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.strategic planning, manufacturing performance

JS Armstrong

English

Research Papers in Economics

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   2
 
the rest of his study, which was reported separately.) By coding Kudla as a positive case for the value of planning, 
Greenley's sample contains six comparisons favoring formal planning and none opposed. A six to nothing advantage 
is statistically significant (p < 0.05 using the sign test). 
 
In Greenley's favor, one should note that the three studies with no effects should not be completely ignored. 
They weaken the case for the value of formal planning. That is, if we do many studies and find no effect, then the 
likelihood rises that there will be no effect in a new situation. 
 
Greenley also concluded that the researchers were biased in favor of formal planning and that this should lead 
us to be less accepting of positive results. To examine this, he used a measure of methodological rigor corresponding 
to the approach presented in Armstrong [14]. This scale for rigor was taken from Terpstra [15]. Coincident with the 
publication of Greenley's paper, two papers appeared on the use of this test of methodological rigor: Foster [16] 
challenged the use of Terpstra's scale, while Armstrong [17] defended it. Although the measure is not without its 
problems, it does seem to be useful. 
 
I disagree with Greenley's interpretation of the results from the test of methodological rigor. Presumably, 
studies done with little rigor are likely to yield results that reflect the researcher's bias. If researchers are biased in 
favor of formal planning, one would expect stronger results to be found among less rigorous studies. Armstrong [18] 
found the opposite to be true; the studies that were done more carefully provided stronger evidence in favor of 
formal planning. Greenley's results were consistent with Armstrong, but Greenley interpreted this as weakening the 
argument in favor of formal planning. 
 
 
Additional Evidence 
 
Research on the value of formal planning continues. The meta-analysis from Armstrong [19] should be updated 
to include nine studies favoring formal planning: Gershefski [5], Robinson et al. [20], Welch [21], Ackelsberg and 
Arlow [22], Bracket and Pearson [23], Ramanujam and Venkatraman [24], Rhyne [25], Capon et al. [26], and 
Verhage and Waarts [27], one with no effect Van der Walt et al. [28], and one, Whitehead and Gupta [29], with 
negative effects. The updated evidence on the value of formal planning vs. informal is as follows: 
 
20 studies found higher performance with formal planning 
 
5 studies found no difference 
 
3 found formal planning to be detrimental. 
 
Thus, formal planning, as practiced, does seem useful and the results are statistically significant (p<0.001 using the 
sign test). 
 
Of these new studies, three [21, 25, 26] were based on manufacturing firms. In these studies, formal planning 
was associated with better performance. Thus the updated score for manufacturing firms is that all nine studies with 
differences found formal planning to be associated with improved financial performance. 
 
Despite these positive results on the value of planning, some of the procedures labeled as formal planning are 
misused [30]. For example, formal planning is sometimes used in an authoritarian manner that can produce 
resentment in an organization. To find evidence on which planning practices are most likely to help, one can draw 
upon laboratory experiments in organizational behavior. 
 
 
Further Research 
 
I agree with Greenley's call for more research. One central point of his paper is correct: It is important to define 
better the conditions under which formal planning is useful. We should also study what planning techniques are 
useful and how the techniques should be matched to the situation, because many concerns persist regarding the 
shortcomings of planning practice.   3
 
 
This research could best be done using laboratory research or quasi-experimental research in organizations. As 
demonstrated by Van de Ven [31], experimental research of the planning process in organizations is feasible. 
 
 
Conclusions 
 
Greenley [3] concluded that formal planning was not useful for manufacturing firms. A re-analysis of the 
evidence on the value of formal planning shows that, in fact, planning is useful for manufacturing companies. Of the 
12 studies on manufacturing firms, nine found that formal planning was more successful, and in no study was it 
detrimental. These results arc stronger than those for 16 studies that included other types of firms. In those studies, 
formal planning was superior on 11 and detrimental on three, with two ties. 
 
 
Acknowledgement: The author wishes to thank Gordon Greenley for his helpful suggestions. 
 
 
References 
 
[1] J. C. Camillus (1975), “Evaluating the benefits of formal planning systems,” Long Range Planning, June. 
 
[2] D. M. Reid (1990), “Where planning fails in practice,” Long Range Planning, 23 (5), 85-93.  
 
