The Foundations Of Planning

Published Date: 02 Nov 2017

Identify and define the factors that motivate an organisation to use formal planning processes. What are the four main outcomes managers seek when engaging in a formal planning process? Using examples, identify the risks associated with an over‐reliance on formal planning processes.

This essay will discuss the topic of formal planning processes. It will identify and define the factors that motivate an organisation to use formal planning processes obtained from substantial and relevant academic literature, providing necessary methodological and practical information. In every business or organizational behaviour, every planning process will be facing different stages of uncertainties or issues related to it. This essay will be exploring the risks associated with an over-reliance of the formal planning processes faced by many businesses or organizations which can affect the effectiveness and followed by providing method to be implemented by managers in overcoming the concerned issues.

Planning can be defined as the primary management function as it establishes the basis for all the other things managers do. As stated by Koontz and O'Donnel, the fundamental purpose of planning is to "facilitate the accomplishment of enterprise and objectives" (Koontz & O’Donnel, 2008). This involves defining the organisational goals, establishing an overall strategy for achieving those goals and developing a comprehensive set of plans to integrate and coordinate organisational work. In other words, planning is a widely accepted approach regarding the design and implementation of an effective formal system for a company's long-term and short-term goals and the system design should be contingent on the specific situational setting of each particular firm. A given formal planning system should thus be "tailored" to the specific corporate strategy, the organizational structure of the firm, the behavioral styles and preferences of management at hand, and other factors (Gilbert and Lorange, 1974).

Formal planning consists of written, specific and long-term focus, and involves shared goals for the organisation. Formal strategic planning calls for an explicit process for determining the firm's long-range objectives, procedures for generating and evaluating alternative strategies, and a system for monitoring the results of the plan when implemented (Armstrong, 1982

). Some of the factors that could motivate an organisation to use formal planning process includes planning establishes coordinated effort where it gives directions to managers and non-managers alike. When all organisational members understand where the organisations is going and what they must contribute to reach the objectives, they can begin to coordinate their activities and cooperation and teamwork are fostered. By forcing managers to look ahead, anticipate the change, consider the impact of change and develop appropriate responses, planning reduces uncertainty. It also clarifies the consequences of the action the managers might take in response to change. Planning is precisely what managers need in a chaotic environment. Planning also reduces overlapping and wasteful activities. Coordination before the fact is likely to uncover waste and redundancy. Furthermore, when means and ends are clear, inefficiencies become obvious. Finally, planning establishes the goals or standards that facilitate control. If organizational members are unsure of what they are attempting to achieve, what are the ways to determine whether they have achieved it. In planning, objectives are developed. In the controlling function of management, performance is compared against the established objectives. If and when significant deviations are identified, corrective action can be taken. Without planning, then there truly cannot be effective control.

The formal planning process is an approach in which managers use to make decisions depending on the organisational needs. Some of the companies that use formal planning believe that it improves profits and growth. In AI-Bazzaz and Grinyer (1980), 48 per cent of the companies reported such a benefit. Formal strategic planning calls for an explicit process for determining the firm's long-range objectives, procedures for generating and evaluating alternative strategies, and a system for monitoring the results of the plan when implemented. During each of these steps, it is important that a systematic procedure be used to gain commitment of those who will be affected by the plan. Research shows a rather consistent, positive relationship between the extent of planning activities and the performance of businesses (Robinson and Pearce 1984). This relationship is found despite differing definitions of small businesses, ways of assessing formality of planning, and types of performance measures utilized. However, Robinson and Pearce (1984) called for increased study of the relationships among planning formality, strategy content, and firm performance, thereby encouraging a more complex view of strategic management processes and results in small firms.

Although the contemporary view of planning is less extreme, the performance implications of strategic planning have been a central area of investigation for researchers over the past three decades. There is a plethora of research findings on the relationship between formal strategic planning (FSP) and organizational performance, but many of these findings have proved inconclusive. Early studies suggested that FSP enhanced performance ([52] Herold, 1972; [121] Thune and House, 1970). The methodological shortcomings in the prior empirical literature have been identified by a number of reviews ([94] Pearce et al. , 1987; [105] Rhyne, 1986; [42] Greenley, 1994). The most prominent ones are related to the definition of planning and the selection of performance measures. Most studies have characterized firms as either planners or non-planners based on the extensiveness of the formal planning system. The presence of an elaborate system does not necessarily mean, however, that a firm's planning process will be effective.

