Organizational Goals Organizational Goals and Planningand Planning

OUTLINEOUTLINE1. The Planning Process1. The Planning Process2. The Nature of Organizational Goals2. The Nature of Organizational Goals3. Managing the Goal-setting Process3. Managing the Goal-setting Process4. Goals and Organizational Planning4. Goals and Organizational Planning

1. THE PLANNING PROCESS Planning is a generic activity. All organizations

do it, but no two organizations do it in exactly the same fashion.

Figure 5. 1. is a general representation of how planning is done. Most firms follow this general framework, but each also has its own nuances and variations.

A plan is the means by which goals are pursued. Planning itself is a comprehensive process that

includes setting goals, developing plans, and related activities.

1. The Planning Process1. The Planning Process

The Planning Processed of Organization

Strategic Goals

Tactical Goals

Operational Goals

Strategic Planning

Tactical Planning

Operational Planning

Kinds of GoalsKinds of Goals

Goals vary:Goals vary: by level, by level, by area, by area, by time frame.by time frame.

Figure 5.2 provides examples of each Figure 5.2 provides examples of each type of goal for a hypothetical fast-type of goal for a hypothetical fast-food chain.food chain.

Kinds of Organizational Goals for a Regional Kinds of Organizational Goals for a Regional Fast Food ChainFast Food Chain

Level Level

Goals are set for and by different levels Goals are set for and by different levels within an organization. As noted earlier, the within an organization. As noted earlier, the four basic levels of goals are the mission four basic levels of goals are the mission and strategic, tactical, and operational and strategic, tactical, and operational goals.goals.

An organization's An organization's mission mission is a statement of is a statement of its fundamental, unique purpose that sets a its fundamental, unique purpose that sets a business apart from other firms of its type business apart from other firms of its type and identifies the scope of the business's and identifies the scope of the business's operations in product and market terms.operations in product and market terms.

LevelLevel Strategic goals Strategic goals are goals set by and for top management of are goals set by and for top management of

the organization. Their focus is usually on broad, general the organization. Their focus is usually on broad, general issues. For example, Sony recently set a strategic goal of issues. For example, Sony recently set a strategic goal of reducing its reliance on the consumer-electronics market. reducing its reliance on the consumer-electronics market. Managers felt that the volatile nature of the market made Managers felt that the volatile nature of the market made continued reliance on it too risky.continued reliance on it too risky.

Tactical goals, Tactical goals, in contrast, are set by and for middle in contrast, are set by and for middle managers. Their focus is on how to operationalize actions managers. Their focus is on how to operationalize actions necessary to achieve the strategic goals. One tactical goal at necessary to achieve the strategic goals. One tactical goal at Sony to help achieve Sony's strategic goal was to buy at least Sony to help achieve Sony's strategic goal was to buy at least one new business in 1987; the goal was realized when the one new business in 1987; the goal was realized when the company bought CBS Records.company bought CBS Records.

Operational goals Operational goals are set by and for lower-level managers. are set by and for lower-level managers. Their concern is with shorter-term issues associated with the Their concern is with shorter-term issues associated with the tactical goals. At Sony, this means things like boosting sales at tactical goals. At Sony, this means things like boosting sales at the company's existing security systems business. (Some the company's existing security systems business. (Some people use the words "objectives" and "goals" interchangeably. people use the words "objectives" and "goals" interchangeably. When they are differentiated, however, the term "objectives" is When they are differentiated, however, the term "objectives" is usually used instead of "operational goals.")usually used instead of "operational goals.")

AreaArea

Organizations set goals for different Organizations set goals for different areas. The restaurant chain areas. The restaurant chain represented in Figure 5.2 has goals represented in Figure 5.2 has goals for operations, marketing, and for operations, marketing, and finance. finance.

Time FrameTime Frame

Organizations also set goals across Organizations also set goals across different time frames. In Figure 5.2, different time frames. In Figure 5.2, three goals are listed in each of the three goals are listed in each of the boxes at the strategic, tactical, and boxes at the strategic, tactical, and operational levels. The first is a long-operational levels. The first is a long-term goal, the second an term goal, the second an intermediate-term goal, and the third intermediate-term goal, and the third a short-term goal. a short-term goal.

Other Kinds of GoalsOther Kinds of Goals

Official goals Official goals are the goals the are the goals the organization espouses publicly to its organization espouses publicly to its stockholders, the local community, stockholders, the local community, and so forth. and so forth.

