In this post, we will discuss planning, its advantages for businesses including operational and financial benefits as well as the limitations which affect planning and its impact on business success.
Why should businesses plan?
Planning is an essential business activity and critical to growth and expansion for organizations. It helps at proper organization and utilization of resources for maximum profits. It also helps avoid several pitfalls and better manage your resources and capabilities to achieve superior growth. However, while planning offers several advantages for businesses, it also has certain limitations. Despite the limitations, planning is indispensable for businesses and the companies that focus more on planning enjoy superior growth and stronger market positions.
A good plan is generally simpler, flexible, balanced and more comprehensive. Apart from that, it is based on a well-defined objective. Organizations carry out both short term and long-term planning. As the level of complexity and competition in the industry has continued to grow, it has led to growth in the number of challenges faced by businesses. A modern business cannot do without planning and the better it plans, the more competitive it becomes.
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ADVANTAGES OF PLANNING:
Let us first take a look at the several advantages of planning:
- Planning helps offset uncertainty:
The modern business environment is remarkable for a growing level of uncertainty. While technological advancement has brought higher growth on the one hand, on the other, it has also brought higher uncertainty. Technological advancements happen daily and the modern business environment is marked by rapid change and volatility. Planning helps businesses decide the best course of action for the short and the long term. It leads to higher certainty than without planning. In this way, planning makes businesses future ready and more prepared to tackle upcoming challenges.
- Planning helps tackle increasing complexity:
While the modern business environment is characterized by higher competition, it is also remarkable for higher complexity. The needs of businesses have changed as the industry has continued to evolve. Companies are dealing with higher complexity in various areas including manufacturing, supply chain, HR management and even marketing. Innovation has become critical to growth. Planning helps reduce complexity of processes by offering managers a clear idea of what is to be done and when, where, and how. There are several factors that have led to increased complexity including technological, economic, political, legal, geopolitical, and other factors. Customer needs have also evolved adding to the complexity faced by businesses. However, planning helps reduce complexity of tasks by enabling managers to get a clearer idea of how to achieve the desired objectives.
- Planning helps establish better coordination:
Planning helps bring better coordination which is essential to increasing efficiency and productivity. It helps establish clearly defined objectives and gives the entire organization a common direction. Planning helps eliminate the problems that may hinder coordination between functions and people and proper utilization of resources. The important thing is that companies cannot grow without proper coordination and coordination requires planning. With a higher level of coordination progress becomes easier for organizations.
- Planning helps exercise effective control:
Planning is important to establish performance parameters and without planning effective control is not possible. It helps determine in advance who is responsible for carrying out a given task, in what time frame and at what cost. If there is a difference between the planned and actual performance, then it would be easier for the management to compare the difference and implement suitable controls. The management can take the appropriate steps to correct such deviations which can go unnoticed without planning. It is just as true about any resources as the human resources. Thus, effective control is not possible without planning.
- Planning helps effectively utilize the resources and capabilities:
The performance and productivity of an organization depends on how well it manages and utilizes its resources and capabilities. Planning helps manage resources in a manner that prevents wastage whether financial or non-financial resources or other critical capabilities of a firm. Every firm needs to utilize its resources in a manner that it produces the most while spending the least. Gaining production efficiency or improving productivity is possible through planning. Several times resources may remain unused or become wasted because they were not utilized properly. Planning helps prevent wastage, overutilization, or underutilization of resources. Managers need to plan how much of a particular resource must be devoted to various processes to gain the best results. Setting budgets is also a type of planning through which managers decide how much they will invest or spend on particular processes.
- Planning facilitates unity of decisions and action:
Planning helps achieve several things inside an organization. One of them is unity of action. When managers plan, they set the rules, policies and procedures to be followed to achieve desired objectives. They can use planning to develop a framework that guides the actions and decisions within an organization so that different people or different functions do not work towards the achievement of different objectives and all of them act within the given framework. While it helps bring higher unity of action, it also helps achieve objectives faster.
- Planning helps avoid pitfalls:
Poorly planned projects and processes have a higher chance of failure compared to properly planned ones. Not just this, businesses that have not been focusing on planning are also liable to failing in the long term. Planning is critical to understanding all the factors whether internal or external that affect the business. It helps businesses remain ready for the most critical challenges or pitfalls that might otherwise lead to failure. A product whose marketing and distribution have been planned properly has more chances of being successful in the market compared to one less planned. Moreover, planning helps build better coordination, selection of the right course of action and setting the right objectives, all of which can help businesses avoid chances of failure.
- Planning helps focus on organizational goals:
Planning helps businesses maintain their focus on organizational goals and objectives. The process makes it easier for businesses to properly coordinate resources and achieve higher efficiency. Planning and goal setting help everyone inside an organization at all levels focus their efforts on the achievement of the organizational goals and objectives. It helps bring higher collaboration driving business efficiency higher.
- Planning improves business adaptability:
Modern business environment is characterized by rapid changes and businesses need to adapt to avoid losses and failure. Planning helps businesses cope with changes with higher efficiency. It helps anticipate future changes and accordingly decide the proper course of action. Businesses can anticipate what type of changes will affect them and how they can manage their impact in the short and the long run. They can accordingly plan their operations and resource allocation.
- Planning helps gain cost efficiency:
Planning helps streamline operations to gain higher efficiency and bring better results while investing less. It helps reduce costs in various operational areas which allows businesses to save more and enjoy higher profitability. However, planning does not help just save money and other financial or non-financial resources but it also helps save time. It is because planning helps managers choose the most profitable course of action from among several. It also helps determine the course of action that will save time while also helping achieve the desired objectives.
