Strategic Management: Formulation and Implementation

Planning And Levels Of Management

Although all levels of management typically are involved in the planning process, upper-level managers usually spend more time planning than do lower-level managers.

The most specific form of planning - scheduling and dispatching - involves the assignment and sequencing of specific existing resources (people, machines, raw material, and so for) to manufacture or deliver given quantities of products, consistent with a long-interval operating plan (such as a quarterly operation plan).

Each level of the organization has strategic, tactical, and operational concerns, but the relative proportion devoted to each and their time horizons varies by level.

Planning Through Management By Objectives

There are two barriers to effective planning: (1) the reluctance to establish goals, and (2) resistance to change.

Management by objectives is one approach to planning that helps to overcome some of these barriers. It is based on an idea that organizational objectives are such an important and fundamental part of management that managers should use a management approach based exclusively on them. This concept emphasizes the establishment of common objectives by managers and their subordinates acting together and the use of these objectives as the primary basis of motivation, evaluation, and control efforts. The management by objectives has been widely adopted in American and Canadian corporations.

The term management by objectives (MBO) was popularized as an approach to planning by Peter Drucker in 1954 in his book The Practice of Management. Drucker argued that the first requirement of managing any enterprise is "management by objectives and self control." He contrasted management by objectives with management by drivers. Management by drivers responses to new financial or market pressures with an "economy drive" and "production drive." In management by objectives effective planning depends on every manager's having clearly defined objectives that apply specifically to his individual functions within the company. Each person has an identified specific contribution to make his units's performance. If all the individuals achieve their objectives, then the organization's overall objectives will attained.

According to Drucker an MBO system has the following basic characteristics:

* MBO is a planning system requiring each manager to be involved in the total planning process by participating in establishing the objectives for his own department and for higher levels in the organization.

* MBO improves communications within the firm by requiring that managers and employees discuss and reach agreement on performance objectives.

* By participating in the process of setting objectives, managers and employees develop a better understanding of the broader objectives of the organization and how their goals relate to those of the total organization.

* Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.

* Rewards are given to individuals on the basis of how close they come to reaching their objectives.

MBO offered a comprehensive program for converting overall organizational objectives into specific objectives for organizational units and individual members. Many similar programs have been developed, including "management by results," "goals management," "goals and controls," and others. Despite differences in name, these programs are similar.

The MBO process

The MBO process is illustrated in Figure 3-4. There are four essential elements common to MBO programs:

* Goal specificity. Objective setting involves employees at all levels. Objectives should be jointly derived. Appropriate goals must be set by top managers of the organization. However, managers and subordinates must develop and agree on each individual's objectives.

* Action planning. Action plans are made for both individuals and for departments. The individuals have a wide range of discretion on choosing the means of achieving objectives.

* Self-control. Self control means systematic monitoring and measuring of performance by the individuals themselves.

* Periodic review. This final step evaluates performance and initiates corrective action when behavior deviates from the established objectives. Managers and subordinates periodically meet to review progressed toward the objectives. Moreover, management must follow through on the employees performance evaluations and reward employees accordingly.

Each of these elements can be converted into specific steps.

Management by objectives is one useful method of seeking individual manager commitment to the objectives of the organization and providing managers with clearly stated expectations.

MBO: Advantages and Disadvantages

MBO has many benefits when used properly and is associated with management problems when used improperly.

Bill Reddin has identified several reasons why organizations can fail in they MBO efforts. Some of these are:

- lack of involvement and commitment of to level managers,
- overemphasizing performance appraisal aspects,
- taking too mechanical an approach, and
- stifling creative goals and objectives.

A study of 135 organizations that used MBO found that a number of benefits and problems were reported.

Assessing the overall effectiveness of MBO is a complex task. In review of 1985 studies, Jack N. Kondrasuk found that there are numerous arguments, pro and con, regarding the effectiveness of MBO. However, most managers find MBO beneficial, because MBO-type programs appear to result in improved performance and higher morale.

Planning is a process that does not end when a plan is agreed upon; plans must be implemented. At any time during the implementation and control process, plans may require modification to avoid becoming useless or even damaging.