Strategic Planning Improves Manufacturing Performance

A quantitative critique of 28 studies concludes that formal planning is valuable for firms. The results were particularly favorable for manufacturing firms: nine studies found formal planning to be associated with better performance and none found detrimental performance. Disciplines Marketing Comments Postprint version. Published in Long Range Planning, Volume 24, Issue 4, August 1991, pages 127-129. Publisher URL: http://dx.doi.org/10.1016/0024-6301(91)90013-E This journal article is available at ScholarlyCommons: http://repository.upenn.edu/marketing_papers/121 Published in Long Range Planning, 24 (4), 1991,127-129. Strategic Planning Improves Manufacturing Performance J. Scott Armstrong A quantitative critique of 28 studies concludes that formal planning is valuable for firms. The results were particularly favorable for manufacturing firms: nine studies found formal planning to be associated with better performance and none found detrimental performance. Readers of Long Range Planning have had an enduring interest in the effects of formal planning systems on corporate performance [1,2]. According to Greenley's [3] review of the empirical evidence, formal planning has not been shown to be useful to manufacturing companies. My own review of the evidence reaches a more favorable verdict with respect to formal planning. Below, I describe the selection of the relevant evidence on formal vs. informal planning. Then I discuss how to interpret the previous studies on planning. Finally, I present additional evidence on the value of formal planning in manufacturing firms as well as in other organizations. Selection of the Evidence Greenley reached his conclusion by analyzing prior empirical research. He did not describe the procedure he used to search the literature. The literature he used was a subset of eight of the 19 studies examined in Armstrong [4] plus the rightful addition of Gershefski [5]. In deciding whether formal planning is useful to manufacturing companies, is it sensible to examine only studies conducted in manufacturing companies? Unless one has good prior knowledge that the management planning process is substantially different in manufacturing companies than it is in other types of organizations, it does not seem proper to restrict the search. Greenley presents no evidence on this issue. Because we do not know that the effectiveness of planning differs by type of firm, w( should incorporate evidence from all firms. This is especially important because Greenley had a small sample of studies relevant to manufacturing companies. To consider the sampling problem in another way, assume that a manufacturer of light bulbs in New York wants to know whether formal planning will improve the firm's performance over the next 10 years. Would you respond, “I don't know because the sample in the study does not include any New York light bulb manufacturers during the years 1991 to 2000?” Researchers must generalize to new situations. They do this by marshalling relevant evidence from similar situations. Interpreting the Evidence Greenley concluded that five studies favored formal planning and that four did not. It is common practice in quantitative reviews (or, as they are now called, “meta-analyses”) to omit studies scored as “ties” in the comparisons and to look only at the direction of effects. Of the four studies that did not support planning, three were coded as ties in Armstrong [6]; these were the study reported by Fulmer and Rue [7] and Rue and Fulmer [8] (Fulmer and Rue divided their study into two parts for publication; each part is similar), Grinyer and Norburn [9], and Lcontiadcs and Tezel [10]. The fourth study, Kudla [11, 12], was classified in Armstrong as favoring formal planning (Kudla split his study into two parts; it was necessary to read both parts in order to rate the study). My rating was based on independent assessments by three experts, with the resulting consensus being checked with the researcher, Kudla. Greenley did not state the basis for his rating of Kudla's study as a tie. (Although Shrader, Taylor, and Dalton [13] had also rated Kudla as a tie between formal and informal planning, they did not include