Organizational Learning as a Moderator of the Effect of Strategic Planning on Company Performance

By Flores, Luis G.; Catalanello, Ralph F. et al. | International Journal of Management, September 2008 | Go to article overview

Organizational Learning as a Moderator of the Effect of Strategic Planning on Company Performance


Flores, Luis G., Catalanello, Ralph F., Rau, Devaki, Saxena, Narsingh, International Journal of Management


Many firms across multiple industries use strategic planning even though research indicates that only some firms benefit from this exercise. How confirms increase the performance effect of strategic planning? This study uses a learning perspective to examine this question. We adopt Huber's (1991) definition of organizational learning as the acquisition of knowledge by any of the units of an organization that the organization recognizes as potentially useful. This definition implies that organizations differ in their learning to the extent that they differ in the gathering and processing of information in, and about, themselves. We examine whether organizational learning moderates the relationship between strategic planning and performance. We measure organizational learning with a six-item scale from the Strategic Readiness Audit. The responses from CEOs and CFOs of 124 U.S. manufacturing and service firms indicate that planning positively influences performance, but only at low to moderate levels of organizational learning.

Introduction

Many firms across multiple industries use strategic planning even though research indicates that only some firms benefit from this exercise (Brews and Hunt, 1999). How can firms increase the performance effect of strategic planning? This study uses a learning perspective to examine this question. Specifically, this study examines whether organizational learning moderates the relationship between strategic planning and performance. Strategic planning, with its emphasis on formal goal setting, monitoring, and evaluation, 'sets the stage' for a firm to capture and apply lessons from its past to future situations. The effectiveness of this learning, in turn, may influence the strength of the relationship between strategic planning and performance.

Examining the relationship between planning, organizational learning, and performance is important for both theoretical and practical reasons. From a theoretical viewpoint, the results of this study may contribute to the strategic planning literature by providing a substantive explanation for the inconsistent results obtained from previous research on the benefits of strategic planning. In keeping with the more recent literature on organizational learning, the results of this study may also increase our understanding of when and why learning may or may not influence performance (Bapuji and Crossan, 2004). From a practical perspective, this study is important because firms in a variety of industries routinely use strategic planning systems. A wide authence of managers seeking to enhance the performance impact of their organization's planning may therefore find the results of this study relevant to their efforts.

Theory and Hypotheses

A number of studies have examined the nature of the link between strategic planning and business performance. Many of these studies find that planning enhances business unit performance, possibly because an explicit planning process eliminates unnecessary guesswork and results in the collection and interpretation of data critical to the formulation of an effective strategy (Armstrong, 1982). Other studies, however, do not observe this relationship (Shrader, Taylor, & Dalton, 1984). Some scholars attribute these inconsistent results to methodological differences and / or to the lack of uniformity among strategic planning variables (such as planning formality, and attitudes to planning) included in the studies (Brews & Hunt, 1999; Miller and Cardinal, 1994). We therefore adopt a broad operational definition of strategic planning that includes multiple variables measuring planning formality, attitudes toward planning, and the importance attached to planning, and hypothesize that

H1: Strategic planning positively influences business unit performance.

Researchers have used multiple perspectives to define and examine organizational learning and its relationships with other variables in many different areas of study (for reviews of this literature, see, for example, Bapuji and Crossan, 2004; Easterby-Smith, 1997). …

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