Page |1

Chapter 3:
MANAGEMENT FUNCTIONS: PLANNING AND ORGANIZING
Techniques for Assessing the Environment
1. Environmental Scanning: which is the screening of large amounts of information to
anticipate and interpret changes in the environment.
A fast-growing area of environmental scanning is competitor intelligence and global scanning

2. Forecasting: The second technique managers can use to assess the environment is
forecasting. Forecasting is an important part of planning and managers need forecasts that
will allow them to predict future events effectively and in a timely manner. Environmental
scanning establishes the basis for forecasts, which are predictions of outcomes.
FORECASTING TECHNIQUES. Forecasting techniques fall into two categories: quantitative
and qualitative.
 Quantitative forecasting applies a set of mathematical rules to a series of past data to
predict outcomes. These techniques are preferred when managers have sufficient hard data
that can be used.
 Qualitative forecasting, in contrast, uses the judgment and opinions of knowledgeable
individuals to predict outcomes. Qualitative techniques typically are used when precise
data are limited or hard to obtain.
FORECASTING EFFECTIVENESS. The goal of forecasting is to provide managers with
information that will facilitate decision making. Despite its importance to planning, managers have
had mixed success with it

3. Benchmarking: the search for the best practices among competitors or noncompetitors
that lead to their superior performance

Techniques for Allocating Resources

 Page |2

The What and Why of Planning

 What Is Planning?
Those goals, and developing plans to integrate and coordinate work activities. It’s concerned with
both ends (what) and means (how). When we use the term planning, we mean formal planning. In
formal planning, specific goals covering a specific time period are defined. These goals are written
and shared with organizational members to reduce ambiguity and create a common understanding
about what needs to be done. Finally, specific plans exist for achieving these goals.

 Why Do Managers Plan?

1. Planning provides direction to managers and nonmanagers alike.
2. Planning reduces uncertainty by forcing managers to look ahead, anticipate change,
consider the impact of change, and develop appropriate responses.
3. Planning minimizes waste and redundancy. When work activities are coordinated around
plans, inefficiencies become obvious and can be corrected or eliminated.
4. Planning establishes the goals or standards used in controlling.

Difference between Goals and Plans

Planning is often called the primary management function because it establishes the basis for all
the other things managers do as they organize, lead, and control. It involves two important aspects:
goals and plans.

1. Goals (objectives) are desired outcomes or targets.

Types of Goals
 Stated goals: official statements of what an organization says, and what it wants its
stakeholders to believe, its goals are. However, stated goals which can be found in an
organization’s charter, annual report, public relations announcements, or in public
statements made by managers—are often conflicting and influenced by what various
stakeholders think organizations should do.
 Real goals: those goals an organization actually pursues observe what organizational
members are doing. Actions define priorities.

2. Plans are documents that outline how goals are going to be met. They usually include
resource allocations, schedules, and other necessary actions to accomplish the goals.

Types of Plans
The most popular ways to describe organizational plans are
1. Breadth (strategic versus operational)
 Page |3

2. Time frame (short term versus long term)

3. Specificity (directional versus specific)
4. Frequency of use (single use versus standing).

1. Breadth
 Strategic plans are plans that apply to the entire organization and establish the
organization’s overall goals. Strategic plans are broad.
 Plans that encompass a particular operational area of the organization are called
operational plans. Operational plans are narrow.
2. Time frame
 Long-term used to mean anything over seven years. Long-term plans as those with a
time frame beyond three years.
 Short-term plans cover one year or less. Any time period in between would be an
intermediate plan.
3. Specificity
 Directional plans are flexible plans that set out general guidelines. They provide focus
but don’t lock managers into specific goals or courses of action.
 Specific plans are clearly defined and leave no room for interpretation. A specific plan
states its objectives in a way that eliminates ambiguity and problems with
misunderstanding.
4. Frequency of use
 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

1. Approaches to Setting Goals

 Page |4

Traditional goal setting, goals set by top managers flow down through the organization and
become subgoals for each organizational area. This traditional perspective assumes that top
managers know what’s best because they see the “big picture.” And the goals passed down to each
succeeding level guide individual employees as they work to achieve those assigned goals.
A method of setting goals without clearly defining objectives or key results. It often involves
setting long-term goals.

