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IT 107 Organization and Management

HandOut #007

MANAGEMENT FUNCTIONS AND PRACTICES


Planning Concepts Planning, organizing, leading, and controlling are the primary functions of management, and planning is the most important. Planning provides a framework for organizing resources, structuring a firm, and controlling activities. Through the planning process, managers develop goals and objectives. These are the criteria by which we judge organizational effectiveness. Plans do not evolve in a vacuum, even though we say "planning precedes all other activities." We need managers to do the planning and an organization for them to function in. Planning Defined Planning is the formal process of: 1. choosing an organizational mission and overall objectives for both the short-run and long run 2. devising divisional, departmental, and even individual objectives based on organizational objectives, 3. choosing strategies and tactics to achieve those objectives, and 4. deciding on the allocation of resources to the various objectives, strategies and tactics. George Steiner describes the planning function as one on which managers must decide "what is to be done, when it is to be done, how it is to be done, and who is to do it." A plan, therefore, is a navigational tool that maps out a destination and charts a course to get there. An objective is the result desired at a future point in time. The what, when, how and who of planning make up its four key components. Managers plan in order to make decisions today based on premises of what might happen in the future. We seek direction for current actions; we seek unknown opportunities; and we try to solve today's problems without creating problems in the future. The larger and more complex an organization is, the more difficult it is to establish workable plans, but even small enterprises operate in complicated environments. Effective planning reduces the guesswork managers face when making decisions. The Nature of Planning Planning has both formal and informal elements. Some managers, for example, seem to do little more than "react" to situations according to their intuition. Others follow a thorough process of investigation before they make decisions. Informal planning is a process of intuitively deciding on objectives and activities needed to achieve them without rigorous and systematic investigation. Formal planning is the process of using systematic criteria and rigorous investigation to establish objectives, decide on activities, and formally document organizational expectations. Predetermined plans provide guidelines for future activities. These guidelines, called planning premises, account for limitations, such as time constraints and budget restrictions. Planning premises also provide clarity of purpose. Even though we insist that formal planning is likely to lead to better results and that a conscious effort to develop criteria is safer, we must acknowledge that managers rely heavily on their intuition . In the real world, most managers use their experience to guide them in planning decision and leave formal planning details to subordinates. This is particularly true of senior executives. According to Henry Mintzberg, "When the manager must plan, he seems to do so implicitly in the context of daily actions, not in some abstract process reserved for two weeks in the organization's mountain retreat. The plans of the chief executives I studied seemed to exist only in their heads as flexible, but often specific, intentions." Mintzberg is not disputing the need for effective planning but is clarifying differences between theory and reality. In fact, managers do plan, whether formally or informally, consciously or intuitively. Most managers who carry plans around in their heads are seasoned executives who have dealt with similar planning issues for many years. Mintzberg found that nearly all executives agreed that formal planning improves decision making and reduces errors. Also, the planning environment is changing with international commerce; intuition, simply isn't sufficient to capture the essence of global affairs. The counterpoint to Mintzberg's work is Fred Luthan's 1988 studies, which found managers to be more intensely involved in formal systems when supported with information technology. Advantages of Planning Payoff #1: Knowing why we are in business; purpose of firm defined; articulation of major goals. Payoff #2: Creating specific objectives and strategies to guide future activities successfully. Payoff #3: Understanding environmental constraints, the competition, and critical factors, threats, and opportunities for future decisions. Payoff #4: Providing alternatives for action; having preplanned options for contingencies. The first payoff of formal planning is that it defines organizational purpose. The purpose of an organization is the fundamental reason it exists, its raison d'etre. Many firms lose sight of why they exist, and in the process lose sight of their customers and their objectives. MCI Communications is a firm whose clear purpose is to provide communication services through electronic information technology. The second payoff of formal planning is that it defines specific objectives for everyone in the organization. Managers who keep plans in their heads are not helping their organizations, for if objectives are not articulated, employees cannot focus their efforts productively.

