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threats and opportunities. The investment in large business enterprise today runs into thousands of crores of rupees. The gestation period is too long. During this period many things may change.

Effectiveness of the business organissation lies in converting the threats into opportunities. For instance, when the crude oil prices were hiked in 1973 by the OPEC countries, it created havoc on petro-based industries. Automobile companies as a result were forced to change to small fuel efficient cars. In this case, the threat was converted into an excellent opportunity. Small car thus has become the fashion of the day. Similarly, ITC in India, continuously hounded by excise levies and taxes on their main tobacco products cigarettes , had to think of diversification into hotels, paper, agro products and aquaculture – which ultimately turned out to be a God sent opportunity.

b. Provide Clarity of Purpose and Direction

As a result of the overall increase in the size of companies, the internal departments (production, marketing, finance, personnel etc.) have also become quite large. With growing specialization in each of these areas, these departments are prone to become watertight compartment giving rise to inter-departmental rifts. Corporate strategies spelt out clearly help in smoothening out some of the interdepartmental conflicts. Strategic planning provides unity of purpose and direction, the much emphasized management principle.

For example,it is not unusual, for instance, for marketing department to ask the production department to shorten their productions runs, to cater to the demands of various models which is normally resisted by the latter. Similarly, the design department may often specify certain change in the product which may raise the cost of production. The finance department may try to block any measure that increases the cost of production.

The manager’s success depends largely on understanding the trends in the environment. The trends contain signals and give clues about the potential opportunities and impending threats. Many organizations have paid a heavy price for their failure to draw the right meanings from the signals. In some cases, though the management is aware of the trends, a fixed mindset or resistance to change make them cling on to the statusquo.

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Take the case of the public sector gaint, HMT which prided itself, for a long time on its dominance in the Indian wrist watch market. The company was on a high tide for a long time and failed to understand the shift in the consumer preference towards the trendier, sleek quartz watches. It was so complacent that it took the market for granted. In the meantime much of the HMT’s traditional markets have been captured effortlessly by TITAN. TITAN with its innovative marketing strategies has, no doubt, changed the face of the Indian watch market. This is only one or the several examples of failures in strategic planning in the contemporary business world.

Short Range Planning / Operational Planning

Strategic planning is the prerogative of the top management which is the highest policy making body in any organisation, where as operational planning is done at the lower levels. Strategic planning is mostly concerned with the “why” of the things, whereas operational planning is concerned with the “how” of the things. The focus in strategic planning is on longterm, while it is on short-term in operational planning. Further, planning is less detailed in the former because it is not involved with the day-to-day operations whereas it is more detailed in the latter, considering its nature, operational planning is also called tactical planning.

However, Operational plans stem or originate from strategic plans. In other words, strategic planning provides guidance and boundaries for operational planning. Effective management, therefore, must have a strategy and must operate on the dayto- day level to achieve it. Both should not be viewed as mutually exclusive because operational planning identifies the major activities to achieve the objectives of strategic planning. For example, if the strategic plan is to face competition with new and innovative products, major tasks to achieve this goal would be clarified by operational planning. The possible tasks at the operational level include:

ӹӹstrengthening the research and development department;

ӹӹmotivating the people to work on new products; and

ӹӹcreating a climate in the organisation where people are willing to take risks.

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Types of Plans

Different types of plans are developed by an organisation, namely mission, strategies and policies, procedures, rules, programmes and budgets. One common thing is, they all refer to a future course of action. However, some variances in respect of the scope and operation are found in the implementation. Some are single-use plans while some are standing plans. They are discussed below:

Mission or Purpose

Organisations exist in society. Therefore, it is appropriate to relate their existence to society by satisfying a particular need of the society. Mission may be defined as “a statement which defines the role that an organisation plays in the society”. The terms ‘mission’ or ‘purpose’ are often used interchangeably. An organisation’s mission statement includes its philosophy and basic purpose for which it exists. It establishes the values, beliefs, and guidelines that the organisation holds in high esteem. Mission statement suggests how an organisation is going to conduct its business. It defines the basic intentions of the firm. A Clear definition of ‘mission’ or ‘purpose’ is necessary to formulate meaningful objectives. Answers to two important questions are provided by the mission statement: what is our business? and what should it be? These questions force the management to define their customers and their needs.

