Unit – II
PLANNING
Definitions of Planning
Planning is the process of deciding in advance
what is to be done, who is to do it, how it is to
be done and when it is to be done.
H. Killen
Planning is an intellectual process, it requires
determination of actions and decisions based
on purpose, knowledge and estimates.
Koontz & O’Donnell
Definitions of Planning
Planning is deciding the best alternatives
among others to perform different managerial
operations in order to achieve the
predetermined goals.
Henry Fayol
Nature & Characteristics
of Planning
1. Planning focuses on achieving objectives.
2. Planning is a primary function of management.
3. Planning is pervasive function of management.
4. Planning is continuous.
5. Planning is futuristic.
6. Planning involves decision making.
7. Planning is a mental exercise.
8. The efficiency of planning is measured by the
contribution of the objectives.
Steps in Planning/Planning Process
Perception of Establishing Planning
Opportunities Objectives Premises
Choice of
Evaluation of Identification
Alternative
Alternatives of Alternatives
Plan
Formulation of Establishing
Supporting Sequence of
Plans Activities
Need/Importance of Planning
1. Freedom from uncertainty.
2. Planning Provides framework for control.
3. Utilization of resources in an efficient
manner.
4. Attention on Objectives.
5. Improves competitive strength.
6. Achieve better co-ordination.
7. Take advantage of favorable opportunities.
8. Develop forward looking and creativity.
Peter Drucker & 6 P’s of Planning
1. Purpose : A good plan requires a clear
understanding of the organisational purpose.
It should be clear and elaborate.
2. Philosophy : It incorporates the fundamental
beliefs as to how the organization's purpose
to be achieved. For example organization's
philosophy can be profitability through
quality.
Peter Drucker & 6 P’s of Planning
3. Premise : It includes strength and the
weakness of the organisation and its
knowledge and assumptions about the
environment.
4. Policies : Are the general guidelines. E.g.
Production policies, financial policies etc.
Peter Drucker & 6 P’s of Planning
5. Plans : Represents specific objectives and
action statements. Objectives are the goals
to be met and action statements are the
means to achieve these ends.
6. Priorities : Goals differ in priority. The higher
priority goals need more attention and more
resources.
Essentials of a Good Plan
1. Simplicity.
2. Comprehensive.
3. Written.
4. Flexible.
5. Balanced.
6. Well defined Objectives.
7. Stable.
8. Economical.
9. Timeliness.
Types of Plans
Standing Single-use
Plans Plans
Hierarchical Contingency
Plans Plans
PLANS
Hierarchical Plans
1. Strategic - The strategic plan generally involves planning at the
top institutional level of an organization. Strategic plans define
the organization’s long-term vision and how the organization
intends to make its vision a reality.
2. Administrative - Administrative or intermediate planning is
done at the level of middle management. It is cone to allocate
organizational resources and coordinate internal subdivisions of
the organization.
3. Operational - Operational planning is the process of
determining how specific tasks can best be accomplished on
time with available resources. This is also done to cover the
day-to-day operations of an organization.
Standing Plans
Standing plans are drawn to cover issues that managers face
repeatedly. For example, managers may be facing the problem of
late- coming quite often. Managers may, therefore, design a
standing plan to be implemented automatically each time an
employee is late for work. Such a standing plan may be called a
standard operating procedure (SOP).
Most common standing plans are :-
1. Mission or purpose - For example, the mission of a University
is to impart higher education.
2. Strategy is the basic long-term objectives of an enterprise and
the adoption of courses of action and allocation of resources
necessary to achieve these objectives.
Standing Plans
3. Policies - in most cases, standing plans. Policies provide
guidelines for repetitive actions.
3. Rules - are like standing plans too that guide action. Rules spell
out specifically what employees are supposed to do or not to do.
Rules specify what actions will be taken (or not taken) and what
behavior is permitted or not.
4. Procedures establish a required method of handling future
activities. It specifies a series of steps that must be taken to
accomplish a task.