- Planning improves the decision-making process:
Decision making without planning is like a cart without wheels. Planning is one of the most critical pillars of decision making. Organizations that plan well, decide well and do better. Moreover, a business will succeed or not depends on the type of decisions the managers make. It is equally true about all levels of management and all functions. When businesses plan their targets, choose a course of action and develop the criteria for judging the various alternatives, managers can easily make critical decisions based on those criteria. It allows managers to choose the most suitable or most profitable course of action faster.
- Planning improves competitive strength:
As already mentioned, the organizations that focus more on the planning aspect of their work do better than the ones which do not. Planning helps businesses strengthen their competitive strength and market position. It helps businesses improve their existing edge and create new sources of competitive advantage. Planning also enables businesses to discover new opportunities and manage challenges with higher efficiency. The organizations that focus on planning, monitor their business environment for upcoming opportunities and to find new areas of growth and development.
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LIMITATIONS OF PLANNING: –
Despite the several advantages that planning offers in terms of improving organizational performance and competitive strength, it also has certain limitations.
- Limitations of forecasts:
Planning involves forecasting. However, forecasts are not always accurate and without the required information and data to base the forecasts upon, plans will be wasted or will lose most of their value. Suppose the market situation changes suddenly and is different from what you had forecast, you will be left with no choice but to develop a new plan for the new situation.
Planning can sometimes also introduce rigidity into decision making and business operations. Since organizations that create plans also formulate policies to strictly adhere to the plans. Many times everything becomes predetermined when one has to act as per a plan. While a good plan is generally flexible, managers can sometimes find themselves bound by the rigid limitations of a plan which can become an obstruction to creativity and decision making.
- Time consuming:
Generally, planning is the most time-consuming part of a project. It is because companies hesitate to move ahead before they have perfected their plan. So, while the process of planning itself involves focusing on the minute details, the process becomes lengthier because businesses like to test the plan before implementing it. In many cases, managers do not have enough time to plan because of sudden changes in business situation or the environment. Another important thing to note is that a plan needs to be realistic and that’s why sometimes organizations may need to dedicate a lot of time to planning, which might unnecessarily delay projects.
Planning does not come for free. It is also an expensive exercise that does not just involve discussion and brain storming. A lot of thought and analysis goes into planning and businesses need access to all the data and important resources they need to carry out planning. Collecting information and estimates and preparing estimates can become a costly exercise for smaller businesses particularly. The larger enterprises that have sufficient financial resources can dedicate more to planning.
- Managing influence of external factors:
The effectiveness of a plan is affected by several factors and it is why not every plan is as perfect or as successful as expected. Planning helps reduce risks but it does not eliminate risks since there are several factors that are beyond the control of businesses. Geopolitical factors, economic factors, natural factors, and even technological factors can limit the effectiveness of planning. One does not know how a natural calamity may affect a business. Several businesses faced a similar situation in 2020 during the pandemic and had to shut their operations. However, managers must also consider the impact of external forces during planning to minimize their impact on the business.
- Limited scope in certain situations:
In various situations and in some industry sectors, the scope of planning gets limited due to the characteristic of that sector. For example, sectors that are marked by very rapid changes will focus less on planning and more on execution. In the fashion and the publication industries, it is generally more profitable to conduct operations on a daily basis than operate on the basis of long term planning.
- People’s Resistance:
Planning may sometimes lose its value because of stiff resistance from people. Many times people inside an established organization may find it difficult to accept a change or a new framework. As such the management may need to make a lot of efforts to gain their acceptance. However, if people do not find a plan acceptable, then there will be hurdles to its execution inside an organization. To reduce the resistance from people, management must consider the input of staff from all levels inside an organization and consider how it affects the people and other stakeholders. Resistance may also arise from external stakeholders like suppliers, shareholders and customers.
- Inability to develop the right plans:
There are several conditions where managers may fail to develop proper plans which might again become an obstruction. If a plan is not effective, then the entire process of planning and the hours spent behind it are meaningless. If the managers do not have clearly defined objectives, access to all the information they need, and the support of the management, it can lead to improper planning or failure to plan properly. Planning can also fail if the people involved in planning lack the commitment, the skills and the knowhow to develop the right plans. A lack of commitment on the part of the planners will lead to a plan full of loopholes which renders the entire process of planning meaningless.
A few last words about planning:
Planning is critical for businesses that want to grow and expand their markets. It offers several advantages and without focusing on planning, businesses cannot expect to gain higher efficiency and productivity. Despite the few limitations of planning, most of which can be overcome, planning offers advantages that are irreplaceable. However, the problem is that across a very large number of organizations, planning is not given the attention it deserves which leads to failures and losses. Across several organizations, managers do not feel committed to planning since the leaders fail to encourage and support them. Without a proper plan for its launch, one cannot expect a product to be successful in the market. Planning can sometimes be a time consuming process but what the mature organizations do is to devote sufficient time and resources to planning to avoid facing adverse market situations or operational failures. Planning is definitely beneficial for organizations but while it requires patience and the commitment of the leadership and management, it is also something that requires participation of people across all levels in an organization. Businesses that encourage participation of their employees in planning see higher progress and experience higher employee satisfaction. Another key thing o note is that just planning is not sufficient if businesses are not cautious during execution. Successful planning means making realistic, comprehensive, balanced and flexible plans based on well defined objectives.