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“Objectives-based” evaluation of strategic planning systems
OMEGA Int. J. of Mgmt Scl., Vol. 14, No. -~, pp. 299-306, 1986 Printed in Great Britain
0305-0483 86 $300-0.00 Pergamon Journals Ltd
"Objectives-Based" Evaluation of Strategic Planning Systems V RAMANUJAM Case Western Reserve University, Ohio, USA N VENKATRAMAN Massachusetts Institute of Technology, USA JC CAMILLUS University of Pittsburgh, Pennsylvania, USA (Received July 1985; in revisedform October 1985) A comparative study of more effective vs less effective planning systems is reported here, where effectiveness is treated in terms of the fulfillment of six key planning objectives. Based on data on the strategic planning systems and processes of over 200 North American companies, key systems design and contextual factors associated with effective planning are identified. It was found that dissatisfaction with formal strategic planning is not as widespread among practicing managers as is widely alleged. The degree of fulfillment of key planning objectives varies widely not only from company to company but also from objective to objective. Overall, the creativity and control orientation of the system and its level of functional integration were found to be the principal design factors contributing to the effectiveness of a strategic planning system.
IT IS WIDELY alleged that formal strategic [9]. Most criticisms have emanated from acaplanning systems, which grew in popularity demics or consultants, who have tended to base during the sixties and early seventies, have since their analysis and conclusions on individual case largely proved to be ineffective in dealing with studies involving failure of formal planning. A the turbulence and uncertainties of the late balanced examination of a large number of seventies and early eighties. Many authorities cases appears to be a necessary first step in have sharply criticised the corporate world's order to clarify afresh the role and value apparently heavy reliance on such formalized of planning in modern organizations. Few systems of management and control [2, 6]. This attempts have been made to systematically criticism is part of a broader attack against the investigate and synthesize the perceptions and concepts of strategy and strategic planning and experience of managers as to the role and value against the notion of rational man which is said of planning in their organizations today. Such an assessment is particularly necessary at this to underly those concepts [11]. It is necessary for strategy professionals to juncture, in the wake of the major changes of take cognizance of these criticisms, even though the recent past. In addition, most prior criticisms of formal they might appear excessively harsh at first sight planning have displayed an excessive obsession JAn earlier version of this paper was one of the prize with the financial payoffs from planning. This is winners in the Foundation for Administrative a valid but rather narrow view, and needs to be Research/North American Society for Corporate Plansupplemented with a broader perspective that ning 1984 Competition on "Best Paper in Corporate recognizes the multiple objectives and goals of and Organizational Planning." 299
300
Ramanujam et al.--Ecaluation of Strategic Planning Ststems
a formal strategic planning system over and beyond its potential financial payoffs [3, 12, 15]. A number of previous studies have attempted to establish the financial payoffs of strategic planning, with contradictory and confusing results. An extensive review of these efforts is provided by Armstrong [1]. Recently, King [7] has argued for what he refers to as the direct approach to the evaluation of a strategic planning system. In this approach, it is contended that the ability of the system to satisfy key planning objectives should receive as much scrutiny as the eventual financial outcomes obtained from strategic planning. It is reasonable to assume that if planning systems do not fulfill explicit objectives set for planning, they are unlikely to be accepted or valued, and if they are not accepted or valued, they will not lead to superior financial performance. Thus, a primary emphasis on the objectives of planning would appear to be a crucial need for a valid assessment of planning effectiveness. This is the approach we have adopted in this study. Thus, although an effective strategic planning system ideally should yield tangible financial payoffs, it must be recognized that ultimate organizational performance is a function of a myriad of influences that go beyond the characteristics of the planning system per se. We believe it is a more modest but necessary refinement in the evaluation methodology to limit one's attention to the objectives of the planning system and examine how well these are satisfied, This would appear to be a minimal, first-cut and oft-neglected effectiveness criterion to apply to the evaluation of a planning system. However, it is not our intent to minimize the importance of ultimate financial performance. Elsewhere, we have examined multiple effectiveness criteria, including objective fulfillment and other conventional financial measures [13]. Guided by the philosophy that a balanced assessment of planning's role and value should rely on the judgments of executives and that it should consider the multiple objectives of strategic planning, we addressed the following questions: I. To what extent, in the opinion of planning professionals, are the major objectives of strategic planning being fulfilled in organizations?
. If these objectives are relatively' more fulfilled in some organizations than in others, to what extent can the differences in objective fulfillment be traced to specific facets of the system's design and use? In other words, what are the key discriminating aspects of system design and use that lead to the observed differences in the fulfillment of planning objectives? . If key discriminators can be identified, what guidelines can be developed for improving a system's position on these discriminating characteristics? Answering the first question would assist us in documenting the extent of satisfaction and dissatisfaction with planning systems with regard to their ability to fulfill various strategic planning goals. Answers to the second would enable us to identify those aspects of systems design that might be expected to aid in achieving specific system objectives. Addressing the third question provides the necessary base for developing the guidelines for effective planning. The research reported here is part of an ongoing, large-scale study titled, The Design and
Use of Strategic Planning Systems: Some Key Issues for the Eighties. Senior executives representing over 200 major American corporations have provided us with data on numerous aspects of their planning systems. The specific focus of this study was on the changes that have occurred in the recent past in the design, use and perceived usefulness of formal strategic planning in the participating companies. The characteristics of the sample comprising this study are profiled in Table 1.
WHAT ARE TH E M A J O R OBJECTIVES OF STRATEGIC PLANNING?
Different views exist as to what the objectives of strategic planning should be. The traditional rationale for planning has been that planning leads to financial payoffs. We argue that it is a management process that addresses multiple goals and objectives--and not merely financial ones. Consistent with this approach, we arrived at the following list of the major objectives of strategic planning:
Omega, I/ol. 14, No. 4
301
Table I. Characteristics of sample companies and respondents" (n = 207) I.
