planning in business environment

• Introduction, Meaning, Importance, Features and Limitations of Planning

Just like management is a never-ending activity, so is planning. In fact business planning, it is one of the primary functions of management . It sets up the stage for all further functions of management like organizing, directing etc. Let us understand the concept of planning.

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We already know what planning is, it is the deciding of what is to be done in advance. It is the groundwork for all future plans of the organization . Planning bridges the gap between where the organization currently find itself and where it wishes to be.

So in essence business planning comprises of setting objectives for the organization and developing a plan of action to achieve these objectives. Once the objectives are set, the managers and workers can have a clear vision of what to work towards.

Managers are a very important part of the function of business planning. Planning requires innovation, creativity and multi-tasking from the managers. And planning is a function that managers of all levels must perform, i.e upper, middle and lower management .

Browse more Topics under Planning

• Planning Process
• Types of Plan

Importance of Business Planning

Planning is an important function of management, it tells the manager where the organization should be headed. It also helps the organization reduce uncertainty. Let us take a look at some important functions of planning.

1] Planning provides a sense of Direction

Planning means coming up with a predetermined action plan for the organization. It actually states in advance what and how the work is to be done. This helps provide the workers and the managers with a sense of direction , a guidance in a way. Without planning their actions would be uncoordinated and unorganized.

2] Planning reduces Uncertainty

Planning not only sets objectives but also anticipates any future changes in the industry or the organization. So it allows the managers to prepare for these changes, and allow them to deal with the uncertainties. Planning takes into consideration past events and trends and prepares the managers to deal with any uncertain events.

3] Planning reduces Wastefulness

The detailed plans made keep in mind the needs of all the departments. This ensures that all the departments are on the same page about the plan and that all their activities are coordinated. There is clarity in thought which leads to clarity in action. All work is carried out without interruptions or waste of time or resources ,

4] Planning invokes Innovation

Planning actually involves a lot of innovation on the part of the managers . Being the first function of management it is a very difficult activity. It encourages the manager to broaden their horizons and forces them to think differently. So the managers have to be creative, perceptive and innovative.

5] Makes Decision=Making Easier

In business planning the goals of the organization have been set, an action plan developed and even predictions have been made for future events. This makes it easier for all managers across all levels to make decisions with some ease. The decision-making process also becomes faster.

6] Establishes Standards

Once the business planning is done, the managers now have set goals and standards. This provides the manager’s standards against which they can measure actual performances. This will help the organization measure if the goals have been met or not. So planning is a prerequisite to controlling.

Limitations of Planning

While business planning is important and a requisite for every organization, it does have some limitations. Let us take a look at some limitations of business planning.

1] Rigidity

Once the planning function is complete and the action plan is set, then the manager tends to only follow the plan. The manager may not be in a position to change the plan according to circumstances. Or the manager may be unwilling to change the plan. This sort of rigidity is not ideal for an organization.

2] Not ideal in Dynamic Conditions

In an economic environment rarely anything is stagnant or static. Economic, political, environmental, legal conditions keep changing. In such a dynamic environment it becomes challenging to predict future changes. And if a manager cannot forecast accurately, the plan may fail.

3] Planning can also reduce creativity

While making a plan takes creativity after that managers blindly follow the plan. They do not change the plan according to the dynamic nature of the business. Sometimes they do not even make the appropriate suggestions to upper management. The work becomes routine.

4] Planning is Expensive

Planning is a cost-consuming process. Since it is an intellectual and creative process, specialized professionals must be hired for the job. Also, it involves a lot of research and facts collection and number crunching. At certain times the cost of the planning process can outweigh its benefits.

5] Not Completely Accurate

When planning we have to forecast the future and predict certain upcoming events in the organization and the industry. So, of course, there cannot be hundred per cent certainty in such cases. So it can be said that business planning lacks accuracy

Solved Question for You

Q: Which of the following can be referred to planning?

• Departmentation
• Government policy
• Forecasting
• All of the above

Ans: The correct option is C. Planning is forecasting as it is deciding what to do in advance. Planning is futuristic as it never relates to the past. So planning bridges the gap between where the company is and where it wishes to go.

