IMPACT OF STRATEGIC PLANNING AND MANAGEMENT ON CORPORATE PERFORMANCE
CHAPTER ONE
INTRODUCTION
Background of the Study
Armmd 1999, empirical researchers began to examine the performance and consequences of formal strategic planning (Thune and House, 1999; Ansoff et al., 2000; Herold, 2001) and over 40 planningperformance studies have appeared since that time. However, in recent years this line of research has slowed to a trickle and with good reason: Previous studies lacked theoretical grounding, produced a bewildering array of contradictory findings, drew heavy criticism for inadequate methodologies and had little or no discemable net impact on strategic management research or practice (Shrader et al., 1984; Pearce et al., 1987a, b). Nonetheless, it seems evident that the planning-performance relationship bears significantly on strategic management research and practice and that scholars should not abandon this line of enquiry altogether. This study re-evaluates the planning-performance research; the critical assessment of strategic planning and its impact on organizational performance which has effect on its survival. Strategic planning can be defined as the process of using systematic criteria and rigorous investigation to formulate, implement and control strategy and formally document organizational expectations (Higgins and Vincze, 1993; Mintzberg, 1994; Pearce and Robinson, 1994). Strategic Planning is a process by which we can envision the future and develop the necessary procedures and operations to influence and achieve that future. As in many other fields, strategic planning professionals often cloak their work in pseudo-scientific jargon designed to glorify their work andcreate client dependence. In reality, strategic planning processes are neither scientific nor complex. With modest, front-end assistance and the occasional services of an outside facilitator, organizations can develop and manage an on-going and effective planning program. Strategic planning consists of a set of underlying processes that are intended to create or manipulate a situation to create a more favourable outcome for a company. This is quite different from tradition tactical planning that is more defensive based and depends on the move of competition to drive the company’s move. In business, strategic planning provides overall direction for specific units such as financial focuses, projects, human resources and marketing. Strategic planning may be conducive to productivity improvement when there is consensus about mission and when most work procedures depend on technical or technological considerations. This study goes beyond the observation of some research that questioned the existence of direct casual relationships between the use of strategic planning and improved performance. This study draws from some of the many publications on the use of strategic planning in the private sector and from the growing number of those that deal with its uses and potential for the public sector. One of the major purposes of strategic planning is to promote the process of adaptive thinking or thinking about how to attain and maintain firm environment alignment (Ansoff, 1991). Finns, however, appear to gain more because they can derive considerable benefits not only from adaptive thinking, but also from integration and control. Small firms can derive considerable benefits from adaptive thinking but probably gain less than large firms from the integration and control aspects of strategic planning. Evered (2000), suggested that the different uses of the term strategic planning vary from broad ones (which include the purposes of defining purpose, objectives and goals) to very narrow ones (namely, those that deal with the means for achieving given objectives). Given Evered’s differentiation between broader and narrower definitions of strategy, Bozeman’s definition is a narrow one; one that assumes an ultimate mission of the organization. Bozeman’s definition assumes that the strategic planning/management process is triggered by changes in policies and priorities (Bozeman, 2003). Hence, according to (Eadie, 2004), strategic planning may be defined broadly or narrowly. However, this formulation still does not help managers in the public sector, for now they need to decide not only whether they want to develop strategic plans but also whether they should approach such plans with a global perspective or with a narrower one. Thus, what seems to be a problem of semantics masks a fundamental question about the inclusion or exclusion of goal definition from the strategic planning process. According to Berry (1997) Strategic planning is a tool for finding the best future for your organization and the best path to reach that destination. Quite often, an organization’s strategic planners already know much of what will go into a strategic plan. However, development of the strategic plan greatly helps to clarify the organization’s plans and ensure that key leaders are all on the same script but far more important than the strategic plan document is the strategic planning process itself. The strategic planning process begins with an assessment of the current economic situation. First, examining factors outside of the company that can affect the company’s performance,in most cases, it makes sense to focus on the national, local or regional and industry economic forecasts. This part of the analysis should begin early, at least a quarter or so before the formal planning process begins. Hence, it’s been concluded that, strategic planning positively affects organizations’ performance, or more specifically, the amount of strategic planning an organization conducts positively affects its financial performance. Since the case study used for this research study is a bank, there is a need to understand strategic planning and financial