Difference between traditional goal setting and mbo

Business Administration
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Management: Second Arab World Edition
Robbins, Coulter, Sidani, Jamali

Chapter 7: Foundations of Planning

Lecturer: Dr. Ahmed Al-Shamali

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Learning Outcomes
Follow this Learning Outline as you read and study this chapter.

7.1 Define the nature and purpose of planning

Define planning.

Describe the purposes of planning.

Explain what studies have shown about the relationship between planning and performance.

Understand the dynamics of planning in Arab culture.

7.2 Classify the types of goals organizations might

have and the plans they use

Define goals and plans.

Describe the types of goals organizations might have.

Describe each of the different types of plans.

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7.3 Compare and contrast approaches to goal setting

and planning

Discuss how traditional goal setting and MBO work.

Describe well-written goals and explain how to set them.

Discuss the contingency factors that affect planning.

Describe the approaches to planning.

7.4 Discuss contemporary issues in planning

Explain the criticisms of planning.

Describe how managers can effectively plan in today’s dynamic environment.

Learning Outcomes
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1. Define planning.

2. Describe the purposes of planning.

3. Explain what studies have shown about the relationship between planning and performance.

4. Understand the dynamics of planning in Arab culture.

Define the Nature and Purpose of Planning

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What Is Planning?

Planning

Is a primary managerial activity that involves:

Defining an organization’s goals, establishing an overall strategy for achieving those goals, and developing plans to integrate and coordinate work activities.
It is concerned with both ends (what) and means (how).
When we use the term planning, we mean “Formal Planning”

Specific goals covering a specific time period are defined.
Written and shared with organizational members in order to create an a common understanding about what needs to be done.
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Why Do Managers Plan?

Provides direction – When employees know what their organizations or work unit is trying to achieve and what they must contribute in order to achieve goals, they can coordinate their activities, cooperate with each other, and do what it takes to achieve those goals.
Reduces uncertainty – By forcing managers to look ahead, anticipate change, consider its impact, and develop appropriate responses.
Minimizes waste and redundancy – When work activities are coordinate around plans, inefficiencies become obvious and can be corrected.
Sets the standards for controlling – Without planning, there are no goals against which to measure or evaluate work effort.
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Planning and Performance

Formal planning is associated with:
Positive financial results
Higher profits and returns on assets.
The quality of planning and implementation affects performance more than the extent of planning.
The external environment can reduce the impact of planning on performance.
Formal planning must be used for several years before its begins to affect performance.
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Planning in Arab Culture

Planning is underdeveloped in Arab societies
some attribute this to an Arab culture that is supposedly fixated on the past and resists planning for the future.
Fatalism
the belief in predestination, in the sense that a person has no control over things that happen to him as things have already been predestined from God.
This is a mistaken understanding of Qadar.
Belief in Qadar does not mean that people should not plan.
The Prophet Muhammed (PBUH) was an excellent planner in all his affairs.
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Planning in Arab Culture (cont’d)

Emergence of many successful Arab entrepreneurs and managers.
They built their businesses on proper planning and adequate organization.
This demonstrates that they have been progressively adopting modern managerial standards.
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Quick Learning Review

Studies of the planning-performance relationship have concluded that:

a. The internal environment is usually the reason companies that plan do not achieve high levels of performance

b. The external environment is usually the reason companies that plan do not achieve high levels of performance

c. Neither the internal nor the external environment is the reason companies that plan do not achieve high levels of performance

d. None of the above

Proper planning in the Arab culture would lead to:

a. The emergence of successful Arab entrepreneurs and managers

b. A rise in non-confident managers

c. Adoption of old managerial standards

d. Loss of direction

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1. Define goals and plans.

2. Describe the types of goals organizations might have.

3. Describe each of the different types of plans.

Classify the Types of Goals

Organizations Might

Have and the Plans They Use

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Goals and Plans

Goals (also Objectives)

Are desired outcomes or targets for individuals, groups, or entire organizations
Provide direction and evaluation performance criteria
Often called the foundation of planning, because you must know the desired target or outcome before establish a plan to reach it.
Plans

Are documents that outline how goals are to be accomplished
They include resource allocations, schedules, and other necessary actions to accomplish the goals.
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Types of Goals

It may seem as though organizations have a single goal, however they actually have multiple goals. If managers emphasize only one goal, other goals necessary for long-term success are ignored.

