UNIT 2

FOUNDATIONS OF
PLANNING
 PLANNING-AN OVERVIEW
 Planning is a particular kind of decision making that addresses the specific
future that managers desire for their organizations.
 It is major activity in the management process. It is a locomotive that drives
a train of organizing, leading and controlling activities.
 It is not a single event, with a clear beginning and end. It is an ongoing
process that reflects and adapts to changes in the environment surrounding
each organization.
 Deciding on actions and responses to others’ actions is the continual
planning challenge for the managers.
 Strategic management is an ongoing practice of establishing a broad
program of organizational goals and the means to achieve them.
 PLANNING: AN OVERVIEW

Goals in an organization are important for four reasons:

 Goals provide a sense of direction

 Goals focus our efforts

 Goals guide our plans and decisions

 Goals help us evaluate our process

GOAL SETTING
IMPORTANCE OF PLANNING AT ORGANIZATIONS
Planning is the process of setting goals and choosing the
means to achieve those goals.
Without a plan
 Managers cannot know how to organize people and
resources effectively.
 They may not even have a clear idea of what they need
to organize.
 They cannot lead with confidence or expect others to
follow them.
 Managers and their followers have little chance of
achieving their goals or knowing when and where
they stray from their path.
 Too often, faulty plans affect the future of the entire
organization.
 HIERARCHY OF ORGANIZATION PLANS
Organizations are typically managed according to two types of plans.

 Strategic plans are designed by high-ranking managers and define

the broad goals for the organization. They deal with relationships
between people at an organization and people acting at other
organizations.

 Operational plans contain details for carrying out, or

implementing, those strategic plans in day-to-day activities. They
deal with people within one organization.

Mission statement is a broad goal based on manager’s

assumptions about the organization’s purpose, competencies, and place
in the world. It is a relatively permanent part of an organization’s
identity and can do much to unify and motivate members of the
organization.
 STRATEGIC & OPERATIONAL PLAN
Strategic and operational plans differ in three major ways:

➢ Time Horizons

 Strategic plans tend to look ahead several years or even

decades.

 For operational plans, a year is often the relevant time period.

➢ Scope

 Strategic plans affect a wide range of organizational

activities, whereas operational plans have a narrow and more
limited scope.

 The number of relationships involved is the key difference

here. Hence it is distinguished as strategic goals and operational
objectives.
 STRATEGIC & OPERATIONAL PLAN
➢ Degree of Detail

 Often strategic simplistic and generic goals are

stated in terms that look. But this breadth is
necessary to direct people at organizations to think
of the whole of their organization’s operations.

 On the other hand, operational plans, as

derivatives of strategic plans, are stated in
relatively finer detail.
 EVOLUTION OF THE CONCEPT OF STRATEGY
Strategy as the Grand Plan
 The concept of strategy is ancient. The word itself comes from the Greek
strategeia, which means the art or science of being a General.
 Effective Greek generals needed to lead an army, win and hold territory,
protect cities from invasion, wipe out the enemy and so forth.
 Each kind of objective required a different deployment of resources. Likewise, an
army’s strategy could be defined as the pattern of actual actions that it
took in response to the enemy.
 Effective Generals had to determine the right liens of supply, decide when to
fight and when not to fight, and manage the army’s relationship with
citizens, politicians and diplomats.
 Effective Generals not only had to plan but had to act as well. The concept of
strategy had both a planning component and a decision making or action
component. Taken together these two concepts form the basis of the ‘grand’
strategy plan.
 EVOLUTION OF THE CONCEPT OF STRATEGY
Strategic Management Process

Strategic management provides a disciplined way for managers to

make sense of the environment in which their organization
operates, and then to act. In broad terms, two phases are
involved:

 Strategic planning is the name we customarily give to the

sense making activity. This includes both the goal setting
and the strategy formulation processes.

 Strategy implementation is the name we customarily give to

actions based on that kind of planning. This stage includes
administration and strategic control stages.
 EVOLUTION OF THE CONCEPT OF STRATEGY

GOAL SETTING

Strategic
Planning
STRATEGY FORMULATION

ADMINISTRATION
Strategy
Implementation
STRATEGIC CONTROL
LEVELS OF STRATEGY
 LEVELS OF STRATEGY
Corporate Level Strategy

 Corporate level strategy is formulated by top

management to oversee the interests and operations

of organizations made up of more than one line of

business.

The major questions at this level are these:

 What kinds of business should the company be engaged in?

 What are the goals and expectations for each business?

 How should resources be allocated to reach these goals?

