Evidence on formal strategic planning and company performance

Abstract

PurposeThis empirical study of 113 UK companies attempts to examine the relationship between formal strategic planning and financial performance in a non‐US context while taking into consideration the important contingent variables identified by previous researchers of organizational size, environmental turbulence and industry.Design/methodology/approachBased on a postal questionnaire primary data was collected from 113 UK companies. A series of multivariate analyses were undertaken to test the hypothesized relationships.FindingsWhile hypotheses explaining the formality of a company's planning process were well accounted for, no relationship between formal planning process and subjective company performance was observed.Research limitations/implicationsMeasurement validity may be a problem. The data are cross‐sectional, therefore causal linkages among the variables cannot be firmly established. Related to this point is the fact that firm performance is a function of prior, not current, planning and other management practices. Longitudinal data would be needed in order to prove that causal relationships exist and control for time lag effects.Originality/valueDespite the continued importance of performance objectives in the prescriptive literature, recent attention has not been given to strategic planning and performance in empirical research. One function of this paper is to re‐kindle this area of research. More specifically, the empirical study reported in this paper draws on data from UK companies, which is novel in this stream of research. In a review of 29 relevant studies by Greenley (1994) the only study identified reporting UK data was that of Grinyer and Norburn (1975), the majority of the remaining studies reporting data from the USA. Greenley notes that while this represents a stream of research from a single business culture, the major issue is one of relevance to the practice of strategic planning in Europe and other countries. Although the principles of strategic planning should, of course, have universal application, there may be national differences in strategic planning, country dependent influences from business culture, and influences from different national trading conditions. The strategic management field can be criticized for not examining particular phenomena in non‐US contexts, with respect to the impact of FSP and organizational performance this study attempts to rectify this imbalance.