Organizational Planning & Goal-Setting

Credit: Harvard Business School OnlineOpens in new window

Of the four management functions—planning, organizing, leading and controlling —planning is considered the most fundamental. Everything else stems from planning. Everything else stems from planning. Yet planning is also the most controversial management. How do managers plan in a constantly changing environment?

In this post we explore the process of planning and how it informs the other management functions. Special attention is given to goals and goal setting, for that is where planning starts.

Goals are important because organizations exist for a purpose, and goals define and state that purpose.

The concept of planning usually incorporates both ideas; it means determining the organization’s goals and defining the means for achieving them.

Exhibit 5.1 illustrates the levels of goals and plans in an organization. The planning process starts with a formal mission that defines the basic purpose of the organization, especially for external audiences.

1.    The Mission Statement

The mission is the basis for the strategic (organization) level of goals and plans, which in turn shapes the tactical (divisional) level and the operational (departmental) level. In this way, the goals and plans at all levels of the organization interweave, contribute to, and support each other.

For example, at NightOwlOpens in new window, a franchise network of convenience stores that began in Brisbane in 1975, senior managers identified an opportunity to leverage the innovation of its franchisees for the benefit of the entire chain.

Senior management were able to enhance the organization’s ability to improve efficient service delivery (a strategic goal) by creating a (tactical) information-sharing process whereby the franchisees (at the operational level of the business) share their insights about the effectiveness of product bundling, process innovations and store management for the benefit of the entire franchise network.

In this way, improvements at the front line for one franchisee can be mimicked and built upon by others in the network to create a culture of knowledge sharing — with the benefit of improving the profitability and competitiveness of every store in the network.

2.    Strategic Goals/Plans

Top managers are typically responsible for establishing strategic goals and plans that reflect a commitment to both organizational efficiency and effectiveness.

3.    Tactical Goals/Plans

Tactical goals and plans are the responsibility of middle managers, such as the heads of major divisions or functional units. A division manager will formulate tactical plans that focus on the major actions the division must take to fulfill its part in the strategic plan set by top management.

4.    Operational Goals/Plans

Operational plans identify the specific procedures or processes needed at lower levels of the organization, such as individual departments and employees.

Front-line managers and supervisors develop operational plans that focus on specific tasks and processes and that help to meet tactical and strategic goals. Planning at each level supports the other levels.

Messages and Values Contained in Goals and Plans

In addition to improving financial and operational performance, developing explicit goals and plans at each level illustrated in Exhibit 5.1 is important because of the external messages they send. These messages go to both external and internal audiences, and provide important benefits for the organization.

1.    Legitimacy

An organization’s missionOpens in new window describes what the organization stands for and its reason for existence. To external audiences such as investors, customers and suppliers, it helps to establish legitimacy.

The mission gives external stakeholders an opportunity to look on the organization in a favorable light and thus accept its existence without prior direct contact with the organization.

A strong mission also has an impact on employees, enabling them to become committed to the organization because they can identify with its general purpose and reason for existence.

2.    Source of Motivation and Commitment

Goals and plans facilitate employees’ identification with the organization and help to motivate them by reducing uncertainty and clarifying what they should accomplish.

Lack of a clear goal can damage employee motivation and commitment. A goal provides the ‘why’ of an organization or subunit’s existence, a plan tells the ‘how’.

3.    Resource Allocation

Goals help managers decide where they need to prioritize the allocation of resources, such as employees, money and equipment.

When TelstraOpens in new window, pursuing goals of expanding its international business, signed a joint-venture deal with Indonesian telecommunications company Telkom in 2013, Telstra was able to realize a new method of building a managed telecommunications network extremely fast by using a cloud-based, as opposed to an IT-based, infrastructure — prioritizing resources to developing service systems over physical infrastructure due to Telkom’s existing network in Indonesia.

4.    Rationale for Decisions

Through goal setting and planning, managers learn what the organization is trying to accomplish. They can make decisions to ensure that internal policies, roles, performance, structure, products and expenditures will be made in accordance with desired outcomes. Decisions throughout the organization will be in alignment with the plan.

5.    Standard of Performance

Because goals define desired outcomes for the organization, they also serve as performance criteria. They provide a standard of assessment. If an organization wishes to grow by 15 per cent, and actual growth is 17 percent, managers will have exceeded their prescribed standard.

The overall planning process prevents managers from thinking merely in terms of day-to-day activities. When organizations drift away from goals and plans, they typically get into trouble.

One of the primary responsibilities of managers is to decide where the organization or department should go in the future and how to get it there. Without clear goals and plans, employees cannot perform to their potential and the organization flounders.

Lack of planning or poor planning can seriously hurt an organization, but attention paid to developing adaptable plans that cover a range of possible scenarios can be effective when resources for detailed planning are not available.