 LEVELS OF STRATEGY
Business Unit Strategy

 Business unit strategy (also called line of business

strategy) is concerned with managing the interest
and operations of a particular line of business.

It deals with questions such as:

 How will the business compete within its market? What

products/services should it offer?

 Which customers does it seek to serve?

 LEVELS OF STRATEGY
 How will resources be distributed within the business?

 Business unit strategy attempts to determine what approach to its

market the business should take, and how it should conduct itself,
given its resources and the conditions of the market.

 One approach to dealing with this problem is to create strategic

business units (SBUs).

 In this system of organizations various business activities that

produce a particular type of product or service are grouped and
treated as a single business unit.

 The corporate level provides a set of guidelines for the SBUs which
develop their own strategies on the business unit level.

 The corporate level then reviews the SBU plans and negotiates
changes if necessary.
STRATEGIC BUSINESS UNIT -
EXAMPLE
 LEVELS OF STRATEGY
Functional Level Strategy

 Functional - level strategies create a framework for

managers in each function - such as marketing or production to
carry out business unit strategies and corporate strategies.

 This functional - level strategy completes the hierarchy of

strategies. Operational plans follow from functional level
strategies.
 CONTENT OF CORPORATE STRATEGY
 Corporate strategy is an idea about how people at
an organization will interact with people at
other organizations overtime.
 It is very important to understand that a corporate
strategy says something of substance that guides
people in their day-to-day work over an extended
period of time.
 Quality is a part of corporate strategy – Linking
Total Quality Management program to a clear
strategic goal.
 SINGLE USE PLANS
 apply to activities that do not recur or repeat.

 budgets, programmes, project reports, etc.

A onetime occurrence, such as a special sales

program, is a single use plan because it deals
with the who, what, where, how, and how much
of an activity.

 A budget is also a single use plan because it

predicts sources and amounts of income and how
much they are used for a specific project.
 CONTINUING OR ONGOING PLANS
 are usually made once and retain their value over a
period of years while undergoing periodic revisions and
updates. The following are examples of ongoing plans:

 A policy provides a broad guideline for managers to

follow when dealing with important areas of decision making.

 Policies are general statements that explain how a

manager should attempt to handle routine
management responsibilities.

 Typical human resources policies, for example, address such

matters as employee hiring, terminations, performance
appraisals, pay increases, and discipline.
 CONTINUING OR ONGOING PLANS
 A procedure is a set of step-by-step directions that explains how

activities or tasks are to be carried out. Most organizations have

procedures for purchasing supplies and equipment, for example.

 This procedure usually begins with a supervisor completing a

purchasing requisition. The requisition is then sent to the next level

of management for approval. The approved requisition is forwarded

to the purchasing department.

 Depending on the amount of the request, the purchasing department

may place an order, or they may need to secure quotations and/or

bids for several vendors before placing the order.

 By defining the steps to be taken and the order in which they are to be

done, procedures provide a standardized way of responding to a

repetitive problem
 CONTINUING OR ONGOING PLANS

 A rule is an explicit statement that tells an employee

what he or she can and cannot do.

 Rules are “do” and “don't” statements put into place

to promote the safety of employees and the uniform
treatment and behavior of employees.

 For example, rules about tardiness and absenteeism

permit supervisors to make discipline decisions rapidly
and with a high degree of fairness.
 SINGLE USE PLANS
 Program: A single use plan that covers a relatively large
set of organizational activities and specifies major steps,
their order and timing, and the unit responsible for each
step.

 Project: The smaller and separate portions of the

programs; they are limited in scope and contain
distinct directives concerning assignments and time.

 Budgets: Formal quantitative statements of the

resources allocated to specific programs or projects for a
given period.
 TACTICAL PLANNING

 “Tactical plans are about what is going to happen,”

Story said. “Basically at the tactical level, there are many

focused, specific and short-term plans, where the actual

work is being done, that support the high-level strategic

plans.”

 A tactical plan is concerned with what the lower level

units within each division must do, how they must

do it, and who is in charge at each level. Tactics are

the means needed to activate a strategy and make it work.

 TACTICAL PLANNING
 Tactical planning supports strategic planning. It
includes tactics that the organization plans to use to
achieve what’s outlined in the strategic plan.
 Often, the scope is less than one year and breaks
down the strategic plan into actionable chunks.
 Tactical planning is different from operational planning
in that tactical plans ask specific questions about
what needs to happen to accomplish a strategic goal;
operational plans ask how the organization will
generally do something to accomplish the company’s
mission.
 CONTINGENCY PLANNING

 can be helpful in circumstances that call for a

change.

