TOPIC 3:

THE PLANNING FUNCTION OF MANAGEMENT

Topic Objectives

At the end of this topic students should be able to:

• Define planning and its related concepts;
• Explain the purpose of planning;
• Describe different types of plans;
• Understand the strategic planning process;
• Explain and contrast the various types of strategies;
• Understanding of barriers to effective planning.
 INTRODUCTION

• In order to go with time and reach its ultimate goal, every

organization must plan.
• Effective planning helps an organization adapt to change
by identifying opportunities and avoiding problems.
• It sets the direction for the other functions of management
and for teamwork. Planning improves decision-making.
• To have this attained, all levels of management engage in
planning.
 DEFINING PLANNING

• Koontz and O’Donnell, Planning is an intellectual process, the

conscious determination of courses of action, the basing of
decisions on purpose, facts and considered estimates.
• James Lundy, Planning is determination of what is to be
done, how and where, who is to do it and how results are to
be evaluated.
• George R. Terry defines planning as the selecting and
relating of facts and the making and using of assumptions
regarding the future in the visualization and formulation of
proposed activities believed necessary to achieve the desired
results.
• Basing on the above, one can deduce a model definition of
planning as a process of developing and analyzing the
organization's mission, overall goals, general strategies, and
allocating resources.
Purpose/importance of planning
The planning process in any organization has the following
importance:

• Describes how resources are to be allocated and establishes

activity schedules. In this, all resources are identified and the way
they are going to be allocated to various activities of the
organization is set.

• Reduces uncertainty; planning involves anticipating what is going

to happen before it happens. Involves searching for information to
determine the likelihood of events happening. This informs
planners beforehand on what will happen and gives the structure
of the future.
cont…
• Minimizes waste and redundancy; planning allows establishing
the best way resources should be used before they are
committed to uses. This helps in determining the best way to
use and avoid waste.
• Sets the standards for controlling; planning involves establishing
what should be done and what should come out. In the actual
performance, one can establish whether what is done is done
properly or otherwise. This is the basis for controlling
• Provides direction and evaluation performance criteria; planning
involves setting goals and objectives which are the end results
for the efforts of the organization. This then gives the target of
all organization’s efforts.
TYPES OF PLANS

Organizational plans are described in various ways. They can

be categorized based on their breadth (coverage), time frame,
specificity and frequency of use.
• On breadth(coverage):Strategic and Operational plans
• On time frame: Short and Long term plans
• On specificity: Directional and Specific plans
• Frequency of use: Single use and Standing plans
(Refer chart below as sourced from Robins and Coulter,2009).
 Types of plans
(Source: Robins and Coulter,2009)
Based on breadth(coverage)
Based on breadth, there are two types of plans; strategic and
operational plans.
• Strategic plans: These apply to the entire organization.
Strategic planning establishes the organization’s overall goals and
seeks to position the organization in terms of its environment. It
takes a broader view of the organization and tends to cover a
longer time frame.
• Operational plans: These specify the details of how the overall
goals are to be achieved. They encompass a particular operational
area of the organization.
• As one goes high up the organizational hierarchy, planning
becomes more of strategic nature and vice versa. Lower-level
managers mostly do operational planning while top-level managers
mostly do strategic planning.
Based on time frame
Classified on basis of the time frame to be covered, there are:-
• Long-Term Plans
These are plans with time frames extending beyond three years.
These are always organization-wide plans in the sense that they
involve commitment of huge sums of money; have impacts
affecting the entire organization. Examples include plans to
expand the organization, open a new branch or plant, and buying
new machinery.
• Short-Term Plans
These are plans with time frames of one year or less with impacts
in specific parts of the organization. These types of plans do not
involve commitment of huge sums of money. For instance
materials requirements plan for one half of a year.
Based on specificity
Based on specificity, there are directional and specific plans.
• Specific plans
These are clearly defines and leave no room for interpretation.
Have clearly defined objectives, no ambiguity, no problem with
misunderstanding.
• Directional plans
These are flexible plans that provide general guidelines. They
provide focus but don't confine managers into specific goals or
courses of action.
Based on frequency of use
In this category, plans may be ongoing or used only once.
• Single-use plans
These are one-time plans specifically designed to meet the
needs of a unique situation. Single-use plans usually consist
of a project or programme.
• Standing plans
These are ongoing plans that provide guidance for activities
performed repeatedly. Standing plans include policies, rules
and procedures (These were defined/ discussed in the
previous topic).
THE PLANNING PROCESS

• Strategic planning consists of a logical and orderly series of

steps. It sets the stage for the rest of the organization's
planning.