Operative goals Operative goals are goals the are goals the organization will not publicly disclose organization will not publicly disclose or admit to pursuing. or admit to pursuing.

3. MANAGING THE GOAL-SETTING PROCESS

Areas of most concern are:– managing multiple goals, – barriers to effective goal setting, – making the goal-setting process effective.

Managing Multiple Goals• The starting point in managing multiple goals is simply to recognize

that they exist. This recognition is facilitated by the preparation of a formal statement of organizational goals. A formal goal statement fosters understanding and communication and hence helps everyone in the organization know what's going on. Formal goal statements are a part of most corporate annual reports and should always be a part of strategic planning documents.

• The manager should also understand the importance and necessity of optimizing. Optimizing involves balancing and reconciling possible conflicts between goals. Because goals may conflict with one another, the manager must look for inconsistencies and decide whether to pursue one goal to the exclusion of another or whether to find a midrange target to aim for.

Barriers to Effective Goal Setting

Another key to managing the goal-setting process is to recognize the many barriers that can disrupt things. Four significant barriers are:

• inappropriate goals, • unattainable goals, • overemphasis on quantitative or qualitative

goals, • improper reward systems.

Barriers to Effective Goal Setting Inappropriate Goals

Inappropriate goals come in many forms:• Paying a large dividend to stockholders may be

inappropriate if it comes at the expense of necessary research and development.

• Driving a competitor out of business, paying off local officials to obtain a favorable zoning decision, and evading anti-pollution regulations are illegal as well as inappropriate.

• Inappropriate goals may also arise from what is called a means-end inversion - that is, the means selected to obtain goal can inadvertently become the end itself.

• Other inappropriate goals are those that are inconsistent with the organization's mission.

Barriers to Effective Goal Setting Unattainable Goals

Unattainable goals - goals so extreme that accomplishing them is virtually impossible. Of course, goals should not be so easily attainable that employees see them as a joke or an insult. Goals must be challenging but within reach. Setting an unattainable goal is destructive for one simple reason: no matter how well an individual, unit, or organization performs, if goals are not met, many people assume that someone has failed.

Consider the case of Sun Microsystems. One of Sun's goals is continued growth. However, managers recognize that there are limits to how fast the company can actually grow. A goal of maintaining the current rate of growth, for example, would most likely be unattainable. If Sun were to continue to grow as fast as it did during its first five years of existence, the company would be bigger than Du Pont by 2003 and half the size of the entire U.S. economy by 2009! Consequently, Sun has a goal of growth, albeit growth at an increasingly modest pace.

Barriers to Effective Goal SettingOveremphasis on Quantitative or Qualitative

Goals In some settings, quantitative goals are necessarily emphasized. Making a

certain profit margin, increasing productivity to a designated level, publishing a certain number of articles, and winning a specific number of games are all worthwhile objectives. Because they are quantitative, they are convenient benchmarks against which to measure actual performance. But because of this convenience, managers sometimes tend to overemphasize quantitative goals as an indicator of performance.

Equally significant problems may arise if only qualitative goals are developed. If a manager's objectives for the year are to revitalize his unit, develop the unit's human resources, and make a greater social contribution, assessing the manager's performance at the end of the year will be quite difficult.

The Solution Some goals, especially those relating to financial considerations, are by nature

quantifiable, objective, and verifiable. Other goals, such as employee satisfaction and development and many

aspects of environmental relations, are difficult if not impossible to quantify. Both kinds of goals should be considered in developing goals and in evaluating

the results.

Barriers to Effective Goal Setting

Improper Reward Systems

• In some settings, an improper reward system acts as a barrier to the goal-setting process. For example, people may inadvertently be rewarded for poor goal-setting behavior or go unrewarded or even punished for proper goal-setting behavior.

• In some situations people may even be rewarded for achieving goals that are counterproductive to the organization's intent.

Making Goal Setting Effective

• Understanding the Purposes of Goals

• Stating Goals Properly

• Goal Consistency

• Goal Acceptance and Commitment

• Effective Reward Systems

Making Goal Setting Effective

Understanding the Purposes of Goals One of the best ways to facilitate the goal-setting

process is to make sure that managers understand the four main purposes of goals: as a (1) source of guidance and direction, (2) catalyst for planning, (3) stimulus for motivation and inspiration, (4) mechanism for evaluation and control.

Goal setting and implementation should be undertaken with those purposes in mind.

Making Goal Setting EffectiveStating Goals Properly

• Making sure that goals are properly stated is another way to improve the goal-setting process.