An integrated network of goals, or a means-ends chain. Higher level goals (or ends) are linked to
lower-level goals, which serve as the means for their accomplishment. In other words, the goals
achieved at lower levels become the means to reach the goals (ends) at the next level.
A model that helps explain how consumers choose products and services to achieve certain
goals. It's a cognitive model that connects the tangible features of a product to the abstract values
that motivate consumers.
Instead of using traditional goal setting, many organizations use management by objectives
(MBO), a process of setting mutually agreed-upon goals and using those goals to evaluate
employee performance.

STEPS IN GOAL SETTING

Managers should follow five steps when setting goals.
 Page |5

1. Review the organization’s mission, or purpose. A mission is a broad statement of an

organization’s purpose that provides an overall guide to what organizational members think is
important. Managers should review the mission before writing goals because goals should reflect
that mission.
2. Evaluate available resources. You don’t want to set goals that are impossible to achieve
given your available resources. Even though goals should be challenging, they should be realistic.
After all, if the resources you have to work with won’t allow you to achieve a goal no matter how
hard you try or how much effort is exerted, you shouldn’t set that goal. That would be like the
person with a $50,000 annual income and no other financial resources setting a goal of building
an investment portfolio worth $1 million in three years. No matter how hard he or she works at it,
it’s not going to happen.
3. Determine the goals individually or with input from others. The goals reflect desired
outcomes and should be congruent with the organizational mission and goals in other
organizational areas. These goals should be measurable, specific, and include a time frame for
accomplishment.
4. Write down the goals and communicate them to all who need to know. Writing
down and communicating goals forces people to think them through. The written goals also
become visible evidence of the importance of working toward something.
5. Review results and whether goals are being met. If goals aren’t being met, change
them as needed.

Once the goals have been established, written down, and communicated, a manager is ready to
develop plans for pursuing the goals.

2. Developing Plans
The process of developing plans is influenced by three contingency factors and by the planning
approach followed.

CONTINGENCY FACTORS IN PLANNING.

Three contingency factors affect the choice of plans: organizational level, degree of
environmental uncertainty, and length of future commitments.
1. The relationship between a manager’s level in the organization and the type of planning
done.
 Page |6

2. The second contingency factor is environmental uncertainty.

3. The last contingency factor also is related to the time frame of plans. The commitment
concept says that plans should extend far enough to meet those commitments made when
the plans were developed. Planning for too long or too short a time period is inefficient and
ineffective.

Approaches to Planning
Planning is done a little differently. How an organization plans can best be understood by looking
at who does the planning. In the traditional approach, planning is done entirely by top-level
managers who often are assisted by a formal planning department, a group of planning specialists
whose sole responsibility is to help write the various organizational plans. Under this approach,
plans developed by top-level managers flow down through other organizational levels, much like
the traditional approach to goal-setting.
Another approach to planning is to involve more organizational members in the process. In this
approach, plans aren’t handed down from one level to the next, but instead are developed by
organizational members at the various levels and in the various work units to meet their specific
needs.
When organizational members are more actively involved in planning, they see that the plans are
more than just something written down on paper. They can actually see that the plans are used in
directing and coordinating work.

Strategic Management
What Is Strategic Management?
Strategic management is what managers do to develop the organization’s strategies. It’s an
important task involving all the basic management functions planning, organizing, leading, and
controlling.
What are an organization’s strategies? They’re the plans for how the organization will do whatever
it’s in business to do, how it will compete successfully, and how it will attract and satisfy its
customers in order to achieve its goals.
One term often used in strategic management is business model, which simply is how a company
is going to make money.
It focuses on two things:
(1) whether customers will value what the company is providing.
(2) whether the company can make any money doing that
Why Is Strategic Management Important?
 Page |7

There are three reasons.

1. The most significant one is that it can make a difference in how well an organization
performs.
2. It’s important has to do with the fact that managers in organizations of all types and sizes
face continually changing situations.
3. Strategic management is important because organizations are complex and diverse. Each
part needs to work together toward achieving the organization’s goals; strategic
management helps do this.

