Matsushita has driven its U.S. competitors out of the American market for television sets. Part of its success is due to the company Founder's establishment, in the early 1950s, of a long-term plan to dominate the U.S. market For TVs. -**£ T, hirty years ago, companies such as RCA, GE, and Zenith dominated the U.S. market for television sets.1 Not anymore. Using brand names that include Panasonic and Quasar, the largest manufacturer of television sets in the world is a Japanese company called Matsushita. Similarly, if you go out today shopping for a video recorder, you'U see a lot of names that look familiar—Sylvania, Magnavox, Montgomery Ward—but they're all Matsushita-made. Now the largest consumer electronics firm on the globe—its product line runs from cathode ray tubes to inflight communication systems—Matsushita has grown to become the twelfth largest company in the world. In November 1990, the company paid more than $6 billion to buy MCA, the parent company of Universal Studios. The Matsushita story is a saga of how extensive planning can facilitate the creation of a corporate giant. The company was founded at the end of World War H by Konosuke Matsushita. He committed himself to rebuilding Japan's power among nations by malting Japan a leader in the emerging field of electronics. In the early 1950s, Matsushita set his sights on dominating the U.S. TV market. He formed a cartel with other Japanese TV manufacturers and proceeded aggressively to focus his efforts on the U.S. market. In twenty years, he whittled his U.S. competitors down from twenty-five to six. All his U.S. competitors eventually went bankrupt or were acquired by foreign interests. Through thoughtful, long-term planning, Matsushita has become the major player in the consumer electronics industry. Matsushita's management views their company as a very long-term operation. As an illustrative point, the company actually has a 250-year plan! Obviously, Matsushita is a company that is attempting to leave nothing to chance. mis chapter presents the basics of planning. In the following pages, you'U learn the difference between formal and informal planning, why managers plan, the various types of plans that managers use, the key contingency factors that influence the types of plans that managers use in different situations, and the important role that objectives play in planning. The Definition of Planning What do we mean by die term planning? As we stated in Chapter 1, planning encompasses defining the organization's objectives or goals, establishing an overall strategy for achieving these goals, and developing a comprehensive hierarchy of plans to integrate and coordinate activities. It is concerned, then, with ends (what is to be done) as well as with means (how it is to be done). Planning can be further defined in terms of whether it is informal or formal. All managers engage in planning, but it might be only the informal variety. In informal planning, nothing is written down, and there is little or no sharing of objectives with others in the organization. This describes planning in many small businesses; the owner-manager has a vision of where he or she wants to go and how he or she expects to get there. The planning is general and lacks continuity. Of course, informal planning exists in some large organizations, and some small businesses have very sophisticated formal plans. When we use the term planning in this book, we are implying formal planning. Specific objectives are formulated covering a period of years. These objectives are committed to writing and made available to organization members. Finally, specific action programs exist for the achievement of these objectives; that is, management clearly defines the path it wants to take to get from where it is to where it wants to be. The Purpose of Planning Why should managers engage in planning? It gives direction, reduces the impact of change, minimizes waste and redundancy, and sets the standards to facilitate control. Planning establishes coordinated effort. It gives direction to managers and non-managers alike. When all concerned know where the organization is going and what they must contribute to reach the objective, they can begin to coordinate their activities, cooperate with each other, and work in teams. A lack of planning can foster "zigzagging" and thus prevent an organization from moving efficiently toward its objectives. By forcing managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses, planning reduces uncertainty. It also clarifies the consequences of the actions managers might take in response to change. 187 188 PART THREE Planning * —~ s*-' nnniT - - \«?*S- -ÍA _— c-\ flnULT -X "^-'STRENGTH ■" pain nem vcn ¥ -«■ ■ Alfilrln I I mm;-s~ What Is MBO? Management by objectives is not new. The concept goes back forty years.20 Its appeal lies in its emphasis on converting overall objectives into specific objectives for organizational units and individual members. MBO makes objectives operational by devising a process by which they cascade down through the organization. As depicted in Figure 7-5, the organization's overall objectives are translated into specific objectives for each succeeding level— divisional, departmental, individual—in the organization. Because lower unit managers jointiy participate in setting their own goals, MBO works from the "bottom up" as well as from the "top down." The result is a hierarchy that links objectives at one level to those at the next level, For the individual employee, MBO provides specific personal performance objectives. Each person therefore has an identified specific contribution to make to his or her unit's performance. If all the