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• 17.2 The Planning Process
• Introduction
• 1.1 What Do Managers Do?
• 1.2 The Roles Managers Play
• 1.3 Major Characteristics of the Manager's Job
• Summary of Learning Outcomes
• Chapter Review Questions
• Management Skills Application Exercises
• Managerial Decision Exercises
• Critical Thinking Case
• 2.1 Overview of Managerial Decision-Making
• 2.2 How the Brain Processes Information to Make Decisions: Reflective and Reactive Systems
• 2.3 Programmed and Nonprogrammed Decisions
• 2.4 Barriers to Effective Decision-Making
• 2.5 Improving the Quality of Decision-Making
• 2.6 Group Decision-Making
• 3.1 The Early Origins of Management
• 3.2 The Italian Renaissance
• 3.3 The Industrial Revolution
• 3.4 Taylor-Made Management
• 3.5 Administrative and Bureaucratic Management
• 3.6 Human Relations Movement
• 3.7 Contingency and System Management
• 4.1 The Organization's External Environment
• 4.2 External Environments and Industries
• 4.3 Organizational Designs and Structures
• 4.4 The Internal Organization and External Environments
• 4.5 Corporate Cultures
• 4.6 Organizing for Change in the 21st Century
• 5.1 Ethics and Business Ethics Defined
• 5.2 Dimensions of Ethics: The Individual Level
• 5.3 Ethical Principles and Responsible Decision-Making
• 5.4 Leadership: Ethics at the Organizational Level
• 5.5 Ethics, Corporate Culture, and Compliance
• 5.6 Corporate Social Responsibility (CSR)
• 5.7 Ethics around the Globe
• 5.8 Emerging Trends in Ethics, CSR, and Compliance
• 6.1 Importance of International Management
• 6.2 Hofstede's Cultural Framework
• 6.3 The GLOBE Framework
• 6.4 Cultural Stereotyping and Social Institutions
• 6.5 Cross-Cultural Assignments
• 6.6 Strategies for Expanding Globally
• 6.7 The Necessity of Global Markets
• 7.1 Entrepreneurship
• 7.2 Characteristics of Successful Entrepreneurs
• 7.3 Small Business
• 7.4 Start Your Own Business
• 7.5 Managing a Small Business
• 7.6 The Large Impact of Small Business
• 7.7 The Small Business Administration
• 7.8 Trends in Entrepreneurship and Small-Business Ownership
• 8.1 Gaining Advantages by Understanding the Competitive Environment
• 8.2 Using SWOT for Strategic Analysis
• 8.3 A Firm's External Macro Environment: PESTEL
• 8.4 A Firm's Micro Environment: Porter's Five Forces
• 8.5 The Internal Environment
• 8.6 Competition, Strategy, and Competitive Advantage
• 8.7 Strategic Positioning
• 9.1 Strategic Management
• 9.2 Firm Vision and Mission
• 9.3 The Role of Strategic Analysis in Formulating a Strategy
• 9.4 Strategic Objectives and Levels of Strategy
• 9.5 Planning Firm Actions to Implement Strategies
• 9.6 Measuring and Evaluating Strategic Performance
• 10.1 Organizational Structures and Design
• 10.2 Organizational Change
• 10.3 Managing Change
• 11.1 An Introduction to Human Resource Management
• 11.2 Human Resource Management and Compliance
• 11.3 Performance Management
• 11.4 Influencing Employee Performance and Motivation
• 11.5 Building an Organization for the Future
• 11.6 Talent Development and Succession Planning
• 12.1 An Introduction to Workplace Diversity
• 12.2 Diversity and the Workforce
• 12.3 Diversity and Its Impact on Companies
• 12.4 Challenges of Diversity
• 12.5 Key Diversity Theories
• 12.6 Benefits and Challenges of Workplace Diversity
• 12.7 Recommendations for Managing Diversity
• 13.1 The Nature of Leadership
• 13.2 The Leadership Process
• 13.3 Leader Emergence
• 13.4 The Trait Approach to Leadership
• 13.5 Behavioral Approaches to Leadership
• 13.6 Situational (Contingency) Approaches to Leadership
• 13.7 Substitutes for and Neutralizers of Leadership
• 13.8 Transformational, Visionary, and Charismatic Leadership
• 13.9 Leadership Needs in the 21st Century
• 14.1 Motivation: Direction and Intensity
• 14.2 Content Theories of Motivation
• 14.3 Process Theories of Motivation
• 14.4 Recent Research on Motivation Theories
• 15.1 Teamwork in the Workplace
• 15.2 Team Development Over Time
• 15.3 Things to Consider When Managing Teams
• 15.4 Opportunities and Challenges to Team Building
• 15.5 Team Diversity
• 15.6 Multicultural Teams
• 16.1 The Process of Managerial Communication
• 16.2 Types of Communications in Organizations
• 16.3 Factors Affecting Communications and the Roles of Managers
• 16.4 Managerial Communication and Corporate Reputation
• 16.5 The Major Channels of Management Communication Are Talking, Listening, Reading, and Writing
• 17.1 Is Planning Important
• 17.3 Types of Plans
• 17.4 Goals or Outcome Statements
• 17.5 Formal Organizational Planning in Practice
• 17.6 Employees' Responses to Planning
• 17.7 Management by Objectives: A Planning and Control Technique
• 17.8 The Control- and Involvement-Oriented Approaches to Planning and Controlling
• 18.1 MTI—Its Importance Now and In the Future
• 18.2 Developing Technology and Innovation
• 18.3 External Sources of Technology and Innovation
• 18.4 Internal Sources of Technology and Innovation
• 18.5 Management Entrepreneurship Skills for Technology and Innovation
• 18.6 Skills Needed for MTI
• 18.7 Managing Now for Future Technology and Innovation
• Outline the planning and controlling processes.