Formal planning provides objectives and articulates them to everyone in the firm. For example, Michael Dell founded Dell Computer Corporation in 1984 as a nineteen-year-old premed student at the University of Texas, and he had two clearly stated objectives for his new venture selling PC's Limited. First, his firm would manufacture and sell a clone of the IBM PC at a price 40 percent below the competition; and second, it would guarantee every customer 100 percent satisfaction without question. Dell hasn't waivered from these objectives, and today nearly a hundred technicians answer customer inquiries, the company provides direct factory service, and there is a no-questions-asked guarantee. Dell's PC clones were the first to sell for under $1,000, and this set the pace for the industry. The payoff has been a $400 million business as Dell, age twenty-five, heads into the 1990s. The third payoff of formal planning is the eligibility to define environmental constraints. Many things restrict our actions. When we consider the uncertainties involved in trying to plan for the future, we realize it is crucial to understand how we are likely to be affected by things to come. The fourth payoff of planning is that it provides alternatives. Good planning will identify preplanned alternatives so that if a primary plan doesn't work or if objectives become unattainable, managers can react quickly. Alternatives are formulated chiefly to avoid disasters, but they may also unearth new opportunities. The need for formal planning exists in every organization. And although the issues differ from organization to organization, the consequences of poor planning are similar. Companies that forget customer needs, misjudge the competition, and fail to understand their own limitations lose business and may end up bankrupt. Planning Process Planning is a multistep process. These stages, like the management functions, are rarely visible in isolation since most managers have several projects going at any given time. Some organizations do have a formal planning period, for budgeting, for example, in which managers develop plans for the following year.

Step 1: Scan and Analyze the Environment The attainment of mission, goals and objectives is not possible without scanning and analyzing the environment. The internal and external environments generally serve as limiting factors. The internal environment consists of limited resource, capital, technology and skilled personnel. The external environment relates to political, legal, economic, social and cultural conditions. And to competition, as well. Here assumptions may be articulated. Planning cannot be done in isolation. Environmental scanning and analysis precede setting of goals and objectives. A large corporation might analyze foreign competition not only for threats to its existing product lines but also for opportunities to expand, either by beating the foreign firms to the punch or by providing more highly customized products or services to the domestic market. The SWOT (Strength, Weakness, Opportunities, Threats) is the useful approach. The managers should constantly monitor the firm's strengths and weakness, in its internal environment and opportunities and threats in the external environment. Step 2: Prepare a Mission Statement In the second phase of planning, managers define the organization's mission statement or its "reason for existence or raison d'etre". Step 3: Set Goals and Objectives Establishing objectives, is the most important phase of the planning process, Objectives serve as reference points for every decision maker and guide the organization's routine activities. They serve as basis for performance evaluation when managers perform the control function. However, it is necessary to articulate assumptions about the future to reflect expectations of future performances. Goals are general statements of what an organization seeks to accomplish through its programs. Objectives are specific statements which have the same purposes as goals. Establishing goals and objectives serves many purposes: it identifies the basic ends and means to those goals; it provides a sense of direction, decision guidelines, and performance criteria; it reduces uncertainty within the organization.

A goal is a statement of where one wants to go or what one wants to achieve. It is the intended result of proposed activity. A goal statement can describe the intended result (make a profit) or indicate the direction that one's activity should take (increase profits; reduce costs). Because goals are general statements of an intended result (point the direction), it is usually necessary to express them more precisely in terms of one or more objectives. Objectives are more specific than goals; they usually specify a performance standard or criteria for results which can be observed or measured.

The process of assessing goals and objectives will deal with such issues are: 1. 2. 3. 4. 1. 2. 3. 4. 5. What is to be accomplished? Why it is to be undertaken? What is expected of the parties involved? How will one know when it is accomplished? It is usually beneficial for an organization to have written goals and objectives: to establish what the purpose of an undertaking is and to specify how it is to be accomplished. to serve as a basis for establishing authority and responsibilities, to establish priorities, to determine performance standards, and to communicate effectively the contribution and commitment required of all parties.

