Does strategic planning improve corporate performance?
By Simply Strategic Planning
The ultimate benefit of strategic planning would be that it contributes, in some measurable way, to improving overall organizational performance.
However, there is little agreement on the extent of any such contribution.
Some research looks at the relationship between strategic planning and organizational performance. Measurement and conceptual difficulties make this a challenging endeavor. For example, varying approaches to selecting indicators of corporate performance make comparison over time and across enterprises and industries difficult.
Such problems obstruct replication of work which might improve our understanding of any possible relationship between organizational performance and strategic planning and management.
In addition to difficulties over defining and measuring corporate performance, the studies do not even agree on what ‘strategic planning’ means. Strategic planning may variously be confused with operational planning, business planning and budgeting. Some people define strategic planning on the time span of the decisions. For example, they may define a plan with more than a one-year planning horizon as strategic, while any plan of less than one year they see as ‘operational’.
A definition of corporate strategic planning
Here I define strategic planning as follows –
Strategic planning is a systematic, formally documented process for deciding the handful of key decisions that an organization, viewed as a corporate whole, must get right in order to thrive over the next few years.
Decisions that we can call strategic decisions are those likely to affect organizational performance for some years. So trying to find a link between strategic planning and performance over periods of say less than three to five years is unlikely to be helpful.
The contribution of strategic planning to organizational performance
A few early studies suggested a direct positive relationship between formal corporate strategic planning, and improved organizational outcomes. Some others were inconclusive, and a few seemed to suggest a negative relationship.
On balance however, it appears that at least the formal planning process surfaces relevant issues, and strategic options, that would not otherwise be considered, and this may be one of the benefits of corporate strategic planning. Making sure that top managers are paying attention to the right things is a valuable outcome of the process.
Armstrong examined the details of the strategic planning process, the setting of firm level objectives, and strategy implementation. He concluded that, despite difficulties in making the comparisons, corporate strategic planning does benefit businesses in terms of increasing the probability of improved performance. The chances of improvement, even with partially carried out planning processes seem to run at about 80%, which is significantly higher than for many other management tools. Studies in some other sectors and for smaller businesses confirm these findings.
Picture by Sravn Financial Services