By implementing formal planning, achievements of an organization’s goals are outlined, with allocations of necessary resources, tasks, schedules and other actions being specified (Daft 2008). Explicit goals (targets) and plans at each planning stage would be developed; sending out messages to internal and external audiences. Thus, when an organization’s top management adopts formal planning, efficiency and effectiveness (financial and operational performance) are improved upon. (Daft 2008). When employees are able to relate (identify) with the role they play within an organization they will be more motivated and committed, focusing their attention on specific targets to achieve important outcomes (Daft 2008). Employees would also be more willing to comply with standard procedures when they are able to identify with goals and plans of the organization; there would be better control and accountability for activities carried out. There would also be better allocation (alignment) of resources (i.e. employees, finance, equipment) by managers, with the goals of the organization. Finally, formal planning not only provides a standard of assessment, but ensures that internal policies and performance are in accordance (alignment) with the desired outcomes of the organization (Daft 2008).

Although there are many issues concerning formal planning processes, there are four that have been generating much concern. The limits on human capability, which is the ability to gather, process, and understand all the information needed to maximize a planning outcome, make it impractical except in very compelled or simple situations. Some of the concern includes planning may create rigidity, formal plans can’t replace intuition and creativity, planning focuses managers’ attention on today’s competition, not on tomorrow’s survival and formal planning reinforces success, which may lead to failure. Identifying the risks in the early stage would also be a way of knowing whether decision makers who seem to be pursuing an effective strategy interpret decision as aggressively even when they are not. The aim in general, is to maximize utility, and the various simplified strategies are all compromises of that implicit aim so that people can make some decision and also continue to live their lives. In another word, this will help managers must in planning strategies in terms of identifying the importance of rational based decision.

Theoretical background between the relationship of planning and performance of a firm has also been a major complication for all aspects of management. Robinson and Pearce (1983) found no significant performance differences between formal and non-formal small business planners. They concluded that planning formality is not necessary for good small firm performance in the banking industry because small firms appear to enhance their effectiveness by informal application of basic, strategic decision-making processes. Consequently, researchers have taken a more contingent view toward the planning-performance relationship and have begun to control for firm size, industry environment, entrepreneurial/managerial characteristics, etc. (Grinyer, Al-Bazzaz, and Yasai-Ardekani 1986). However, the results regarding firm planning and performance remain mixed. Harrington et al. (2004) reach a similar conclusion. They note that the debate between Mintzberg (1990,1991) and Ansoff (1991) typifies the view that firms' strategy formulation processes are either deliberate or emergent. Consequently, the norm has been to separate strategy formulation into deliberate and emergent categories. However, Harrington et al (2004) argue that it should be treated as a continuum in order to better tap into the idea that both approaches can be present in organisations.

It would also be worthwhile for a manager to explore the consequences of an over-reliance on formal planning processes. It is possible that by maximizing utility to its full potential, decision makers are less likely reluctant to consider options that will benefit the organization the most. It would reflect thoughtfulness and analytical intently. Organisations might be much more inclined to adopt a strategy that is normatively correct than one that is merely psychologically beneficial.

This paper has discussed the methodology and factors pertaining to the formal planning process, and how planning can be an influence in every decision process of a manager through the understanding of risks associated with an over-reliance on formal planning processes. Specific responses may result in better stimulus approach for a manager to adopt in order to maximize the value of every foundations of planning. Furthermore empirical planning in terms of profit-gain and benefits to the organisation is getting increasingly important before any decision can be implemented by a manager. In a certain organizational role, realizing these benefits which takes in the methodological factors and differences in every stages of planning process is not a simple task as every factor has to be weighed in carefully and accurately. For a manager, empirical exploration of the formal planning processes and the need to address the correct rational decision may affect the resolution dilemmas faced by the organization. Addressing and utilizing issues such as new ideas, common goals and main objectives should be practised together through a new perspective on planning which allows the theorizing of rational decisions by organizations. In other words, exploring the fundamental of formal planning offers new avenue of rationality persistence through a progressive critique of rational choice theory.