2.
3.
a.
5.
Sales of the responding unit Less than 5250 million $251 million-S1 billion Over $l billion Primary business category of the responding unit Consumer goods Capital goods Raw or semi-finished materials Components for finished goods Service sector Organizational level of responding unit Corporate Business unit Titlejob responsibility of responding executive Planning Other line function Maturity of the pIanning system (year planning began) Before 1960 During 1961-1975 After 1976
L7.4 2t .8 60.9 19.2 18.7 12.8 8.9 40.4 81.5 18.5 68.5 31.5 6.2 36.7 55.2
~AII figures are percentages. Non responses have been excluded.
1. Improving short-term performance
frame (objectives 1, 2, 4), and a means of corporate education (objectives 5, 6).
2. Improving long-term performance 3. Predicting future trends 4. Evaluating alternatives based on more relevant information 5, Avoiding problem areas
WHAT FACTORS ARE EXPECTED
TO INFLUENCE THE FULFILLMENT OF PLANNING OBJECTIVES? The literature on planning suggests that the following seven aspects of the design and use of strategic planning are important influences on the fulfillment of planning objectives:
6. Enhancing management development The above list is not claimed to include all the possible objectives of planning. For pragmatic reasons, it was necessary to limit attention to the most important ones. Objectives 1 and 2 relate directly to performance, while the third objective emphasizes the future orientation of planning, and consequently the importance of valid and reliable predictions. The fourth objective underscores the creativity enhancing value of planning systems and processes in that good planning should lead to the surfacing and exploration of a broad array of alternatives [8, 14]. Objective 5 embodies the idea that good planning should successively reduce the probability of making errors of judgement and that it should contribute to organizational learning. Finally, developing management depth is an oft-emphasized second-order goal of planning and is captured in the sixth objective. Taken together, the planning objectives considered in this study cover the three fundamentals of corporate planning, namely, an adequate information base (objective 3), an action
1. Capability of the planning system (i.e. its creativity vs control orientation) 2. Use of planning techniques 3. Degree of attention to internal (i.e. organizational) facets in planning 4. Degree of attention to external (i.e. environmental) facets in planning 5. Extent of coverage and integration of various functional areas 6. Resources provided for planning 7. Resistance to strategic planning Anecdotal as well as conceptual writings on the topic of strategic planning practices support the consideration of these factors. The capability of the planning system refers to the extent to which the system balances creativity and control considerations in meeting the requirements of
302
Ramanujam et al.--Ecaluation of Strategic Planning Systems Table 2. Extent of fulfillment of strategic planning objectives Percentage of responding executives
Objective I. Improving short-term performance 2. Improving long-term performance 3. Predicting future trends 4. Evaluating alternatives based on more relevant information 5. Avoiding problem areas 6. Enhancing management development
planning. This has been emphasized often as a crucial determinant of effective planning. The use of techniques such as portfolio (e.g. BCG) analysis, stakeholder analysis, and financial models provides a basis for structuring the unstructuredness which characterizes most strategic decisions. Attention to internal and external facets follows directly from the classical Strength Weaknesses Opportunities Threats (SWOT) analysis. The degree of coverage given to key functional areas affects the extent of integration and coordination achieved in planning. Finally, the need to provide adequate resources for planning as well as the importance of addressing and overcoming organizational resistance to this important managerial activity, have been emphasized by many management experts [8, I0, 15]. The above seven factors-' are expected to be associated to varying degrees with the extent of fulfillment of each of the six system objectives earlier discussed. Responding executives rated their planning systems along these seven dimensions and also indicated the extent to which the six objectives were achieved by their planning system. Each factor was represented by multiple items on the questionnaire. HOW WELL ARE THE OBJECTIVES BEING FULFILLED? It is not surprising that not all the objectives are being fulfilled to the same extent. Table 2 indicates the degree to which respondents are satisfied with the fulfillment of the set of objectives discussed earlier. Since any score in excess of the neutral point 3 indicates a positive assessment vis-a-vis objective fulfillment, it is heart-" For more details on these seven factors and a copy o f the s u m m a r y report of the study, please contact the authors.
Unfulfilled (1) and (2)
Neutral (3)
Fulfilled (4) and (5)
Average score
8.5 6.8 15.5
32.I 25.7 21.5
54.4 67.6 63.0
3.52 3.67 3.51
6.9 14.8 15.6
17.6 32.5 30.7
65.6 52.7 53.8
3.78 3.39 3.38
ening to note that, by and large, the participating executives rate their planning systems as performing a satisfactory job. The proportion of executives indicating that they are generally satisfied exceeds 50% for all six objectives and is well in excess of 60% for three of the six objectives. The average ratings of objective fulfillment for all participants taken as a group, indicated in the rightmost column in Table 2, suggests that a creativity oriented objective, namely, evaluating alternatives based on more relevant information, is the most fulfilled objective with a score of 3.78. It signifies that formal planning systems are not being perceived as limiting the identification and exploration of alternatives, as some critics have asserted. In addition, there is a general belief that planning systems are largely accomplishing the objective of improving both long-term and short-term performance. However, at the present time, the objectives of predicting future trends, avoiding problem areas, and enhancing management development are not being fulfilled to the same extent as are the other three objectives, although even with respect to those objectives managers are as likely to be positive as negative. Thus, our study indicates that although responding executives are, in general, satisfied with their planning systems, considerable scope exists for improvement.
