Planning is an important function of management. This will further help you to learn about:
- Types of Plans
- Types of Plans in Planning
- Types of Plans in Principles of Management
- Types of Plans in Business
Answer 1. Types of Plans:
Type # 1. Policies:
Policies of the general statements which are formulates by an organization for guidance of its personnel. The objectives are first formulated and then policies are planned to achieve them. They provide the framework within which the decision-makers are expected to operate while making organizational decision.
According to Knooty and O’Donnel “Policies were identified as guides to thinking in decision making. They assume that when decisions are made, these will fall within certain boundaries”.
In the words of George R. Terry, “Policy is a verbal, written or implied overall guide setting up boundaries that supply the general limits and direction in which managerial action will take place.”
Thus, policies are specific guidelines and constants for managerial thinking on decision-making and action.
Importance of Policies:
Clear cut and sound policies serve the following functions:
1. Policies give practical shape to objectives.
2. Policies facilitate quick decisions by providing a frame work within which decisions can be made.
3. Policies help in making the actions of each manger more predictable to others.
4. Policies facilitate administrative control by providing a rational basis for evaluate in results.
5. It saves time and efforts.
6. They build confidence among employees to solve problems.
Limitation of Policies:
These Policies do not provide readymade answers to every problem.
They suffer from the following limitations:
1. Policies do not offer universal solutions to ail problems particularly in changing environment.
2. They do not proceed instant solution to problems.
3. Too many Policies instant kill the imitative of managers.
4. Policies do not provide standard solutions to various problems.
Characteristics of a Sound Policy (Principles of Policy-Making):
1. Policies should be based on the objectives and should contribute toward the attainment of objectives.
2. A policy should be dean, definite and explicit and it should be understandable easily.
3. Policies should be written and precise covering all anticipated conditions.
4. All Policies should be based on careful consideration of resources and environment of the organization.
5. A Policy must be reasonable and capable of being accomplished.
6. Policies should be stable as well as flexible.
7. A Policy should be planned development rather that opportunistic or spur of the moment decision.
8. All Policies should confirm to the norms of ethical behavior and standards.
9. All Policies should be communicated to the people who are to implement them.
10. Policies should be just, fair and equitable to internal as well as external groups.
11. Policies should be reviewed and revised periodically to keep them up to date.
12. It should lay down limits and yardsticks for action.
Steps in Policy Formulation:
Policy formulation process involves the following steps:
1. Definition of Policy Area:
The first step in policy-making is to specific the area in which policies are required. In defining areas for policy-making, the objectives, needs and environment of the organization should be kept in view.
2. Identification of Policy Alternatives:
The internal and external environment of the enterprise is carefully analyzed to identify opportunities and constraints, strengths and weaknesses. etc. on the basis of such analysis policy alternative are identifies for each objective.
3. Evaluation of Alternatives:
Each of the policy alternatives is evaluated in terms of its contribution to objectives. The costs, benefits and resources required should be considered in evaluation alternatives.
4. Choice of Policy:
After evaluation, the most appropriate alternative is selected. This is the point of policy-makings.
5. Communication of Policy:
The chosen policy is communicated to those responsible for its application. Policy manuals, company handbooks, written memorandums are used to disseminate policy and to educate people in the application of the policies.
6. Policy Application:
The chosen policy is then put into operation by converting it is not operational plans. Application and promulgation of a policy requires policy education, interpretation and acceptance.
7. Policy Review and Appraisal:
Period review of policies is necessary due to rapid changes in the environment. Without such review, policies are likely to become obsolete leading to complacency and stagnation in the organization.
Type # 2. Procedure:
A Procedure is a chronological sequence of steps to be undertaken to enforce a policy and to achieve an objective. These should help in implementation of policies. They give details of how things are to be done.
According to George R. Terry, “A Procedure is a series of related tasks that make up the chronological sequence and the established way of performing the work to be accomplished”.
Importance of Procedures:
The main use of Procedure is:
(i) It relieves the manner of much of the detail in directing subordinates by indicating the steps to be undertaken and he time and order of performance.
(ii) It routines recurring jobs so that employees need not invent original solutions to solve repetitive problems. It thereby saves time and effort.
(iii) It provides the most efficient and standard manner of doing work thereby simplifying decision-making.
(iv) It helps to ensure consistent and uniform actions for routine work.
(v) It helps to lie together and integrate efforts of different individuals.
(vi) It reduces the sphere of subjective judgment thereby permitting wider delegation of work to low management levels.
(vii) The establishment and use of procedures creates order, tidiness and expediency in the enterprise. It removes administrative bottleneck. A streamlined set of procedures accelerates clerical and paper work.
(viii) Good procedures speed up flow of information and facilitate control by exception.
(ix) Procedure training of employees. They save the new employee the expense and frustrating trial and error method of finding the acceptable way of performing a task.
(x) Procedures can be used to judge whether work is a proceeding as planned and can, therefore serve as a basis for control. Thus, procedures help to simply and streamline administration.
Limitation of Procedures:
(i) Procedures bring about rigidity in the performance of operations.
(ii) A procedure lays down a fixed way of doing a particular job. It discourages the search for improvements. A more effective way of doing the job may not be given proper attention.
(iii) Procedures need to be reviewed and updated constantly because they become obsolete with changes in business operation.
Characteristic of Good Procedure:
(i) Procedures should be based on adequate facts of the particular situation rather than on guesses or wishes.
(ii) Procedures should focus on desired objectives and established policies.
(iii) Procedures should be standardized so that responsibility can be easily fixed.
(iv) Procedures should be reasonable stable yet flexible enough.
(v) All Procedures should be properly balanced to create a system.
(vi) Procedures should be reviewed periodically and should be updated to changed conditions.
(vii) Procedures should be kept to minimum possible level.
Type # 3. Rules:
Rules are prescribed guides for conduct or action. They specify what should be done or not done given situations. Rules are established authoritatively and enforced rigorously. Rules help to ensure desired behavior on the part of employees and make actions predictable. They facilitate discipline and uniformity of actions in the organizations, therefore, have a set of rules.
A rule is different from procedure though closely related with it set of rules systematically tied together may constitute a procedure. A rule is related to a procedure in that it gives action but specifies no time sequence. But a procedure prescribes a time sequence of operation. A rule may or may not be a part of a procedure.
Type # 4. Strategies:
The concept of strategy in business has been borrowed from military science where it implies the art of the military general to fight the enemy. The term strategy began to be use in business with increase in competition and complexity of operation. Strategies and policies are closely related terms. They provide a direction or a sense of purpose to an organization. They form the basis for operational plans and influence the other areas of management.
A strategy may be defined as a special type f plan prepared for meeting the challenge poses by the activities of competitors and other environmental forces. According to D. L. Cleland and W. R. King, “Strategy is the complex plan for bringing the organization from a giving posture to a desired position in a future period of time”.
In order to formulate an effective strategy, management must anticipate accurately the plans of competitors and look at them form the view point of revival firms.
Nature of Strategy:
The following are the characteristics of a strategy:
1. It is a contingent plan as it is designed to meet the demands of a particular situation.
2. It provides direction in which human and physical resources will be deployed for achieving organizational goals.
3. It relates an organization to its external environment.
4. It is an interpretative plan formulated to interpret and give meaning to other plans.
5. It is the right combination of different factors.
6. It is forward looking.
7. It is generally formulated at the top level management.
8. It is means to an end not an end itself.
9. It is generally long term in nature.
10. It is flexible and dynamic.
11. It is action oriented.
Essential of Good Strategy:
The following criteria may be used to evaluate a strategy:
1. A business strategy must be consistent with the goals and policies of the organization. Lack of consistency will make implementation difficult.