[3] G. E. Greenley (1986), “Does strategic planning improve company performance?” Long Range Planning, 19 
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[4] J. S. Armstrong (1982), “The value of formal planning for strategic decisions: Review of empirical research,” 
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[5] G. W. Gershefski (1970), “Corporate models – The state of the art,” Management Science, 16 (6), B303-B312. 
 
[6] See Ref. 4. 
 
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[11] R. J. Kudla (1980), “The effects of planning on common stock returns,” Academy of Management Journal, 23 
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[14] See Ref. 4. 
   4
 
[15] D. Terpstra (1981), “Relationship between methodological rigor and reported outcomes in organizational 
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[16] M. J. Foster (1986), “The value of formal planning for strategic decisions: A comment,” Strategic 
Management Journal, 7 (2), 179-182. 
 
[17] J. S. Armstrong (1986), “The value of formal planning for strategic decisions: Reply,” Strategic Management 
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al.,” Journal of Marketing, 54, 114-119, April. 
 
[18] See Ref. 4. 
 
[19] See Ref. 17. 
 
[20] Richard B. Robinson Jr., J. A. Pearce, G. S. Vozikis and T. S. Mescon (1984), “The relationship between stage 
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[21] Jonathan B. Welch (1984), “Strategic planning could improve your share price,” Long Range Planning, 17, 
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[22]Robert Ackelsberg and P. Arlow (1985), “Small businesses do plan and it pays off,” Long Range Planning, 18 
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[23] Jeffrey S. Bracker and J. N. Pearson (1986), “Planning and performance of small, mature firms,” Strategic 
Management Journal, 7, 503-522. 
 
[24] Vasudevan Ramanujam and N. Venkatraman (1987), “Planning and performance: A new look at an old 
question,” Business Horizons, 30, 19-25.7 
 
[25] Lawrence Rhyne (1987), “Contrasting planning systems in high, medium and low performance companies,” 
Journal of Management Studies, 24, 363-385. 
 
[26] N. Capon, J. U. Farley and J. M. Hulbert (1987), Corporate Strategic Planning: An Empirical Study. New 
York: Columbia University Press. 
 
[27] Bronislaw J. Verhage and E. Waarts (1988), “Marketing planning for improved performance: A comparative 
analysis,” International Marketing Review, 5 (2), 20-30. 
 
[28] Nick T. Van der Walt, S. Lysonski, B. Queree, J. Harper and S. Hales (1989), “Marketing planning in New 
Zealand (with commentary),” New Zealand Journal of Business, 11, 1-21. 
 
[29] David D. Whitehead and B. E. Gun (1985), “Bank and thrift profitability Does strategic planning really pay?” 
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[30] Marjorie A. Lyles and R. T. Lenz  (1982), “Managing the planning process: A field study of the human side of 
planning,” Strategic Management Journal, 3, 105-118. 
 
[31] A. Van de Ven (1980), “Problem solving, planning and innovation, Part 1 : Test of the program planning 
model,” Human Relations, 33 (10), 711-740. 
 

Bank and thrift profitability Does strategic planning really pay?” Economic Review of the Federal Reserve Bank of Atlanta,

Camillus

Contrasting planning systems in high, medium and low performance companies,”

Corporate models – The state of the art,”

Corporate Strategic Planning: An Empirical Study.

Does strategic planning improve company performance?”

Is long-range planning profitable?”

Managing the planning process: A field study of the human side of planning,”

Marketing planning for improved performance: A comparative analysis,”

Marketing planning in New Zealand (with commentary),”

Planning and performance of small,

Planning and performance: A new look at an old question,”

Planning for existing markets: Perceptions of executives and financial performance,”

Planning perceptions and planning results,”

Problem solving, planning and innovation, Part 1 : Test of the program planning model,” Human Relations,

Relationship between methodological rigor and reported outcomes in organizational development evaluation research,”

Small businesses do plan and it pays off,” Long Range Planning,

Strategic planning and organizational performance: A critical appraisal,”

Strategic planning and risk,”

Strategic planning could improve your share price,” Long Range Planning,

The effects of planning on common stock returns,”

The practice and profitability of long-range planning,”

The relationship between stage of development and small firm planning and performance,”

The value of formal planning for strategic decisions:

The value of formal planning for strategic decisions: Review of empirical research,”

Where planning fails in practice,”

Strategic Planning Improves Manufacturing Performance

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Strategic Planning Improves Manufacturing Performance

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