Establishing goals and objectives implies that change in some form or other is required. To rationally consider what change is required, one needs to justify the intended result (end). Then one can determine the means (resources and processes) required to attain the end. A practical approach to resolve this issue is to determine what is the current situation and what should be. And to involve management and staff at all levels for appropriate development of goals and objectives. Organizations typically have multiple goals which may be in conflict. Managers generally deal with goals conflicts in one of the following ways: 1. Agree to accept a satisfactory rather than a maximum level of performance. 2. Establish a hierarchy among the goals which requires that a satisfactory level of achievement be attained on the more important goals before dealing with less important ones. 3. Continually reevaluate and, if necessary, revise goals. Criteria for effective objectives include suitability, feasibility, acceptability, achievability, measurability, adaptability, cost effectiveness, and commitment by management to the attainment of the objectives. Step 4: Develop Action Plans Develop alternative plans, then choose the one that is most feasible, realistic, and likely to support objectives. Identify and develop appropriate programs, projects, and budgets for the organizational action plan. Stratify the plans to assure full coordination of activities. At strategic level, policy statements express preferred goals and objectives. At tactical level, procedural directives reinforce objectives. Programs and projects may be developed at this level. At operational level, action plan may reflect schedules and performance budgets. Plan development begins with the ranking of projects according to how they contribute to accomplishing one or more of the objectives. Those that rank highest should receive a greater portion of the resources to be allocated than those ranking lower. Action plans also should reflect the impact of unexpected environmental changes. Step 5: Establish Control Systems The final step in planning is to establish control systems that enable managers to measure and adjust for what actually happened, as opposed to what they planned. The objectives serve as benchmark of performance. Implement the plan with appropriate flexibility and checkpoints for adaptation. Documentation of the plan must be made and communicated to appropriate management and staff at all levels. If documentation is to be effective, it should start at the top with stated vision, mission, policy statements, then annual performance goals, and objectives, down to directives, procedures, rules, programs and projects that set forth operational activities. Actual performance can be measured against the objectives. The difference between performance and objectives will require adjustments in planning. Hierarchy of Objectives There are three general levels in every organizationthe top, middle and supervisory. Each one has objectives that reflect management responsibilities at that level. At the top level, objectives are strategic and relate to strategic planning issues such as the development of product lines and market expansion. Thus, Coca-Cola introduced a diversified product line with Diet Coke, Cherry Coke, the "new" Coke, and the Classic. This array of products was introduced to satisfy long-term strategic objectives for expanded sales and greater profitability. Coca-Cola Company generated tactical objectives for producing these soft drinks, devising advertising programs and structuring distribution systems. Very short run operational objectives reflect plans for dozens of activities from production scheduling to meeting monthly sales quotas. Strategic Objectives in strategic planning are performance targets related to long-term endeavors, such as growth, profitability, and the position of a firm in its industry. Tactical Objectives in tactical planning are short-term performance targets for achieving limited results, such as annual sales, quarterly profits, or incremental changes in products or services. Operational Objectives are urgent shorter-term performance targets for daily, weekly, and monthly activities that, when attained, will reinforce tactical planning objectives. Types of Objectives Profit Objectives private businesses have Profit objectives. Through planning, managers determine how much income is needed and what constitutes a reasonable profit,

Growth Objectives define targets for increased sales volume, expanded markets, new products, or better services. Sometimes growth and profit objectives conflict. Profitability can suffer if a firm aggressively expands sales. It may lower prices to all met customers, but simultaneously have to increase expenses such as advertising sharply. Another important objective for managers is to maintain a certain level of quality, or excellence, of merchandise and services. Philosophical objectives often reflect the personal interests of key executives or owners. Some have strong personal commitments to ideals that influenced their careers. Philosophical objectives must be coordinated with the other objectives mentioned earlier, and must take into account income, expense, growth, investors' interests, social needs, and employee expectations. Characteristics of Objectives They are specific, measurable, and realistic, and each has a definite time period for achievement. The Planning Hierarchy Planning responsibilities are different for managers at each level in organization, and they correspond to the three levels of objectives and planning - strategic, tactical and operational. The emphasis an organization places on objectives will depend on its strategy, and its strategy is derived from its purpose. Strategic Planning - Board Level and Top Management The planning hierarchy, describes the delicate relationship between planning and decision making. Although we have specified three level of plans and objectives, there is a fourth division of responsibility, which is assumed by the board of directors and the CEO (represented on the board) acting as overseers of the firm's mission. This does not mean that an organization has four levels of management, but rather that there are four levels of responsibility. Board members are not "operating" managers; in fact, many of them are appointed from other organizations to serve as investors' representatives. They rarely intercede in operational decisions except to fulfill their responsibility to safeguard investors' interests.