performance relationships in banks. The result from past researches suggested that the intensity with which banks engage in the strategic planning process has a direct positive effect on banks’ financial performance and mediates theeffect of managerial and organizational factors on bank’s performance. Results also indicated a reciprocal relationship between strategic planning intensity and performance. That is, strategic planning intensity causes better performance and in turn, better performance causes greater strategic planning intensity (Hopkins and Hopkins, 1997). There is a constant need for organizations, especially financial institutions like banks to think strategically about what is going on (Sclnneumer, 1995). This appears to be precisely what banks, in particular have begun to do in recent years. In response to increasing complexity and change in the financial services industry, banks have turned to strategic planning. The relatively new trend towards strategic planning in banks is viewed as a move designed not only to help them negotiate their environment more effectively, but to improve their financial performance as well (Bettinger, 1996; Bird, 1991; Prasad, 1999). In consistent results of bank-related research, however, have not fully resolved the issue of whether strategic planning leads to improvements in banks financial performance. The intensity with which managers engage in strategic planning depends on Managerial (e.g., strategic planning expertise and beliefs about planning-performance relationships), Environmental (e.g., complexity and change) and Organizational (e.g., size and structural complexity) factors. The effects of these factors on strategic planning intensity have been suggested by several studies (Kallman and Shapiro, 1990; Unni, 1990; Robinson and Pearce, 1998; Robinsonet al., 1998; Watts and Ormsby, 1990b). Studies that have analyzed the relationship between strategic planning and financial performance proved that the intensity with which banks engage in the strategic planning process intervene-that is cause an indirectness and lack of one-to-one correspondence-between factors such as strategic planning expertise and beliefs about planning performance relationships (managerial factors), environmental complexity and change (environmental factors), bank size and structural complexity (organizational factors) and bank’s financial performance. As suggested by the inconsistent research findings, past studies have mis-specified the relationship between strategic planning and financial performance in banks. Misspecification of this relationship might be attributed to past studies’ lack of attention to the relationship among these managerial, environmental, organizational factors and their potential impact on planning intensity and performance (Hopkins and Hopkins, 1997). Subsequently, the consideration of such factors in the present study is viewed as a significant issue that holds implications for future research as well as for planning practices.
1.2 Statement of the Problem
Past and recent research studies have made it clear that there is an increased internal and external certainty due to emerging opportunities and threats, lack of the awareness of needs and of the facilities related issues and environment and lack of direction. Many organizations spend most of their time realizing and reacting to expected changes and problems instead of anticipating and preparing for them. This is called crisis management. Organizations caught off guard may spend a great deal of time and energy playing catch up. They use up their energy coping with inundate problems with little energy left to anticipate and prepare for the next challenges. This vicious cycle locks many organizations into a reactive posture. This research study is to assess the impact of strategic planning on organizational performance, which at the long nm enhances organizational survival. The first planning-performance studies emerged after the rapid expansion of formal strategic planning in the 1960s (Hemy, 1999). Although the studies employed diverse methodologies and measures, they shared a corning interest in exploring the financial performance consequences of the basic tools, techniques and activities of formal strategic planning, i.e., systematic intelligence-gathering, market research, SWOT analysis, portfolio analysis, mathematical and computer modeling, formal planning meetings and written long-range plans. The studies did not generally examine the relationshipbetween performance and planning skill but rather the relationship between performance and the extent of formal planning; variously referred to as comprehensiveness, rationality, formality, or simply, strategic planning. However, Strategic planning is: … a continuous and systematic process where people make decisions about intended future outcomes, how these outcomes are to be accomplished and how success is to be measured and evaluated. Strategic planning will help the organization capitalize on their strengths, overcome their weaknesses, take advantage of opportunities and defend against threats to the organization. Past studies of manufacturing firms (Ansoff et al., 2001; Eastlack and McDonald, 2002; Herold, 2001; Karger and Malik, 2000; Thune and House, 1999) have indicated that strategic planning results in superior financial performance, measured in terms of generally accepted financial measures (e.g., sales, net income, ROI, ROE, ROS). Subsequent studies (Armstrong, 1999; Greenley, 1996; Mintzberg, 1990; Shrader et al., 1984; Akinyele, 2007) have contradicted the notion of a strategic planning-superior performance relationship. However, more recent studies (Miller and Cardinal, 1994; Schwenk and Shrader, 1993) provide convincing evidence that strategic planning does indeed result in superior financial performance.