THE SEARCH FOR KEY DISCRIMINATORS
Given that there is a wide range in the degree of objective fulfillment in the sample, it is useful to examine the differences between more successful (i.e. those firms reporting greater levels of objective fulfillment) and less successful planning systems with regard to the seven system factors discussed earlier. Such an analysis would
Omega, Vol. 14, No. 4
greatly facilitate the identification of the factors that are most crucial from the standpoint of fulfilling various planning system objectives. It has been customary in most prior research to explore such differences by looking for statistically significant differences between the satisfied and dissatisfied groups with respect to each of the seven independent factors. However, such a statistical analysis of differences between the two groups cannot yield insight into the relative importance of each factor. Also, such analyses of each factor in isolation fail to take into account the entire set of seven factors acting jointly in affecting the eventual outcome, namely fulfillment of a particular planning objective. Clearly, since these seven factors are interdependent, we need techniques of discrimination that are far more sophisticated than simple statistical comparison. The technique known as discriminant analysis has been found to be valuable for exploring differences between groups when such differences could be due to many factors exerting a joint as opposed to independent influence. It has been used, for instance, in applications as varied as bankruptcy prediction, customer credit rating, income tax audit, and the rating of corporate bonds? In this article, this technique is employed for identifying the key factors that distinguish more successful planning systems from less successful ones. WHAT DIFFERENTIATES MORE SUCCESSFUL PLANNING FROM LESS SUCCESSFUL PLANNING?
Our analyses are aimed at answering the above question--viz., what are the observable differences among the seven factors discussed above between the more successful and less successful planning systems. A total of seven discriminant functions were developed, one for each of the objectives, and one for a "composite" measure of objective fulfillment. The results of the discriminant analysis run for the objective enhancing management develFor an interesting application of this technique in strategic management, see Altman El and LaFleur JK (1981) Managing a Return to Financial Health. J. Busin. Strategy. 2, (1), pp 31-38. Discriminant analysis results are shown for an illustrative run. Readers interested in the results of other runs are referred to [13].
303
opment are contained in Table 3. 4 The results of the analysis are presented in four parts in the table. In the first part, the number of respondents in each of the two groups is indicated, while the second part shows the average scores for the two groups with respect to each of the seven discriminating factors. Interestingly, the more successful planning systems had consistently higher scores than the less successful ones on all the factors except Factor 7 (Resistance to Strategic Planning) where they scored lower. The usefulness of this set of results is somewhat limited, however, as they do not indicate the relative importance of the factors. In the third part are shown the weights of each discriminating factor as determined from the discriminant analysis run. These weights give us an indication of the relative importance of the factors. The factors are also ranked in this part from one to seven based on the absolute size of their importance weights. Finally, in the fourth part, we show the classification efficiency (i.e., discriminating ability) of the discriminant function derived for this objective. It serves as a useful way of assessing the ability of the seven factors to effectively separate the more successful group from the less successful one. Referring to Table 3 again, we first note that there were about as many successful companies (44) as unsuccessful ones (48) as far as fulfillment of the planning objective, enhancing management development, is concerned. It can be inferred next from the weights of the discriminating factors that the key factors are capability of the system,functional coverage, and resistance to strategic planning, with the remaining four factors being less important in their ability to distinguish between the two groups. Of particular interest is that Factor 2 (use of planning techniques) has the lowest rank as a discriminating factor. This finding cautions against excessive reliance on techniques in planning and supports the recent admonitions of critics of planning against the uncritical use of such technique oriented planning tools as the BCG matrix and PIMS models [5, 6]. In the final part of Table 3 is shown the classification table. The overall classification accuracy of 77.2% is encouraging. With further refinement of the factors and improvements in the definition of the groups, a still higher classification accuracy should be possible. As
304
Rarnanujarn et al.--Et'aluation of Strategic Planning Systems Table 3. Discriminant analysis results Objective: "'Enhancing management development" Description
"'Less successful" planners
"'More successful" planner~
48
.I.0,
3.370 3.063 3.160 3.505 3.446 3...111 1.888
3.953 3.306 3.583 3.744 3.718 3.818 1.423
Weig,,ht 0.65 -0.07 0.27 -0.12 0.49 -0.39 -0.40
Rank 1 7 5 6 2 4 3
1. Number in group 2. Differences between groups Capability of the system Use of planning techniques Attention to external facets Attention to internal facets Functional coverage and integration Resources provided for planning Resistance to strategic planning 3. Ranking of factors in terms of discriminating ability Capability of the system Use of planning techniques Attention to external facets Attention to internal facets Functional coverage and integration Resources provided for planning Resistance to strategic planning 4. Classification table
Actual group
Predicted group I 2 % correctly classified
I
2
81.2 18.8
27.3 72.7 77.2
Table 4. The three most important discriminating factors for each effectiveness measure Effectiveness measure
Top discriminating factors
Improving short-term performance
Use of planning techniques Resources provided for planning Resistance to strategic planning
Improving long-term performance
Resources provided for planning Resistance to strategic planning Attention to external facets
Predicting future trends
Use of planning techniques Capability of the system Functional coverage and integration
Evaluating alternatives based on more relevant information
Capability of the system Resistance to strategic planning Resources provided for planning
Avoiding problem areas
Capability of the system Attention to internal facets Use of planning techniques
Enhancing management development
Capability of the system Functional coverage and integration Resistance to strategic planning
Table 5. A summary of the rankings of the seven system factors in the seven discriminant analyses runs Summary No. 1. 2. 3. 4. 5. 6. 7.
