Importance of Planning within the Business Environment
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Published: Mon, 5 Dec 2016
The objective of this assignment is to show the understanding of the business environment and management in construction and property. To achieve this, two core elements associated with management will be examined and compared with an existing construction company such as Wilmot Dixon, which is struggling with the current economical climate. This study will discuss the implementation of planning using innovative management strategies and tools required to assist companies to be better positioned for sustainable growth.
Defining the Business Environment
According to Palmer & Hartley (2006) the business environment can be defined as everything which surrounds a system. For example, if we take a business as the core of a working system, there are surrounding influences which contribute to the workings of this system within the macro environment. For a business it can be difficult to identify what the elements are within the environment. We can demonstrate important factors relating to the business environment using the PESTEL model as illustrated in Figure 1.0
Businesses survive by turning inputs into goods and services which customers in the environment want to purchase. The current climate suggests we are still in a down turn market. With reference to Wilmott (2011) in an exclusive interview, he suggests that 2011 will be an extremely tough year due to the soaring costs associated with the supply chain and materials. Another politically associated topic is the increase in VAT. According to the Federation of Master Builders (2011), increasing VAT from 17.5% to 20% could lead to over 11,000 job losses in the construction industry over the next decade. Such an increase may deter many businesses from starting new projects and where projects are starting, contractors are not breaking even. An example of this can be related to Willmot Dixon, a primary tier contractor where they have forecast a slowdown in the property market. According to Willmot (2011) “Firms are pricing below cost because they are talking themselves into believing the market price for materials and supply chain will continue to fall so then they can recover the difference”.
A fundamental issue with companies facing such a troublesome year would be to implement a business management plan looking to read the environment and understand how the business system will evolve in the future. Such a strategic move would involve essential planning.
3.1 The purpose of planning
Essentially, the purpose of planning is to contemplate future actions whether this is economic, political or environmental. According to Brews & Purahit (2007), as business conditions become additionally unstable, companies tend to adapt a planning strategy. Change in the business environment creates uncertainty. It enables companies and people to adapt by establishing goals and objectives and sets out how to achieve them by implementing a business plan.
With reference to figure 1.1, the initial approach would be to identify the purpose of planning, identifying the company’s current position in the market and identify where they want to be. Once this has been established it will offer a clearer direction to employees. This will enhance motivate to increase control by allowing people to measure their progress against set targets and allow the company to use its resources efficiently. With reference to one of Wilmot Dixons senior partners, Willmot (2011) announced one of the companies key objectives due to the politically associated development of re-furbishing un-occupied housing Willmot Dixon is diversifying into new areas such as private residential and mixed-use regeneration development. We can associate this back to the PESTEL model where we can look at the political issues and demographics of the current economy. A major issue is that there is a shortage of housing with an ever increasing population. The government is looking to re-furbish un-occupied properties scattered around the UK and put these properties back to council housing, an area Willmot Dixon has proposed to target.
3.2 Contents of planning
Companies expanding in business or are looking to adapt to change in the business environment, prepare a business plan. According to Mckeever (2010), a business plan is a document that sets out the markets the business intends to serve.
There are different plans which a business will decide upon, for example:
A strategic plan sets out the overall direction for the business. It is broad in scope and covers all the companies’ major activities.
A strategic business unit consists of a number of closely related products, which is meaningful to formulate a separate strategy.
An operational plan details how the overall objectives are to be achieved, by specifying what is expected from senior management experts from specific departments or functions.
Annual plans are common amongst most companies focusing on finance and setting budgets for the coming year.
What is common in all business plans is focusing on the direction of the business in short and long term planning.
Key aspects of planning include the strategy of the company and the development of the business to enhance profit. A planning hierarchy can be seen in figure 1.2, showing how the characteristics of plans changes at each level.
According to Mathews (2011), a government plan to cut the cost of public construction projects by a fifth, through standardising buildings, was published alongside the recent Budget. With the property market having been so affluent and now with the market and the country progressively slipping into further recession, it would seem that more construction companies would be looking to plan long term, using a more strategic option rather than plan for the short term.
3.3 The Process of planning
The process of planning relates to how plans are produced for a business or organisation to succeed. According to Jennings (2000), companies change their approach to planning as conditions change. There are seven iterative tasks which can be performed when making a plan as shown in figure 1.3.
Figure 1.3 Seven iterative tasks in planning.