The Strategic Management Process

Step 1: Identifying the Organization’s Current Mission, Goals, and Strategies

Every organization needs a mission, a statement of its purpose. Defining the mission forces
managers to identify what it’s in business to do.
Step 2: Doing an External Analysis
Analyzing that environment is a critical step in the strategic management process. Managers do an
external analysis so they know, for instance, what the competition is doing, what pending
legislation might affect the organization, or what the labor supply is like in locations where it
operates. In an external analysis, managers should examine the economic, demographic,
political/legal, sociocultural, technological, and global components to see the trends and changes.
Step 3: Doing an Internal Analysis
The internal analysis, which provides important information about an organization’s specific
resources and capabilities.
An organization’s resources are its assets, financial, physical, human, and intangible, that it uses
to develop, manufacture, and deliver products to its customers. They’re “what” the organization
has.
Its capabilities are its skills and abilities in doing the work activities needed in its business “how”
it does its work. The major value-creating capabilities of the organization are known as its core
competencies.
Both resources and core competencies determine the organization’s competitive weapons. After
completing an internal analysis, managers should be able to identify organizational strengths and
weaknesses.
 Page |8

Any activities the organization does well or any unique resources that it has are called strengths.
Weaknesses are activities the organization doesn’t do well or resources it needs but doesn’t
possess.
The combined external and internal analyses are called the SWOT analysis, which is an analysis
of the organization’s strengths, weaknesses, opportunities, and threats. After completing the
SWOT analysis, managers are ready to formulate appropriate strategies, that is, strategies that
(1) exploit an organization’s strengths and external opportunities
(2) buffer or protect the organization from external threats
(3) correct critical weaknesses.
Step 4: Formulating Strategies
As managers formulate strategies, they should consider the realities of the external environment
and their available resources and capabilities in order to design strategies that will help an
organization achieve its goals. The three main types of strategies managers will formulate include
corporate, competitive, and functional.
Step 5: Implementing Strategies
Once strategies are formulated, they must be implemented. No matter how effectively an
organization has planned its strategies, performance will suffer if the strategies aren’t implemented
properly.
Step 6: Evaluating Results
The final step in the strategic management process is evaluating results.
How effective have the strategies been at helping the organization reach its goals?
What adjustments are necessary?

Corporate Strategies

What Is Corporate Strategy?

A corporate strategy is one that determines what businesses a company is in or wants to be in,
and what it wants to do with those businesses. It’s based on the mission and goals of the
organization and the roles that each business unit of the organization will play.

What Are the Types of Corporate Strategy?

The three main types of corporate strategies are growth, stability, and renewal.
 Page |9

1. A growth strategy is when an organization expands the number of markets served or

products offered, either through its current business(es) or through new business(es).
Because of its growth strategy, an organization may increase revenues, number of
employees, or market share. Organizations grow by using concentration, vertical
integration, horizontal integration, or diversification.
 An organization that grows using concentration focuses on its primary line of business and
increases the number of products offered or markets served in this primary business.
 A company also might choose to grow by vertical integration, either backward, forward,
or both. In backward vertical integration, the organization becomes its own supplier so it
can control its inputs.
 In horizontal integration, a company grows by combining with competitors.
 An organization can grow through diversification, either related or unrelated. Related
diversification happens when a company combines with other companies in different, but
related, industries.
2. A stability strategy is a corporate strategy in which an organization continues to do what
it is currently doing. This strategy include continuing to serve the same clients by offering
the same product or service, maintaining market share, and sustaining the organization’s
current business operations. The organization doesn’t grow, but doesn’t fall behind, either.
3. When an organization is in trouble, something needs to be done. Managers need to develop
strategies, called renewal strategies, that address declining performance.
The two main types of renewal strategies are retrenchment and turnaround strategies.
 A retrenchment strategy is a short-run renewal strategy used for minor performance
problems. This strategy helps an organization stabilize operations, revitalize organizational
resources and capabilities, and prepare to compete once again.
 When an organization’s problems are more serious, more drastic action, the turnaround
strategy, is needed. Managers do two things for both renewal strategies: cut costs and
restructure organizational operations. However, in a turnaround strategy, these measures
are more extensive than in a retrenchment strategy.

How Are Corporate Strategies Managed?