Factors Capability of the system Use of planning techniques Attention to internal facets Attention to external facets Functional coverage and integration Resources provided for planning Resistance to strategic planning
No. of times first 4 2 0 0 0 I 0
No. of times among top 3
Omega. Vol. 14, No. 4 such, the technique has yielded us important clues for understanding the sources of success with respect to the goal of enhancing management development. Results of the discriminant analyses for the other objectives show that the key discriminating factors tend to differ, depending on the objective being examined. The top three factors for each of the seven runs are summarized in Table 4. Table 5 summarizes the ranking of the discriminating factors for the seven runs. The rankings provide some interesting pointers as to the factors associated with the fulfillment of planning system objectives. For instance, capability of the planning system achieves the top ranking in four of the seven runs. In addition, Factor 2 (Use of Planning Techniques), and Factor 6 (Resources Provided for Strategic Planning), also achieved top ranking in at least one run each. The remaining factors never ranked at the top, suggesting that their contribution to differences in objective fulfillment is relatively minor, WHAT DO THESE ANALYSES
TELL US? Overall, the results appear to imply that Factors 1 and 7 are key influences on the success of strategic planning. Both are ranked among the top three factors in five of the seven runs. The next most important factor appears to be Factor 6, which ranked among the top three factors in three of the seven runs and in one of those three runs, it ranked as the top factor. Note from Table 4 that although Factors 3, 4, 5, and 7 did not achieve top ranking in any of the seven discriminant analysis runs, they did emerge as one of the top three factors in at least one of the seven runs. This finding should be regarded as extremely important since it emphasizes the contingent or situational nature of systems design and objectives. The seven factors are levers that managers can attempt to manipulate in order to achieve system objectives, but inescapable tradeoffs are involved in this process, as all factors do not contribute equally to the fulfillment of different system objectives. WHAT GUIDELINES CAN BE OFFERED?
The results can be used as the basis for
305
developing guidelines for determining the set of factors that are most critical from the point of view of achieving a particular system objective. Although the emphasis on any one of the objectives is likely to vary across planning units from time to time, the results of the discriminant analysis runs can be used as useful diagnostic tools. They provide a basis for focused debates within the planning unit and within the top management team, and to trigger changes in the characteristics of the system in response to changing objectives of the system. Let us illustrate with a specific example. Suppose the emphasis in a particular context is on fostering creativity as opposed to control. Here, the requirement is to ensure that rigidity is sacrificed in favor of generating and evaluating many alternative courses of action to arrive at a more 'innovative' and 'creative' action plan. In that case, it may be appropriate to examine the set of factors associated with the objective evaluating alternatives based on more relevant information. The results for this run (summarized in Table 4) showed that the factors that best discriminate the more successful planning units from the less successful ones with regard to the above system objective are the capability of the system, resistance to strategic planning and resources provided for planning. This finding is consistent with the prevalent view that creativity goals are best supported by providing opportunities and resources to engage in mind-stretching activities. It is also noteworthy that resistance came up as a key factor. Clearly, no creativity can be expected in an environment of resistance and hostility to planning. A logical question at this juncture is: How best to enhance the capability of the system? Although no single 'sure-win' route exists for enhancing the capability of the system generically applicable in all contexts, some general parameters can be obtained based on a careful evaluation of the planning system's current level of emphasis on creativity as opposed to control. Is one being sacrificed for the other? Contrary to popular belief, effectiveness is not achieved by trading off one for the other. The more effective systems in our study were characterized by a higher score on this dimension, indicating that they have been simultaneously able to emphasize control as well as creativity. The functional coverage of the system turned out to be another important discriminating fac-
306
Ramanujam et al.--Evaluation of Strategic Planning Systems
tor. This means that planners need to create systems that are not just glorified budgeting or number crunching mechanisms, but integrative tools that pull together all the different organizational functions [4] into a coherent whole so that synergistic effects can be maximally exploited. CONCLUSIONS
Based on data from an ongoing large-scale study of top level executives from over 200 strategic planning units of large corporations in North America, it is shown that dissatisfaction with formal strategic planning is not as widespread among practicing managers as is often alleged. Furthermore, the degree of success achieved in fulfilling key planning objectives varies widely from firm to firm and from objective to objective. The technique known as discriminant analysis is found to be useful for exploring these differences. The results underscore the importance of approaching systems design from a 'situational' or 'contingency' design perspective, since the influences of any system factor is found to vary depending upon the system objective sought to be fulfilled. At a broad level of generality, the adaptive capability of the system and its functional coverage were shown to be the key design factors that lead to success vis-h-vis the achievement of the key objectives of strategic planning. In contrast to guidelines derived from isolated case studies, this article systematically isolated general characteristics which differentiated more successful planning systems from less successful ones.
ACKNOWLEDGEMENTS
School of Management, Case Western Reserve University. and the Graduate School of Business, University of Pittsburgh, for the project titled "'The Design and Use of Strategic Planning Systems: Some Key Issues for the Eighties", on which this paper is based. Jarmell Boyd, Patrick Gaughan, Linda Natal, and Loretta Riles provided valuable assistance throughout the project.
REFERENCES 1. Armstrong JS (1982) The value of formal planning for strategic decisions: review of empirical research. Strategic Mgmt. J. 3(3), 197-2[ I. 2. Business Week (1983) The future catches up with a strategic planner. June 27, 62. 3. Camillus JC (1975) Evaluating the benefits of formal planning. Long Range Plann. 8(3), 33-40. 4. Camillus JC and Venkatraman N ([984) Dimensions of strategic choice. Plann. Rev. 12(1), 26-31; 46. 5. Kiechel W, III (1981) Oh where, oh where has my little dog gone? Or my cash cow? Or my star? Fortune, November 2, 148. 6. Kiechel W, III (1982) Corporate strategists under fire. Fortune, December 27, 34. 7. King WR (1983) Evaluating strategic planning systems. Strategic Mgmt. J. 4(3), 263-277. 8. King WR and Cleland DI (1978) Strategic planning and policy. Van Nostrand Rheinhold, New York. 9. Lamb R (1983) Is the attack on strategy valid? J. Busin. Strategy. 3(4), 68~59. 10 Lorange P and Vancil R (1977) Strategic planning systems. Prentice-Hall, Englewood Cliffs. NJ. If. Peters TJ and Waterman RH (1982) In search of excellence: Lessons from America's best run companies. Harper & Row. 12. Ramanujam V and Venkatraman N (1985) Eight halftruths of strategic planning: A fresh look. Plann. Rev. 13(I), 22-27. 13. Ramanujam V, Venkatraman N and Camillus JC (1986) Multi-objective assessment of effectiveness of strategic planning: A discriminant analysis approach. Acad. Mgmt. J. 29(2), (Forthcoming). 14. Shank JK, Niblock EG and Sandalls WT Jr. (1973) Balance 'creativity' and 'practicality' in formal planning. Harv. Bus. Rev. 53(1), 87-95. 15. Steiner GA (1979) Strategic Planning: What Ever), Manager Must Know. Free Press, New York. Professor V Ramanujam, Weatherhead School of Management, Case Western Reserve University, Cleveland, OH 44106 USA.