• To the extent possible, goals should be specific, concise, and time-related. For example, when James Houghton became CEO of Corning Glass Works, he set four major financial goals to be achieved within eight years: a return on equity of at least 17 percent, annual revenue growth of over 5 percent (adjusted for inflation), a debt-to-capital ratio below 25 percent, and an average dividend payout of 33 percent. These goals clearly meet the three criteria noted above. They are specific in terms of what outcomes are being sought. They are concise. And they specify a clear window of time over which they are to be pursued.

Making Goal Setting EffectiveMaking Goal Setting EffectiveGoal ConsistencyGoal Consistency

A third way to improve the goal-setting A third way to improve the goal-setting process is to make sure that goals are process is to make sure that goals are consistent both horizontally and vertically. consistent both horizontally and vertically.

• By horizontal consistency, we mean that goals By horizontal consistency, we mean that goals should be consistent across the organization. should be consistent across the organization.

• Vertical consistency means that goals should Vertical consistency means that goals should be consistent up and down the organization -be consistent up and down the organization -strategic, tactical, and operational goals must strategic, tactical, and operational goals must agree with one another.agree with one another.

Making Goal Setting EffectiveMaking Goal Setting Effective

Goal Acceptance and CommitmentGoal Acceptance and Commitment • To encourage goal acceptance and commitment by those who To encourage goal acceptance and commitment by those who

work for them, managers should demonstrate their vision for the work for them, managers should demonstrate their vision for the organization in everything they do. organization in everything they do.

Ray Kroc, founder of McDonald's, coined the company motto Ray Kroc, founder of McDonald's, coined the company motto "Quality, service, cleanliness, and value" when the company had "Quality, service, cleanliness, and value" when the company had only a few restaurants. He repeated it, however, throughout his only a few restaurants. He repeated it, however, throughout his career. Thus, people who came to work for him knew his values, career. Thus, people who came to work for him knew his values, his vision, and his goals—and they accepted them as their own.his vision, and his goals—and they accepted them as their own.

• Managers should also allow broad-based participation in the Managers should also allow broad-based participation in the goal-setting process whenever appropriate, and they should goal-setting process whenever appropriate, and they should make sure that goals are properly communicated. People are make sure that goals are properly communicated. People are much more likely to accept and become committed to goals if much more likely to accept and become committed to goals if they helped set them, or at least know how and why they were they helped set them, or at least know how and why they were established. established.

Making Goal Setting EffectiveMaking Goal Setting EffectiveEffective Reward SystemsEffective Reward Systems

People should be rewarded first for effective goal People should be rewarded first for effective goal setting and then for successful goal attainment. setting and then for successful goal attainment. However, since failure sometimes results from However, since failure sometimes results from factors out side the manager's control, people factors out side the manager's control, people should also be assured that failure to reach a goal should also be assured that failure to reach a goal will not necessarily bring punitive consequences.will not necessarily bring punitive consequences. Changing economic conditions, changing Changing economic conditions, changing government regulations, and activities in the government regulations, and activities in the marketplace may all make goal attainment marketplace may all make goal attainment unlikely. Accordingly, the goal-setting process unlikely. Accordingly, the goal-setting process should have a diagnostic as well as an evaluative should have a diagnostic as well as an evaluative component.component.

4. GOALS AND ORGANIZATIONAL 4. GOALS AND ORGANIZATIONAL PLANNINGPLANNINGKinds of Organizational PlansKinds of Organizational Plans

Organizations develop Organizations develop

• strategic, strategic,

• tactical, tactical,

• operational plans.operational plans.

Strategic PlanStrategic Plan

Strategic plan is a general plan outlining Strategic plan is a general plan outlining decisions of resource allocation, decisions of resource allocation, priorities, and action steps necessary to priorities, and action steps necessary to reach strategic goals. These plans are set reach strategic goals. These plans are set by the board of directors and top by the board of directors and top management, generally have an management, generally have an extended time horizon, and address extended time horizon, and address questions of scope, resource deployment, questions of scope, resource deployment, competitive advantage, and synergy.competitive advantage, and synergy.

Tactical PlansTactical Plans

aimed at achieving tactical goals, are aimed at achieving tactical goals, are developed to implement specific parts of a developed to implement specific parts of a strategic plan. strategic plan.

They typically involve upper and middle They typically involve upper and middle management, have a somewhat shorter time management, have a somewhat shorter time horizon than strategic plans, and have a more horizon than strategic plans, and have a more specific and concrete focus. specific and concrete focus.

