Strategic Planning and Firm Performance

Abstract

The relationship between strategic planning and firm performance has often been examined based on unidimensional measures such as the presence or absence of planning and or its degree of formality. The effectiveness of strategic planning has also been examined through unidimensional treatments usually financial indicators to determine organizational performance. These conceptualizations of explaining variations in organizational performance are inconsistent with most of the current literature which view strategic planning and its effectiveness in multidimensional terms. Since strategic planning is multifaceted and integral to an organization , this paper seeks to study a multi-dimensional treatment of strategic planning. It looks at the characteristics of strategic planning and the dimensions of planning effectiveness (performance) . Following the works of Ramanujam & Venkatraman (1987) and McLarney (2003), six characterics of planning and three effectiveness dimensions are adopted. The six dimensions of planning are external facets, internal facets, use of planning techniques, functional integration, resistance to planning and resources provided for strategic planning. The process effectiveness dimensions are fulfillment of planning objectives, performance relative to competition and system capability. Functional integration was found to be the most influential characteristic on process effectiveness followed by attention to external facets. Between the contextual elements, planning resources was found to be having the greatest influence on planning effectiveness. Resistance to planning was found to have a negative effect. Formal strategic planning that includes the six dimensions of planning may lead to superior firm performance.