ADDRESS FOR CORRESPONDENCE:
The authors acknowledge the support provided by the Department of Managerial Studies, The Weatherhead
0305-0483 86 $300-0.00 Pergamon Journals Ltd
"Objectives-Based" Evaluation of Strategic Planning Systems V RAMANUJAM Case Western Reserve University, Ohio, USA N VENKATRAMAN Massachusetts Institute of Technology, USA JC CAMILLUS University of Pittsburgh, Pennsylvania, USA (Received July 1985; in revisedform October 1985) A comparative study of more effective vs less effective planning systems is reported here, where effectiveness is treated in terms of the fulfillment of six key planning objectives. Based on data on the strategic planning systems and processes of over 200 North American companies, key systems design and contextual factors associated with effective planning are identified. It was found that dissatisfaction with formal strategic planning is not as widespread among practicing managers as is widely alleged. The degree of fulfillment of key planning objectives varies widely not only from company to company but also from objective to objective. Overall, the creativity and control orientation of the system and its level of functional integration were found to be the principal design factors contributing to the effectiveness of a strategic planning system.
IT IS WIDELY alleged that formal strategic [9]. Most criticisms have emanated from acaplanning systems, which grew in popularity demics or consultants, who have tended to base during the sixties and early seventies, have since their analysis and conclusions on individual case largely proved to be ineffective in dealing with studies involving failure of formal planning. A the turbulence and uncertainties of the late balanced examination of a large number of seventies and early eighties. Many authorities cases appears to be a necessary first step in have sharply criticised the corporate world's order to clarify afresh the role and value apparently heavy reliance on such formalized of planning in modern organizations. Few systems of management and control [2, 6]. This attempts have been made to systematically criticism is part of a broader attack against the investigate and synthesize the perceptions and concepts of strategy and strategic planning and experience of managers as to the role and value against the notion of rational man which is said of planning in their organizations today. Such an assessment is particularly necessary at this to underly those concepts [11]. It is necessary for strategy professionals to juncture, in the wake of the major changes of take cognizance of these criticisms, even though the recent past. In addition, most prior criticisms of formal they might appear excessively harsh at first sight planning have displayed an excessive obsession JAn earlier version of this paper was one of the prize with the financial payoffs from planning. This is winners in the Foundation for Administrative a valid but rather narrow view, and needs to be Research/North American Society for Corporate Plansupplemented with a broader perspective that ning 1984 Competition on "Best Paper in Corporate recognizes the multiple objectives and goals of and Organizational Planning." 299
300
Ramanujam et al.--Ecaluation of Strategic Planning Ststems
a formal strategic planning system over and beyond its potential financial payoffs [3, 12, 15]. A number of previous studies have attempted to establish the financial payoffs of strategic planning, with contradictory and confusing results. An extensive review of these efforts is provided by Armstrong [1]. Recently, King [7] has argued for what he refers to as the direct approach to the evaluation of a strategic planning system. In this approach, it is contended that the ability of the system to satisfy key planning objectives should receive as much scrutiny as the eventual financial outcomes obtained from strategic planning. It is reasonable to assume that if planning systems do not fulfill explicit objectives set for planning, they are unlikely to be accepted or valued, and if they are not accepted or valued, they will not lead to superior financial performance. Thus, a primary emphasis on the objectives of planning would appear to be a crucial need for a valid assessment of planning effectiveness. This is the approach we have adopted in this study. Thus, although an effective strategic planning system ideally should yield tangible financial payoffs, it must be recognized that ultimate organizational performance is a function of a myriad of influences that go beyond the characteristics of the planning system per se. We believe it is a more modest but necessary refinement in the evaluation methodology to limit one's attention to the objectives of the planning system and examine how well these are satisfied, This would appear to be a minimal, first-cut and oft-neglected effectiveness criterion to apply to the evaluation of a planning system. However, it is not our intent to minimize the importance of ultimate financial performance. Elsewhere, we have examined multiple effectiveness criteria, including objective fulfillment and other conventional financial measures [13]. Guided by the philosophy that a balanced assessment of planning's role and value should rely on the judgments of executives and that it should consider the multiple objectives of strategic planning, we addressed the following questions: I. To what extent, in the opinion of planning professionals, are the major objectives of strategic planning being fulfilled in organizations?