• It is a process that encompasses activities including

identification of organizational mission, vision and goals,
conducting situation analysis of an organization, strategy
planning, implementation and evaluation of results.
 Step 1:Defining the mission, vision and goals of the
organization
• A mission is a statement of the purpose of the organization.
It is an answer to the question: What is the reason for being
in the business or what business are we in?
• The mission statement is broad, yet clear and concise,
summarizing what the organization does. It directs the
organization, as well as all of its major functions and
operations, to its best opportunities.
Examples:
• UDBS: “to provide quality management training, research and
advisory services for development of Tanzania and the rest of
the world”.
• National Heart Foundation of Australia: “to reduce suffering
and death from heart, stroke, and blood vessel diseases in
Australia”
Then, it leads to supporting tactical and operational plans,
which, in turn leads to supporting objectives.

• A mission statement should be short - no more than a

single sentence.
• It should be easily understood and every employee
should be able to recite it from memory.
• An explicit mission guides employees to work
independently and yet collectively toward the realization
of the organization's potential.
• The mission statement may be accompanied by an
overarching statement of philosophy or strategic
purpose intended to convey a vision for the future and
an awareness of challenges from a top-level
perspective. This is the organizational vision.
Mission focuses on the organization’s present capabilities,
products or services, customers and concern for public image.

• A vision is a road map of the organization’s future. Ideally,

it refers to the dream of the organization.
• Vision definition is a direction setting exercise, concerned
with deciding which way the organization should go.
• Example: UDBS “to become a world class business school
that is responsive to development needs through innovation
in knowledge creation and application”.
•Organizational goals are defined as ends (desired outcomes)
which the organization seeks to achieve by its existence and
operation.

• Goal definition involves interpreting or reviewing the

organization’s mission in line with the needs of different
stakeholders (customers, employees, shareholders,
government, etc) and translating them into definite goals for
future direction.
• They guide all management decisions and form the criterion for
evaluation of the actual work being done.
• Business organizations have multiple goals, e.g. increasing
profits, market-share, develop a high degree of customer
confidence, winning employee commitment, etc.
• Traditionally, goals are set at the top of the organization and
then broken into sub-goals for each organizational level.
Step 2:Analyzing the external environment (Opportunities
and Threats)

• This is a critical step in the strategic planning process.

Managers need to analyze both, the specific and general
environment. Need to know, for example, the level of demand
for their products, level of competition, how new legislations
affect the organization, how the organization can benefit from
new technologies, etc.
• This analysis enables managers to spot the opportunities they
should exploit and know the threats they must counteract. It
should be noted that an opportunity to one organization could
be a threat to another organization and vice versa depending on
organization’s level of resource and capabilities.
• A newly invented technology, for instance, would be an
opportunity to a firm with sufficient resources and capabilities
and a threat to that is weak in terms of resources.
Assessment of opportunities and threats comprises can be
guided by such questions like:-

• Identifying opportunities; In which areas is the competition not

meeting customer needs? What are the possible new
markets? What is the strength of the economy? Are our rivals
weak? What are the emerging technologies? Is there a
possibility of growth of existing market?)
• Identifying Threats; In which areas does the competition meet
customer needs more effectively? Are there new
competitors? Is there a shortage of resources? Are market
tastes changing? What are the new regulations? What
substitute products exist in the market?
Step 3:Analyzing the internal environment (Strengths and
Weaknesses)

• The internal environmental scanning provides important

information about the organization’s specific resources and
capabilities.
• Whereas resources refer to the organization’s tangible assets
(physical, financial, human) used in production/provision of its
product or service, capabilities also known as core
competencies, are the organization’s skills (talents,
knowledge, experiences) and abilities (organizational
reputation, information database, organizational culture) in
doing the work activities.
• Both resources and core competencies determine the
organization’s competitiveness.
cont…

• Internal environmental analysis enables managers to identify

organizational strengths and weaknesses.
• Strengths refer to any activities that the organization is good at
and any unique resources it possesses. Weaknesses are
activities the organization is not good at and the resources it
needs but does not possess. Managers must recognize that
their organizations are constrained by the resources and
capabilities they have.
• Note: The combined external and internal analysis is normally
referred to as situation analysis or SWOT analysis i.e. the
analysis of the organization’s Strengths, Weaknesses,
Opportunities and Threats.
Step 4:Formulating related strategies(Tactical and
operational)
• Completion of SWOT analysis enables managers to
formulate appropriate strategies that are aimed at exploiting
the organization’s strengths and opportunities while
protecting it from external threats and correcting any critical
weaknesses.
• Developing strategies include formulation of tactical and
operational plans.
• Tactical plans are based on the organization's strategic
plan. In turn, operational plans are based on the
organization's tactical plans. These are specific plans that
are needed for each task or supportive activity comprising
the whole.
cont…

• Strategic, tactical, and operational planning is accompanied

by controls. Monitoring progress or providing for follow-up
is intended to assure that plans are carried out properly and
on time.