Financial Goals are related to the expected internal financial performance of an organization.
Strategic Goals are related to all other areas of an organization’s performance.
The goals described are categorized as stated goals.

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Types of Goals (cont’d)

Stated goals are official statements of what an organization says – and what it wants its various stakeholders to believe – its goals are.

They can be found in an organization’s charter, annual report, or public relations announcements, or in public statements made by managers.

These broadly-worded official statements of the organization (intended for public consumption) that may be irrelevant to its real goals (what actually goes on in the organization), which are goals that they actively pursue, as defined by its members.

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SMART Goals

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Exhibit 7–1 Types of Plans

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Types of Plans

Strategic Plans

Are plans that apply to an entire organization and establishes its overall goals.
Seek to position the organization in terms of its environment.
Cover extended periods of time.
Operational Plans

Are plans than encompass a particular operational area of an organization.
Specify the details of how the overall goals are to be achieved.
Cover a short time period.
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Types of Plans (cont’d)

Long-Term Plans

Plans with time frames extending beyond three years
Short-Term Plans

Plans with time frames of one year or less
Any time period in between would be an intermediate plan

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Types of Plans (cont’d)

Specific Plans

Plans that are clearly defined and leave no room for interpretation
They have clearly defined objectives, so there isn’t problems or misunderstandings.
Directional Plans

Plans that are flexible and that set out general guidelines.
They provide focus, but don’t lock managers into specific goals or courses of action.
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Types of Plans (cont’d)

Single-Use Plan

A one-time plan specifically designed to meet the need of a unique situation
Standing Plans

Ongoing plans that provide guidance for activities performed repeatedly.
(They included policies, rules and procedures as discussed in chapter 6)

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Quick Learning Review

Plans which encompass a particular functional area are:

a. Strategic

b. Financial

c. Stated

d. Operational

__________ plans are flexible and set out general guidelines.

a. Standing

b. Specific

c. Long-term

d. Directional

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1. Discuss how traditional goal setting and MBO work.

2. Describe well-written goals and explain how to set them.

3. Discuss the contingency factors that affect planning.

4. Describe the approaches to planning

Compare and Contrast

Approaches to Goal Setting

and Planning

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Approaches to Setting Goals

Traditional Goal Setting

Broad goals are set at the top of the organization.
Goals are then broken into sub-goals for each organizational level.
Assumes that top management knows best because they can see the “big picture”.
Goals passed down to the levels below guide individual employees as the work to achieve those assigned goal.
Goals lose clarity and focus as lower-level managers attempt to interpret and define the goals for their areas of responsibility (Problem with this approach!).
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Traditional goal setting

An approach to setting goals in which top managers set goals that follow down through the organization and become sub-goals for each organizational area.

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Means–Ends Chain

The integrated network of goals that results from establishing a clearly-defined hierarchy of organizational goals.
Achievement of lower-level goals is the means by which to reach higher-level goals (ends).
Approaches to Setting Goals (cont’d)

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Exhibit 7–2 The Downside of Traditional Goal Setting

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Management by Objectives (MBO)

A process of setting mutually agreed upon goals and using those goals to evaluate employee performance.
Specific performance goals are jointly determined by employees and managers (i.e. Manager sits down with members of the team).
Progress toward accomplishing goals is periodically reviewed.
Rewards are allocated on the basis of progress towards the goals.
Key elements of MBO:
Goal specificity, participative decision making, an explicit performance/evaluation period, feedback
Approaches to Setting Goals (cont’d)

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Exhibit 7–3 Steps in a Typical MBO Program

1. The organization’s overall objectives and strategies are formulated.

2. Major objectives are allocated among divisional and departmental units.

3. Unit managers collaboratively set specific objectives for their units with their managers.

4. Specific objectives are collaboratively set with all department members.

5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employees.

6. The action plans are implemented.

7. Progress toward objectives is periodically reviewed, and feedback is provided.

8. Successful achievement of objectives is reinforced by performance-based rewards.

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Does MBO Work?

