Strategic Planning-Firm Performance Linkage: Empirical Investigation from an Emergent Market Perspective

By Al-Shammari, Hussam A.; Hussein, Raef T. | Advances in Competitiveness Research, Annual 2007 | Go to article overview
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Strategic Planning-Firm Performance Linkage: Empirical Investigation from an Emergent Market Perspective


Al-Shammari, Hussam A., Hussein, Raef T., Advances in Competitiveness Research


ABSTRACT

This study investigates the relationship between strategic planning and firm performance in a non-western, emergent market context. Based on a sample of 28 Jordanian manufacturing organizations, and employing both financial and behavioral indicators of firm performance, this study found strong support for the conventional wisdom regarding the merits of strategic planning. It was found that firms engaging in strategic planning have better financial and behavioral performance than firms that are not implementing this important practice.

INTRODUCTION

The inconsistent nature of empirical research findings investigating the relationship between strategic planning and firm performance is the primary motive for conducting this study. The question of whether strategic planning pays off has been the subject of numerous empirical investigations over the past three decades. A substantial body of empirical research has accumulated, which attempts to clarify the links between strategic planning and firm performance. Surprisingly, there is at yet no consensus as to whether strategic planning has an impact on firm performance. Rather, the results of this line of inquiry are still fragmented and inconsistent. A number of studies examining this relationship indicate that strategic planning pays off, and that organizations using formal strategic planning significantly outperform those that do not (Ansoff et. al., 1970; Braker, Keats and Pearson, 1988; Braker and Pearson, 1986; Burt, 1978; Herold, 1972; Karger and Malik, 1975; Miller and Cardinal, 1994; Orpen, 1985; Pearce, Robbins and Robinson, 1987; Rhyne, 1986; Robinson, Pearce, Vozikis, and Messon, 1984; Sapp and Seiler, 1981; Schwenk and Shrader, 1993; Thune and House, 1970; Welch, 1984; Wood and LaForg, 1979). On the other hand, a number of studies cast doubts on the value of strategic planning (Fulmer and Rue, 1974; Grinyer and Norbum, 1975; Klein, 1981; Kudla, 1980; Leontiades and Tezel, 1980; Lindsay and Rue, 1980; Robinson and Pearce, 1983; and Unni, 1981).

A review of literature indicates that the majority of research has shown strong and consistent bias toward western context organizations, mainly in the U.S. and Western Europe. Little research is available that investigates the relationship between strategic planning and firm performance in other contexts in developing and emergent markets. Therefore, bringing new data sets from these markets will provide valuable information to answer the question of whether a similar pattern of this relationship prevails across various contexts. The primary purpose of this study is to bring new evidence from Jordan, an emerging market context. The study is conducted to examine the relationship between strategic planning and firm performance in Jordanian Manufacturing Organizations (JMOs). Another contribution of this paper is related to the measurement of firm performance. Most of the previous research has exclusively focused on financial indicators of firm performance. This narrow conceptualization of the construct of firm performance limits our ability to investigate the impact of strategic planning on other aspects of performance such as behavioral indicators. Therefore, a broader perspective is required to enrich our understanding of this construct. In this study, we examine the impact of strategic planning on both financial and behavioral measures of firm performance. Four indicators are selected to assess the behavioral performance of organizations. This includes adaptability, job satisfaction, attractiveness, and retention ability of the firm.

To satisfy the primary purpose of this paper, it is divided into four sections. In the first section, we review the relevant literature, which provides a theoretical and conceptual foundation for developing the hypotheses. The second section describes the data collection, operationalization of variables and statistical issues. Empirical results are presented in the third section.

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