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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