CHAPTER ONE

 

INTRODUCTION

 

1.1 Background of the study

 

Around 1999, empirical researchers began to examine the performance and consequences of formal strategic planning (Thune and House, 1999; Ansoff et al., 2000; Herold, 2001) and over 40 planning-performance studies have appeared since that time. However, in recent years this line of research has slowed to a trickle and with good reason: Previous studies lacked theoretical grounding, produced a bewildering array of contradictory findings, drew heavy criticism for inadequate methodologies and had little or no discernable net impact on strategic management research or practice (Shrader et al., 1984; Pearce et al., 1987a, b).

Nonetheless, it seems evident that the planning-performance relationship bears significantly on strategic management research and practice and that scholars should not abandon this line of enquiry altogether. This study re-evaluates the planning-performance research; the critical assessment of strategic planning and its impact on organizational performance which has effect on its survival.

Strategic planning can be defined as the process of using systematic criteria and rigorous investigation to formulate, implement and control strategy and formally document organizational expectations (Higgins and Vincze, 1993; Mintzberg, 1994; Pearce and Robinson, 1994). Strategic Planning is a process by which we can envision the future and develop the necessary procedures and operations to influence and achieve that future. As in many other fields, strategic planning professionals often cloak their work in pseudo scientific jargon designed to glorify their work and create client dependence. In reality, strategic planning processes are neither scientific nor complex. With modest, front-end assistance and the occasional services of an outside facilitator, organizations can develop and manage an on-going and effective planning program.

Strategic planning consists of a set of underlying processes that are intended to create or manipulate a situation to create a more favourable outcome for a company. This is quite different from tradition tactical planning that is more defensive based and depends on the move of competition to drive the company’s move. In business, strategic planning provides overall direction for specific units such as financial focuses, projects, human resources and marketing. Strategic planning may be conducive to productivity improvement when there is consensus about mission and when most work procedures depend on technical or technological considerations.

This study goes beyond the observation of some research that questioned the existence of direct casual relationships between the use of strategic planning and improved performance. This study draws from some of the many publications on the use of strategic planning in the private sector and from the growing number of those that deal with its uses and potential for the public sector. One of the major purposes of strategic planning is to promote the process of adaptive thinking or thinking about how to attain and maintain firm environment alignment (Ansoff, 1991).

Firms, however, appear to gain more because they can derive considerable benefits not only from adaptive thinking, but also from integration and control. Small firms can derive considerable benefits from adaptive thinking but probably gain less than large firms from the integration and control aspects of strategic planning.

Evered (2000), suggested that the different uses of the term strategic planning vary from broad ones (which include the purposes of defining purpose, objectives and goals) to very narrow ones (namely, those that deal with the means for achieving given objectives). Given Evered’s differentiation between broader and narrower definitions of strategy, Bozeman’s definition is a narrow one; one that assumes an ultimate mission of the organization. Bozeman’s definition assumes that the strategic planning/management process is triggered by changes in policies and priorities (Bozeman, 2003).

Hence, according to (Eddie, 2004), strategic planning may be defined broadly or narrowly. How ever, this formulation still does not help managers in the public sector, for now they need to decide not only whether they want to develop strategic plans but also whether they should approach such plans with a global perspective or with a narrower one. Thus, what seems to be a problem of semantics masks a fundamental question about the inclusion or exclusion of goal definition from the strategic planning process.

According to Berry (1997) Strategic planning is a tool for finding the best future for your organization and the best path to reach that destination. Quite often, an organization’s strategic planners already know much of what will go into a strategic plan. However, development of the strategic plan greatly helps to clarify the organization’s plans and ensure that key leaders are all on the same script but far more important than the strategic plan document is the strategic planning process itself. The strategic planning process begins with an assessment of the current economic situation. First, examining factors outside of the company that can affect the company's performance.

In most cases, it makes sense to focus on the national, local or regional and industry economic forecasts. This part of the analysis should begin early, at least a quarter or so before the formal planning process begins. Hence, it’s been concluded that, strategic planning positively affects organizations’ performance, or more specifically, the amount of strategic planning an organization conducts positively affects it’s financial performance. Since the case study used for this research study is a bank, there is a need to understand strategic planning and financial performance relationships in banks.