. If these objectives are relatively' more fulfilled in some organizations than in others, to what extent can the differences in objective fulfillment be traced to specific facets of the system's design and use? In other words, what are the key discriminating aspects of system design and use that lead to the observed differences in the fulfillment of planning objectives? . If key discriminators can be identified, what guidelines can be developed for improving a system's position on these discriminating characteristics? Answering the first question would assist us in documenting the extent of satisfaction and dissatisfaction with planning systems with regard to their ability to fulfill various strategic planning goals. Answers to the second would enable us to identify those aspects of systems design that might be expected to aid in achieving specific system objectives. Addressing the third question provides the necessary base for developing the guidelines for effective planning. The research reported here is part of an ongoing, large-scale study titled, The Design and
Use of Strategic Planning Systems: Some Key Issues for the Eighties. Senior executives representing over 200 major American corporations have provided us with data on numerous aspects of their planning systems. The specific focus of this study was on the changes that have occurred in the recent past in the design, use and perceived usefulness of formal strategic planning in the participating companies. The characteristics of the sample comprising this study are profiled in Table 1.
WHAT ARE TH E M A J O R OBJECTIVES OF STRATEGIC PLANNING?
Different views exist as to what the objectives of strategic planning should be. The traditional rationale for planning has been that planning leads to financial payoffs. We argue that it is a management process that addresses multiple goals and objectives--and not merely financial ones. Consistent with this approach, we arrived at the following list of the major objectives of strategic planning:
Omega, I/ol. 14, No. 4
301
Table I. Characteristics of sample companies and respondents" (n = 207) I.
2.
3.
a.
5.
Sales of the responding unit Less than 5250 million $251 million-S1 billion Over $l billion Primary business category of the responding unit Consumer goods Capital goods Raw or semi-finished materials Components for finished goods Service sector Organizational level of responding unit Corporate Business unit Titlejob responsibility of responding executive Planning Other line function Maturity of the pIanning system (year planning began) Before 1960 During 1961-1975 After 1976
L7.4 2t .8 60.9 19.2 18.7 12.8 8.9 40.4 81.5 18.5 68.5 31.5 6.2 36.7 55.2
~AII figures are percentages. Non responses have been excluded.
1. Improving short-term performance
frame (objectives 1, 2, 4), and a means of corporate education (objectives 5, 6).
2. Improving long-term performance 3. Predicting future trends 4. Evaluating alternatives based on more relevant information 5, Avoiding problem areas
WHAT FACTORS ARE EXPECTED
TO INFLUENCE THE FULFILLMENT OF PLANNING OBJECTIVES? The literature on planning suggests that the following seven aspects of the design and use of strategic planning are important influences on the fulfillment of planning objectives:
6. Enhancing management development The above list is not claimed to include all the possible objectives of planning. For pragmatic reasons, it was necessary to limit attention to the most important ones. Objectives 1 and 2 relate directly to performance, while the third objective emphasizes the future orientation of planning, and consequently the importance of valid and reliable predictions. The fourth objective underscores the creativity enhancing value of planning systems and processes in that good planning should lead to the surfacing and exploration of a broad array of alternatives [8, 14]. Objective 5 embodies the idea that good planning should successively reduce the probability of making errors of judgement and that it should contribute to organizational learning. Finally, developing management depth is an oft-emphasized second-order goal of planning and is captured in the sixth objective. Taken together, the planning objectives considered in this study cover the three fundamentals of corporate planning, namely, an adequate information base (objective 3), an action
1. Capability of the planning system (i.e. its creativity vs control orientation) 2. Use of planning techniques 3. Degree of attention to internal (i.e. organizational) facets in planning 4. Degree of attention to external (i.e. environmental) facets in planning 5. Extent of coverage and integration of various functional areas 6. Resources provided for planning 7. Resistance to strategic planning Anecdotal as well as conceptual writings on the topic of strategic planning practices support the consideration of these factors. The capability of the planning system refers to the extent to which the system balances creativity and control considerations in meeting the requirements of
302
Ramanujam et al.--Ecaluation of Strategic Planning Systems Table 2. Extent of fulfillment of strategic planning objectives Percentage of responding executives
Objective I. Improving short-term performance 2. Improving long-term performance 3. Predicting future trends 4. Evaluating alternatives based on more relevant information 5. Avoiding problem areas 6. Enhancing management development
planning. This has been emphasized often as a crucial determinant of effective planning. The use of techniques such as portfolio (e.g. BCG) analysis, stakeholder analysis, and financial models provides a basis for structuring the unstructuredness which characterizes most strategic decisions. Attention to internal and external facets follows directly from the classical Strength Weaknesses Opportunities Threats (SWOT) analysis. The degree of coverage given to key functional areas affects the extent of integration and coordination achieved in planning. Finally, the need to provide adequate resources for planning as well as the importance of addressing and overcoming organizational resistance to this important managerial activity, have been emphasized by many management experts [8, I0, 15]. The above seven factors-' are expected to be associated to varying degrees with the extent of fulfillment of each of the six system objectives earlier discussed. Responding executives rated their planning systems along these seven dimensions and also indicated the extent to which the six objectives were achieved by their planning system. Each factor was represented by multiple items on the questionnaire. HOW WELL ARE THE OBJECTIVES BEING FULFILLED? It is not surprising that not all the objectives are being fulfilled to the same extent. Table 2 indicates the degree to which respondents are satisfied with the fulfillment of the set of objectives discussed earlier. Since any score in excess of the neutral point 3 indicates a positive assessment vis-a-vis objective fulfillment, it is heart-" For more details on these seven factors and a copy o f the s u m m a r y report of the study, please contact the authors.