Thus, tactical plans are concerned more with Thus, tactical plans are concerned more with actually getting things done than with actually getting things done than with deciding what to do. deciding what to do.

Operational PlansOperational Plans

• focus on carrying out tactical plans in focus on carrying out tactical plans in order to achieve operational goals. order to achieve operational goals. Developed by middle and lower-level Developed by middle and lower-level managers, operational plans have a managers, operational plans have a short-term focus and are relatively short-term focus and are relatively narrow in scope. Each one deals with narrow in scope. Each one deals with a fairly small set of activities. a fairly small set of activities.

Long-Range PlanningLong-Range Planning Covers many years, perhaps even decades. Covers many years, perhaps even decades. The time span for long-range planning varies from one The time span for long-range planning varies from one

organization to another. For our purposes, we will regard any plan organization to another. For our purposes, we will regard any plan that extends beyond five years as being long-range in character. that extends beyond five years as being long-range in character. Managers of organizations in complex, volatile environments face Managers of organizations in complex, volatile environments face a special dilemma. These organizations probably need a longer a special dilemma. These organizations probably need a longer time horizon than do organizations in less dynamic environments, time horizon than do organizations in less dynamic environments, yet the complexity of their environment makes long-range yet the complexity of their environment makes long-range planning more difficult. Thus, managers at these companies planning more difficult. Thus, managers at these companies develop long-range plans but also must constantly monitor their develop long-range plans but also must constantly monitor their environment for possible changes.environment for possible changes.

Typical areas of long-range planning include major expansions, Typical areas of long-range planning include major expansions, development of top managers, large issues of new stocks and development of top managers, large issues of new stocks and bonds, new-product or new-service development, and new-plant bonds, new-product or new-service development, and new-plant construction.construction.

All managers face a complex problem when attempting long-range All managers face a complex problem when attempting long-range planning. On the one hand, there are increasing concerns that planning. On the one hand, there are increasing concerns that many managers are neglecting the long run because of short-term many managers are neglecting the long run because of short-term pressure from investors for high returns. pressure from investors for high returns.

Intermediate PlanningIntermediate Planning

• Intermediate plans are somewhat less tentative Intermediate plans are somewhat less tentative and subject to change than are long-range plans. and subject to change than are long-range plans. They usually cover periods from one to five years. They usually cover periods from one to five years. Whereas long-range plans serve as general Whereas long-range plans serve as general guidelines derived from an organization's strategy, guidelines derived from an organization's strategy, intermediate plans are more relevant on a day-to-intermediate plans are more relevant on a day-to-day basis for middle and first-line managers. Thus, day basis for middle and first-line managers. Thus, they generally parallel tactical plans. they generally parallel tactical plans.

• Long-range planning is plagued by the Long-range planning is plagued by the uncertainties associated with long time horizons, uncertainties associated with long time horizons, so for many organizations intermediate planning so for many organizations intermediate planning has become the central focus of planning activities. has become the central focus of planning activities.

Short-Range PlanningShort-Range Planning

Managers also develop sets of plans dealing with a Managers also develop sets of plans dealing with a time frame of one year or less. These short-range time frame of one year or less. These short-range plans have more impact on the manager's day-to-plans have more impact on the manager's day-to-day activities than do long-range or intermediate day activities than do long-range or intermediate plans. plans.

There are two general kinds of short-range plans—There are two general kinds of short-range plans—action plans and reaction plans. action plans and reaction plans.

• Action plan Action plan serves to operationalize any other serves to operationalize any other kind of plan. kind of plan.

• Reaction plans Reaction plans are plans designed to allow the are plans designed to allow the company to react to an unforeseen circumstance. company to react to an unforeseen circumstance. The circumstance may or may not be a pleasant The circumstance may or may not be a pleasant one for the organization, and the reaction itself may one for the organization, and the reaction itself may or may not result in favorable consequences. or may not result in favorable consequences.

Integrating Time Frames

• A potential problem that managers face when planning across different time horizons is balancing and integrating plans. Short-range plans calling for personnel cuts may be inconsistent with a long-range plan for increasing productivity. But a series of short-range and intermediate plans for increasing promotion are probably congruent with a long-range plan that calls for increasing sales. In this instance, the short- and long-range plans support each other. The challenge, then, is to achieve and maintain consistency and congruency across planning time horizons.