2. The strategy should be designed to fit the opportunities and threats of external environment. It should be based on reliable forecasts of future trends.
3. Time is crucial element of strategy. Thus, timing of an action must be appropriate.
4. A proper match should be created between risk and return.
5. It should be appropriate in the light of available resources.
6. Strategy must fulfill ethical and social responsibilities.
7. There must be feasibility.
Importance of Strategies:
A strategy contributes to the success of an organization in the following ways:
1. Strategies are helpful in facing environmental challenges.
2. It serves as the long-term guide towards the achievement of objectives.
3. It ensures more efficient and effective utilization of organizational resources e.g. Time, money, talents etc.
4. It facilitates good co-ordination and control in the different departments and groups of the organization.
5. It helps in maintaining or increasing the firm’s market share in the face of competition.
Steps in Strategy Formation (Strategic Planning Process):
The process of strategy formulation consists of the following steps:
1. Mission and Objectives:
Strategic planning process begins with the determination of the mission for the organization. The basic purpose for which the organization has been established should be clearly defined. Strategic planning focuses on an organization’s long-term relationship to its external environment. Therefore, the business mission should be formulated in terms of social impact of the organization.
2. Environment Analysis:
The external environment of the organization is analyses to identify opportunities and threats. A list of important factors likely to affect the organization’s activities prepared. Environment analysis permits the organization to influence the shape of the events to come.
The strengths and weakness of the organization are then analyses. Such a resources analysis will enable the enterprise to capitalize on its strengths and to minimize its weakness. The organization can exploit external opportunities by concentrating on its internal competence. By matching its strengths with environmental opportunities, an enterprise can develop a suitable niche for itself to face competition and to achieve growth.
For instance, Reliance industries limited established a textile mill when a large number of textile mills had become sick. The company adopted the niche of high quality and high priced suiting and sarees. It marshaled its resources to produce and sell to select group of customers. Within a short period the company achieved unparalleled success.
4. Strategic Decision-Making:
Strategic alternatives are generated and evaluated. Then a strategic choice is made to reduce the performance gap. For example, in order to grow, an enterprise may enter new markets or develop new products or sell more in the present markets.
The organization must select the alternative that is best suited to its capabilities and that offers a distinctive edge over its rivals. Choice of strategies depends upon several factors, e.g., Management perceptions, past strategies and management powers, management attitude towards risk.
5. Strategy Implementation and Control:
Once the strategy is formulated, it must be translated into tactical and operational plans. Programmes and budgets are developed for each function. Short-term operational plans are prepared to utilize the resources. Proper sequence and timing of efforts is decided so that every step is taken at the right time.
Controls should also be developed to evaluate performance as the strategy is put into use. Wherever, actual results are below expecting the strategy should be reviewed or reappraised. It must be modified and adapted to changes in the external environment.
Types of Strategies:
According to William F. Glueck, there are following types of Strategies:
1. Stability Strategy:
Where the environment is stable and the firm is doing well, it may follow the strategy of status quo. It may be satisfied with present products and market share. This is a less risky strategy but unsuitable in changing environment.
2. Growth Strategy:
Many firms follow the strategy of expansion and diversification. It is risky and requires accurate forecasting and resource mobilization. Growth must be properly planned and controlled.
3. Retrenchment Strategy:
It implies reduction in operations and personnel. It may be followed by struggling firms who want to survive severe competition and depression.
4. Combination Strategy:
It is often used by large firms who want to cut back in some areas and to expend in others.
5. Competitive Strategy:
It refers to a ‘game plan’ that is designed for outgoing the actions of the competitors formulation of a competitive strategy involves knowing the likely moves of competitors and then concentrating or overcoming those moves effectively.
6. Grand or Master Strategy:
It determines the picture of the kind of enterprise that is envisaged. The purpose of grand strategy is to determine and communicate the probable shape which the organization is likely to take in future. Strategy may be designed to fight the general forces operating in an industry and the economy. For example, if management anticipates an economic recession, it may decide upon a strategy of reduced stocks, fewer staff, reduced expenses, etc.
Styles of Making Strategy:
Mintzberg describes three styles/modes of making strategies:
1. Entrepreneurial Mode:
This strategy applies to risk-seeking organisations. The top-level executives frame strategies based on their experience and judgment. The strategy aims at growth of the organisation by seeking threats and opportunities, accepting them and moving the organisation to a new direction. The entrepreneur aims at growth-oriented strategies by looking for new opportunities in the environment based purely on estimates of future and not rational estimates of environmental threats or opportunities.
2. Adaptive Mode:
While entrepreneurial mode of strategy making is offensive in nature, the adaptive mode is defensive in nature. It aims at making strategies in business areas where the organisations do not want to take risks, do not look forward to changes in the environment but accept the changes as they occur. It aims at making strategies where organisations adapt to the changing environment.
3. Planning Mode:
This is similar to entrepreneurial mode with the difference that this mode of making strategies is more scientific and systematic in nature. The organisation perceives changes in environment well in advance and through proper planning prepares itself to face these changes. It is, thus, a future- oriented mode of strategy-making where organisations are prepared to face the future challenges. The estimates of future are based on structured, systematic and rational analysis of environmental threats and opportunities.
Choice of Style:
One style of making strategies does not suit all the organisations. The choice of a particular style depends upon factors like maturity level of the organisation, nature of organisation, the product being marketed, the leadership styles of managers etc.
A newly set up organisation, headed by young entrepreneurs adopts the entrepreneurial mode of making strategies while those at the maturity stage prefer the planning mode. The entrepreneurial mode is appropriate during periods of crisis while planning mode is more useful during stable situations.
Type # 5. Programmes:
A programme is a sequence of activities designed to implement policies and accomplish objectives. It is divided to meet a particular situation. Programme may be taken as a combination of policies, procedures, rules, budgets, task, assignments, etc. developed for the specific purpose of carrying out a particular course of action. Separate programmes are prepared for accomplishing different tasks. The same programme may not be used for achieving other goals. It is a single use plan laid down for new and non- repetitive activities.
In the words of Knootz and O’Donnell, “Programmes are complexes of goals, policies, procedures, rules, task assignment, steps to be taken, resources to be employed and other elements necessary to carry out a given course of action”. To quote George Terry, “A programme can be defined as a comprehensive plan that includes future use of different resources in an integrates pattern and establishes a sequences of required actions and time schedules for each in order to achieve the standard objectives.”
Characteristics of Programs:
The following are the characteristics of programs:
1. A program is a single use comprehensive plan.
2. A number of small plans are prepared to formulate a program.
3. A program is prepared to achieve organizational goals.
4. It gives a time limit up to which the program is to be implemented.
5. A program should ensure coordinate planning efforts.
Advantages of Programs:
Following are the advantages of programs:
1. Programs lay down a course of action to be followed for achieving organizational goals. It enables smooth implementation of plans.
2. Programs are helpful in creating better co-ordination in the organization.
3. The programs are action-oriented plans and provide motivation to employees.
Limitations of Programs:
1. If the programs are not carefully framed, there is a danger of their being failing.
2. There is always a risk of inadequate co-ordination.
3. The major programs have a number of sub-programs.
Basic Steps in Programming:
1. Division of Work:
Before developing a program, the purpose of the program, the steps to be taken, the quantity and quality of effort required for each step should be clearly defined. Division of work facilitates proper assignment of tasks to person and facilitates review of progress at each step.
