In organizations, planning is the process of setting goals and choosing the means to achieve those goals. Without plans, managers cannot know how to organize people and resources effectively. They may not even have a clear idea of what they need to organize. Without a plan, they cannot lead with confidence or expect others to follow them. And without a plan, managers and their followers have little chance of achieving their goals or knowing when and where they stray from their path. Controlling becomes an exercise in futility. Too often, faulty plans affect the future of the entire organization. Planning is crucial.
The Hierarchy of Organization Plans:
Organizations are typically managed according to two types of plans. Strategic plans are designed by high-ranking managers and define the broad goals for the organization. Operational plans contain details for carrying out, or implementing, those strategic plans in day-to-day activities. For instance, at Federal Express a strategic plan might address how products and services will be positioned against UPS and anticipated new competitors, whereas operational plans would deal with aircraft maintenance schedules and modernizing package-handling equipment. Note that both strategic and operational plans deal with the key relationships in which organizational goals are pursued. Strategic plans deal with relationships between people at an organization and people acting at other organizations. Operational plans deal with people within one organization. After discussing the differences in the two types of plans, we will concentrate on strategic plans.
Both strategic and operational plans are devised and carried out in a hierarchical manner. At the top is the mission statement, a broad goal based on manager’s assumptions about the organization’s purpose, competencies, and place in the world. A mission statement is a relatively permanent part of an organization’s identity and can do much to unify and motivate members of the organization. Consider the visionary mission described by a former chairman of AT&T some 80 years ago: “The dream of good, cheap, fast, worldwide telephone service is not a speculation. It is a perfectly clear statement that you are going to do something. Of course, since the company’s divestiture of local telephone operations in 1984, AT&T managers have altered this mission. The company is now poised to be a “major factor” in the worldwide movement and management of information. You can see how the way a mission statement is articulated makes it a driving force for strategic and operational goals and for the actions people will take at an organization.
How Strategic and Operational Plans Differ:
Strategic plans tend to look ahead several years or even decades. For operational plans, a year is often the relevant time period. At Federal Express, a strategic plan for new information delivery services could cover, say, five years of actions. A good example of an operational plan, on the other hand, is Wal-Mart’s “cross-docking” technique for inventory replenishment, which addresses what happens today and tomorrow and next week. In cross-docking, goods are continuously delivered to Wal-Mart warehouses where they are selected, repacked and sent to individual stores, all within 48 hours. This operational plan allows Wal-Mart employees to achieve economies of scale for large purchases without suffering the usual higher inventory carrying costs. Cross-docking reduces Wal-Mart’s cost of sales 2 to 3 percent and allows the company to offer consistently low prices.
Strategic plans affect a wide range of organizational activities, whereas operational plans have a narrow and more limited scope. The number of relationships involved is the key difference. For this reason, some management writers distinguished between strategic goals and operational objectives. At Federal Express, a strategic plan would address the company’s presence in selected global marketplaces, its financial goals, and the necessary size of the work force. At a small pizzeria, an operational plan would cover the kinds and amounts of ingredients that go into each pizza.
Degree of Details:
Often strategic goals are stated in terms that look simplistic and generic. But this breadth is necessary to direct people at organizations to think of the whole of their organization’s operations. On the other hand, operational plans, as derivatives of strategic plans, are stated in relatively finer detail. This difference is clear in the case of Federal Express. “Information delivery” is the level of generality we might expect in a strategic plan. “Move x packages per hour” is the kind of detail we might expect in an operational plan.