individuals achieve their goals, then tiieir unit's goals will be attained, and the organization's overall objectives will become a reality. FIGURE 7-5 Cascading of Objectives 200 PART THREE Planning MBO's Common Elements There are four ingredients common to MBO program; These are goal specificity, participative decision making, an explicit time period, am performance feedback. The objectives in MBO should be concise statements of expected accomplish ments. It's not adequate, for example, merely to state a desire to cut costs, improv service, or increase quality. Such desires have to be converted into tangible objective that can be measured and evaluated. To cut departmental costs by 7 percent, ti improve service by ensuring that all telephone orders are processed within twenty four hours of receipt, or to increase quality by keeping returns to less than 1 percent í sales are examples of specific objectives. In MBO die objectives are not unilaterally set by the boss and assigned t< subordinates, as is characteristic of traditional objective setting. MBO replaces thes> imposed goals with participatively determined goals. The superior and subordinate jointly choose the goals and agree on how they will be achieved. Each objective has a concise time period in which it is to be completed. Typically the time period is three months, six months, or a year. The final ingredient in an MBO program is feedback on performance. MBO seek to give continuous feedback on progress toward goals. Ideally, this is accomplish» by giving ongoing feedback to individuals so they can monitor and correct their owi actions. This is supplemented by periodic formal appraisal meetings in which super iors and subordinates can review progress toward goals and further feedback can fo provided. Table 7-3 summarizes the typical steps in an MBO program. Does MBO Work? Assessing the effectiveness of MBO is a complex task. Leť begin by briefly reviewing a growing body of literature on the relationship betweei goals and performance.21 If factors such as a person's ability and acceptance of goals are held constant evidence demonstrates that more difficult goals lead to higher performance Although individuals with very difficult goals achieve them far less often than thosi with very easy goals, they nevertheless perform at a consistently higher level. O course, goals can be too hard. If individuals perceive a goal to be impossible insteac of challenging, their desire to achieve it decreases, and the likelihood that they wi] abandon it increases. Moreover, studies consistently support tlie finding that specific hard goals produc a higher level of output than do no goals or generalized goals such as "do your best. Feedback also favorably affects performance. Feedback lets a person know whethe his or her level of effort is sufficient or needs to be increased. It can induce a person t< TABLE 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 superiors. 4. Specific objectives are collaboratively set for all department members. 5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and subordinates. 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. CHAPTER 7 Foundations of Planning 201 Does MBO Require Manipulation? A colleague once facetiously suggested that MBO stood for manipulating by objectives. He made his argument as follows: 1. Managers frequendy have a specific set of goals in mind for an employee before the manager and employee ever sit down to begin the MBO process. These preconceived standards define the minimum goals that the manager is willing to accept. 2. Authentic employee participation therefore does not always take place. What - takes place should more appropriately be called "pseudo-participation." That is, there is only die appearance of participation. 3. Nothing in the MBO process clarifies how to arrive at goals if the manager and subordinate are unable to reach agreement. 4. When conflicts exist, managers tend to use the power of their position to impose their goals on the subordinate. 5. This scenario suggests that MBO can be a device that allows managers to appear to be setting goals participatively when, in fact, the goals are really being assigned. Proponents of MBO would counter that, although the preceding scenario undoubtedly happens, it is not really management by objectives. Moreover, managers must understand that anything less than complete participation by subordinates will undermine any MBO program's credibility and effectiveness. When differences occur, mature individuals can resolve them in a way that meets the needs of both the employee and the organization. Is it unethical for a manager to enter a participative goal-setting session with a preestablished set of goals diat the manager wants the employee to accept5 Is it unethical for a manager to use his or her formal position to impose specific goals on an employee? What do you think? raise his or her goal level after attaining a previous goal and can inform a person of ways in which to improve his or her performance. The results cited above are all consistent with MBO's stress on specific goals and feedback. MBO implies, rather than explicitly states, that goals must be perceived as feasible. Research on goal setting indicates that MBO is most effective if the goals are difficult enough to require the person to do some stretching. But what about participation? MBO strongly advocates that goals be set participatively. Does die research demonstrate that participatively set goals lead to higher performance than those assigned by a superior? Interestingly, the research comparing participatively set and assigned goals on performance has not shown any strong or consistent relationships.22 When goal difficulty has been held constant, assigned goals frequently do as well as participatively determined goals, contrary to MBO ideology. Therefore it is not possible to argue for die superiority of participation as MBO proponents advocate. One major benefit from participation, however, is that it appears to induce individuals to establish more difficult goals.23 Thus participation may have a positive impact on performance by increasing one's goal aspiration level. 