2. Sequence between Steps:
Assigning priority to different steps and developing a chronological sequence is necessary. The work done and the time spent on one step affect the subsequent steps. These relationships and sequential arrangements should be observed carefully.
3. Fixing Responsibility:
After division of work and flow of work, accountability for each step should be fixed on specific individuals i.e., who will do what?
4. Arranging Resources:
The success of program depends on the timely availability of physical, financial and human resources. Therefore, the resources required for the program should be determined.
5. Time Scheduling:
The date when an operation can begin and the time needed for its completion are decided. Availability of resources, delivery scheduled processing time, etc., should be considered in deciding time schedule.
Type # 6. Budgets:
Budgets are very useful tools for planning and control. A budget is a plan in which estimated results are shown in terms of money i.e., revenue and costs. It is a tool of control in the sense that corrective action is taken in case of any deviation. A budget quantifies the plan and lays down the targets towards which actual operations ire directed.
“Budgets are finished products-they are formal programmes of future operations and expected results. Budgets result from forward thinking and Planning.” — Harry L. Wylie
“A budget is a financial statement and/or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective.” — Institute of Cost and Works Accountants, London
In simple words, ‘Budget’ is an instrument used by management for planning the future activities of a business. Budget is a plan which is expressed in numerical terms indicating expected results.
Characteristics of a Budget:
A budget should have the following characteristics:
1. It should be flexible. Fixed budgets do not serve much purpose.
2. It may be based on past performance but should not ignore future.
3. It should be made after consulting all the heads of departments.
4. It should be a clear cut and specific statement.
5. Top management should take active interest in the framing a budget.
Objectives of Budgeting:
The following are the objectives of budgeting:
(i) Tool of Planning:
A budget at the first instance is a tool of planning. In fact, no control can be exercised without planning. Thus, a budget is a planning instrument. Budgets set targets which are to be achieved by each department viz., purchases, sales, expenses, profits, etc.
(ii) Tool of Control:
A budget is also a control device as it is through budgets that operations are controlled. Budget is perhaps the most universal device of control. For the purposes of control, there is a master budget for the entire organization and a separate budget for each unit.
(iii) Tool for Co-Ordination:
Since all activities of the enterprise are brought together in the budget, it becomes a tool of coordination. Production is based on sales budget and material budget is then based on production budget.
(iv) Tool as a Motivation:
A budget lays down targets in financial terms. So a set standard of performance is provided for all the employees. It provides motivation to employees to achieve the target as they know what is to be achieved.
Classification and Types of Budgets:
The budgets are usually classified according to their nature.
The following are the types of budgets which are commonly used:
A. Classification on the Basis of Time:
1. Long terms budgets.
2. Short term budgets.
3. Current budgets.
B. Classification on the Basis of Functions:
1. Functional or subsidiary Budget.
2. Master Budgets.
C. Classification on the Basis of Flexibility:
1. Fixed budget.
2. Flexible budget.
A. Classification According to Time:
1. Long-Term Budgets – The budgets are prepared to depict a long-term planning of the business. The period of long-term budgets varies between five to ten years.
2. Short- Term Budgets – These budgets are generally. For one or two years and are in the form of monetary terms.
3. Current Budgets – The period of current budgets is generally of months and weeks.
B. Classification on the Basis of functions:
1. Functional Budgets:
These budgets are related to different functions, the number of these budgets depends upon the size and nature of business.
The commonly used functional budgets are:
(a) Sales budgets
(b) Production Budget
(i) Raw Material Budget
(ii) Labor Budget
(iii) Plant Utilization Budget
(c) Purchase Budget
(d) Cash Budget
(e) Finance Budget
2. Master Budget:
Various functional budgets are integrated into master budget. This is prepared by the ultimate integration of separate functional budgets.
C. Classification on the Basis of Flexibility:
1. Fixed Budget – The fixed budgets are prepared for a given level of activity; the budget is prepared before the beginning of the financial year.
2. Flexible Budget – A flexible budget consists of a series of budgets for different levels of activity. It, therefore, varies with the levels of activity attained. A flexible budget is prepared after taking into consideration unforeseen changes in the conditions of the business.
The following advantages are derived from budgets:
(i) Budgeting Improves Planning:
A serious thought is given by the top management while framing budgets (not only from a particular department point of view but from the entire organisation).
(ii) Budgets are an Aid to Co-Ordination:
Budgets promote balanced activities among the various departments, e.g., there will be coordination between production and sales. The budgets, therefore, help in removing possible discrepancies at an early stage.
(iii) Basis of Control:
Budgets provide a yardstick for control as actual performance can be compared with the pre- determined targets.
(iv) Time Bound:
A budget is always prepared for a specific period, say a month, a quarter or a year. Hence, performance can be known within the specific period.
(v) Makes Possible Delegation of Authority:
Since budgets are made for almost everything, a manager can know as to who should have how much authority. Thus, delegation of authority is made possible.
(vi) Consideration of Past, Present and Future:
Budgets are based on forecasts which can be defined as a statement of probable events likely to occur. Forecasting is simply a guess work based on past experience. So, while framing a budget, an effort is made to study carefully the past events, evaluate the present and also making a realistic assessment of the future.
The following are the shortcomings of budgets:
(i) Danger of Over Budgeting:
If too many budgets are made, the cost of budgeting may be more than the benefits derived from it. If budgets contain too many details, they create confusion among the employees.
(ii) Time Consuming:
It takes too much time to install a budgeting system and o quick results can be expected from it in a short time.
(iii) It is not a Blue Print:
A budget is just a sophisticated guess work and be taken as a sole base for comparing actual performance.
(iv) Changing Economy:
Since budgets are made in advance, it is not possible to exactly for see the changes in the economy. Hence, accurate judgment of future is very difficult in a fast changing economy.
(v) It is Disastrous for the Morale of the Business:
There is a common feeling that when the actual performance is different from the budgets, the blame is passed on to other managers. Moreover, the managers will not show initiative as they think that the budget contains everything.
Type # 7. Schedules:
A schedule is a timetable of work. It specifies the date when a task is to begin and the time needed to complete each task. The starting and completion date for each part of the program are specified in the time schedule. Minimum and maximum time periods may be specified to keep the schedule realistic and flexible. Three main elements are involved in planning a schedule – (a) Identify activities or tasks, (b) determine their sequence and (c) specify starting and finishing dates for each activity as well as for the sequence as a whole.
Scheduling is the process of establishing a time sequence for the work to be done. Schedules translate programs into actions. Scheduling is necessary in all organizations to provide for an even flow of operations and to ensure competition of each task at the right time. While planning a schedule, the availability of resources, processing time and the delivery commitments should be kept in view. Due allowance should be made for delays created by factors beyond the control of management as well as for non-productive time.
Type # 8. Projects:
A project is a complex scheme for the investment of resources which can be analyzed and evaluated as an independent unit.
The main features of a project are as follows:
(i) It is a non-recurring plan.
(ii) It has a specific mission or objectives.
(iii) It involves time bound plan with a long time.
(iv) It involves considerable investment of resources and is significant for the future of the organization.
(v) It has a clear termination point.