Strategic Planning involves vision and missionits raison detre It asks question: What business are we in? Strategic planners take long-range usually 5-year period - perspective. Michael D. Eisner, CEO of Walt Disney Company says: "I think in terms of decades. The '90's are Euro-Disney land... And I've got a thing set for 2005. " Mission is different from focus, a current buzz word. Focus means figuring out, and building on, what the company does best. It means identifying the evolving needs of your customers, then developing the key skills often called the core competencies critical to serving them. It means setting a clear, realistic mission and then working tirelessly to make sure everyone from the chairman to the middle manager to the hourly employee understands it. " The CEO, in conjunction with top-level executives, formulates long-term strategic objectives to reinforce the firm's mission. The mission clarifies organizational purpose and is written as will last forever. In contrast, strategic plans with long-term objectives are specified for a period of years; a five-year period is common for most United States companies. External circumstances, such as shifts in consumer expectations, technological advances, and competition influence long-term plans. Tactical Planning - Middle Management Middle management is responsible for translating strategic plan into shorter-term tactical plan. Middle managers, include division heads, managers of functional departments such as research and development, and senior sales managers. Tactical objectives are also called facilitating objectives because they are formulated as performance targets that, once satisfied, reinforce and "facilitate" the firm's strategies. Tactical plans - often specified in one-year increments - involves allocating available resources to specific purposes expressed in budgets. Annual budgets are tactical planning documents used to articulate performance expectations and to track sales, production, profits, research expenditures, technology development, and many other activities. Operational Planning - Supervisory Level Operational planning is accomplished by first-level supervisors on the firing line of daily operations. These include department managers, shift supervisors, and individuals in charge of work groups.

Operational planning is most concerned with budgets, quotas, and schedules. These are refinements of tactical objectives where work is defined and results are measured in small increments. Time horizons for operational planning are very short; they include weekly production schedules and monthly sales quotas. Most plans at this level reflect operational cycles. If a heavy equipment manufacturer like Caterpillar Corporation identifies ten-day assembly cycles for earth movers, plans for manpower, materials, and production will be geared to a ten-day period. In high-speed production situations, such as electronic parts assembly, a cycle of one day or one shift is not unusual. Operational objectives are narrow in scope and focus on the firm's internal activities. They are also out-lived and subject to sudden change. Planning Roles for Managers Strategic planning is a crucial responsibility of top executives. They must deal with abstract ideas about the firm's future technology, energy resources, changes in productivity, cultural changes, and many other considerations. Strategic issues are inextricably linked with issues of society, the firm's industry, and the community in which the firm operates. Executives must first of all account for profits and losses, but larger social issues often occupy much of their time and attention. Middle managers are more concerned with the internal objectives of an organization. Their planning domain is defined by functional or divisional responsibilities. Plant managers, marketing directors, financial managers, and personnel administrators commonly focus on one-year accounting cycles. An external issue, such as the impact of the firm's performance on the economy, is not an immediate concern. Middle managers have their hands full with internal operations. First-line managers, those at operations levels such as department heads and supervisors, have rather narrowly defined roles concerned with planning for weekly, monthly, or quarterly performance by their work groups. If we contrast the planning roles of top executives and first-line managers, several differences become evident. Executives spend as much as 70 percent of their time on long-term planning and as little as 8 percent on operational planning. First-line super-visors spend nearly 90 percent of their time on operational tasks and only a "trace" on long-term planning. The higher a manager is in an organization, the more he or she will deal with abstract concepts and a broader base of planning issues. The longer perspective required of top managers brings with it greater responsibility to more people for effective planning. The given figure illustrates the differences in time spent planning at each of seven levels in a complex organization.

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