202 PART THREE Planning Studies of actual MBO programs confirm that MBO effectively increases employee performance and organizational productivity. A review of seventy programs, for example, found organizational productivity gains in sixty-eight out of seventy of them.24 This same review also identified top management commitment and involvement as important conditions for MBO to reach its potential. When top management had a high commitment to MBO and was personally involved in its implementation, the average gain in productivity was found to be 56 percent. When commitment and involvement were low, the average gain in productivity dropped to only 6 percent. Summary This summary is organized 1. Planning is the process of determining objectives and assessing the way these by the chapter-opening objectives can best be achieved. learning objectives found on 2, Planning gives direction, reduces the impact of change, minimizes waste and page 185. redundancy, and sets the standards to facilitate controlling. 3- Strategic plans cover an extensive time period (usually five or more years), cover broad issues, and include the formulation of objectives. Operational plans cover shorter periods of time, focus on specifics, and assume that objectives are already known. 4. Directional plans are preferred over specific plans when uncertainty is high and when the organization is in the formative and decline stages of its life cycle. 5. Four contingency factors in planning include a manager's level in the organization, the life stage of the organization, die degree of environmental uncertainty, and the length of future commitments. 6. A manager should plan just far enough ahead to see through those commitments he or she makes today. 7. An organization's stated objectives might not be its real objectives because management might want to tell people what they want to hear and because it is simpler to state a set of consistent, understandable objectives than to explain a multiplicity of objectives. 8. A typical MBO program includes eight steps: (1) The organization's overall objectives and strategies are formulated; (2) major objectives are allocated among divisions and departmental units; (3) unit managers collaboratively set specific objectives for their units with their superiors; (4) specific objectives are collaboratively set for all department members; (5) action plans are specified and agreed upon by managers and subordinates; (6) the action plans are implemented; (7) progress toward objectives is periodically reviewed, and feedback is provided; and (8) successful achievement of objectives is reinforced by performance-based rewards. 9. MBO establishes goals as motivators by letting people know exactly what is expected of them, getting them to participate in setting their goals, giving them continuous feedback on how well they're progressing toward their goals, and making their rewards contingent upon achieving their goals. Such factors increase motivation. Review Questions 1. Contrast formal with informal planning. 2. How does planning affect an organization in terms of performance? In terms of eliminating change? Are these effects altered if the planning proves to be inaccurate? CHAPTER 7 Foundations of Planning 203 Discussion Questions 3. Describe the six different types of plans discussed in this chapter. 4. How does the planning done by a top executive differ from that performed by a supervisor? 5. How does environmental uncertainty affect planning? 6. Do business organizations have only one real goal—to make a profit*1 How does this affect dieir stated goals? 7. How would you identify an organization's stated objectives? Its real objectives? 8. Contrast traditional objective setting and MBO. 9. What factors influence MBO's effectiveness? 1. What relationship do you see between planning and traditional objective setting? Between planning and controlling? 2. What effect do you think decision making (discussed in Chapter 6) has on planning? Discuss. 3. What relationships and overlaps do you see between the six types of plans? How do you think these types of plans can best be integrated? 4. What basic factors in MBO make it a logical technique for setting objectives? Would you expect it to work better in large or small organizations? Why? 5. Management guru W. Edwards Deming argues that management should eliminate numerical goals. He believes diat programs like MBO are inconsistent witíi TQM's concern for continual improvement. According to Deming, MBO-type goals act as ceilings, radier dian targets, and therefore limit productivity. Do you think specific, numerical goals can undermine the search for continual improvement? Discuss. SELF-ASSESSMENT EXERCISE Are You a Good Planner? Instructions: Answer either Yes or No to each of the following eight questions: Yes No 1. My personal objectives are clearly spelled out in writing. 2. Most of my days are hectic and disorderly. 3. I seldom make any snap decisions and usually study a problem carefully before acting. 4. I keep a desk calendar or appointment book as an aid. 5. I make use of "action" and "deferred action" files. 6. I generally establish starting dates and deadlines for all my projects.