Planning is a process. Ideally it is future oriented, comprehensive, systematic, integrated, and negotiated. 11 It involves an extensive search for alternatives and analyzes relevant information, is systematic in nature, and is commonly participative. 12 The planning model described in this section breaks the managerial function of planning into several steps, as shown in Exhibit 17.3 . Following this step-by-step procedure helps ensure that organizational planning meets these requirements.

Step 1: Developing an Awareness of the Present State

According to management scholars Harold Koontz and Cyril O’Donnell, the first step in the planning process is awareness. 13 It is at this step that managers build the foundation on which they will develop their plans. This foundation specifies an organization’s current status, pinpoints its commitments, recognizes its strengths and weaknesses, and sets forth a vision of the future. Because the past is instrumental in determining where an organization expects to go in the future, managers at this point must understand their organization and its history. It has been said—“The further you look back, the further you can see ahead.” 14

Step 2: Establishing Outcome Statements

The second step in the planning process consists of deciding “where the organization is headed, or is going to end up.” Ideally, this involves establishing goals. Just as your goal in this course might be to get a certain grade, managers at various levels in an organization’s hierarchy set goals. For example, plans established by a university’s marketing department curriculum committee must fit with and support the plans of the department, which contribute to the goals of the business school, whose plans must, in turn, support the goals of the university. Managers therefore develop an elaborate network of organizational plans, such as that shown in Exhibit 17.4 , to achieve the overall goals of their organization.

Goal vs. Domain Planning

Outcome statements can be constructed around specific goals or framed in terms of moving in a particular direction toward a viable set of outcomes. In goal planning , people set specific goals and then create action statements. 15 For example, freshman Kristin Rude decides that she wants a bachelor of science degree in biochemistry (the goal). She then constructs a four-year academic plan that will help her achieve this goal. Kristin is engaging in goal planning. She first identifies a goal and then develops a course of action to realize her goal.

Another approach to planning is domain/directional planning , in which managers develop a course of action that moves an organization toward one identified domain (and therefore away from other domains). 16 Within the chosen domain may lie a number of acceptable and specific goals. For example, high-school senior Neil Marquardt decides that he wants to major in a business-related discipline in college. During the next four years, he will select a variety of courses from the business school curriculum yet never select a major. After selecting courses based on availability and interest, he earns a sufficient number of credits within this chosen domain that enables him to graduate with a major in marketing. Neil never engaged in goal planning, but in the end he will realize one of many acceptable goals within an accepted domain.

The development of the Post-it® product by the 3M Corporation demonstrates how domain planning works. In the research laboratories at 3M, efforts were being made to develop new forms and strengths of cohesive substances. One result was cohesive material with no known value because of its extremely low cohesive level. A 3M division specialist, Arthur L. Fry, frustrated by page markers falling from his hymn book in church, realized that this material, recently developed by Spencer F. Silver, would stick to paper for long periods and could be removed without destroying the paper. Fry experimented with the material as page markers and note pads—out of this came the highly popular and extremely profitable 3M product Scotch Post-it®. Geoff Nicholson, the driving force behind the Post-it® product, comments that rather than get bogged down in the planning process, innovations must be fast-tracked and decisions made whether to continue or move on early during the product development process. 17

Situations in which managers are likely to engage in domain planning include (1) when there is a recognized need for flexibility, (2) when people cannot agree on goals, (3) when an organization’s external environment is unstable and highly uncertain, and (4) when an organization is starting up or is in a transitional period. In addition, domain planning is likely to prevail at upper levels in an organization, where managers are responsible for dealing with the external environment and when task uncertainty is high. Goal planning (formulating goals compatible with the chosen domain) is likely to prevail in the technical core, where there is less uncertainty.

Hybrid Planning

Occasionally, coupling of domain and goal planning occurs, creating a third approach, called hybrid planning . In this approach, managers begin with the more general domain planning and commit to moving in a particular direction. As time passes, learning occurs, uncertainty is reduced, preferences sharpen, and managers are able to make the transition to goal planning as they identify increasingly specific targets in the selected domain. Movement from domain planning to goal planning occurs as knowledge accumulates, preferences for a particular goal emerge, and action statements are created.