 Although managers should anticipate changes

when engaged in any of the primary types of
planning, contingency planning is essential in
moments when changes can’t be foreseen.

 As the business world becomes more

complicated, contingency planning becomes more
important to engage in and understand
 CONTINGENCY PLANNING

 involves identifying alternative courses of

action that can be implemented if and when the
original plan proves inadequate because of
changing circumstances.
How can managers plan effectively in dynamic
environments?
 PROJECT FAILURE-CASES
New Coke

 After testing a new recipe on 200,000 subjects and finding that

people preferred it over the traditional version, Coca-Cola unveiled New Coke in

1985. Sounds like a safe move, right? Wrong.

 Product loyalty and old-fashioned habit got in the way and people didn’t buy New
Coke as expected, costing the company $4 million in development and a loss of $30
million in backstocked product it couldn’t sell.

 Lessons Learned:

 While Coca-Cola certainly did market research, they missed the mark when it comes
to assessing customer motivation. Customer input is imperative in development and
for your project to be successful, you need to ensure you have a way to gather
comprehensive customer insight that gives accurate and realistic information.
 PROJECT FAILURE-CASES

Crystal Pepsi
 Crystal Pepsi was a hit at first, and people were excited
about the new version of an old favorite. But people soon
lost interest and the novelty wore off, making it impossible
for Crystal Pepsi to gain a strong market share.
Lessons Learned:
 David Novak was the COO of PepsiCo during the project
and didn’t listen when bottlers told him the Crystal Pepsi
flavor wasn’t quite right. “I learned there that you have to
recognize that when people are bringing up issues, they
might be right,” he later said.
PROJECT FAILURE-CASES
McDonald's Arch Deluxe Burger
 In 1996, McDonald’s put more than $150 million into
advertising—more than it had ever spent on an ad
campaign—for its new Arch Deluxe Burger, only to find out
its customers weren’t interested in the more grown-up,
sophisticated menu option.
 Lessons Learned:

 This is another case that highlights the importance of

letting customer data drive product strategy. If
McDonald’s had a more accurate picture of what its
customers wanted, it could have saved millions in
advertising and resources.
 A great way to stay on top of data is to choose a handful of
key metrics to track, make sure your tools can accurately
track them in as close to real time as possible, and then
always strategize based on the numbers.
 PROJECT FAILURE-CASES

Ford Edsel

 Ford did extensive market research before it released the Edsel, even

doing studies to make sure the car had the right personality. But by

the time all this research was done and the car was unveiled in 1957,

Ford had missed its chance with its market, which had already moved

on to buying compact cars, which didn’t include the Edsel.

Lessons Learned:

 The Ford Edsel is the perfect example of the importance of speed to

market and how even a major brand and product can fail if a project

loses velocity. Things like poor communication, inaccurate deadlines,

and out-of-touch project managers can majorly slow a project down, to

the point that it’s no longer relevant or valuable.

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Organisation Structure and Design

Unit 2
Chapter 2

* 1
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Syllabus
Organizational Structure & Design: Overview of Designing Organizational
Structure: Work Specialization, Departmentalization, Chain of Command,
Span of Control, Centralization & Decentralization, Formalization,
Mechanistic & Organic Structures. Case studies

2
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What is an Organization?

Organization a deliberate arrangement of people who

act together to accomplish some specific purpose
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Organizational Structure: The formal arrangement of jobs within an organization

achieved through Organizational Design: A process involving decisions about six

key elements:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and decentralization
6. Formalization
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The Six Elements of

Organizational Structure
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Work Specialization
The degree to which tasks in the organization are divided into separate jobs with
each step completed by a different person

Overspecialization can result in

➢ boredom

➢ fatigue

➢ stress

➢ poor quality

➢ increased absenteeism

➢ higher turnover
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Departmentalization by Type
Functional
⚫ Grouping jobs by functions performed
Product
⚫ Grouping jobs by product line
Geographical
⚫ Grouping jobs on the basis of territory or geography

Process
⚫ Grouping jobs on the basis of product or customer flow
Customer
⚫ Grouping jobs by type of customer and needs
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Chain of Command
The continuous line of authority that extends from upper levels of an

organization to the lowest levels of the organization and clarifies who

reports to whom
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Chain of Command Concepts
Authority

The rights inherent in a managerial position to

tell people what to do and to expect them to do it

Responsibility

The obligation or expectation to perform.

Responsibility brings with it accountability (the
need to report and justify work to manager’s
superiors)
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Chain of Command Concepts
Unity of Command

The concept that a person should have one boss and

should report only to that person

Delegation

The assignment of authority to another person to

carry out specific duties
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Line vs Staff Management
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Line vs Staff Management
Line managers are responsible for the essential activities of the
organization, including production and sales.