Unfulfilled (1) and (2)
Neutral (3)
Fulfilled (4) and (5)
Average score
8.5 6.8 15.5
32.I 25.7 21.5
54.4 67.6 63.0
3.52 3.67 3.51
6.9 14.8 15.6
17.6 32.5 30.7
65.6 52.7 53.8
3.78 3.39 3.38
ening to note that, by and large, the participating executives rate their planning systems as performing a satisfactory job. The proportion of executives indicating that they are generally satisfied exceeds 50% for all six objectives and is well in excess of 60% for three of the six objectives. The average ratings of objective fulfillment for all participants taken as a group, indicated in the rightmost column in Table 2, suggests that a creativity oriented objective, namely, evaluating alternatives based on more relevant information, is the most fulfilled objective with a score of 3.78. It signifies that formal planning systems are not being perceived as limiting the identification and exploration of alternatives, as some critics have asserted. In addition, there is a general belief that planning systems are largely accomplishing the objective of improving both long-term and short-term performance. However, at the present time, the objectives of predicting future trends, avoiding problem areas, and enhancing management development are not being fulfilled to the same extent as are the other three objectives, although even with respect to those objectives managers are as likely to be positive as negative. Thus, our study indicates that although responding executives are, in general, satisfied with their planning systems, considerable scope exists for improvement.
THE SEARCH FOR KEY DISCRIMINATORS
Given that there is a wide range in the degree of objective fulfillment in the sample, it is useful to examine the differences between more successful (i.e. those firms reporting greater levels of objective fulfillment) and less successful planning systems with regard to the seven system factors discussed earlier. Such an analysis would
Omega, Vol. 14, No. 4
greatly facilitate the identification of the factors that are most crucial from the standpoint of fulfilling various planning system objectives. It has been customary in most prior research to explore such differences by looking for statistically significant differences between the satisfied and dissatisfied groups with respect to each of the seven independent factors. However, such a statistical analysis of differences between the two groups cannot yield insight into the relative importance of each factor. Also, such analyses of each factor in isolation fail to take into account the entire set of seven factors acting jointly in affecting the eventual outcome, namely fulfillment of a particular planning objective. Clearly, since these seven factors are interdependent, we need techniques of discrimination that are far more sophisticated than simple statistical comparison. The technique known as discriminant analysis has been found to be valuable for exploring differences between groups when such differences could be due to many factors exerting a joint as opposed to independent influence. It has been used, for instance, in applications as varied as bankruptcy prediction, customer credit rating, income tax audit, and the rating of corporate bonds? In this article, this technique is employed for identifying the key factors that distinguish more successful planning systems from less successful ones. WHAT DIFFERENTIATES MORE SUCCESSFUL PLANNING FROM LESS SUCCESSFUL PLANNING?
Our analyses are aimed at answering the above question--viz., what are the observable differences among the seven factors discussed above between the more successful and less successful planning systems. A total of seven discriminant functions were developed, one for each of the objectives, and one for a "composite" measure of objective fulfillment. The results of the discriminant analysis run for the objective enhancing management develFor an interesting application of this technique in strategic management, see Altman El and LaFleur JK (1981) Managing a Return to Financial Health. J. Busin. Strategy. 2, (1), pp 31-38. Discriminant analysis results are shown for an illustrative run. Readers interested in the results of other runs are referred to [13].
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opment are contained in Table 3. 4 The results of the analysis are presented in four parts in the table. In the first part, the number of respondents in each of the two groups is indicated, while the second part shows the average scores for the two groups with respect to each of the seven discriminating factors. Interestingly, the more successful planning systems had consistently higher scores than the less successful ones on all the factors except Factor 7 (Resistance to Strategic Planning) where they scored lower. The usefulness of this set of results is somewhat limited, however, as they do not indicate the relative importance of the factors. In the third part are shown the weights of each discriminating factor as determined from the discriminant analysis run. These weights give us an indication of the relative importance of the factors. The factors are also ranked in this part from one to seven based on the absolute size of their importance weights. Finally, in the fourth part, we show the classification efficiency (i.e., discriminating ability) of the discriminant function derived for this objective. It serves as a useful way of assessing the ability of the seven factors to effectively separate the more successful group from the less successful one. Referring to Table 3 again, we first note that there were about as many successful companies (44) as unsuccessful ones (48) as far as fulfillment of the planning objective, enhancing management development, is concerned. It can be inferred next from the weights of the discriminating factors that the key factors are capability of the system,functional coverage, and resistance to strategic planning, with the remaining four factors being less important in their ability to distinguish between the two groups. Of particular interest is that Factor 2 (use of planning techniques) has the lowest rank as a discriminating factor. This finding cautions against excessive reliance on techniques in planning and supports the recent admonitions of critics of planning against the uncritical use of such technique oriented planning tools as the BCG matrix and PIMS models [5, 6]. In the final part of Table 3 is shown the classification table. The overall classification accuracy of 77.2% is encouraging. With further refinement of the factors and improvements in the definition of the groups, a still higher classification accuracy should be possible. As
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Rarnanujarn et al.--Et'aluation of Strategic Planning Systems Table 3. Discriminant analysis results Objective: "'Enhancing management development" Description
"'Less successful" planners
"'More successful" planner~
48
.I.0,
3.370 3.063 3.160 3.505 3.446 3...111 1.888
3.953 3.306 3.583 3.744 3.718 3.818 1.423
Weig,,ht 0.65 -0.07 0.27 -0.12 0.49 -0.39 -0.40
Rank 1 7 5 6 2 4 3
1. Number in group 2. Differences between groups Capability of the system Use of planning techniques Attention to external facets Attention to internal facets Functional coverage and integration Resources provided for planning Resistance to strategic planning 3. Ranking of factors in terms of discriminating ability Capability of the system Use of planning techniques Attention to external facets Attention to internal facets Functional coverage and integration Resources provided for planning Resistance to strategic planning 4. Classification table
Actual group
Predicted group I 2 % correctly classified
I
2
81.2 18.8
27.3 72.7 77.2
Table 4. The three most important discriminating factors for each effectiveness measure Effectiveness measure
Top discriminating factors
Improving short-term performance
Use of planning techniques Resources provided for planning Resistance to strategic planning
Improving long-term performance
Resources provided for planning Resistance to strategic planning Attention to external facets
Predicting future trends
Use of planning techniques Capability of the system Functional coverage and integration
Evaluating alternatives based on more relevant information
Capability of the system Resistance to strategic planning Resources provided for planning
Avoiding problem areas
Capability of the system Attention to internal facets Use of planning techniques
Enhancing management development
Capability of the system Functional coverage and integration Resistance to strategic planning
Table 5. A summary of the rankings of the seven system factors in the seven discriminant analyses runs Summary No. 1. 2. 3. 4. 5. 6. 7.