Project approach is needed when – (a) the work to be done is special requiring expertise from different departments, (b) the work is very complex and unfamiliar, (c) High cost is involved, (d) errors and omissions are to be minimized, (e) the work is time bound.
In other words, project organization is often used to complete the complex task within prescribed time, cost and quality constraints. As a project normally affects several departments, effective co-ordination of departmental efforts is required. Several techniques, e.g., network, PERT; CPM etc. are now available for planning, monitoring and control of projects.
Project is helpful in precise allocation of duties, effective control, easy implementation of the plan and fixation of responsibility. It provides a sense of purpose.
Type # 9. Methods:
Methods are formalized and standardized ways of accomplishing repetitive and routine jobs. They are designed to keep operations running on planned and desired lines, to prevent confusion and adhocism and to ensure economy and efficiency. Methods provide detailed and specific guidance for day-to- day action. Methods are helpful in the simplification, standardization and systematization of work.
They serve as uniform norms to guide and control operations and performance. Standard methods represent the best way of performing jobs. A method prescribes the manner of performing a task. Therefore, it is helpful in the use of a procedure with minimum expenditure of time, money and efforts. A method is more limited in scope than a procedure. It is one step of a procedure.
Methods are different from procedure in the following ways:
(i) Procedure lays down series of steps whereas a method is concerned with a particular step.
(ii) Procedures are concerned with the department as a whole whereas methods are specific and guide the performance of a particular step of a procedure.
(iii) Methods lay down the best way of doing a specific step of a procedure.
(iv) A procedure may involve many departments whereas a method always involves one department.
Answer 2. Types of Plans in Planning:
Plans can be classified in a number of ways, on the basis of the organization level, the frequency of use and their time-frame.
1. Plans Based on Organizational Level:
Just as organizations define goals at different levels, they also establish plans at different levels. On the basis of the organization level, plans can be strategic, tactical or operational.
i. Strategic Plans:
These plans are designed to achieve strategic goals. More precisely, strategic plans are general plans that indicate the resource allocation and priorities and actions necessary for achieving strategic goals. These plans which establish overall objectives for organizations, analyse the various environmental factors that affect organizations.
Eight major areas for strategic goals are:
i. Market Standing – Desired share of present and new markets, including areas in which new products are needed and service goals aimed at building customer loyalty.
ii. Innovation – Innovations in products of services as well as innovations in skills and activities required to supply them.
iii. Human Resources – Supply, development and performance of managers and other organization members, employee attitudes and development of skills, relations with labor unions, if any.
iv. Financial Resources – Sources of capital supply and how capital will be utilized.
v. Physical Resources – Physical facilities and how they will be used in the production of goods and services.
vi. Productivity – Efficient use of resources relative to outcomes.
vii. Social responsibility – Responsibilities in such areas as concern for the community and maintenance of ethical behaviour.
viii. Profit requirements – Level of profitability and other indicators of financial well- being.
Strategic plans are applicable to the entire organization and are generally developed by top management in consultation with the board of directors and the middle management. They tend to cover and extended period of time – usually three years or more.
ii. Tactical Plans:
They aim at achieving tactical or short-term. These plans help support the implementation of strategic plans. Tactical plans essentially indicate the actions that major departments and sub-units should take to execute a strategic plan. Such plans are more concerned more with actually getting things done than with deciding what to do. They are thus essential for the success of strategic plans.
Tactical plans are developed by middle-level managers, who may consult lower-level managers before finalizing the plan and communicating it to top-level management. Compared to strategic plans, tactical plans cover a shorter time frame (usually 1 to 3 years). A middle- level manager acting as a tactical planner deals with much less uncertainty and risk than the strategic planner. The information that he requires is also less and most of it can be derived from internal sources.
iii. Operational Plans:
Operational plans are developed to determine the steps necessary for achieving tactical goals. They are stated in specific; quantitative terms and serve as the department managers guide to day-to-day operations. Operational plans are developed by lower-level managers. These plans generally consider time frames of less than a year, such as a few months, weeks, or even a few days. They spell out specifically what must be accomplished over short time periods in order to achieve operational goals.
Lower-level managers who develop operational plans work in an environment of relative certainty. Hence, the amount of risk involved in making operational plans is lesser than that involved in making tactical plans. The information needed for operational planning can be obtained almost completely from within the organization. Unless operational goals are achieved, tactical and strategic goals will not be achieved. Therefore, operational plans are necessary for the success of tactical and strategic plans.
2. Plans based on Frequency of Use:
Plans can also be categorized on the basis of their frequency of use.
Based on the extent of use, plans can be of two types:
i. Single-use plans and
ii. Standing plans.
i. Single-Use Plans:
A single-use plan is aimed at achieving a specific goal and is designed to deal with a unique, non-recurring situation. Once the goal has been achieved, the plan ceases to exist. In other words, a single-use plan is a one-time plan and is created in response to non-programmed decisions of managers (non- programmed decisions are specific solutions to atypical or non-routine problems and are arrived at through an unstructured, undefined process).
The major types of single-use plans are:
b. Budgets and
Programs are large scale single-use plans that co-ordinate a complex set of activities to achieve important non-recurring goals. They are concrete or well-defined schemes designed to accomplish specific objectives. Programs spell out clearly the steps to be taken, the resources to be used and the time period within which the task is to be achieved.
They also indicate who should do what and how. Programs serve as useful guides for day-to-day operations. They are action-based and result-oriented management approaches that facilitate the smooth and efficient functioning of organizations.
A budget outlines the expected results of a given future period in numerical terms. It is a plan of action or blueprint designed to achieve a specific goal. A budget may be expressed either in financial terms or in terms of units of products, labor-hours, machine-hours, or any other numerically measurable term.
A budget generally quantifies the plan and establishes the target for actual operations. It indicates the financial resources necessary for supporting the various activities included in a program. Many organizations use the budget as a basis for planning and coordinating other activities.
A project is similar to a program, but is smaller in scale and less complex. A project may be a component of a program, or it may be a self-contained, single-use plan. A project helps in the precise allocation of duties and effective control and easy implementation of the plan.
ii. Standing Plans:
Standing plans refer to specific actions which have been developed for dealing with recurring situations. While single use plans are used for situations that are unique, standing plans are used for situations which may be encountered by managers on a regular basis.
Standing plans are developed in response to programmed decisions of managers (programmed decisions refer to solutions to routine problems and are arrived at by following rules, procedures or habits). They speed up the decision-making process and allow managers to handle similar situations in a consistent manner. Since standing plans are predetermined courses of action, they make it possible for managers to delegate authority.
Since every course of action has been clearly defined by these plans, they do away with the need for continuous supervision by managers. They also provide a ready reference for executive action as they spell out what is to be done in a particular situation.
The four main types of standing plans are:
c. Rules and
A policy is the most general fond of a standing plan. It specifies the broad parameters within which organization members are expected to operate in pursuit of organizational goals. Policies do not specify what actions should be taken, but provide general boundaries for action. They indicate the direction in which top management wants to channelize the energies of people in the organization. Policies are generally flexible and broad in their scope.
A procedure is a chronological sequence of steps to be undertaken to achieve an objective. It is more specific than a policy as it outlines the steps to be followed under certain circumstances. Procedures are guides to action that specify in detail the manner in which activities are to be performed.
Well- established and formally laid down procedures are often called Standard Operating Procedures (SOPs). They ensure uniformity in action. Unlike policies, which tend to be fairly general, procedures provide detailed step- by-step instructions regarding the action to be taken. Thus, procedures help in simplifying and streamlining the administrative activities of an organization.
