Strategic Planning, Planning Outcomes and Organizational Performance-An Empirical Study of Commercial Banks in Kenya

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INTRODUCTION

Strategy is positioning a business in a given industry structure, (Porter 1980, 1985). Strategic planning is to envision the future and develop plans for interacting with the competitive environment to achieve that future, (Pearce and Robinson, 1995, p.3). In management, strategy is a unified, comprehensive, and integrated plan designed to achieve a firm's objectives (Glueck 1980:9). The primary goal of strategic planning is to guide a firm in setting out its strategic intent and priorities and focus itself towards realizing the same (Kotter, 1996).

Ackoff's (1981) suggested four different approaches to planning: reactive, inactive, pre-active and proactive. Reactive planning approach, which Ackoff's refers as to 'planning through the rear-view mirror' occurs in historically static environments where well-established, conservative, traditional organizations have a long history of success behind them. They tend to focus on the past rather than the future, and thus, resist and resent the demands of the new dynamic environment. These organizations believe that their own actions shape their future. Their planning is either aimed at preventing the imminent changes around them or slowing them. Inactive planning approach ignores the need for planning and relies on muddling through. This approach may work well for very small structured business, as it involves a high degree of risk (Miller and Cardinal, 1994). Pre-active planning approach involves the organization figuring out, as well as its future and how it will affect its operations and prepare for that set of events (Ansoff, et. al., 1970). Organizations with this approach presume that the future is guaranteed and thus their best strategy is to figure that future and prepare for it. Hamel and Prahalad, (1989), term this approach as 'maintaining the strategic fit', which involves following on how things will be different in the future. Finally, is reactive or interactive planning approach, which organizations believe that their actions shape their future?

Mintzberg (1994) challenged the planning process by questioning the validity of the usefulness of the various approaches to strategy analysis. A large number of theorists have provided recommendations on the improvement of Strategic Planning process (Stonich, 1975; Hedley, 1976; Higgins 1976; Hobbs and Heany 1977; Paul et al. 1978). Hamel and Prahalad (1994), in their contributed said that strategy should be more active and interactive, with less 'armchair planning'. Michael Porter, (1987), pointed out that although strategic planning had gone out of fashion in the late 1970s, it needed to be rediscovered, "rethought", "recast", and not discarded. He criticized the strategic planning process and not its concept.

Ramanujam and Venkatraman (1987); Kargar and Parnell, (1987), argued that planning is a multidimensional management system and strongly advocate for a multidimensional treatment (seven dimensions) of planning as effective strategic planning. They further argued that early research studies have generally tended to view planning as "planner" versus "non-planner" or "formal planner" (Thune and House, 1970; Herold, 1972). Although, these notions may have been appropriate in the early stages of formal planning, they are not quite apt in these later stages of formal planning in which almost all large corporations belong to a "planner" category. Additionally, many strategic planning processes tend to be either too narrow in focus to build a complete organizational strategy or too general and abstract to be applicable to specific situations. Ramanujam and Venkatraman (1987); Kargar and Parnell, (1987), in their studies established that multidimensional (seven dimensions) of Strategic Planning is an effective way of planning as it leads to increased Firm Performance.

Firm Performance

Firm Performance is how well or badly a firm is performing both financially and non-financially (Kargar and Parnell, 1986; Ramanujam and Venkatraman, 1987). …