Single-use Plans
Single-use plans are prepared for single or unique situations or
problems and are normally discarded or replaced after one use.
There are 4 Types of Single-Use Plans :-
1. Objectives or Goals - Often used interchangeably, are the ends
toward which activity is aimed. They represent not only the
endpoint of planning but also the end toward which all other
managerial functions are aimed.
Objectives are set about a particular period and thus the same
objective is not repeated year after year, month after month or
day after day.
2. Programs are plans of action followed in proper sequence
according to objectives, policies, and procedures.
Single-use Plans
3. Project is a particular job that needs to be done in connection
with a general program. So a single step in a program is set up
as a project.
4. Budget is a statement of expected results expressed in
numerical terms.” It is sometimes called the enumerated
program and most commonly expressed in terms of money i.e.
Rupee, Euro, Dollar, etc.
Contingency Plans
As we already know, the process of planning is based on certain
assumptions about what is likely to occur in the environment of an
organization. Contingency plans are made to deal with situations
that might crop up if these assumptions turn out to be wrong.
Thus contingency planning is the development of alternative
courses of action to be taken if events disrupt a planned course of
action. A contingency plan allows management to act immediately
if such unforeseen events as strikes, boycotts, natural disasters or
major economic changes render existing plans inoperable or
unsuitable.
STRATEGY
Modern business strategy emerged as a field of study and
practice in the 1960s; prior to that time, the words
"strategy" and "competition" rarely appeared in the most
prominent management literature.
The term strategy has been borrowed from military. Today
the competition, a business faces, is similar to a war and
every business wants to be one step up over its nearest
rivals.
STRATEGY
Strategy is a common theme of strategic decisions through
which an organization tries to relate itself with the
environment which involves major resources commitment
to develop certain advantages which help in achieving its
vision and mission.
SWOT/TOWS
SWOT analysis is the evaluation of the available
information about the business environment in
order to identify internal strength's weakness and
external opportunities and threats.
Tows analysis is very similar to SWOT method.
TOWS looks at the negative factors first in order
to turn them into positive factors.
SWOT Analysis
SWOT Matrix
Strategies in SWOT/TOWS
1. WT Strategy : Minimize weakness and
threats. E.g. Joint venture, liquidation etc.
2. WO Strategy : Minimize the weakness and
maximize the opportunities. E.g. outsourcing
etc.
Strategies in SWOT/TOWS
3. ST Strategy : Organisations strength to deal
with outside threats in environment. E.g.
new product introduced by competitors.
4. SO Strategy : Using company’s strength to
exploit outside opportunities.
Porter's Generic Competency Model
A firm's relative position within its industry determines whether a
firm's profitability is above or below the industry average. The
fundamental basis of above average profitability in the long run is
sustainable competitive advantage.
There are two basic types of competitive advantage a firm can
possess, Low cost or Differentiation. The two basic types of
competitive advantage combined with the scope of activities for
which a firm seeks to achieve them, lead to three generic
strategies for achieving above average performance in an
industry.
Types of Strategies :-
1. Cost Leadership
2. Differentiation
3. Focus - (a) Cost Focus (b) Differentiation Focus
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in
its industry. The sources of cost advantage are varied and depend on
the structure of the industry. They may include the pursuit of
economies of scale, technology, preferential access to raw materials
and other factors. If a firm can achieve and sustain overall cost
leadership, then it will be an above average performer in its
industry, provided it can command prices at or near the industry
average.
2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry
along with some dimensions that are widely valued by buyers. It
selects one or more attributes that many buyers in an industry
perceive as important, and uniquely positions itself to meet those
needs. It is rewarded for its uniqueness with a premium price.
3. Focus
The generic strategy of focus rests on the choice of a narrow
competitive scope within an industry. The focuser selects a segment or
group of segments in the industry and tailors its strategy to serving
them to the exclusion of others. The focus strategy has two variants.