When an organization’s corporate strategy encompasses a number of businesses, managers can
manage this collection, or portfolio, of businesses using a tool called a corporate portfolio matrix.
This matrix provides a framework for understanding diverse businesses and helps managers
establish priorities for allocating resources.
The first portfolio matrix, the BCG matrix, was developed by the Boston Consulting Group.
 P a g e | 10

Identify which ones offered high potential and which were a drain on organizational resources.
The horizontal axis represents market share (low or high) and the vertical axis indicates anticipated
market growth (low or high). A business unit is evaluated using a SWOT analysis and placed in
one of the four categories.
What are the strategic implications of the BCG matrix?
The dogs should be sold off or liquidated as they have low market share in markets with low
growth potential.
Managers should “milk” cash cows for as much as they can, limit any new investment in them,
and use the large amounts of cash generated to invest in stars and question marks with strong
potential to improve market share. Heavy investment in stars will help take advantage of the
market’s growth and help maintain high market share.
The stars, of course, will eventually develop into cash cows as their markets mature and sales
growth slows.
The hardest decision for managers relates to the question marks. After careful analysis, some will
be sold off and others strategically nurtured into stars.

Competitive Strategies
A competitive strategy is a strategy for how an organization will compete in its business(es). For
a small organization in only one line of business or a large organization that has not diversified
into different products or markets, its competitive strategy describes how it will compete in its
primary or main market. For organizations in multiple businesses, however, each business will
have its own competitive strategy that defines its competitive advantage, the products or services
it will offer, the customers it wants to reach, and the like.
Strategic business unit (SBU) The single independent businesses of an organization that
formulate their own competitive strategies.

The Role of Competitive Advantage

Developing an effective competitive strategy requires an understanding of competitive
advantage, which is what sets an organization apart that is, its distinctive edge.
 QUALITY AS A COMPETITIVE ADVANTAGE
 SUSTAINING COMPETITIVE ADVANTAGE.
 FIVE FORCES MODEL.
In any industry, five competitive forces dictate the rules of competition. Together, these five forces
determine industry attractiveness and profitability, which managers assess using these five
factors:
1. Threat of new entrants. How likely is it that new competitors will come into the industry?
2. Threat of substitutes. How likely is it that other industries’ products can be substituted for
our industry’s products?
3. Bargaining power of buyers. How much bargaining power do buyers (customers) have?
4. Bargaining power of suppliers. How much bargaining power do suppliers have?
5. Current rivalry. How intense is the rivalry among current industry competitors?

Designing Organizational Structure

Organizational structure is the formal arrangement of jobs within an organization.
 P a g e | 11

1. Organizational design, a process that involves decisions about six key elements: work
specialization, departmentalization, chain of command, span of control, centralization and
decentralization, and formalization.
 work specialization, which is dividing work activities into separate job tasks. Individual
employees “specialize” in doing part of an activity rather than the entire activity in order
to increase work output. It’s also known as division of labor, a concept we introduced in
the management history module. Work specialization makes efficient use of the diversity
of skills that workers have. In most organizations, some tasks require highly developed
skills; others can be performed by employees with lower skill levels.
2. After deciding what job tasks will be done by whom, common work activities need to be
grouped back together so work gets done in a coordinated and integrated way. How jobs
are grouped together is called departmentalization.
 One specific type of team that more organizations are using is a cross-functional team,
which is a work team composed of individuals from various functional specialties.

3. The chain of command is the line of authority extending from upper organizational
levels to lower levels, which clarifies who reports to whom. Managers need to consider it
when organizing work because it helps employees with questions such as “Who do I report
to?” or “Who do I go to if I have a problem?” To understand the chain of command, you
have to understand three other important concepts: authority, responsibility, and unity of
command.
 Authority was a major concept discussed by the early management writers; they viewed it
as the glue that held an organization together. Authority refers to the rights inherent in a
managerial position to tell people what to do and to expect them to do it. Managers in the
chain of command had authority to do their job of coordinating and overseeing the work
of others.
The acceptance theory of authority, says that authority comes from the willingness of
subordinates to accept it.
The early management writers also distinguished between two forms of authority: line
authority and staff authority. Line authority entitles a manager to direct the work of an
employee. It is the employer, employee authority relationship that extends from the top of
the organization to the lowest echelon, staff authority functions to support, assist, advise,
and generally reduce some of their informational burdens.
 When managers use their authority to assign work to employees, those employees take on
an obligation to perform those assigned duties. This obligation or expectation to perform
is known as responsibility.
 The unity of command principle states that a person should report to only one manager.

