Managing Organizations - Chapter 5
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Planning includes all the activities that lead to the definition of objectives and to the determination of appropriate course of action to achieve those objectives
Major Benefits of planning
- Planning forces managers to think ahead
- It leads to the development of performance standards that enable more effective management control
- Having to formulate plans forces management to articulate clear objectives.
- Planning enables an organization to be better prepared for sudden developments
Four important factors of planning
- Increasing time spans between present decisions and future results
- Increasing organizational complexity
- Increasing external change
- Planning and other management functions
Increasing time spans between present decisions and future results
The period of time between the decision to create a new product and the resulting product may be very long.
Managers have to see further into the future.
Campbell's Soup took 20 years to make dry soup packets.
Increasing Organization complexity
As organizations become larger and more complex, the manager's job also becomes bigger and more complicated by the interdependence among the organization's various parts.
Increasing External Change
Rapid rates of change in the external environments will force managers at all levels to focus on larger issues rather than solely on solving internal issues.
The faster the rate of change becomes the greater the necessity for organized responses at all levels in the organization.
Planning and other Management functions
Before a manager can organize, lead or control, he must have a plan. Otherwise these have no purpose or direction.
Types of Planning
- Single use plan
- Standing plan
The range of activities that a plan covers
The period considered by a plan, ranging from short term to long term
Level of detail
The amount of specificity in a plan
The activities that lead to the definition of objectives for the entire organization and to the determination of appropriate strategies for achieving those objectives.
Translates the broad concepts of a strategic plan into clear numbers, specific steps, and measurable objectives for the short term.
Planning that deals more with issues of efficiency than with longer-term effectiveness. Falls between strategic and operational planning on the continuum.
Single use plans
Plans wit a clear time frame for their usefulness; includes detailed goals and objectives concerning quality, primary markets, rollout schedule, and so on.
A plan that has ongoing meaning and application for an organization.
e.g. US Constitution
Elements of Planning
Specify future conditions that the planner deems satisfactory
The specified preferred means to achieve objectives
Constraints on courses of action
A plan should specify amount of resources required as well as potential sources and allocations of those resources.
The ways and means to implement the intended actions.
Assignment and direction of personnel to carry out the plan
At a given time, accomplishing one objective is more important than accomplishing any of hte others
Balanced Scorecard (p/o priority of objectives)
An approach to establishing appropriate objectives and priorities by presenting a balanced picture of current operation performance and the drivers of future performance.
Soft Measures (balanced score card)
Balanced Scorecards contain hard financials but also have these soft measures:
- Customer acquisition
- Customer retention
- Customer satisfaction
- Customer profitability
- Product development cycle times
- Employee satisfaction
- Intellectual assets
- Organizational learning
Time frame of objectives
The role times plays in plans
Long and short run objectives
The definition of short & long time periods are firm specific
Conflicts among objectives
- Regulatory Conflict: Stock holders, Union (employees), customers, suppliers, creditors, and government.
- Production conflict: Demand changes trickle from retailer back to manufacturer, all with different goals and objectives.
Common planning tradeoffs
- Short-term profits v. long-term growth
- Profit margin v. competitive position
- Direct sales efforts v. development effort
- Penetration of market v. developing new markets
- Growth through related v. non-related businesses
- Growth v. stability
- Profit v. non-profit objectives (social responsibility)
- Low Risk v. High Risk environments
Five categories of measurement objectives
Profitability (measurement objective)
Usually expressed in terms of return on investment (ROI)
net profit/capital invested
Three reasons to create value over time for the owners/shareholders
- Increasing shareholder value over time is the job the economic system demands of management.
- Increased shareowner value contributes to society in very meaningful ways
- Focus on creating value over the long term keeps executives from acting in a short sighted manner.
Competitiveness (measurement objective)
Long term profitability
Established objectives that concentrate on specific rates of increase in sales and market share.
Main factors of competitiveness (measurement objectives)
- Customer value: Able to deliver value when compared to competitors - customer value = benefit/price
- Shareholder value: able to provide a satisfactory ROI in the short, medium and long terms
- Ability to Act and React within a competitive environment: retain competitive position satisfy expectations of customers and shareholders eliminating threats and exploiting opportunities
Efficiency (measurement objectives)
How well the resources are employed
Return on assets = Net Profit/total assets
Flexibility (measurement objectives)
Flexible organizations continually develop new strategies and adapt to new market realities, and then shift all aspects of the organization so that they are congruent with the new strategies.
Quality (measurement objectives) W. Edwards Deming's 14 points of Quality
- Create consistency of purpose for improved product and service
- Adopt the new philosophy
- Cease dependence on mass inspection
- End practice of awarding business on price tag alone
- Improve constantly the system of product and service
- Institute Training
- Institute Leadership
- Drive out fear
- Break down barriers between staff areas
- Eliminate slogans, exhortations, and targets for the workforce
- Eliminate numerical quotas
- Remove barriers to pride of work
- Institute a vigorous program of education and training
- Take action to accomplish the transformation
Quality (measurement objectives) 10 Dimensions of service quality
- Access: Availability to customers
- Communication: Clear descriptions, answer questions
- Competence: Proven expertise at a task
- Courtesy: Friendliness, respect for customers
- Credibility: Believability, meeting promises
- Reliability: Error reduction
- Responsiveness: Speed at meeting customer requests
- Security: maintaining customer safety and privacy
- Tangibles: Physical appearance of workplaces
- Knowing the customer: listen, respond, satisfy
Five Values of Quality
- The firm is customer driven, not product driven
- All employees manage, not just the managers
- Decisions are fact based, not based on hunches or tampering
- The basic, ongoing work emphasis is on producing quality and continuous improvement
- Prevention (not detection) of defects is emphasized.
David Garvin (Harvard) 8 Planning values - Basis of Quality-based systems
- Performance: primary operating characteristic, e.g. speed
- Features: supplements to performance
- Reliability: No malfunctioning or need for repair
- Conformance: to established standards
- Durability: product life
- Serviceability: speed and ease of repair
- Aesthetics: appeal to taste, looks, or feel
- Perceived Quality: customer perception
Actions (elements of planning)
Actions are specific, prescribed means to achieve objectives
Actions determine success or failure to meet objectives
Forecasting (actions - elements of planning)
The process of using past and current information to predict future events.
Forecasting - 2 basic questions
- An important element of the planning function that must make two basic determinations:
- a. What level of activity can be expected during the planning period
- b. What level of resources will be available to support the projected activity
Critical Forecast = Sales Forecast
Resources Defined (elements of planning)
Resources are defined as the financial, physical, human, time or other assets of an organization.
Budget (elements of planning - resources)
A predetermined amount of resources linked to an activity
Two means to provide budget flexibility
- Variable Budgeting
- Moving Budgeting
Manager's means for implementing plans
The legitimate right to use assigned resources to accomplish a delegated task or objective; the right to give orders and to exact obedience.
A process of selling a plan to those who must implement it and communicating relevant information so individuals understand all implications.
If persuasion fails, the manager must fall back to authority.
Policies usually are written statements that reflect the basic objectives of the plan and provide guidelines for selecting actions to achieve the objectives.
When plans are intended to be permanent fixtures.
Effective policy characteristics
- Flexibility: conditions change - stability v. flexibility
- Comprehensiveness: enough to cover any contingency if plans are to be followed.
- Coordination: between subunits whose actions are interrelated
- Ethical: conform to canons of ethical behavior
- Clarity: written clearly and logically
The ultimate test of a policy
Whether or not the objective is obtained
Time-based planning - concept to customer
The period of time between the time the customer first considers a product and the time it is sold
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