Policies

Koontz and O’Donnel define policy as “a general statement of understanding which guides the thinking and action in decision-making.”

Policies provide the framework within which managers operate. Policies exist at all levels in the organisation. Some may be major policies affecting the whole organisation, while others may be minor or derivative policies affecting the functioning of departments or sections within the departments.

Policies are laid down by the management for all the important functional areas. As such, we hear about production policies, financial policies, marketing policies and personnel policies, to mention a few. For instance, in the personnel area, specific policies may be formulated

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for recruitment, training, compensation, etc. Accordingly whenever the need for recruitment arises, the personnel manager consults the existing recruitment policy of the company and initiates the steps necessary to fill the vacancies. Thus it is evident that the personnel manager operates within the broad policy of the company in recruiting the people. Thus, policy is a one time standing decision that helps the manager in making day-to-day decisions in their operational areas.

Procedures

Policies are subdivided and stated in terms of procedures – A series of related steps or tasks to be performed in a sequential way. For example: A company’s policy may be to sell old stock at a discount. The procedure may explain how to decide which product is obsolete and what percentage of discount is to be offered. But procedures, if simple and clear would ensure order in the performance of operations. Though procedures exist at all levels in an organisation, they are more detailed at the lower levels. In common parlance, they are called ‘Standard Operating Procedures’ (SOPs).

Procedures for placing orders for material and equipment, for sanctioning different types of employee’s leave, for handling grievances at the shop floor level, etc., suggest how each of these has to be handled. Policies and procedures are closely interrelated. For instance, a company may follow time-bound promotion policy to promote people from within. But the operational part of the policy is specified by the procedure – the formalities to be fulfilled to effect the promotion are dictated by the procedure.

Rules

A rule is also a plan. A rule is a prescribed course of action that explicitly states what is to be done under a given set of circumstances. Rules are plans in that they suggest the required actions. A rule requires that a definite action has to be taken in a particular way with respect to a situation. Some definiteness is associated with rules. For example, ‘no smoking’ is a rule. The essence of the rule is that it reflects a managerial decision that certain actions be taken – or not be taken.

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Rules should not be confused with policies and procedures. Policies contain some operational freedom or discretion while rules allow no discretion in their application. Similarly, procedures though different form rules may contain rules regarding the do’s and don’t’s. For example, there may be a procedure to attend to customer grievances in respect of post-sale service. The procedure may contain a rule that free service is available only for a period of two years after the sale.

Programs

A programme is a broad term which includes goals, policies, procedures, rules and steps to be taken in putting a plan into action. Terry and Franklin define program as “a comprehensive plan that includes future use of different resources in an integrated pattern and establishes a sequence of required time schedules for each in order to achieve stated objectives”. Thus, a programme includes objective, policies, procedures, methods, standards and budgets. For instance, launching Prithvi satellite is a program “Jawahar Rojgar Yojana” is a programm. Program may be major or minor. For instance, a company may embark upon modernization program of the plant and machinery and other manufacturing systems in a big way. By all means such an effort is a major program. Similarly, a large organisation may start computerizing all its activities. On the other hand, modernisation of small equipment in some section of the factory and computerization of a particular operation in a certain department may be considered as a minor program.

Budgets

A budget is a plan statement for a given period of time in future expressed in financial or physical units. Budget contains expected results in numerical terms. A budget is a quantitative expression of a plan. Organizational budgets vary in scope. Master budget which contains the consolidated plan of action of the whole enterprise is in a way the translated version of the overall business plan of the enterprise. Similarly, production budget represent the plan of the production department. Again, capital expenditure budget, raw material budget, labour budget, etc. are a few minor budgets in the production department. One of the advantages of budgets is they facilitate the comparison of actual results with the planned ones by providing yardsticks for measuring performance.

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Review Questions

1.What is planning? Explain the objectives and principles of planning.

2.Explain the planning.process

3.Distinguish between long range and short range planning?

4.What are the different types of plans? Explain them.

5.“Failure to plan is planning to fail”. Discuss.

6.Take any two Indian companies and examine how they have succeeded or failed due to poor strategic planning.

7.Identify and explain the strategic planning process in an MNC like Google drawing from the public domain.