(a) In Cost focus a firm seeks a cost advantage in its target segment.
(b) In Differentiation focus a firm seeks differentiation in its target
segment.
Both variants of the focus strategy rest on differences between a
focuser's target segment and other segments in the industry. The target
segments must either have buyers with unusual needs or else the
production and delivery system that best serves the target segment must
differ from that of other industry segments. Cost focus exploits
differences in cost behavior in some segments, while differentiation
focus exploits the special needs of buyers in certain segments.
BCG-Matrix
The Growth–share matrix (Product Portfolio Matrix, Boston
Box, BCG-matrix, Boston matrix, Boston Consulting
Group analysis) is a chart that was created by Bruce D.
Henderson for the Boston Consulting Group in 1970 to help
corporations to analyze their business units.
Growth-share matrix is a business tool, which uses relative
market share and industry growth rate factors to evaluate the
potential of business brand portfolio and suggest further
investment strategies.
It classifies business portfolio into four categories based
on industry attractiveness (growth rate of that industry)
and competitive position (relative market share). These
two dimensions reveal likely profitability of the business
portfolio in terms of cash needed to support that unit and
cash generated by it.
The general purpose of the analysis is to help understand,
which brands the firm should invest in and which ones
should be divested.
Relative market share - One of the dimensions used to
evaluate business portfolio is relative market share.
Higher corporate market share results in higher cash
returns. This is because a firm that produces more,
benefits from higher economies of scale and experience
curve, which results in higher profits.
Market growth rate - High market growth rate means
higher earnings and sometimes profits but it also
consumes lots of cash, which is used as investment to
stimulate further growth. Therefore, business units that
operate in rapid growth industries are cash users and are
worth investing in only when they are expected to grow
or maintain market share in the future.
Dogs
Dogs hold low market share compared to competitors
and operate in a slowly growing market. In general,
they are not worth investing in because they generate
low or negative cash returns. But some dogs may be
profitable and provide synergies for other brands or
SBUs or simply act as a defense to counter competitors
moves.
Therefore, it is always important to perform deeper
analysis of each brand or SBU to make sure they are not
worth investing in or have to be divested.
Strategic choices: Retrenchment, Divest, Liquidate
Cash cows
Cash cows are the most profitable brands and should be
“milked” to provide as much cash as possible. The cash gained
from “cows” should be invested into stars to support their
further growth. A Corporate should not invest into cash cows
to induce growth but only to support them so they can maintain
their current market share.
But, this is not always accurate. Cash cows are usually large
corporations or SBUs and sometimes they are capable of
innovating new products or processes, that might become new
stars.
Strategic choices: Product development, Diversification, Divest,
Retrenchment
Stars
Stars operate in high growth industries and maintain high
market share. Stars are both cash generators and cash users.
They are the primary units in which the company should
invest its money, because stars are expected to become cash
cows and generate positive cash flows.
Yet, not all stars become cash cows. This is especially true in
rapidly changing industries, where new innovative products
can soon be outcompeted by new technological
advancements, so a star in that case, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration,
market development, product development
Question Marks
Question marks are the brands that require much closer
consideration. They hold low market share in fast growing
markets consuming large amount of cash and incurring
losses. It has potential to gain market share and become a
star, which would later become cash cow.
Question marks do not always succeed and even after large
amount of investments they struggle to gain market share
and eventually become dogs. Therefore, they require very
close consideration to decide if they are worth investing.
Strategic choices: Market penetration, Market development, Product
development, divest
GE McKinsey Matrix/ McKinsey Nine Box Matrix
The GE McKinsey Matrix, also know as the
McKinsey Nine Box Matrix is a strategic tool used
for business portfolio planning.
The GE McKinsey Matrix came about in the 1970s
when GE hired McKinsey & Company to develop a
business portfolio analysis tool. They wanted this tool
to enable them to better analyze their SBUs so they
could make better investment decisions.