These are the simplest type of standing plans. A rule is a statement that spells out what should or should not be done in a particular situation. Unlike procedures, rules do not specify a series of steps but dictate exactly what must or must not be done. Thus, rules are rigid and definite plans that do not allow for deviation.
They provide very little flexibility. However, rules help ensure that employees behave in the desired manner and make their actions predictable. They regulate the day-to-day conduct of affairs by providing detailed instructions.
The different types of single-use and standing plans can be arranged in a hierarchy. This is depicted in Figure where organizational objectives serve as a platform for the development of strategic plans. The strategic plans lead to the development of tactical and operational plans. These plans are then converted into narrower, more detailed standing plans and single-use plans.
Managing and organization effectively requires the formulation of clear objectives. They serve as guidelines for managerial efforts and action. An objective is a goal or an end that an organization or an individual aims at or strives to attain. The planning process beings with the setting up of objectives. A superior or team sets the objectives and decides the processes by which these objectives can be achieved. Hence, objectives indicate the destination of an organization. Well throughout objectives steers an organization to success.
According to Allen, “Objectives are goals established to guide the efforts of the company and each of its components”.
Thus, objectives may be defined as the ends, purposes or aims which an organization wants to achieve over varying periods of time.
Nature of Organizational Objectives:
The following are the features of organizational objectives:
1. An organization has multiple or sever objectives. This multiplicity creates the problem of fixing priority among different objectives and of humanizing them.
2. Objectives has time span as short term, medium term and long term. All these objectives need to be integrated so that they reinforce each other.
3. Objectives form a hierarchy i.e., there is a graded series of objectives. Objectives of each lower unit contribute to the objectives of the next higher unit.
4. Objectives may be tangible or intangible.
5. Objectives may be of short run or long run.
Importance of Objectives:
Careful selection and clear definition of objectives provide a sense of purpose and direction to employees.
Objectives serve the following importance:
1. The objectives are helpful in creating unity in planning.
2. The formulation of objectives helps in decentralization of authority.
3. Objectives are helpful in exercising control over various activities.
4. The setting-up of objectives stimulates motivation in individuals.
5. Objectives are the essence of planning.
6. Mutually agreed objectives promote voluntary co-ordination by stimulating a sense of unity and Mutual Corporation.
Essentials of Valid Objectives:
1. Objectives must be clear and specific.
2. They should be stated in measurable terms.
3. Objectives must be result oriented and time bound.
4. Objectives must be mutually supportive.
5. They should be challenging but attainable.
6. They must be acceptable to employees.
7. They must have social sanction.
8. Objectives should be interconnected and mutually supported.
9. Objectives should provide some flexibility.
10. Sub-goals should be laid down for every objective.
11. Objectives should be laid down in all the key result areas of business.
Peter Drucker has identified eight key areas in which objectives should be established- Market standing, innovation, productivity, physical and financial resources, manager performance and development, worker performance and attitudes, profitability, public and social responsibility.
The term objective, mission, goal, target, standard, quota, deadline etc. are used interchangeably in management literature. Some distinction can however be made between these terms.
Mission- It represents the overall Philosophy of organization. This term is used generally in non-business organizations like college, a religious trust, a club, Government etc., For example, elimination of poverty is the mission of Government Goal- a Goal is a desired state of affairs which an organization wants to realize. It legitimate the role of an organization in society. For example, the goal of Maruti Udhyog is to provide low cost, Economical and Quality automobiles to the public.
Targets- A Target is a plan stated in concrete measurable terms. It is a specific and Quantitative objective. For Example the total output in the year.
Standard- A standard is a norm or criteria against which performance can be compared and evaluated. Standards may be Quantitative and Qualitative.
Quota- A Quota is a form of target stated in quantitative terms.
Deadline- A deadline shows the time limit for the completion of a task.
Guidelines for Writing Objectives:
It is important to learn to write meaningful objectives, regardless of the types of objectives.
The guidelines mention below would help in formulating realistic objectives:
(1) Commitment to Action:
The objectives must begin with the words “To” followed by the acting verb. Any particular objective is achieved as a result of some action. Therefore, commitment to action is perquisite of the formulation of an objective.
(2) Specify a Single Key Result:
An objective should specify a single key result area. To measure a particular objective effectively, each sub-ordinate and manager must know specifically what is to be achieved. Therefore, the focus should be on a single key result area in each performance objective.
(3) Specify a Target Date:
Objectives should specify a deadline for results to be accomplished. If the objective intends to improve the state of affairs in the organization, it should have a specific target date identified.
(4) Should be Measurable and Verifiable:
Objectives should be specific and quantitative. Only if they are measurable and verifiable, it is possible to assess how much progress has been made. This is extremely difficult for managers to accomplish as they are often confused as to how to identify specific criteria in areas which are subjective. If the objectives are quantitative, then it should be explained as to why the objective has been chosen, what will be its end results and how one will know whether the objective has been achieved or not.
(5) Individual Objectives should be related to Higher Objectives of the Organization:
Objectives of a sub-ordinate should be in keeping with the objectives of the superior and the organizational goals.
An objective that is easy to understand can be easily implemented. It should be understood by those who are responsible for accomplishing it. As far as possible, an objective should be free from ambiguity.
(7) Realistic and Attainable:
An objective should be challenging and should stretch the abilities of an individual. But it should also be within range of the abilities of a person. A good performance objective should serve a motivational Force for an individual. Thus, it should be neither too simple nor too difficult to accomplish but should be attainable.
(8) Should be Consistent with Organizational Resources:
A performance objective should match with the resources of an organization. Moreover, an organization should be willing to commit its resources towards the attainment of those objectives.
Should be mutually acceptable by both superior and sub-ordinate- objectives should be discussed by the superior and sub-ordinate and should result in mutually understood and accepted objectives by discussing the objectives and thereby reaching an agreement, the subordinate would feel involved and be more committed.
3. Plans based on Time-Frame:
Organizational plans should not extend beyond specific time frames.
Plans based on the time horizon can be classified into three types:
i. Long-term plans,
ii. Intermediate- term plans and
iii. Short-term plans.
i. Long-Term Plans:
These are the strategic plans of an organization and have a time frame exceeding five years. A long-term plan is derived from the vision developed for the organization by its founders or the top management. It involves setting up broad objectives and establishing procedures for achieving these objectives.
ii. Intermediate-Term Plans:
While long-term plans provide a direction for the organization, intermediate- term plans specify the activities to be carried out. These plans generally cover time periods ranging from one to five years. Intermediate plans define the organization’s activities and provide direction for middle management.
When a firm’s long-term plans are not very clear due to high levels of uncertainty, the focus of planning activity shifts to intermediate-term plans because they are made for a shorter duration of time and therefore their outcomes are certain and predictable.
These plans generally cover time periods up to one year. They provide lower- level managers with guidelines for carrying out the day-to-day activities of an organization. They take care of the individual activities needed to achieve the overall objectives outlined by long-term planning. They guide a manager by stating what he has to do; how, where and when he has to do it; and the resources available for performing the specified task. Short-term plans thus, help managers make better use of manpower and other resources in the immediate future.
An organization can also have specific plans and directional plans. Specific plans are those which have clearly defined objectives. They are very specific and unambiguous. For instance, a manager who seeks to increase his firm’s sales by 10 percent over a period of one year might establish specific procedures, budget allocations and schedules of activities for reaching that goal. These represent specific plans.
