FormalPara Definition

Strategic planning is a more or less formalized, periodic process designed to provide structured approaches to strategy formulation, implementation and control. The process usually manifests as a sequence of meetings wherein management groups determine and/or review the organization’s highest priorities.

Despite many changes in the popularity of and specific practices associated with strategic planning, it remains one of the most widely used management tools and continues to be a subject of research. The main benefits of strategic planning are seen as communication of strategic priorities, consistency in resource allocation decisions and coordination of activities across subunits.

The concept of strategic planning springs from the need to orchestrate large-scale human activity. Modern versions of the practice are traceable to planning techniques, for example used in the US Department of Defense (Smalter and Ruggles 1966). Known then as long-range planning, the process was taught in business schools as early as the 1960s and diffused to large businesses through consulting firms. Current models of strategic planning also have a genesis in the administration and leadership of large public companies such as General Electric and IBM (e.g., Mintzberg 1994).

Elements of the Strategic Planning Process

Typically coordinated by a central authority, the practice of strategic planning in most organizations follows a normative model patterned after historical planning approaches. This includes a logical sequence of activities arranged on an annual calendar and designed to connect the aspirations set by top management with detailed input provided by managers at middle and lower levels. Often, the starting point involves the development or review of a vision or mission statement by senior executives, specifying intentions with respect to principal markets and core capabilities. Statements of shared values, commitments to key stakeholders and a list of high priority initiatives are also frequently included as a part of this step. Using this broad framework, analyses of available resources and conditions in the external environment are developed by managers at middle and lower levels, often with assistance from (corporate) strategic planning staff, in order to help determine the actions needed to realize the aspirations of top management. A negotiation process then ensues whereby managers at each level of the hierarchy agree on the goals and strategies that will govern activity during the planning period. As a part of this, measures that track progress and gauge achievement are defined. These indicators, together with operating budgets, provide the controls necessary to guide implementation efforts and determine accountability for the realization of the plan (Ansoff 1965; Steiner 1969; Vancil and Lorange 1975; Hofer and Schendel 1978; Boyd and Reuning-Elliott 1998).

The research literature on strategic planning ranges from descriptive studies on the nature of planning systems (e.g., Bazzaz and Grinyer 1981; Grant 2003), to studies of relationships between the formality of strategic planning and organizational performance (e.g., Pearce et al. 1987; Hopkins and Hopkins 1997; Boyd and Reuning-Elliott 1998) and includes studies of contingencies in the relationship between strategic planning and performance (e.g., Kukalis 1991; Stone and Brush 1996). The primary focus in strategic planning research is on the relationship between formal planning systems based on the normative model and organizational performance, usually measured in financial terms. In a meta-analytic study, Miller and Cardinal (1994) found correlations ranging from −0.31 to 0.75 for the relationship between strategic planning and revenue growth and −0.21 to 0.71 for the relationship between planning and profitability. The study’s authors concluded that, on average, strategic planning positively influences organizational performance, and that differences in methodology probably explain inconsistent findings in the literature.

Criticisms of Strategic Planning

Inherent in the normative model is the assumption that a central function of planning systems is to orchestrate rational decision-making. The advantages of a rational approach lie in clear, comprehensive and systematic analysis as the basis for formulating strategies. Such an approach tends to oversimplify the environment for strategy development, however, and neglects certain organizational realities. With shorter product life-cycles, rapid globalization of competition and other dynamics in the business environment, normative models of strategic planning have therefore come under criticism. In particular, critics see the normative model as unresponsive and inflexible relative to the rate of environmental change. One of the most outspoken critics, Henry Mintzberg (1994) identifies three problems with strategic planning: the assumed stability of business environments, the separation of strategic thinking (formulation by top management) and acting (implementation by middle and lower level management), and the assumption that a universal blueprint exists for strategy development. In addition to these theoretical challenges, empirical research has uncovered organizational phenomena that are consequential in strategy formation – such as informal-influence behaviour and organizational politics (Pettigrew 1973; Johnson 1987; Eisenhardt and Zbaracki 1992) – but not taken into account in the normative model.

The shortcomings of the normative approach have produced attempts to modify and improve on it. Strategic planning processes have been changing to meet the needs of increasingly fast-paced business environments, for example. Contemporary planning systems are also designed to be more flexible – adapting the analytic process to the needs of specific organizations and reducing the formality of planning procedures. Rather than demanding specific market forecasts, planning systems today are focused on evaluating scenarios and providing an organization with an overall strategic direction. Performance targets are set as cornerstones of strategizing activities within subunits, but the planning activity itself is less programmed and often conducted informally (Grant 2003).

Recent Research

Criticisms of strategic planning have also produced efforts to describe it within the context of broader strategy-making processes (Hart 1992). In particular, the range of organizational actors involved in strategic planning has opened up beyond top managers and planning staff. Research suggests, for example, that, in addition to their role in implementing strategies, middle managers are important in shaping top managers’ attention to strategic issues (Dutton et al. 1997) and in championing strategic alternatives (Floyd and Wooldridge 1992). In this context, strategic planning becomes an important mechanism for coordinating and integrating strategizing activities across complex organizations (Grant 2003; Ketokivi and Castañer 2004; Jarzabkowski and Balogun 2009).

In addition to these modifications to the normative model, an alternative, often parallel, planning approach has developed based on an evolutionary perspective of strategy development. This view sees the organization as an ‘ecology of strategic initiatives’ (Burgelman 1991: 240), and according to this perspective, strategies are the result of induced initiatives launched by top management and autonomous initiatives arising out of experimentation at lower levels. Both ‘hard’ (e.g., internal return on investment) and ‘soft’ (e.g., political dynamics) resource allocation criteria are the principal selection mechanisms operating at middle and top levels of the managerial hierarchy. Striking an appropriate balance between top-down and bottom-up strategizing activity is a key ingredient in evolutionary models of strategic planning (Floyd and Lane 2000; Lovas and Ghoshal 2000). This approach also makes effective leadership of strategic initiatives and management of the organization’s social context important elements of strategic planning (Lechner et al. 2010; Lechner and Floyd 2012).

Another stream of recent research focuses on the micro-processes and social practices in strategic planning. The central question from this perspective is what people actually do during planning episodes (Johnson et al. 2007; Jarzabkowski and Balogun 2009). Analysing strategic planning as a social practice leads to a view of strategic planning as a phenomenon that is influenced by ‘shared understandings, cultural rules, languages and procedures’ (Whittington 2006: 614). Researchers are interested in how people go about strategic planning and how cultural contexts such as rules and procedures shape individual behaviour (Jarzabkowski 2005, 2008). For example, researchers have used ritual theory as a lens to examine the behavioural dynamics in strategic planning workshops (Johnson et al. 2010).

See Also