4. Span of control is all about. The traditional view was that managers could not and
should not directly supervise more than five or six subordinates. Determining the span of
control is important because to a large degree, it determines the number of levels and
managers in an organization an important consideration in how efficient an organization
will be.
5. Centralization is the degree to which decision making takes place at upper levels of the
organization. If top managers make key decisions with little input from below, then the
 P a g e | 12

organization is more centralized. the more that lower-level employees provide input or
actually make decisions, the more decentralization there is. Keep in mind that
centralization-decentralization is not an either-or concept. The decision is relative, not
absolute that is, an organization is never completely centralized or decentralized. This
trend, also known as employee empowerment, gives employees more authority (power)
to make decisions.

6. Formalization refers to how standardized an organization’s jobs are and the extent to
which employee behavior is guided by rules and procedures. In highly formalized
organizations, there are explicit job descriptions, numerous organizational rules, and
clearly defined procedures covering work processes. Employees have little discretion over
what’s done, when it’s done, and how it’s done.

Traditional Organizational Designs

 A simple structure, which is an organizational design with low departmentalization, wide
spans of control, authority centralized in a single person, and little formalization.
 A functional structure is an organizational design that groups similar or related
occupational specialties together. You can think of this structure as functional
departmentalization applied to the entire organization.
 The divisional structure is an organizational structure made up of separate business units
or divisions. In this structure, each division has limited autonomy, with a division manager
who has authority over his or her unit and is responsible for performance.
 P a g e | 13

The Human Resource Management

Why Is HRM Important?

HRM is important for three reasons.
 First, it can be a significant source of competitive advantage as various studies have
concluded.
 Second, HRM is an important part of organizational strategies. Achieving competitive
success through people means managers must change how they think about their
employees and how they view the work relationship. They must work with people and treat
them as partners, not just as costs to be minimized or avoided.
 Finally, the way organizations treat their people has been found to significantly impact
organizational performance. Work practices that lead to both high individual and high
organizational performance are known as high-performance work practices.
 P a g e | 14

HRM PROCESS

1. Human resource planning is the process by which managers ensure that they have
the right number and kinds of capable people in the right places and at the right times.

2. Recruitment, that is, locating, identifying, and attracting capable applicants. On the
other hand, if HR planning shows a surplus of employees, managers may want to reduce
the organization’s workforce through decruitment.

3. Selection, screening job applicants to determine who is best qualified for the job.
Managers need to “select” carefully since hiring errors can have significant implications.
 P a g e | 15

4. A person starting a new job needs the same type of introduction to his or her job and the
organization. This introduction is called orientation.
There are two types of orientation.
 Work unit orientation familiarizes the employee with the goals of the work unit,
clarifies how his or her job contributes to the unit’s goals, and includes an
introduction to his or her new coworkers.
 Organization orientation informs the new employee about the company’s goals,
history, philosophy, procedures and rules. It should also include relevant HR
policies and maybe even a tour of the facilities.

5. Employee Training: is an important HRM activity. As job demands change, employee

skills have to change.
 P a g e | 16

6. Employee Performance Management: Performance management system does,

establishes performance standards that are used to evaluate employee performance.
 P a g e | 17

7. Compensation and Benefits: Managers must develop a compensation system that reflects
the changing nature of work and the workplace in order to keep people motivated.
Organizational compensation can include many different types of rewards and benefits
such as base wages and salaries, wage and salary add-ons, incentive payments, and other
benefits and services. Some organizations offer employees some unusual, but popular,
benefits. determining compensation: skill-based pay and variable pay.
o Skill-based pay systems reward employees for the job skills and competencies they
can demonstrate. Under this type of pay system, an employee’s job title doesn’t
define his or her pay category, skills do.
o Variable pay systems, in which an individual’s compensation is contingent on
performance.