To be effective, specific plans require an environment of certainty and predictability, which often does not exist. When there is high uncertainty and management is required to be flexible in order to respond to unexpected changes, it is preferable to use directional plans. These plans establish general guidelines. They provide managers with, a focus, but do not confine them to specific courses of action.
Instead of following a specific plan to cut costs by 5 percent and increase revenues by 10 percent in six months, a directional plan may chalk out a course for improving corporate profits within a broad range; say 10 to 15 percent, over the next six months. Thus, directional plans provide flexibility but do not provide clearly defined objectives, as specific plans do.
Answer 3. Types of Plans in Principles of Management:
Planning is a broad concept. Ackoff defines planning as “anticipatory decision-making.” It is viewed as the employment of strategy or preferred means in the pursuit of desirable objectives or goals. This view emphasizes creativity, innovation, vision and imagination in the planning function.
Ewing defines planning as “the job of making things happen that would not otherwise occur.” This view captures the essential nature of planning.
(1) Formulation of mission or purpose.
(2) Determination of objectives,
(3) Formation of strategies,
(4) Establishment of standing plans to be used over and over again, e.g., policies and procedures,
(5) Creating single use plans to be used under non-repetitive situations, e.g., programmes and projects.
Although plans can be classified by time periods (long-range and short-range plans) or by management levels (strategic, administrative and operational), our initial concern is with their basic types. We have a hierarchy of types of plans ranging from a very broad viewpoint. e.g., strategies, to a very narrow one, e.g., procedures, methods and rules.
On the basis of stated mission, objectives and goals, policies outline the courses to be followed in order to achieve our objectives and goals.
On the basis of stated strategies and policies, the management develops programmes carefully planned campaigns to carry out established policies and reach the predetermined goals.
Carrying out programmes results in further activities procedures, practices, rules, schedules, etc.
Objectives indicate our destination; policies point out what is intended. Programmes, procedures, etc., describe how policies are being implemented.
Objective- Maximum productivity: R.O.I. 20 per cent (after Tax).
Policy- Policy of providing adequate training to all employees.
Programme- Evolution of special on-going training programme to all employees.
Procedure- Prescribed procedure for enrollment or for maintaining a proper record of individual training.
Every enterprise needs a central purpose expressed in the form of a mission expressing the reason for the justification of its existence. Once the mission is defined, we have to determine a hierarchy of objectives- overall corporate objectives as well as divisional and/or departmental and even individual objectives.
Once the objectives are determined, we have to formulate appropriate strategies which will determine and communicate a picture of the kind of enterprise contemplated. Strategies offer preferred means to achieve desirable objectives. Standing plans offer readymade answers to recurrent questions.
They facilitate the decision-making process in management. They are used over and over again as long as they serve the purpose. Single-use plans provide a course of action to fit the needs of a situation and they are used up when the goal is achieved.
In every joint enterprise we must have a definite purpose or mission; then only the organisation becomes meaningful or purposive. This purpose or mission should be defined precisely so that it can guide or direct our enterprise. It will act as a reference point in our risky journey in the business world. The future situation is the weather. The resources at our disposal constitute our ship.
The prescribed scope of our business activities is the sea upon which our ship is sailing. But, for smooth sailing in the right direction, our defined purpose or mission will play the role of the North Star ensuring our safe arrival at our chosen destination and thereby enabling us to accomplish our purpose or mission.
The mission is the central guiding concept answering basic questions- “What business are we in? What will our business be? Who are our customers? Why should society tolerate our existence? And so on.” If you have the right answers to these questions, your success in business is assured. Your existence is also justified. The term mission is often employed by churches, governments and military operations to describe a major programme objective.
The basic purpose or the mission of a business organisation is two-fold:
(1) Production and distribution of economic goods and services to serve the customer demands and
(2) Provision of employment and income through which the citizens can buy their commodities and services.
The word mission is a general term describing the fundamental reason for the existence of an organisation. It depicts the survival needs of your enterprise. It indicates the line of business of your enterprise. It also points out the beliefs, creed or philosophy of the management. It gives the basic long-run commitment of an organisation.
Before initiating any course of action, the objectives in view must be clearly determined, understood and stated. Fixing your objective is like identifying the North Star. The determination of objectives influences policy, organisation, personnel, leadership and control.
When objectives are fixed, we get a framework within which the management processes take place. Managing an enterprise without objectives is like driving a car without a destination.
Effective management is management by objectives. Enterprise objectives influence the management philosophy and practice. Objectives have a great influence on the organisation and its working.
All other elements or types of plans, such as policies, procedures, rules and budgets assist and guide in selecting those alternatives that permit the achievement of stated objectives in the most economical and efficient manner. Objectives constantly guide us on the path leading to the destination. They are the ends towards which all activity is aimed.
Objectives decide where we want to go, what we want to achieve and what our destination is. They are related to the future and are an essential part of the planning process. If we have well-defined objectives and goals, we can ensure orderly and progressive growth and progress.
Features of Objectives:
There are a few outstanding characteristics of objectives:
(1) They must be predetermined
(2) They must be stated in a written form.
(3) They should be within the reach of the organisation and yet difficult to attain, i.e., they must be realistic but challenging.
They should be realistic in terms of:
(a) The internal resources of the enterprise,
(b) The external opportunities, threats and constraints.
They should guide and stimulate action.
(4) They must be measurable, e.g. how much profit a manager should earn. It is always preferable to have objectives in measurable units of performance.
(5) The objectives can be constructed into a hierarchy, e.g. overall, major, divisional, and departmental, etc.
(6) The objectives also form a network, i.e. they are interconnected and mutually supportive.
(7) There are usually multiple objectives.
(8) We have also short- range, medium-range and long-range objectives.
Benefits of Objectives:
Once our objectives are chosen and stated precisely, we have the following benefits:
(1) Objectives will provide direction for the enterprise efforts. Departmental objectives will provide direction for the departmental efforts.
(2) Objectives serve as means of motivation. Monetary rewards used in industry are good examples of motivation.
(3) Objectives and goals facilitate purposeful and integrated planning.
(4) Unproductive work can be avoided when the work is goal-oriented or purposeful.
(5) Operating goals or standards can be set up in the detailed plan and these can be used as building blocks in developing programmes.
(6) Objectives and goals act as a sound basis for developing administrative controls.
(7) Objectives contribute to the management process. They influence size and character of the organisation, policies, personnel, type of leadership as well as managerial control. The closest relationship is between objectives and planning-action-control cycle.
(8) Objectives are the basis of a management philosophy. It makes possible the creation of management by objective (MBO) which is the modern management philosophy.
Types of Objectives:
A modern enterprise cannot have a single objective such as maximisation of profit. We have external objectives as well as internal objectives. Each set of objectives has to be co-ordinated, integrated and fulfilled to the maximum degree.
The primary objective of any business enterprise is a service objective — to serve the needs of a customer. In order to create profit, an organisation must serve the customer needs and desires. The organisation must offer a product or service comparable in respect of price, quality and utility to that of a rival product in the market. Customer-oriented marketing planning assures the fulfilment of this objective of service and satisfaction to customers.
Consumerism develops when business ignores this objective. Consumer legislation appears when business forgets its primary responsibility to the consumers. As an organisation is a social institution and a part and parcel of the society, it must have service to society as the next external objective to be fulfilled. An organisation must be a good neighbour and citizen.
