Foundations of Planning

What enables one company to outperform another? It is management’s ability to plan with some sense of accuracy? It is the hard work of the employees that makes goals possible? Is it better technology and resources that are afforded to organizational members that give them the tools to do an exceptional job? Or is it just plain luck? In many cases, it can be all of those things. But in organizations such as Toyota’s it’s probably best reflective of as strong planning effort of the company’s management.

For years Toyota competed strongly in the automotive industry. Toyota alone gave the American automobile manufacturers one thing after another to think about. Consistently, Toyota went the opposite way of, whatever American automakers were doing. Decades ago when Detroit was producing large, gas guzzling vehicles, Toyota was designing and bringing to market vehicles that were fuel efficient. By the time Ford and GM changed their production lines several years later to meet the small Japanese import phenomenon sweeping across America, Toyota had shifted its focus and started producing larger, more luxurious vehicles. By the time the US automakers rolled out their smaller fuel efficient vehicles, US consumer preferences had shifted toward the larger more luxurious styles. And Toyota was waiting with open arms.

Now nearly three decades later, after its continual success, Toyota is once again going in the opposite direction. While Ford and GM are struggling to survive, and selling off various aspects of their businesses that have little or no direct link to their primary business of building vehicles, Toyota is diversifying. Rather than being satisfied with producing one market leading vehicle after another, Toyota is expanding its offerings. Engaging in corporate endeavors that capitalize on their technological and intellectual assets to enrich society, Toyota is moving into markets that appear to have little linkage to its primary business. For example, Toyota is now in the business of building prefab houses and of growing sweet potatoes as well as operating healthcare support services. They are dabbling in developing composting materials that reduce the odor from manure in fertilizers. And if those avenues weren’t far reaching for a manufacturer Toyota is gaining strong market holds in their roof garden business.

Are these forays into new markets advisable when it appears that every other competitor is headed in a much different direction? Ask the management at Toyota and they will tell you, absolutely yes. These other than auto related businesses are producing revenues at a phenomenal rate. In the first three months of 2006 for instance, these ventures have added more than $10.3 billion to Toyota’s bottom line. That’s up nearly 16 percent from the same period in 2005, and up more than 50 percent overall since 2003. In fact, if Toyota’s non-automotive lines were collectively a stand alone business. It would rank in the top 200 of the standard and Poor’s 500 top-related companies.

Maybe Toyota’s management does have a better plan. One will never know. But given they have he best margins in the industry and that Toyota passed GM as the biggest automaker in the world in the first quarter of 2007, its strategies appear to be paying.

This article presents the basics of planning. You will learn the difference between formal and informal planning why managers plan, and the various types of plans managers use. We will explore the strategic planning process and look at the various strategies available to organization and ways they can develop and maintain a competitive advantage. Finally, we will review how successful entrepreneurs approach strategy.

Planning Defined:

What is meant by the term ‘planning’? Planning encompasses defining the organization’s objectives or goals, establishing an overall strategy for achieving those 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 wells as with means (how it is to be done).

Planning can be further defined in terms of whether it is formal or informal. All managers engage in planning, even if it is only the informal variety. In informal planning very little, if anything is written down. What is to be accomplished is in the heads of one or a few people. Furthermore the organization’s objectives are rarely verbalized .this type generally describes planning in many smaller businesses: The owner manger has a private 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, while some small businesses have sophisticated formal plans.

Specific objectives are written done and made available to organization members. In this way, management clearly defines the path it wants to take to get from where it is to where it wants to be.