Should organizations carry out strategic planning? Why? How should a strategic planning process be organized? Who should be included in the process? Should the outcome be communicated to employees?
In the last two decades, some authors have criticized strategic planning on the basis of its supposed analytical and rational bias which does not reflect the more emergent property of strategies and strategy-making (e.g. Mintzberg, 1994). In spite of this, most if not all business schools keep teaching strategic or business planning and many organizations – whether for profit, public or not-for-profit as well as both small and big – continue to engage in so-called strategic planning exercises to think about the organization’s environment and strategy in 3, 5 or even 10 years ahead, using tools such as scenario analysis for the environment, Porter’s 5 forces for industry attractiveness or the old Strengths Weaknesses Opportunities & Threats (SWOT) model from the early times of business policy at Harvard (e.g. Andrews, 1971; Christensen et al, 1965).
Research on the impact of strategic planning on overall firm performance in particular exists since the 1980s (e.g. Boyd, 1991, Miller & Cardinal, 1994; Pearce et al, 1987). Wooldridge and Floyd (1989, 1990), among others, contributed to a stream of research on the more detailed link between middle-management participation, strategic consensus and firm performance. But maybe given to the institutionalization of strategic planning exercises, the mixed evidence about a direct link between strategic planning and performance, or the Mintzbergian critique, research on this topic has somewhat faded away until the recent emergence of the ”strategy-as-practice” stream.
In a recent study to disentangle more precisely some of the immediate effects of strategic planning, we (Ketokivi & Castañer, 2004) attempt to show that participation in the strategic planning process does not only contribute to consensus but can actually reduce employees’ built-in by design position bias – a term we coin. When appointed to their position or role (and often given a job description), employees are told to focus their attention and effort on certain tasks and goals, which derives on what March and Simon (1958) called subgoal pursuit, i.e. the pursuit of the goals attached to their role or unit. Although this “departmental” focus is to a large extent desirable, in near-decomposable systems such as all organizations there are interdependencies across roles and units which need to be coordinated (Simon, 1962) or, in Lawrence and Lorsch (1967) terms, integrated.
We argue that participation in the strategic planning process allows participating individuals to develop a broader view of the overall organizational challenge and perceive and grasp the interdependencies among different tasks, units and their subgoals, reducing their “designed” position bias for certain goals and tasks.
Further, we argue that communicating the decided strategy to employees might also reduce position bias and thus contribute to greater convergence among employees towards the same goals.
Moreover, we claim that participatory planning and subsequent strategy communication might be complementary, i.e. they might reinforce each other’s contribution to the reduction of position bias, the reason being that employees who participated will feel that their participation is acknowledged by top management in the fact of communicating the resulting strategy, even if it doesn’t coincide with employees’ input. Communication becomes an act of recognition for participation, a kind of quid pro quo.
We find evidence for our hypotheses in a sample of 164 manufacturing plants from five countries and three industries, where we asked middle-level managers to assess the importance of various organizational goals and controlling for the use of other integrative devices such as cross-departmental committees.
The managerial implication of our findings is that if managers want to reduce designed position bias of their employees they can particularly do so by engaging them in strategic planning processes and communicating the resulting strategy to them.
References
Andrews, K. R. (1971). The Concept of Corporate Strategy. Homewood, IL: Irwin.
Boyd, B.K. (1991). Strategic planning and financial performance: A meta-analytic review. Journal of Management Studies, 28 (4): 353-374.
Ketokivi, M., and X. Castañer (2004). Strategic planning as an integrative device. Administrative Science Quarterly, 49, 337-365.
Lawrence, P. R., and J. W. Lorsch (1967 ). Organization and Environment: Managing Differentiation and Integration. Boston: Harvard University Press.
March, J. G., and H. A. Simon (1958). Organizations. New York: Wiley.
Miller, C. C., and L. B. Cardinal (1994). Strategic planning and firm performance: A synthesis of more than two decades of research. Academy of Management Journal, 37: 1649-1665.
Mintzberg, H. (1994). The Rise and Fall of Strategic Planning: Reconceiving Roles for Planning, Plans, Planners. New York: Free Press.
Pearce, J.A., Freeman, E.B. and R. Robinson (1987). The tenuous link between formal strategic planning and financial performance. Academy of Management Journal.
Simon, H. A. (1962). The architecture of complexity. Proceedings of the American Philosophical Society, 106: 467-482.
Wooldridge, B., and S. W. Floyd (1989). Strategic process effects on consensus. Strategic Management Journal, 10: 295-302.
————————————— (1990). The strategy process, middle management involvement and organizational performance. Strategic Management Journal, 11: 231-241.