GE McKinsey Matrix/ McKinsey Nine Box Matrix
A business portfolio is a group of businesses
that collectively make up a company. These
individual businesses are often referred to as
strategic business units (SBUs).
As Example of a business portfolio, consider
Hilton Hotels. The Hilton Hotels group is
made up of many SBUs including Hilton
Double Tree, Hilton, Conrad Hotels, and
Waldorf Astoria Hotels.
Industry Attractiveness
• Market size and growth rate
• Industry profit margin
• Competitive intensity
• Overall risk of returns in the industry
• Technology
• Social, environmental and legal impacts
• Distribution structure
Business Strength
• Relative Brand Strength
• Market share
• Customer loyalty
• Competitive prices and quality
• Management caliber
Meaning of Policies
The term policy is derived from the Greek
word “Politicia” relating to policy that is citizen and
Latin work “politis” meaning polished, that is to say
clear. The policies which are generally formulated at
top level helps managers and give them sufficient
freedom to make judgments and helps to achieve the
organizational goals and objectives.
They ensure that decisions fall within certain
boundaries. They usually don’t require action but are
intended to guide managers in their commitment to
the decision they ultimately make.
Definition of Policies
“Policies are general statements or
understandings which guide mangers
thinking in decision making”.
Koontz and O ‘Donnel
“Policy is a statement and a predetermined
guidelines that provides direction for decision
making and taking action.
JS Chandan
Purpose of Policy Formulation
1. The main purpose of policies is to ensure that there is no
deviation from the planned course of action. The
framework is set within which everybody is expected to
work. Policies ensure that the broad guides for action are
adhered to.
2. Since policies chalk out a framework for each and every
person, it ensures proper delegation of authority also. A
manager knows the extent of authority required by a
subordinate to undertake the work allotted to him.
3. Policies allow the scope for interpretation. The main
aspects are given in a policy but the actual mode of
implementation is decided by the concerned person
Purpose of Policy Formulation
4. Policies are helpful for future planning also.
The impact and influence of policies help in
thinking about the future.
5. Policies also ensure consistency of action. The
guidelines are similar for everybody and
actions must conform to the broad outlines.
Types of Policies
(C)
(D)
(A)Source (B) Levels Managerial
Dissemination
(E) Function
Functions
Originated Basic Planning Written Marketing
Policy Policies Policies statements Policies
Appealed General Organization Oral Production
Policy Policies Policies Dissemination Policies
Motivation & Finance
Department
Implied Policy Control
al Policies Policies Policies
Externally Personnel
Imposed
Policy Policies
A - On the Basis of Source
1. Originated Policy:
Originated policy they refer to policy which originates from the top
management itself. These policies are aimed at guiding the
managers and their subordinates in their operations. All policies,
whether originated by top management or subordinate managers,
are described as “originated policy”.
2. Appealed Policy:
It is meant decisions given in case of appeals in exceptional cases
up to management hierarchy. In case of doubts, an executive refers
to higher authority on how he should handle the matter. The
direction that he gets is described as appealed policy and for future
managerial action.
A - On the Basis of Source
3. Implied Policy:
Implied policies are policies which emanate from
conduct. It originates where existing policies are not
enforced. Guidelines may be provided by the
decision makers unconsciously and become implied
policies.
4. Externally Imposed Policy:
Policies are imposed externally from outside the
organization such as, by Government control or
regulation, trade associations and trade union etc.
B - Levels of Management
1. Basic Policies:
Policies which are followed by top management level are called as
basic policies. For example, the branches will be opened in different
place where the sales exceed Rs. 5,00,000/-
2. General Policies:
These policies affect the middle level management. E.g. Overtime
payment will be provided only if it is allowed by the management.
3. Department Policies:
These policies are highly specific and are applicable to the lower
levels of management. E.g. Tea will be provided free of cost for
night shifts workers.
C - Managerial Functions
1. Planning Policies:
Planning policies involve the future course of action. Policies are
formulated to achieve the targets in the future. Planning policies
may be formulated for whole organization or for divisional
departments.