Responsibilities for Planning

All managers engage in planning to some degree. Marketing sales managers develop plans for target markets, market penetration, and sales increases. Operations managers plan cost-cutting programs and better inventory control methods. As a general rule, however, the larger an organization becomes, the more the primary planning activities become associated with groups of managers rather than with individual managers.

Responsibilities for PlanningThe Planning Staff • Many large organizations develop a professional planning

staff. • Organizations make the decision to use a planning staff for

one or more of the following reasons:1. Planning takes time. A planning staff can reduce the workload of individual managers.2. Planning takes coordination. A planning staff can help integrate and coordinate the planning activities of individual managers.3. Planning takes expertise. A planning staff can bring to a particular problem more tools and techniques than any single individual can bring.4. Planning takes objectivity. A planning staff can take a broader view than individual managers and go beyond pet projects and particular departments.

Responsibilities for PlanningThe Planning Staff

There are many possible approaches to organizing the planning staff:

• there may be a single corporate planning staff under the direct supervision of the CEO. This staff is responsible for most of the major planning activities of the firm.

• each division of a large company may have its own planning staff. In this decentralized arrangement, the divisional planning staffs report to the division head, usually a corporate vice president. When this structure is used, there is still often a small corporate-level staff to coordinate the activities of the various divisions. General Motors has a planning group for each of its automobile divisions, as well as a corporate planning staff.

Responsibilities for PlanningThe Planning Staff

Top management must decide how the planning staff is to be organized. Factors that influence this decision include:

• 1. Degree of centralization: In highly centralized organizations, top managers are likely to keep the planning staff under their own control. In decentralized organizations the planning staff may be given more power. Decentralized firms often have divisional plan ning staffs.

• 2. Nature of the environment: The more dynamic and complex an organization's environment, the more likely the planning staff is to enjoy more resources, responsibility, and power. Texas Instruments recently recognized that its mechanistic, centralized planning system caused the company to react too slowly to environmental shifts. As a result, the company is moving to give corporate planners more authority.35

• 3. The personality of top managers: Some managers simply prefer to retain more control than others over planning activities, so a plan ning staff reporting to this kind of manager is likely to have little power or responsibility. Jack Welch at General Electric froze the budget of the company's planning staff in an effort to reduce the numbers and power of the corporate planners.36

Responsibilities for Planning

Planning Task Force Organizations sometimes use a planning task force to help develop plans. Such a task force is often comprised of line managers with a special interest or involvement in the relevant area of planning. The task force may also have members from the formal planning staff if the organization has one. Such a task force is most often created when there is a special circumstance the organization wants to address, as opposed to normal and ongoing planning activities.

Responsibilities for Planning

Board of Directors the board of direc tors is a group of people elected by the company's stockholders to represent their own interests. Among other responsibilities, the board of directors has the duty to establish the corporate mission and strategy. In some companies the board takes an active role in the planning process.

Responsibilities for Planning

• The Chief Executive Officer The chief executive officer (CEO) is usually the president or the chairman of the board of directors. In any case the CEO is probably the single most important individual in any organization's planning process. Even when the board takes the lead in developing strategy, the CEO plays a major role in the complete planning process and is responsible for implementing the strategy. The board and CEO, then, assume directive roles in planning. The other organizational components involved in the planning process have more of an advisory or consulting role.

Responsibilities for Planning

The Executive Committee Another group that plays a major role in the planning process of many organizations is some form of executive committee. The executive committee is usually composed of the top executives in the organization working together as a group. Committee members usually meet on a regular basis to provide input to the CEO on the proposals that affect their own units and to review the various strategic plans that develop from this input. The number of individuals on an executive committee varies considerably from one organization to another; in a very large organization, the executive committee might have several dozen members. Members of the executive committee are frequently assigned to various staff committees, subcommittees, and task forces to concentrate on specific projects or problems that might confront the entire organization at some time in the future.

Responsibilities for Planning

Line Management The final component of most organizations' planning activities is line management. Line managers are those individuals with formal authority and responsibility for the management of the organization. They play an important role in an organization's planning process for two reasons. First, they are a valuable source of inside information for other managers as plans are formulated and implemented. Second, it is usually the line managers at the middle and lower levels of the organization who must execute the plans developed by top management. Line management identifies, analyzes, and recommends program alternatives, develops budgets and submits them for approval, and finally sets the plans in motion.

Responsibilities for Planning

The Individual Planner Even when organizations have large, sophisticated planning staffs and well-developed planning cycles, individual managers are the key to successful planning. They must be willing and able to make appropriate contributions to any overall planning frame work. But they must also be willing to take the initiative in planning