It must offer active support to government, education, health- programmes, and other good works which will benefit the entire community in which it operates. It must maintain and develop the quality of life, i.e., prevent all types of pollution. Thus a business must fulfil the expected responsibilities to the community, society and government, in addition to its basic responsibility to the consumers.
There are three responsibilities or internal objectives:
(1) The first internal objective is the over-all position of the firm in a competitive market economy. It may aim at market leadership and try to be the largest. It may aim at maximum profitability. It may try to show the greatest growth rate or it may want to secure maximum diversification of business and produce a wide range of products.
(2) The second internal objective a firm relates is responsibility to its employees. The objective of offering maximum service and satisfaction to employees and recognition of human relations in industry shall fulfil the responsibility of the firm to its employees.
The organisation must offer safety, job security, job satisfaction, adequate monetary and psychological rewards, employee benefits and services and create healthy organisational climate to ensure the well- being of employees. Only then can it ensure its own economic well-being through maximum industrial productivity.
(3) The third internal responsibility of the enterprise is to the shareholders. It must have the objective of economic performance and profitability to offer fair return on the shareholder’s investments.
Profits are necessary for:
i. Survival under competition,
ii. Growth by providing funds through retained earnings to be reinvested in the business,
iii. For providing funds that permit fulfilment of responsibility to employees,
iv. For providing funds to fulfil social responsibilities.
Profit is the life-blood of the business. It is an indicator of economic efficiency. It is both an objective and also a motive. But, profit is impossible unless the organisation satisfies customers and employees and unless its objectives are sanctioned by society or environment in which it is operating.
Statement of Objectives:
To manage a business is to balance a variety of needs and goals. There cannot only be a single objective of an enterprise under the present conditions. We have a number of internal and external objectives apparently diverse or conflicting with one another.
Objectives are needed in every area where performance and results directly and vitally affect the survival and prosperity of business. The top management must identify and specify the aims and objectives for the entire enterprise. This is the first and major step in planning. We have a set of overall company-wide aims and objectives.
Within each division and/or department we have its own set c.’ divisional and/or departmental objectives. Under management by objectives, we have specific objectives to be fulfilled by each manager at every level of management and each manager will have performance appraisal to evaluate the performance in the light of stated objectives. Management by objectives is an integral part of planning.
Peter Drucker was among the first to emphasize the importance of management by objectives. There cannot be one right objective.
He suggests that objectives be stated for each of the following eight areas of accomplishment:
(1) Market standing,
(4) Physical and financial resources,
(6) Manager performance and development,
(7) Worker performance and attitude, and
(8) Public responsibility.
Objectives of the first five key areas can be subject to quantitative measurement. We have universal recognition of these objectives. These are the traditional measures of the growth and well-being of an organisation. However, unless these five objectives are properly supported by the objectives in the last three key areas, they (the first five objectives) become meaningless and the entire structure of objectives will simply collapse like a house of cards.
If we neglect the last three key objectives, there may be loss of market standing, loss of technological leadership, loss of productivity and profit and ultimately loss of business also. Once we recognise a business enterprise as a socio-economic organisation, we must give due recognition to the last three objective, viz., management development, employee growth and welfare, and public welfare.
Under systems approach we have coordinated and integrated development of both human and non-human resources and the output of the enterprise must satisfy the needs of all the members of the society or community.
Most companies have the following basic enterprise objectives:
(1) High productivity
(2) Customer service and satisfaction;
(3) Employee welfare
(4) Organisational efficiency and stability
(5) Organisational survival and growth;
(6) Profit maximisation
(7) Social responsibility; and
(8) Industrial or market leadership.
Hierarchy of Objectives:
In a large and complex organisation, we have multiple levels of management. Objectives are structured in a hierarchy (organised in successive grades). Instead of a single objective, there are many, some more urgent and important with wider scope than others. The hierarchy of objectives corresponds roughly with the structure of the organisation.
Objectives may be broad, fundamental and general in the form of purpose, mission or creed indicating the fundamental purpose or mission of the entire organisation. Then we have corporate long-term objectives covering company-wide activities. Then we have more specific divisional and/or departmental objectives and short-term goals to be achieved by managers at the middle and lower levels.
The objectives at the higher level act as the ends and those at the next lower level act as the means. Each level of objectives stands as ends relative to the level below it and as means relative to the level above it. This is called the means- end-chain of objectives. For example, all sections of production department work together to fulfil effectively the main objective of the production department.
The sectional objectives contribute to the departmental objective. If all departments like production, finance, marketing personnel, accomplish their departmental objectives, it is clear that they are bound to contribute to the overall profit or productivity objective of each division and, if all divisions achieve planned return on investment, the principal organisational objective of profitable growth through customer satisfaction can be accomplished.
Management by Objectives (MBO):
The ultimate objective of a business organisation as a socio-economic institution is the creation of economic values in the form of goods and services to serve consumer demand. Its divisions and/or departments may not be producing finished products or services but all of them must contribute to the corporate basic objective, viz., provision of goods and services to satisfy market demand.
Management by objectives requires that, for several organisational levels, we should establish a hierarchy of objectives and these are identified and, wherever possible, specified in the form of measurable goals.
These measurable goals shall contribute to the overall product or service objective of the organisation. These goals need not stress particular methods and procedures to be followed. Such an approach is called management by objectives (MBO).
Since management by objectives influences directly planning as well as organising, directing and controlling, it-constitutes a basis for describing and improving the entire process of management.
To ensure personal commitments, individual participation by both the boss and his subordinate is necessary in defining the objectives or goals to be accomplished. We also have the appraisal procedure to evaluate the performance of operating units and individuals in order to ensure their achievement.
Management by objectives (MBO) is supported by behavioural sciences and McGregor’s theories of motivation (Theory X and Theory Y) are also an integral part of MBO). Maslow’s hierarchy of needs theory and Herzberg’s motivation factors also support the MBO concept. Management Science also indicates the need to define measurable objectives for effective control.
MBO has four basic steps:
(1) Set objectives,
(2) Develop action plans,
(3) Conduct periodic reviews, and
(4) Appraise annual performance.
MBO places great stress on participation by directly involving subordinates “in their jobs. Involvement leads to commitment and, if subordinates are committed, they will be highly motivated to perform in a manner that will directly help in the accomplishment of corporate objectives.
MBO also incidentally enriches the manager’s job. Successful MBO programme must have the backing of top management. Drucker referred to MBO as a philosophy of management and indicated that it is based on the concept of human behaviour and motivation.
Management by objectives requires planning. Hence, we can minimise crisis management where managers deal with problems as they develop. M.B.O. motivates performance of managers because it involves managers in the planning and overall managerial process at each level of management.
Subordinates actively participate in defining their area of responsibility in terms of the results expected. M.B.O. also offers ways and means to integrate individual goals with the goals of the organisation. M.B.O. encourages innovation as it lays more emphasis on results and less or the methods employed in achieving the goals.
Not only the subordinate managers participate in goal-setting but they also enjoy a lot of freedom in selecting their own means for achievement of the goals. In short, MBO makes the job of a subordinate manager meaningful and interesting and offers ample job satisfaction.
In its literal sense, strategy means the art of a general leading an army. It is an art of war, compelling the enemy to fight with us on our chosen terms and conditions. It is a plan based on the anticipated moves of the opponent. It is a matter of outmaneuvering the opponent.