Consequences of Goal, Domain, and Hybrid Planning

Setting goals not only affects performance directly, but also encourages managers to plan more extensively. That is, once goals are set, people are more likely to think systematically about how they should proceed to realize the goals. 18 When people have vague goals, as in domain planning, they find it difficult to draw up detailed action plans and are therefore less likely to perform effectively. When studying the topic of motivation, you will learn about goal theory. Research suggests that goal planning results in higher levels of performance than does domain planning alone. 19

Step 3: Premising

In this step of the planning process, managers establish the premises, or assumptions, on which they will build their action statements. The quality and success of any plan depends on the quality of its underlying assumptions. Throughout the planning process, assumptions about future events must be brought to the surface, monitored, and updated. 20

Managers collect information by scanning their organization’s internal and external environments. They use this information to make assumptions about the likelihood of future events. As Kristin considers her four-year pursuit of her biochemistry major, she anticipates that in addition to her savings and funds supplied by her parents, she will need a full-time summer job for two summers in order to cover the cost of her undergraduate education. Thus, she includes finding full-time summer employment between her senior year of high school and her freshman year and between her freshman and sophomore years of college as part of her plan. The other two summers she will devote to an internship and finding postgraduate employment—much to mom and dad’s delight! Effective planning skills can be used throughout your life. The plan you develop to pay for and complete your education is an especially important one.

Step 4: Determining a Course of Action (Action Statements)

In this stage of the planning process, managers decide how to move from their current position toward their goal (or toward their domain). They develop an action statement that details what needs to be done, when, how, and by whom. The course of action determines how an organization will get from its current position to its desired future position. Choosing a course of action involves determining alternatives by drawing on research, experimentation, and experience; evaluating alternatives in light of how well each would help the organization reach its goals or approach its desired domain; and selecting a course of action after identifying and carefully considering the merits of each alternative.

Step 5: Formulating Supportive Plans

The planning process seldom stops with the adoption of a general plan. Managers often need to develop one or more supportive or derivative plans to bolster and explain their basic plan. Suppose an organization decides to switch from a 5-day, 40-hour workweek (5/40) to a 4-day, 40-hour workweek (4/40) in an attempt to reduce employee turnover. This major plan requires the creation of a number of supportive plans. Managers might need to develop personnel policies dealing with payment of daily overtime. New administrative plans will be needed for scheduling meetings, handling phone calls, and dealing with customers and suppliers.

Planning, Implementation, and Controlling

After managers have moved through the five steps of the planning process and have drawn up and implemented specific plans, they must monitor and maintain their plans. Through the controlling function (to be discussed in greater detail later in this chapter), managers observe ongoing human behavior and organizational activity, compare it to the outcome and action statements formulated during the planning process, and take corrective action if they observe unexpected and unwanted deviations. Thus, planning and controlling activities are closely interrelated (planning ➨ controlling ➨ planning . . .). Planning feeds controlling by establishing the standards against which behavior will be evaluated during the controlling process. Monitoring organizational behavior (the control activity) provides managers with input that helps them prepare for the upcoming planning period—it adds meaning to the awareness step of the planning process.

Influenced by total quality management (TQM) and the importance of achieving continuous improvement in the processes used, as well as the goods and services produced, organizations such as IBM-Rochester have linked their planning and controlling activities by adopting the Deming cycle (also known as the Shewhart cycle).

It has been noted on numerous occasions that many organizations that do plan fail to recognize the importance of continuous learning. Their plans are either placed on the shelf and collect dust or are created, implemented, and adhered to without a systematic review and modification process. Frequently, plans are implemented without first measuring where the organization currently stands so that future comparisons and evaluations of the plan’s effectiveness cannot be determined. The Deming cycle , shown in Exhibit 17.6 , helps managers assess the effects of planned action by integrating organizational learning into the planning process. The cycle consists of four key stages: (1) Plan—create the plan using the model discussed earlier. (2) Do—implement the plan. (3) Check—monitor the results of the planned course of action; organizational learning about the effectiveness of the plan occurs at this stage. (4) Act—act on what was learned, modify the plan, and return to the first stage in the cycle, and the cycle begins again as the organization strives for continuous learning and improvement.

Concept Check

• What are the five steps in the planning process?
• What is the difference between goal, domain, and hybrid planning?
• How are planning, implementation, and controlling related?

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• Authors: David S. Bright, Anastasia H. Cortes
• Publisher/website: OpenStax
• Book title: Principles of Management
• Publication date: Mar 20, 2019
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-management/pages/1-introduction
• Section URL: https://openstax.org/books/principles-management/pages/17-2-the-planning-process

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