• Adjustments may need to be made to accommodate

changes in the external and/or internal environment of the
organization. Adapting to the challenges may lead to gain
a competitive advantage by an organization.
Tactical Plans

• Tactical plans have shorter time frames and narrower

scopes than strategic plans.
• It provides the specific ideas for implementing the strategic
plan. It is the process of making detailed decisions about
what to do, who will do it, and how to do it.
• Top level managers set very general, long term goals that
require more than one year to achieve. Examples of long-
term goals include long-term growth, improved customer
service and increased profitability.
cont…

• Middle managers interpret these goals and develop tactical

plans for their departments that can be accomplished within
one year or less.

• In order to develop tactical plans, middle management

needs detail reports (financial, operational, market, external
environment).
Operational Plans
• Supervisors implement operational plans that are short-term
and deal with the day-to-day work of their team. Short-term
goals are aligned with the long-term goals and can be
achieved within one year.
• Manager interprets higher management plans as they apply
to his or her unit. Thus, operational plans support tactical
plans. They are the manager's tools for executing daily,
weekly and monthly activities.
• Examples: A budget, is a plan that shows how money will be
spent over a certain period of time, scheduling the work of
employees, identifying needs for staff and resources to meet
future changes.
cont…
• Resources include employees, information, capital, facilities,
machinery, equipment, supplies and finances.
• Operational plans include policies, procedures, methods, and rules.
The terms themselves imply different degrees of scope.
• A policy: General statement designed to guide employees' actions
in recurring situations. Establishes broad limits, provides direction
but permits some initiative and discretion on the part of the
supervisor. Policies are guidelines.
• A procedure: Sequence of steps or operations describing how to
carry out an activity. It is more specific than a policy and
establishes a customary way of handling a recurring activity.
cont…

• A method sets up the manner and sequence of

accomplishing a recurring, individual task. Almost no
discretion is allowed. An example of a method is the steps
in cashing a check.
• A rule is an established guide for conduct. Rules include
definite things to do and not to do. There are no exceptions
to the rules. They reflect a managerial decision that certain
actions should be taken or not. Unlike policies, rules allow
no discretion in their application. An example of a rule is
"No Smoking in the work premises"
Step 5:Implementing strategies

• Formulated strategies must be put into action effectively in

order to achieve the strategic goals. A good strategy without
effective implementation can hardly be expected to succeed.
• Consists securing, organizing and directing the use of
resources within and outside the organization. Involves hiring
new employees, transferring or laying out some current
employees, employing new machinery and technologies, etc.
• In order to succeed, implementation of strategy requires the
commitment and cooperation of all units and members of the
organization.
Step 6:Evaluating results

• The final stage in the strategic planning process is reviewing

and evaluating results.
• This is the monitoring of the progress or providing for follow-
up to assure that plans are carried out properly and on time.
• In this process, a need for adjustments can arise to
accommodate changes in the external and/or internal
environment of the organization. Feedback is encouraged
and incorporated to determine if goals and objectives are
feasible. This review is used for the next planning cycle and
review.
 TYPES OF STRATEGIES

There are three categories of strategies namely, corporate,

business and functional strategies.
• Corporate strategies
These are formulated by top-level managers and are
concerned with the determination of what business an
organization is in, should be in, or wants to be in. It is based
on the mission and goals of the organization. The main
corporate strategies are growth, stability and renewal
strategies.
Growth strategy
• Is a corporate strategy that is used when an organization wants
to grow and does so by expanding the number of its products
offered or markets served, either through its current businesses
or new businesses.
• The organization increases its number of employees,
machinery, market share, sales, etc. Organizations can grow
through; concentration, vertical or horizontal integration, or
diversification.
(i) Concentration
Applies when the organization grows by increasing the number of
products offered/ markets served in its primary business i.e. expanding
its own business operations. e.g. Coca-Cola adds Dasani.
(ii) Vertical integration

• This is the case when the organization wants to gain control

over its inputs by becoming its own supplier (backward
vertical integration) or control of output by becoming its own
distributor (forward vertical integration).
• E.g. Bakharessa decides to own some maize or wheat farms
in order to have control over the supply of maize and wheat
for his factories will be practicing backward vertical backward
integration.
• Coca Cola deciding to distribute its output directly to retailers
they practice forward vertical integration.
(iii)Horizontal integration