2. Organization Policies:
These policies are highly specific to organizational goals and
objectives.
3. Motivation and Control Policies:
These policies are formulated to motivate employees and control
their activities, that leads to the achievement of the organizational
objectives with the fullest satisfaction of employees.
D - On the Basis of Dissemination
1. Written Statements - Explicit Policies:
Policies which are in writing or included in the
manual or records are called explicit policies.
Bulletins or notice boards, handbooks etc.
2. Oral dissemination - Implicit Policies:
Implicit policies are disseminated merely by word of
mouth through the key people in an organization.
Policies which are not in writing or not included in
the manuals or records but which are well
understood and practiced are called implicit policies.
(E) On the Basis of Functions
1. Marketing policies.
2. Production policies.
3. Finance policies.
4. Personnel policies.
Decision Making
Decision Making
Introduction:-
Mgt is essentially a decision making process.
Decision making permeates through all managerial
functions & all areas of business.
In every function of business choice has
to be made among alternatives course of action. A
manager by profession a decision maker. Thus
decision making is the HEART of management
planning.
DEFFINITION
“Mgt is the art & science of Decision Making.”
JD Clough
Herbert Simon considers Decision Making as a
synonymous to management.
Meaning of Decision making
It is a course of action which is consciously
chosen from available alternatives for
achieving a desired results.
Decision making is the rational process
including all those investigative, creative,
diagnosis & evaluative activities which
precede the point of decision.
CHARACTERISTICS OF DECISION
MAKING
1. The aim of decision making is to find out the
possible course of action.
2. DM is a mental exercise.
3. Related to situation & environment.
4. Performed by managers at all levels though the
nature of decision may differ from 1 level to
another.
5. DM is Rational.
6. DM is a means to an end.
TYPES OF MANAGERIAL DECISION
• Organizational • Personal
Decision taken by exe. Decision taken by
In his official individual for
capacity. himself.
• Routine • Strategic
Taken by lower level. Taken by top mgt. they
Related to day to day are related to policy
operations. matters, structure of
org. etc.
TYPES OF MANAGERIAL DECISION
• Policy • Operating
Have vital imp & they Translate policies into
effect entire org. specific actions.
• Programmed • Non-programmed
Routine & repetitive in Required to solve
nature. unstructured prob.
• Individual • Group
Taken by single person. Taken by group of
persons.
PROCESS OF Decision Making
1. DEFINE THE PROBLEM
2. ANALYSE THE PROBLEM
3. DEVELOP ALTERNATIVES
4. EVALUATE ALTERNATIVES
5. SELECT ACTION
6. IMPLIMENT DECISION
7. FOLLOW UP
8. FEEDBACK
Decision Making - The Rational Model
It proposes that managers use a logical four-step
approach to decision making.
1. Identifying the problem
2. Generating alternative solutions
3. Selecting a solution
4. Implementing and evaluating the solution
1. Identifying the Problem
Problem – exists when the actual situation and the
desired situation differ
2. Generating Solutions
For routine decisions alternatives are readily
available through decision rules
3. Selecting a Solution
Want to maximize the expected utility of an outcome
People vary in their preferences for safety or risk
Ethics should be considered
Evaluating alternatives assume they can be judged
according to some criteria
Assumes valid criteria exists
Each alternative can be compared to these criteria
Decision maker actually uses the criteria
4. Implementing and Evaluating the Solution
After solution is implemented, the evaluation phase
is used to evaluate its effectiveness
Optimizing – choosing the best possible solution
Limitations
1. Don’t have complete knowledge of all the
facts of surrounding the problem.
2. Uncertainty
3. A decision of one area may have an adverse
effect on another area of operation.
4. Human factors are main limit.
ELEMENTS of DM
• Concept of Best Decision Making.
• Organizational Environment for Decision
Making.
• Psychological Elements.
• Timing of Decision.
• Communication of Decisions.
• Participation of Employee.