Line managers have the authority to issue orders to those in the

chain of command

E.g. President, production manager and sales manager

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Line vs Staff Management
Line authority flows down the chain of command. For example, line authority gives a
production supervisor the right to direct an employee to operate a particular machine and it
gives the vice president of finance the right to request a certain report from a department
head. Therefore, line authority gives an individual a certain degree of power relating to the
performance of an organizational task.
(1) line authority does not ensure effective performance
(2) line authority is not restricted to line personnel.
The head of a staff department has line authority over his or her employees by virtue of
authority relationships between the department head and his or her directly-reporting
employees.
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Line vs Staff Management
Staff authority is the right to advise or counsel those with line authority.
For example, human resource department employees help other departments by
selecting and developing a qualified workforce.
A quality control manager aids a production manager by determining the acceptable
quality level of products or services at a manufacturing company, initiating quality
programs and carrying out statistical analysis to ensure compliance with quality
standards.
Therefore, staff authority gives staff personnel the right to offer advice in an effort
to improve line operations.
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Span of Control
The number of employees who can be effectively and efficiently supervised by a manager. Width of span is
affected by:

Skills and abilities of the manager and the employees

Characteristics of the work being done

Similarity of tasks

Complexity of tasks

Physical proximity of subordinates

Standardization of tasks

Sophistication of the organization’s information system

Strength of the organization’s culture

Preferred style of the manager

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Span of Control
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Contrasting Spans of Control
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Questions and Answers
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Centralization vs Decentralization
Centralization: The degree to which decision making is concentrated at a single
point in the organization

Organizations in which top managers make all the decisions and lower-level
employees simply carry out those orders

Decentralization: The degree to which lower-level employees provide input or

actually make decisions

Employee Empowerment

Increasing the decision-making discretion of employees

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FP&A Financial Planning and Analysis

22
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23
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Factors that Influence the Amount of Centralization
More Centralization

⚫ Environment is stable

⚫ Lower-level managers are not as capable or experienced at making decisions as upper-

level managers

⚫ Lower-level managers do not want to have a say in decisions

⚫ Decisions are significant

⚫ Organization is facing a crisis or the risk of company failure

⚫ Company is large

⚫ Effective implementation of company strategies depends on managers retaining say

over what happens
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Factors that influence the amount of Decentralization

More Decentralization
⚫ Environment is complex, uncertain

⚫ Lower-level managers are capable and experienced at making decisions

⚫ Lower-level managers want a voice in decisions

⚫ Decisions are relatively minor

⚫ Corporate culture is open to allowing managers to have a say in what happens

⚫ Company is geographically dispersed

⚫ Effective implementation of company strategies depends on managers having

involvement and flexibility to make decisions
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Examples of Centralized organizations

Military: Traditionally, the military has been the classic example of top-
down or hierarchical management. The General orders the Captain who
orders the Lieutenant who orders the…
Government: Governments are classic top-down structures lead by the
President or Prime Minister, followed by Senators or Ministers who each
have a team below them. Right at the bottom are the voters who get to have
their say with a single vote every couple of years.
General Motors: General Motors is a classic centralized organization
example.
Microsoft: Microsoft is also a classic centralized organization example.
26
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Examples of Decentralized organizations

The Internet: This is the classic decentralized organization example of our

time. It was deliberately created to overcome the limits of a centralized
military command and the threat of missile attack. This decentralized structure
is built upon the humble hyperlink that connects all the separate pages,
websites and networks.
Open Source Software: There are two decentralized organization examples in
the computing world. The first is Open Source Software. Think Linux. It’s
freely available, thousands of volunteers update it and nobody owns it.
27
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Examples of Fusion organizations
Supermarkets: The owners employee people to set up and stock the store.
Users are free to wander and select the items of their choice.
Ebay: Just like the supermarket, Ebay the company set up the infrastructure
and users are free to list items, view items and bid for items.
Toyota: Toyota employs over 300,000 people. And, they all belong to
independent business units controlled by an overall corporation.
GE (General Electric): Similar to Toyota, GE are arranged as a series of
independent business units each with their own profit and loss.
Skype: Skype is owned by Microsoft. It’s a hybrid peer-to-peer service
where users install software on their computers that enables them to talk to
other users. 28
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Formalization
The degree to which jobs within the organization are standardized
and the extent to which employee behaviour is guided by rules
and procedures
⚫Highly formalized jobs offer little discretion over what is
to be done
⚫Low formalization means fewer constraints on how
employees do their work
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Building Blocks of Organizational Design & Structure
Managers consider four fundamental steps when they begin to make decisions about
organizing:

Division of Work: The breakdown of a complex task into components so that individuals are
responsible for a limited set of activities instead of the task as a whole.