Objectives of the Study
The objectives of the study seek to assess the knowledge and understanding of the concept of strategic planning and management as it impacts on corporate performance.Specifically, the objectives include but not limited to;
To know the extent to which organization carry out strategic planning. To determine whether organizations comply with plans to ensure performance. To know whether strategic planning and management has significant impact on corporate performance Research Questions To what extent does the organization carry out strategic planning? To what extent does the organization comply with plans to ensure performance? To what extent does the use of strategic planning and management affect corporate performance?
1.5 Research Hypotheses
: Strategic planning and management has no significant impact on corporate performance. :Strategic planning and management has significant impact on corporate performance.
1.6 Significance of the study
The fact that these studies accounted for factors responsible for past research contradictions (e.g., methodological flaws, no bust statistical methods) provides additional support for their conclusions. One stream of strategic planning research has raised the issue of whether the length of time a firm or organization has been involved in the strategic planning process has any impact on performance. In their study of the banking industry (Gup and Whitehead, 2000; Burt, 1998; Kuala, 1996; Lenz, 1990; Leontiades and Tezel, 1994) tested the notion that strategic planning only pays off after a period of time. They found no statistically significant relationship between the length of time banks had been engaged in the strategic planning process and their financial performance. With respect to firms in the banking industry, many have diversified into new markets in recent years. This has resulted in increased pressure for banks to offer new and better services to their customers, which has required them to become more focused on their market niche as well as their financial policies. Moreover, bank managers are focusing more intensively on their bank’s external and internal environments, placing greater emphasis on setting direction (i.e., articulating a vision and a mission) and evaluating strategy alternatives more carefully (Hector, 1991; Robinson, 1994; Shepherd, 1997; Steiner, 1997; Thompson and Strickland, 1997; Armstrong, 1995). These activities correspond precisely with the strategic planning process components (i.e., formulating, implementing and controlling strategy). The fact that bank managers are becoming more intensively engaged in these activities implies that they acknowledge (either consciously or unconsciously) a relationship between strategic planning intensity and improved financial performance (Hunger, 1990; Johnson, 2002; Kauman and Shapiro, 1998; McCarthy, 1997; Paley, 2004; Porter, 1989). Indeed a recent study tested this relationship and found that banks that planned with greater intensity, regardless of whether their strategic planning process was formal or informal, outperformed those banks that planned with less intensity (Hopkins and Hopkins, 1994). In support of this position recent research (Miller and Cardinal, 1994; Chandler, 1998; Davis, 2004; Denning, 1997; Haveman, 1993; Hax and Majluf, 1991; Hayes, 2003; Hilt et al., 1990; HumSaker, 2001) set forth and tested the notion, with affirmative results, that the amount of strategic planning a firm or an organization conducts positively affects its financial performance. For the purposes of the present study, strategic planning intensity is defined as the relative emphasis placed on each component of the strategic planning process. In conclusion, majority of the studies that have examined the relationship of strategic planning and performance have concluded that firms having a formal strategic planning process out-perform those that do not. Furthermore, firms taking a proactive strategic approach have better performance than those taking a reactive strategic approach. This evidence demonstrates the usefulness and, in fact, necessity of having a formal, proactive strategic planning process in an organization, whether it be large or small (Beamish, 2000; Allison and Kaye, 2005; Anthony, 1999; Aram and Cowen,l990; Bradford and Duncan, 2000; Bryson, 2004; Ahnyele, 2007).
1.7 Scope/Limitations of the study
This study on is on the impact of strategic planning and management on corporate performance using GTB Plc as the case study.
Limitations of study
Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview). Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.8 Definition of terms
Strategic Planning: Is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy.
Management:Is the function that coordinates the efforts of people to accomplish goals and objectives by using available resources efficiently and effectively.
Corporate Performance Management:Is the area of business intelligence (BI) involved with monitoring and managing an organization’s performance, according to keyperformance indicators (KPIs) such as revenue, return on investment (ROI), overhead, and operational costs.