Strategy covers skills such as:
(a) Being able to judge in time what to do in a complicated, critical and risky situation;
(b) Doing the best one can with available resources; and dealing effectively with uncertainty, risk, insecurity and confusion. Strategy emphasizes your skill and initiative at facing a danger or crisis. In fact, it means both a danger plus opportunity for growth and change.
In corporate planning, strategy is the Grand Design or an ‘overall plan which a company chooses in order to move or reach towards the set mission, purpose and objectives. The importance of strategy in the planning process cannot be underestimated. In fact, strategy defines the basis for all further steps in planning.
Developing an appropriate strategy is a creative or conceptual process that tries to make maximum use of internal and external forces to-push forward the organisation towards its objectives. Strategy helps the enterprise to establish an advantageous relationship with all present and future environment forces in which it is to operate, and thereby reduces risk and insecurity.
Strategic decision-making deals with the uncertainty and the risk of a fast-changing and complex environment in which an organisation operates. Strategic decisions help the management to develop a fine art of dealing with the unknown and the unfamiliar in important situation. Without a strategy the organisation is like a ship without a rudder, going around in circles.
It is like a tramp; it has no place to go. Without an appropriate strategy effectively implemented, failure is a matter of time. Most business failures are due to lack of right strategy or due to lack of implementation of good strategy.
Objectives emphasize the state of being there while strategy emphasizes the process of getting there.
(1) Awareness of mission, purpose and objectives. This provides the central concept for planning indicating what is our business, who are our customers, what goods and services shall we supply and so on.
(2) The unpredictability and uncertainty of events indicating economic, social, technological and political conditions which constitute the business environment.
(3) The need to take into account probable behaviour of others in general and of the rivals in particular, e.g. strategies of marketing will take into account the probable behaviour of customers and competitors, strategies dealing with employees will anticipate the employee behaviour and so on.
Developing Strategies (A Set of Basic Goals and Major Policies):
A strategy can be developed at all levels of an organisation, not just by top management. It is essentially a creative process. The more alternatives one has to choose from, the greater the possibility of selecting a more beneficial strategy.
In developing a strategy we need proper answers to a few vital questions:
(1) Who are our customers?
(2) What is our business?
(3) What products or services shall we supply?
(4) What will be our distribution system?
(5) What will be our pricing strategy?
(6) Where will our resources come from?
(7) How will our resources be allocated?
(8) What shall be our relations with competitors, employees, customers, community, government, etc.?
Strategic plans are developed on the following foundations:
1. Market Opportunity:
The process of ascertaining what a company might do, i.e., choosing the best from among the alternative objectives in view of environmental opportunities, risks and threats. This is done by broad look around, i.e., analysis of current environment and a long look ahead, i.e. in the future full of uncertainties, to find present and future economic, political, social and technological environment
2. Corporate Competence and Resources:
The process of deciding what a company can do in view of its strengths and weaknesses. This is done by a searching look within, i.e., self- analysis by a company.
3. Personal Values:
The process of deciding what a company wants to do in view of the risks top executives (decision makers) wish to take and their personal values, ideals aspirations, etc.
4. Social Responsibility:
As a company is a socio-economic institution having its own environment, in the final analysis strategic choice has an ethical aspect what a company should do in view of its social responsibilities. A company has to offer reasonable satisfaction to all stakeholders such as customers, employees, owners, community, government, etc.
The environment affects all:
(2) Actions and
In turn it is affected by them also due to their inter-dependence under systems approach. Chandler defines corporate strategy as “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action, and the allocation of resources necessary to carry out those goals.”
Thus an organisation’s strategies revolve around specific programmes of action. These programmes are competent to meet competition as well as to fulfil the organisation goals and objectives comprehensively and thereby the resources of the enterprise are employed efficiently and economically.
The Corporate strategies can integrate knowledge about technology and social changes and the top management can formulate programmes that embrace new technology, new products, enlarged markets, higher earnings, accelerated growth.
We have three phases in strategy formation:
(1) Determination of objectives;
(2) Ascertaining specific areas of strengths and weaknesses in the total environment;
(3) Preparing an Action Plan (consistent with the first and second phases) to achieve the objectives in the light of environmental forces.
Objectives are determined by (a) the values of top management, (b) the estimated capabilities of the company on the basis of resource audit. These objectives further lead to the more concrete goals and results to be achieved. Both the environment and objectives put limits on the alternative actions available to the company.
The action plan allocates the resources to achieve results as per objectives. The action plan and the results affect the internal and external environment. Consequent changes in the environment can alter the basic values and aspirations of the management involved in the strategy formation and this may lead to a revised strategy.
The entire process of strategy formation is repetitive or cyclical, i.e., ongoing and continuous. The top management is the key to the framework of strategy formation or strategic planning. The chief executive stands in the centre of the environment. He explores the situation around him.
He plans for the optimum fit or balance between resources and objectives. Of course, objectives must be consistent (in tune with) with the environment both internal and external. The chief executive tries to achieve maximum benefit from controllable factors and tries to minimise the losses due to contingent risks arid uncertainties by trading off with these uncontrollable factors.
Factors Governing Right Strategic Decisions:
(1) It must be appropriate in the light of available resources.
(2) It must be workable.
(3) It must involve acceptable risks.
(4) The timing of action plan must be appropriate.
(5) The action plan must be used on reliable anticipations of future trends and conditions.
(6) Objectives and strategies must have perfect co-relation and should not work at cress purposes.
(7) Strategy must fulfil ethical and social responsibilities.
The strategy must be consistent with the environment as it exists now and also as it appears to be changing.
The company’s resources represent its capacity to respond to threats and opportunities that may be perceived in the environment.
Critical resources are both what the company has most of and what it has least of there are three such critical resources:
(2) Competence and
(3) Physical facilities.
Achieving a right balance between strategic goals and available resources is a difficult problem in strategy determination.
Strategy and resources taken together, determine the degree of risk which the company is undertaking. An acceptable degree of risk of loss is a critical managerial choice.
Goals like resources have time-based utility. A new product developed, a plant put on stream, a degree of market penetration, become significant strategic objectives only if achieved by a certain time. The timing of action plan must be appropriate.
Above all the strategy must be workable. The quantitative indices of performance can measure the workability of a strategy. If a strategy cannot be evaluated by results alone, other indications may be used to assess its contribution to corporate progress, e.g. the degree of consensus among executives concerning corporate goals, and policies, the extent to which major areas of managerial choice are identified in advance.
While there is still time to explore a variety of alternatives, there is no need of crash programmes of cost reduction or elimination of planned programmes. Meat axe approach to cost reduction is a clear indication of the frequent failure of corporate strategic planning.
Essence of Strategy Formation:
The aim of company strategy formation is, of course, to find out how to compete successfully in future, how to achieve ‘victory’ against competitors much larger and apparently more powerful than the enterprise, how to organise and use the resources to accomplish corporate objectives.
The best strategy is always to be very strong, first generally and then, at the decision-making point at the top managerial level and/or the divisional level. Strategies spring from our basic mission or goal. They attempt to interrelate the present and the future in the most beneficial manner to the company.
For a business company strategy is how its managers define its business, its competition, and its concept of itself. A strategy is a type of plan. It points out the central concept or purpose of your organisation in terms of the service it renders to society.
It describes the basic mission of the enterprise, the objectives to be achieved and the ways and means in which the resources of the enterprise will be used to achieve its objectives. Policies are guidelines to action, while strategies are major courses of action or patterns of action to achieve objectives.