Literature is reviewed in support of an examination of the structure of profit making operations within a business enterprise. Relevant literature is reviewed in three broad areas of interest--planning for profitability, sources of financial failure for business enterprises, and concepts and considerations for costing business activities.
Profits are required to support innovation, which, in turn, is required to create economic growth (Horngren 14). At the enterprise level, provides are requires to assure continued viability. The probability for profitable operations is enhanced through planning.
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 658). Strategic planning is a process that generates specific actions which are required to carry out a particular strategy.
Although the strength of the links between strategic planning and financial performance remains a matter of some dispute, recent studies have demonstrated that such links do exist (Habib and Victor 589-606; Shrader 45-60).
FSP has been related to organizational financial performance both positively and negatively (Fisher 25-28). Formal planned patterns of growth have been positively related to organizational performance (Robinson and Pearce 43-60). Conversely, a failure to effectively employ strategic planning and to effectively link strategic planning to organizational performance goals has been found to lead to organizational decline (Weitzel and Jonsson 7-22).
There are specific characteristics of an FSP process that cause it to be effective in leading to the attainment of organizational performance objectives. The process should be goal-oriented, provide for management-strategy compatibility, provide for effective incorporation of a firm's human...