Factors Capability of the system Use of planning techniques Attention to internal facets Attention to external facets Functional coverage and integration Resources provided for planning Resistance to strategic planning
No. of times first 4 2 0 0 0 I 0
No. of times among top 3
Omega. Vol. 14, No. 4 such, the technique has yielded us important clues for understanding the sources of success with respect to the goal of enhancing management development. Results of the discriminant analyses for the other objectives show that the key discriminating factors tend to differ, depending on the objective being examined. The top three factors for each of the seven runs are summarized in Table 4. Table 5 summarizes the ranking of the discriminating factors for the seven runs. The rankings provide some interesting pointers as to the factors associated with the fulfillment of planning system objectives. For instance, capability of the planning system achieves the top ranking in four of the seven runs. In addition, Factor 2 (Use of Planning Techniques), and Factor 6 (Resources Provided for Strategic Planning), also achieved top ranking in at least one run each. The remaining factors never ranked at the top, suggesting that their contribution to differences in objective fulfillment is relatively minor, WHAT DO THESE ANALYSES
TELL US? Overall, the results appear to imply that Factors 1 and 7 are key influences on the success of strategic planning. Both are ranked among the top three factors in five of the seven runs. The next most important factor appears to be Factor 6, which ranked among the top three factors in three of the seven runs and in one of those three runs, it ranked as the top factor. Note from Table 4 that although Factors 3, 4, 5, and 7 did not achieve top ranking in any of the seven discriminant analysis runs, they did emerge as one of the top three factors in at least one of the seven runs. This finding should be regarded as extremely important since it emphasizes the contingent or situational nature of systems design and objectives. The seven factors are levers that managers can attempt to manipulate in order to achieve system objectives, but inescapable tradeoffs are involved in this process, as all factors do not contribute equally to the fulfillment of different system objectives. WHAT GUIDELINES CAN BE OFFERED?
The results can be used as the basis for
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developing guidelines for determining the set of factors that are most critical from the point of view of achieving a particular system objective. Although the emphasis on any one of the objectives is likely to vary across planning units from time to time, the results of the discriminant analysis runs can be used as useful diagnostic tools. They provide a basis for focused debates within the planning unit and within the top management team, and to trigger changes in the characteristics of the system in response to changing objectives of the system. Let us illustrate with a specific example. Suppose the emphasis in a particular context is on fostering creativity as opposed to control. Here, the requirement is to ensure that rigidity is sacrificed in favor of generating and evaluating many alternative courses of action to arrive at a more 'innovative' and 'creative' action plan. In that case, it may be appropriate to examine the set of factors associated with the objective evaluating alternatives based on more relevant information. The results for this run (summarized in Table 4) showed that the factors that best discriminate the more successful planning units from the less successful ones with regard to the above system objective are the capability of the system, resistance to strategic planning and resources provided for planning. This finding is consistent with the prevalent view that creativity goals are best supported by providing opportunities and resources to engage in mind-stretching activities. It is also noteworthy that resistance came up as a key factor. Clearly, no creativity can be expected in an environment of resistance and hostility to planning. A logical question at this juncture is: How best to enhance the capability of the system? Although no single 'sure-win' route exists for enhancing the capability of the system generically applicable in all contexts, some general parameters can be obtained based on a careful evaluation of the planning system's current level of emphasis on creativity as opposed to control. Is one being sacrificed for the other? Contrary to popular belief, effectiveness is not achieved by trading off one for the other. The more effective systems in our study were characterized by a higher score on this dimension, indicating that they have been simultaneously able to emphasize control as well as creativity. The functional coverage of the system turned out to be another important discriminating fac-
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Ramanujam et al.--Evaluation of Strategic Planning Systems
tor. This means that planners need to create systems that are not just glorified budgeting or number crunching mechanisms, but integrative tools that pull together all the different organizational functions [4] into a coherent whole so that synergistic effects can be maximally exploited. CONCLUSIONS
Based on data from an ongoing large-scale study of top level executives from over 200 strategic planning units of large corporations in North America, it is shown that dissatisfaction with formal strategic planning is not as widespread among practicing managers as is often alleged. Furthermore, the degree of success achieved in fulfilling key planning objectives varies widely from firm to firm and from objective to objective. The technique known as discriminant analysis is found to be useful for exploring these differences. The results underscore the importance of approaching systems design from a 'situational' or 'contingency' design perspective, since the influences of any system factor is found to vary depending upon the system objective sought to be fulfilled. At a broad level of generality, the adaptive capability of the system and its functional coverage were shown to be the key design factors that lead to success vis-h-vis the achievement of the key objectives of strategic planning. In contrast to guidelines derived from isolated case studies, this article systematically isolated general characteristics which differentiated more successful planning systems from less successful ones.
ACKNOWLEDGEMENTS
School of Management, Case Western Reserve University. and the Graduate School of Business, University of Pittsburgh, for the project titled "'The Design and Use of Strategic Planning Systems: Some Key Issues for the Eighties", on which this paper is based. Jarmell Boyd, Patrick Gaughan, Linda Natal, and Loretta Riles provided valuable assistance throughout the project.
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ADDRESS FOR CORRESPONDENCE:
The authors acknowledge the support provided by the Department of Managerial Studies, The Weatherhead