Reason for MBO Success

Found to increase employee and organizational performance

Top management commitment and involvement
Potential Problems with MBO Programs

Not as effective in dynamic environments that require constant resetting of goals.
Overemphasis on individual accomplishment may create problems with teamwork.
Allowing the MBO program to become an annual paperwork shuffle.
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Exhibit 7–4 Characteristics of Well-Written Goals

Written in terms of outcomes, not actions
Focuses on the ends, not the means.
Measurable and quantifiable
Specifically defines how the outcome is to be measured and how much is expected.
Clear as to time frame
How long before measuring accomplishment.
Challenging yet attainable
Low goals do not motivate.
High goals motivate if they can be achieved.
Written down
Focuses, defines, and makes goals visible.
Communicated to all necessary organizational members
Puts everybody “on the same page”.
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Steps in Goal Setting

1. Review the organization’s mission statement.

Do goals reflect the mission?

2. Evaluate available resources.

Are resources sufficient to accomplish the goals?

3. Determine goals individually or with others.

Are goals specific, measurable, and timely?

4. Write down the goals and communicate them.

Is everybody on the same page?

5. Review results and whether goals are being met.

Are goals being met?

What changes are needed in mission, resources, or goals?

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Developing Plans
The process of developing plans is influenced by 3 contingency/situational factors:

1. Manager’s level in the organization

Higher level managers do strategic plans
Lower level managers do operational plans
2. Degree of environmental uncertainty

Stable environment: specific plans
Dynamic environment: specific but flexible plans
3. Length of future commitments (time frame of plans)

Commitment Concept: current plans affecting future commitments must be sufficiently long-term to meet those commitments.
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Exhibit 7–5 Planning and Organizational Level

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Approaches to Planning

To understand how an organization plans, we must look at who does the planning:

1. Establishing a formal planning department (traditional approach)

A group of planning specialists who help top managers write organizational plans.
Planning is a function of management; it should never become the sole responsibility of planners.
2. Involving organizational members in the process

Plans are developed by members of organizational units at various levels and then coordinated with other units across the organization.
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Quick Learning Review

The two main approaches to setting goals are:

a. The traditional approach and modern approach

b. The traditional approach and MBO

c. MBO and environmental approach

d. MBO and manager’s approach

Well-written goals have to be:

a. Challenging but attainable

b. Challenging but not necessarily attainable

c. Easily attainable

d. Non-challenging but attainable

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1. Explain the criticisms of planning.

2. Describe how managers can effectively plan in today’s dynamic environment.

Discuss Contemporary Issues in Planning

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Criticisms of Planning

Planning may create rigidity.
Plans cannot be developed for dynamic environments.
Formal plans cannot replace intuition and creativity.
Planning focuses managers’ attention on today’s competition not tomorrow’s survival.
Formal planning reinforces today’s success, which may lead to tomorrow’s failure.
Just planning isn’t enough (Plans have to be put into motion)
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Effective Planning in Dynamic Environments
Develop plans that are specific but flexible.
Understand that planning is an ongoing process.
Change plans when conditions warrant.
Persistence in planning eventually pay off.
Managers learn to plan, they improve as they continue to do it.

Flatten the organizational hierarchy to foster the development of planning skills at all organizational levels.
Allow lower organizational levels to set goals and develop plans.

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Quick Learning Review

One criticism of planning is:

a. Planning is rigid and inflexible.

b. Planning is specific and inflexible.

c. Planning is rigid and flexible

d. Planning is specific and flexible.

In an uncertain environment, effective planning can be done by using plans that are:

a. Specific and rigid

b. Specific and flexible

c. Rigid and flexible

d. Specific and inflexible

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Terms to Know

planning

goal

plans

stated goals

real goals

strategic plans

operational plans

long-term plans

short-term plans

specific plans

directional plans

single-use plan

standing plans

traditional goal setting

means-ends chain

management by objectives (MBO)

mission

commitment concept

formal planning department

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Traditional goal setting

An approach to setting goals in which top managers set goals that follow down through the organization and become sub-goals for each organizational area.

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