STRATEGIC PLANNING AND FINANCIAL PERFORMANCE:A LITERATURE REVIEW
This literature review is a part of a study of the relationship between the degree of formality in the strategic planning process and organizational financial performance. An assumption was made for this study that strategic planning incorporates the process of budgeting. Organizational financial performance in this study was measured in terms of sales, stock price, earnings, return on equity, return on investment, return on total assets, and return on sales.
The Strategic Planning Concept, and the Formality of the Process
Formal strategic planning (FSP) is defined as "the process of determining the mission, major objectives, strategies, and policies that govern the acquisition and allocation of resources to achieve organizational aims" (Pearce, Freeman, and Robinson, 1987, p. 658). Strategic planning is a process which generates specific actions which are required to carry out a particular strategy.
By definition, thus, the strategic planning process begins subsequent to the adoption of a strategy. The entire strategic process within an organization, however, is a set of highly interrelated components, which function within a dynamic environment. Thus, in the so called real world, strategic planning will often precede strategy development, because of the cyclical character of the strategic process.
There are five generally recognized elements of the strategic cycle. These elements are as follows: (1) organizational considerations, which are concerned primarily with the organizational structure; (2) resource requirements, (3) strategic control, which is concerned primarily with the organization's internal environment; (4) strategic planning, which is concerned primarily with the external environment of the organization; and (5) the development of strategy, which is the end result of the combined effects of the other elements of the strategic cyc...