Any plan depends on gathering information. Reverting back to the PESTEL model is ‘good practice’ when sourcing information such as market trends, formal analysis of the political and legal factors, current economy, socio cultural factors, technology and issues relating to the environment. Whether the company is a centralised company where the decisions are taken at the centre of the company, or a decentralised company, where the decision-making is delegated to lower levels of management, within the organisation casual encounters with colleagues is a major influence in gathering information. Once all of the information has been accumulated a mission statement can be compiled showing the organisations direction and overall goal in the construction market. It will guide decision making and should inspire and motivate the workforce to accomplish the desired result. As a result of the mission statement, a SWOT analysis can be used to evaluate the company in the current economic climate.
Conducting a SWOT analysis as defined in figure 1.4 will enable companies such as Willmot Dixon to define their key strengths and weaknesses. Completing a SWOT analysis integrates the external opportunities and threats, as example, according to Lowery (2011), the economy is shaping to be a tough year for the construction sector. VAT increases and higher employer National Insurance contributions combine with government spending cuts to spell a year of contraction.
Articles such as this are a means of monitoring progress externally as well as internally. By evaluating how the economy will effect an organisation and by completing a SWOT analysis,
allows companies to set their goals and objectives
Goals and objectives give focus to a task such as what will be achieved and when. Setting goals is difficult for companies as they have to look beyond their present status and predict how their role as a business will fit in with the changing economy. The criteria for assessing goals is to be realistic and this can be achieved using the SMART acronym.
Specific: Does the goal set specific targets?
Measurable: Goals can be defined precisely enough to measure progress towards them.
Attainable: Goals should be challenging but not unreasonable. (Goal setting theory suggests the motivational consequences of goal setting.
Rewarded: People see that attaining a goal will bring reward.
Timed: Does the goal specify the time over which it will be achieved, to a reasonable and acceptable standard.
Goals and objectives provide the reference point for other decisions within the management plan, formulating the criteria against which performance can be measured.
Creating a set of goals and objectives will direct a company to identify what actions and resources are necessary in order to accomplish the set goals and objectives. This will identify what needs to be done, who will do it and communicate this information to the relevant personnel. With reference to Lynch (2005) specifies that managers handle this aspect of planning in 3 ways:
Comprehensively: where managers decide to make a clear cut change in direction. They assume that success depends on driving the changes rapidly and in a coordinated way across the company that implies a comprehensive business plan,
Incremental or directional plan: where areas of the business plan are uncertain such as a volatile market, or where the company is depending on the outcome of research. ‘Important strategic areas may be left deliberately unclear until the outcomes of current events have been established’ (Lynch, 2005, Page 633), or the third way, selective planning when neither of the other two methods are the best way forward and managers implement major change only in some areas of the business plan.
Plans will vary for different companies, as an example, Grant (2003), gives an insight into the way mangers can develop strategy. For instance his study in 6 major oil companies used a clear planning process as detailed in figure 1.3. The details varied between companies but all shared the common components.
Figure 1.3 The generic strategic planning cycle Source: Based on Grant (2003)
Once a plan has been formulated the objectives and actions of the plan needs to be communicated to managers and employees. In larger organisations this can incur time and effort but is carried out to ensure:
Everyone understands the plan
Allow time to resolve any issues, confusion or ambiguity
Communicate judgements and assumptions that underline the plan
Ensure the plan is instigated and activities are organised in practice and on paper.
3.4 Outcomes of planning
However good a business plan is, unless it is implemented nothing normally happens. To ensure the plan is instigated, progress needs to be monitored. This can be monitored in a number of different ways such as, output and profit or by completing goals and objectives. By constantly evaluating the progress or the company and monitoring the results, objectives and targets can be changed to suit the business if for example there is change in legislation. This is why gathering knowledge and using a fundamental element such as the PESTEL model is a continual cycle to ensure sustainable growth.
Business plans will vary in every company, but the major elements will always remain consistent. In order to survive the current economic climate it is time for business to make significant changes. It is essential for companies to gather information that is to date with legislation, politics, technology etc and all the elements associated with the PESTEL model. This will enable companies to alter the business plan to constantly evolve with the market trend.
The construction industry, according to many major companies and societies, is still in recession and with a new government introducing legislation involving tax increases and spending cuts, construction companies need to rethink their current strategies. Willmot Dixon, as an example, is looking to diversify into different areas of property development, with consistent work sprouting from maintenance and refurbishment work. Examples like this can demonstrate positive management thinking that will be the flagship for other smaller companies to follow.
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