Job Enlargement: Increases variety by involving more tasks in the process. (Horizontal
Scale – Scope)

Job Enrichment: Makes the work more challenging and responsible. (Vertical Scale –
Depth)

Departmentalization: The grouping into departments of work activities that are similar and
logically connected.
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Higher Order
C D
10

9
Job Enrichment Job Enrichment
8 &
7
Enlargement
Needs
6

5
A
B
4

3
Routine Job Job Enlargement
2

Lower Order
Few 1 2 3 4 5 6 7 8 9 10 Many

Variety of Tasks

Job Enrichment, Job Enlargement and Job performance

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Questions and Answers

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Organizational Design
Decisions
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Organizational Design Decisions
Mechanistic Organization: rigid and tightly controlled structure

High specialization

Rigid departmentalization

Narrow spans of control

High formalization

Limited information network (mostly

downward communication)

Low decision participation by lower-level employees

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Organizational Design Decisions

Organic Organization :Highly flexible and adaptable structure

⚫Non-standardized jobs

⚫Fluid team-based structure

⚫Little direct supervision

⚫Minimal formal rules

⚫Open communication network

⚫Empowered employees

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Mechanistic vs Organic Organization
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Structural Contingency Factors
Structural decisions are influenced by:
Overall strategy of the organization
⚫ Organizational structure follows strategy
Size of the organization
⚫ Firms change from organic to mechanistic organizations as they grow in
size
Technology used by the organization
⚫ Firms adapt their structure to the technology they use
Degree of environmental uncertainty
⚫ Dynamic environments require organic structures; mechanistic structures
need stable environments
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Strategy and Structure

Achievement of strategic goals is facilitated by changes in

organizational structure that accommodate and support
change
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Different Strategy Frameworks
Innovation
Pursuing competitive advantage through meaningful and unique innovations
favoring organic structuring

Cost minimization
Focusing on tightly controlling costs requires a mechanistic structure for the
organization

Imitation
Minimizing risks and maximizing profitability by copying market leaders requires
both organic and mechanistic elements in the organization’s structure
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The Strategy-Structure Relationship

Strategy Structural Option

Innovation Organic: A loose structure; low specialization, low

formalization, decentralized

Cost minimization Mechanistic: Tight control; extensive work

specialization, high formalization, high centralization

Imitation Mechanistic and organic: Mix of loose with tight

properties; tight controls over current activities and
looser controls for new undertakings
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Size and Structure

As an organization grows larger, its structure tends to change from
organic to mechanistic with increased specialization,
departmentalization, centralization and rules and regulations
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Why Do Structures Differ? —Size

Size: How the size of an organization affects its structure. As an
organization grows larger, it becomes more mechanistic.

Characteristics of large organizations:

• More specialization
• More vertical levels
• More rules and regulations
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Why Do Structures Differ? —Technology

Technology
How an organization transfers its inputs into outputs

Characteristics of routineness (standardized or customized) in activities:

• Routine technologies are associated with tall, departmentalized structures and

formalization in organizations.

• Routine technologies lead to centralization when formalization is low.

• Nonroutine technologies are associated with delegated decision authority.

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Technology and Structure

Organizations adapt their structures to their technology

Routine technology = mechanistic organizations

Non–routine technology = organic organizations

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Environmental Uncertainty and Structure

Mechanistic organizational structures tend to be most effective in

stable and simple environments

The flexibility of organic organizational structures is better suited for

dynamic and complex environments
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Organizational Structures

1-48
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Functional Departmentalization

+ Efficiencies from putting together similar specialties and people with common skills,
knowledge and orientation

+ Coordination within functional area

+ In-depth specialization

– Poor communication across functional areas Return

– Limited view of organizational goals

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Geographical Departmentalization

+ More effective and efficient handling of specific regional issues that arise

+ Serve needs of unique geographic markets better

– Duplication of functions

– Can feel isolated from other organizational areas Return

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Product Departmentalization

+ Allows specialization in particular products and services

+ Managers can become experts in their industry
+ Closer to customers
Return
– Duplication of functions
Source: Bombardier Annual Report.

– Limited view of organizational goals

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Process Departmentalization

+ More efficient flow of work activities

– Can only be used with certain types of products
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Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

– Duplication of functions

– Limited view of organizational goals