***

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Lesson – 6 : MANAGEMENT BY OBJECTIVES

Objectives

After reading this lesson, you should be able to:

ӹӹFamiliarize Yourself With The Process Of Mbo;

ӹӹUnderstand The Usefulness Of Mbo As A Managerial Tool;

ӹӹUnderstand The Sources Of Polices;

ӹӹAcquaint With The Formulation Of Polices; And

ӹӹExplain The Appropriateness Of Business Strategy.

Lesson Outline

ӹӹProcess Of Mbo

ӹӹPrerequisites Of Mbo

ӹӹAdvantages Of Mbo

ӹӹReasons Why Mbo Fails

ӹӹTypes Of Policies

ӹӹPrinciples Of Polices

ӹӹPolicy Formation

ӹӹStrategies

ӹӹAppropriateness Of Business Strategy

ӹӹReview Questions

Management guru Peter Drucker is credited with being the first to introduce Management by Objectives (MBO) as an approach for increasing organizational effectiveness. He observes that every manager, from the highest to the lowest levels in the organisation, should have clear objectives to pursue. According to him, such a process would enable each manager to have a clear understanding of what the organisation expects of him or her and how their individual objectives are integrated with the overall organizational objectives. George Odiorne has done substantial research work on MBO and further popularized the concept.

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To quote George Odiorne, “MBO is a process whereby the superior and subordinate managers of an organisation jointly identify the common goals, define each individual’s major areas of responsibility in terms of the results expected of him, and use these resources as guides for operating the unit and assessing the contribution of each of its members”.

Different goals are sought to be achieved by the introduction of MBO in organizations. MBO, as a management tool, thus, is so versatile that it is used;

ӹӹto integrate the organizational goals with the individual goals;

ӹӹas a motivational technique wherein individuals are driven towards the achievement of goals;

ӹӹto appraise the performance of managers; and

ӹӹto control the activities as they are performed.

Drucker suggests that objectives are to be specified in the key result areas of business (KRAs). A key result area may be understood as one the performance of which, directly and vitally affect the success and survival of the business. Accordingly, for a manufacturing firm production, productivity, profitability, market share, social responsibilities, employer and employee relations, manager and worker development, development of physical resources, constitute the important key result areas. It may be understood that the KRAs vary from business to business. Since MBO involves a systematic effort towards the achievement of objectives, utmost care has to be exercised in setting the objectives for all the key result areas.

Prerequisites of MBO

ӹӹMBO is not merely a goal-setting tool. It is a philosophy and has to be understood thoroughly by the managers concerned with achievement of objectives.

ӹӹTop management must be willing to implement the system wholeheartedly. Its support and encouragement are crucial for the success of MBO. The necessary democratic climate has to be created in the organisation for setting the goals in a realistic way.

ӹӹGoals have to be spelt out in specific and clear terms. To the extent possible, they must be made realistic because goals motivate employees towards better performance.

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ӹӹThe key result areas (KRAs) of the business have to be identified and appropriate goals have to be specified for these areas. All the important areas of the business must be covered with meaningful goals.

ӹӹIt has to be realized that goal-setting in the MBO process is not an end by itself. It is only a means to achieve organizational effectiveness. Otherwise, goal-setting becomes the primary task rather than their achievement.

ӹӹAppropriate organisation structure has to be designed with wellunderstood relationships among people such that every goal becomes some individual’s responsibility.

ӹӹBesides clarifying the organizational roles by adopting a suitable organisation structure, attention has to be paid on the resources required by the people to achieve the goals. Otherwise, goals by themselves, however effective they are, do no assure performance. Performance depends on the timely availability of resources. Nonavailability or inadequate access to the resources frustrates the individuals concerned with the achievement of goals.

Nature of Objectives

‘Objectives’ are the end points of management action. They provide meaning to the existence of an organisation. Objectives are the specific targets to be achieved by an organisation. They are the end-points towards which all management activities like organising, staffing, directing and controlling are directed. In other words, only after defining the basic objectives for which an organisation exists, can the manager determine the kind of organisation, the type of personnel and their skills, the kind of motivation and direction and the nature of control techniques which may be employed to achieve the ends.

1.Objectives may be in quantitative or qualitative terms. For example, in the areas of market standing, productivity and physical and financial resources quantification is possible. On the other hand, worker’s morale, social responsibility, etc. cannot exactly quantified. However, objectives in the latter category may be expressed in qualitative terms. Thus, quantitative objectives are gauged by ‘how much’ while qualitative objectives by ‘how well’.

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