• Occurs when an organization grows by combining with other

organizations in the same industry (competitors).
• Example when TBL bought Kibo Breweries Ltd, its major
competitor of that time.
(iv) Diversification
• This occurs when an organization combines with other
organizations which are not in the same industry. The other
industries may be related or unrelated to the one the
organization is in.
• E.g. UDSM combine with a Legal Firm for students do
practical(related diversification). Backharessa buys a football
team(unrelated diversification).
Stability strategy

• Is a corporate strategy characterized by an absence of

significant change in what the organization is currently
doing.
• The organization strives to maintain its market share
thereby sustaining its current business operations.
• Applies when organizations are faced with an uncertain
future (because of drastic changes) and if owners feel that
it adequately meets their personal goals.
Renewal strategy
These are strategies formulated to address organization’s
weaknesses that led to poor performance. Renewal strategies
are of two types namely, retrenchment and turnaround
strategies.
(i) Retrenchment strategy
Refers to reducing cost or spending, normally through lay-off of
staff in response to performance difficulties. Applies when
performance problems are not serious. When the organization
is facing minor performance setbacks, a retrenchment strategy
helps it stabilize its operations and prepare to compete once
again.
(ii)Turnaround strategy

The turnaround strategy is a renewal strategy for times when

the organization is facing critical performance problems. This
may lead to a major restructuring of the organization’s
operations.
Business (competitive) Strategy

• Formulated by middle-level managers, focus on how the

organization can compete in each of its businesses. The
aim is to find a competitive advantage (its distinctive edge)
for the organization or for each of the business lines.
• According to Michael Porter a business strategy may be
formulated based on competitive forces.
• Michal Porter presents five competitive forces as presented
below.
Michael Porter’s five forces:
• Threat of new entrants: How likely new competitors will join the
business?
• Threat of substitutes: How likely other organization’s products can
substitute for the organization’s product?
• Bargaining power of buyers: How much bargaining power do
customers have over the organization’s product?
• Bargaining power of suppliers: How much bargaining power do
suppliers have over the organization’s inputs?
• Current rivalry: How intense is the rivalry among the current
competitors?
Managers have to analyze the above forces to establish
organizations’ competitive advantage and be able to formulate
a respective business strategy.
Depending on the organization’s strengths and competencies,
managers can choose one of the three strategies namely, cost
leadership, differentiation and niche (focus).
• Cost leadership strategy: The organization competes on the
basis of having the lowest cost. The firm does everything to cut
costs.
• Differentiation Strategy: The organization competes by
offering unique products. Differentiation can be achieved through
offering exceptionally high quality products, extraordinary service,
innovative design, technological capability, etc.
• Niche of Focus strategy: When cost leadership and
differentiation are practiced in a narrow market segment the
strategy is called focus or niche. Managers can select a market
segment in an industry and exploit it.
Functional Strategy

• Functional strategies are formulated by lower-level

managers in organization’s various functional departments
to support the business (competitive) strategy.
Barriers to effective Planning

In order for plans to be effective and to yield the desired

results, managers must identify any potential barriers and
work to overcome them. Common barriers that inhibit
successful planning include:-
• Inability to plan: Managers are not born with the ability to
plan. Some managers are not successful planners because
they lack the background, education, and/or ability. Others
may have never been taught how to plan. When these two
types of managers take the time to plan, they may not know
how to conduct planning as a process.
Lack of commitment to the planning process
• The development of a plan is hard work; it is much easier for
a manager to claim that he or she doesn't have the time to
work through the required planning process than to actually
devote the time to developing a plan.
• Another possible reason for lack of commitment can be fear
of failure. As a result, managers may choose to do little or
nothing to help in the planning process.
Inferior information
• Facts that are out-of-date, of poor quality, or of
insufficient quantity can be major barriers to planning. No
matter how well managers plan, if they are basing their
planning on inferior information, their plans will probably
fail.
Focusing on the present at the expense of the future
• Failure to consider the long-term effects of a plan because of
emphasis on short-term problems may lead to trouble in
preparing for the future. Managers should try to have a big
picture(their long-term goals)in mind when developing their
plans.
Reliance on the organization's planning department
• Many companies have a planning department or a planning
and development team. These departments conduct studies,
do research, build models, and project probable results, but
they do not implement plans. Planning department results are
aids in planning and should be used only as such.
Formulating the plan is still the manager's responsibility.
Concentrating on controllable variables
• Managers can find themselves concentrating on the things
and events that they can control, such as new product
development, but then fail to consider outside factors, such
as a poor economy.
• One reason may be that managers demonstrate a decided
preference for the known and an aversion to the unknown.

To overcome these barriers and plan successfully, managers

need to use effective communication, acquire quality
information, and solicit the involvement of others.