage your students to think about their
everyday lives and the types of daily, weekly, monthly, and
yearly planning they do.
6.

The late Peter Drucker, an eminent management author, identified the SMART
format for setting goals back in 1954: S (specific), M (measurable), A
(attainable), R (relevant), and T (time bound). Is this format still relevant
today? Discuss.
Of all of the material presented in this chapter, most students will readily
recall this acronym for goal setting. These qualities from Drucker have
remained basically unaltered and have been cited in numerous texts and
studies. As a part of student discussion, try to find other application for
Druckers work in this area beyond the management of employees. What
about for school children? Volunteers working for a community program?

7.

Many companies have a goal of becoming more environmentally sustainable.

One of the most important steps they can take is controlling paper waste.
Choose a companyany type, any size. Imagine that youve been put in
charge of creating a program to control paper waste for the company. Set
goals and develop plans. Prepare a report for your boss (that is, your
professor), outlining these goals and plans.
It should also be stressed to students that plans must be accepted by top
management and as well as employees at lower levels if it is to be effectively
implemented. Have students discuss the difficulty of implementing a plan
such as this across levels. How could students increase buy-in of the plan?
How would such a plan be ultimately evaluated to determine its success?
Using criteria discussed in the previous question, have students check that
their goals match the SMART format.

Your Turn to be a Manager

Practice setting goals for various aspects of your personal life, such as
academics, career preparation, family, hobbies, and so forth. Set at least two
short-term goals and at least two long-term goals for each area.

For the goals that you have set, write out plans for achieving those goals.
Think in terms of what you will have to do to accomplish each one. For
instance, if one of your academic goals is to improve your grade-point
average, what will you have to do to reach that goal?

Write a personal mission statement. Although this may sound simple to do,
its not going to be simple or easy. Our hope is that it will be something that
youll want to keep, use, and revise when necessary...that it will be something
that helps you be the you youd like to be and helps you live the life youd like
to live. Start by doing some research on personal mission statements. There
are some wonderful Web resources that can guide you. Good luck!

Interview three managers about the types of planning they do. Ask them for
suggestions on how to be a better planner. Write a report that describes and
compares your findings.

Choose two companies, preferably in different industries. Research the

companies Web sites and find examples of goals that they have stated. (Hint:

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A companys annual report is often a good place to start.) Evaluate these

goals. Are they well written? Rewrite those that dont exhibit the
characteristics of well-written goals so that they do.

Steves and Marys suggested readings: Peter F. Drucker, Management: Tasks,

Responsibilities, Practices (Harper Business, 1974); Peter F. Drucker, The
Executive in Action: Managing for Results (Harper Business, 1967); and Peter
F. Drucker, The Practice of Management (HarperCollins, 1954).

What does it take to be a good planner? Do some research on this. As part of

your research, talk to professors and other professionals. Make a bulleted list
of suggestions. Be sure to cite your sources.

In your own words, write down three things you learned in this chapter about
being a good manager.

Self-knowledge can be a powerful learning tool. Go to mymanagementlab and

complete these self-assessment exercises: Whats My Attitude Toward
Achievement? What Are My Course performance Goals? What Time of Day Am
I Most Productive? and How Good Am I at Personal Planning? Using the results
of your assessments, identify personal strengths and weaknesses. What will
you do to reinforce your strengths and improve your weaknesses?

WORKING
Exercise

TOGETHERTeam-Based

This exercise asks students to work in small groups of three to four

individuals in order to develop goals for each stage of a project
focusing on the development of an Internet research training program.
The three stages of the project are (1) researching corporate customer
needs, (2) using the Internet to find specific information sources and
techniques that could be used in the training module, and (3)
designing and writing specific training modules.
Consider making this an out-of-class assignment for which students are
to bring back at least three Web sites that could be used as training
modules. Then, break the class into small groups, and have them
develop goals (well-designed goals) for stages 1 and 3 of this specific
task.

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Answers to Case Application Questions

Mastering the Plan Priceless

1. What role do you think goals would play in planning for this training event?
List some goals you think might be important. (Make sure these goals have the
characteristics of well-written goals.)
Goals play a substantial role in an organizations planning for situations requiring
coordination across a large company. The companys goal to create a new culture
to meet the demands of going public should follow the SMART format introduced
by Drucker. In addition to being written, have students suggest ways that the
training can meet the qualities of S (specific), M (measurable), A (attainable), R
(relevant), and T (time bound).
2. What types of plans would be needed for actually doing the event? (For
instance, strategic or operational or both? Short term, long term, or both?)
Explain why you think these plans would be important.
Planning involves defining the organizations goals, establishing an overall strategy
for achieving those goals, and developing a comprehensive set of plans to integrate
and coordinate organizational work. Preparing for an event to train almost 5,000
employees in 36 cities would require addressing variables on several dimensions
such as job-level of employees to be trained and national culture of employee.
Have students think of short term plans involved for the actual training event and
then long term plans to follow up the success of the training in meeting the goals
laid out in the Roadmap to the Future. In addressing the importance of these
plans, have students think of the possible outcomes for the plan if the training fails
to meet expectations or creates a situation where employees become resistant.
3. What challenges might there be in doing such an event? How about doing
such an event in different global locations over a short time frame? How could
they best prepare for those challenges?
Any plan involving such a large number of participants poses challenges to an
organization. If there are students in class who have coordinate planning sessions
for organizations, it would be worthwhile for these students to share their
experiences. If not, ask if students have ever planned a party for a large number
of guests? Next, have students discuss the consequences of multiplying that times
one hundred. In preparing for such an important event, Ms. Ray must be aware of
and alert to such possibilities and proactively make the necessary plans in case an
instructor becomes ill or if material for the training does not arrive. These
contingency plans are necessary considering the scope of the training.
4. What did this case story teach you about planning?
Some students may question the need to have an involved plan for a training
session. Have students make an estimate of the financial costs for a training event
of this magnitude. Next, have students estimate the rewards to the organization if
this plan is successful or costs if this plan fails.

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ADDITIONAL CHAPTER INFORMATION

With a turbulent economy and high levels of uncertainty, planning and
strategic planning, in particular, present difficult challenges for
managers. The article There Is No Alternative to provides an
interesting contemporary approach to planning in an uncertain
economy. Scenario planning was pioneered by First, Royal Dutch/Shell
to anticipate global changes.
The article looks beyond scenario
planning in which everything is in a state of flux. The article can be
found in FastCompany, Issue 60, July 2002, Page 106 (By Ian Wylie). A
link
to
this
source
is
[http://www.fastcompany.com/magazine/60/tina.html].

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