The purpose of the review is to critically analyse the article ‘Formal strategic planning, operating environment, size, sector and performance: Evidence from the UK's manufacturing SMEs’ by Ghobadian, A., O’Regan, N., Thomas, H. and Liu, J. published in Journal of General Management in 2008. The review would be based on the following questions: 1. What does the text suggest is the relationship between formal strategic planning and performance? 2. Do the contingency factors of environment, size and sector impact upon the aforementioned relationship and to what extent?
Purpose and Design
The authors seek to determine the relationship between the formality of strategic planning process and performance while testing the effect of size, sector and the environment as factors that may impact upon this relationship. The propositions were founded on the constructs of formality, operating environment and performance. In defining formality, the presence or absence of a written strategic plan was used to divide firms into planners and non-planners. Firms were also divided into low, medium or high formality planners depending on whether they met certain characteristics of a formal strategic process informed by the literature. Operating environment was assessed using the dimensions of turbulence, dynamism and munificence with munificence was studied as a measure of growth/decline and level of competition. Performance was measured using financial performance, market performance, effectiveness which is ability of an organisation to meet its objectives and satisfy its stakeholders; and manufacturing learning and innovation.
The authors were informed by research and theoretical literature on strategic planning, including his study of SMEs in UK's fabrication and electronics sectors. The final sample for their study comprised of 702 randomly selected SMEs from which 194 firms gave valid responses received via postal surveys. Principal factor analysis and varimax rotation were applied to analyse the scales used to assess firms' operating environment and the performance measures. A one-way between groups multivariate analysis of variance (MANOVA) was performed, to investigate planning differences in the operating environment and performance. The authors set out to inform managers in SMEs of the value and implications of using a normative formal strategic planning process.
First, the authors claim that the link between formal strategic planning and performance is tenuous in the context of SMEs. The paper suggests that SMEs do not place importance to formal planning as they emphasise means not end goals and argue that the planning process used would be more suitable for larger organisations. Second, environment does not affect the use of written strategic plans but affects the level of formality in planning. The research suggests that managers in more turbulent environments use more information and consider various alternatives and hence, rely on high formality planning system. Third, sector has no effect on the incidence of written plans or on the level of planning formality while size influences the incidence of written plans, but not the level of planning formality. They argue that once organisations overcome the initial obstacles to the introduction of formal planning, taking a step to plan is no longer a problem. The authors suggest that these findings may not be generalised as the research was drawn from only two sectors.
Evaluation of main claims
The authors’ findings appear quite robust. They are appropriately tentative given the limitations of their research. Their claims are backed by their investigation into the UK SMEs and research literature. Sources of research evidence are transparent as provided by the methodology section and the sample size is adequate. The validity of the survey was ensured by interviews which...