The intensity with which managers engage in strategic planning depends on Managerial (e.g., strategic planning expertise and beliefs about planning-performance relationships), Environmental (e.g., complexity and change) and Organizational (e.g., size and structural complexity) factors. The effects of these factors on strategic planning intensity have been suggested by several studies (Kallman and Shapiro, 1990; Unni, 1990; Robinson and Pearce, 1998; Robinson et al., 1998; Watts and Ormsby, 1990b).

Studies that have analysed the relationship between strategic planning and financial performance proved that the intensity with which firms engage in the strategic planning process intervene-that is cause an indirectness and lack of one-to-one correspondencebetween factors such as strategic planning expertise and beliefs about planning performance relationships (managerial factors), environmental complexity and change (environmental factors), firm size and structural complexity (organizational factors) and firm’s financial performance. As suggested by the inconsistent research findings, past studies have lost focus on the relationship between strategic planning and financial performance in organizations. Misspecification of this relationship might be attributed to past studies’ lack of attention to the relationship among these managerial, environmental, organizational factors and their potential impact on planning intensity and performance (Hopkins and Hopkins, 1997).

Subsequently, the consideration of such factors in the present study is viewed as a significant issue that holds implications for future research as well as for planning practices.

 

1.2 Statement of Research Problem

 

Past and recent research studies have made it clear that there is an increased internal and external uncertainty due to emerging opportunities and threats, lack of the awareness of needs and of the facilities related issues and environment and lack of direction.

Many organizations spend most of their time realizing and reacting to unexpected changes and problems instead of anticipating and preparing for them. This is called crisis management. Organizations caught off guard may spend a great deal of time and energy playing catch up. They use up their energy coping with immediate problems with little energy left to anticipate and prepare for the next challenges. This vicious cycle locks many organizations into a reactive posture.

This research study is to assess the impact of strategic planning on organizational performance, which at the long run enhances organizational survival.

 

1.3 Objectives of the study

The general Objective

The general objective of this research is to investigate the impact of strategic performance on organizational performance and survival.

Specific objectives

i.                 To establish the need for strategic planning in the organization.

ii.               To establish performance of firms that use strategic planning as compared to those that do not use.

iii.             To identify the challenges faced by the organization who practice strategic planning. 

iv.             To establish the significant factors essential for effective strategic planning practice and how they affect the overall organizational performance.

 

1.4 Research questions

 

The major research question was ‘what is the effect of strategic planning on organizational performance and survival?

i.                 What is the need for strategic planning in an organization?

ii.               What is the performance of firms that use strategic planning as opposed to those that do not use in the industry?

iii.             What are the challenges faced by the firms which practise strategic planning?

iv.             What factors are essential for effective strategic planning and how do they affect the overall organizational performance?

 

1.5 Significance of the study

 

The findings of the study are expected to be of help to several groups of people:

a)   To the researcher

The research will enable the researcher to achieve a Diploma in Business Management. It is a requirement for partial fulfillment of Diploma in Business management.

The researcher will be able to understand how strategic planning can impact on organizational performance and survival.

b)   To participating companies

If the findings of the study can be considered by the management of participating companies, it will act as a resource material to refer to when formulating strategic plans. As a result of these findings they can learn and improve in areas where weaknesses were revealed. It will be a source of knowledge and can be used by managers as a guide in implementing strategic planning in their organizations.

 

c)   To other researchers

Future researchers who will be interested in this area of study can use this research as a reference material or past study for their research work.

d)  To Kenya Institute of Management

This research will act as a reference material in KIM where other students who will be studying related studies can refer.

e)   To scholars

Finally, the study will also benefit scholars and academics by filling a gap in literature on the impact of strategic planning on organizational performance and survival.

 

1.6  Limitations of the study

 

The senior managers were very economical with the relevant information fearing leakage of vital information to competitors.

Since the researcher targeted presidents and directors of the companies, there was a kind of bias on information provided as they tried to respond positively on all the research questions.

This research does not claim perfection as it is faced with other limitations inherent in the survey design adopted.

 

1.7  Scope of the study

 

The study is to investigate the impact of strategic planning on organizational performance and survival a survey of transport companies in Mombasa, Kenya. A survey technique was used with the administration of questionnaires to 70 respondents comprising of presidents and directors of the participating companies. The study covered a period of six months starting from March to August 2012.

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