International Journal of Humanities and Social Scie nce Vol. 2 No. 22 Special Issue November 2012 [604015]

International Journal of Humanities and Social Scie nce Vol. 2 No. 22 [Special Issue – November 2012]
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The Relationship between Strategic Planning and Fir m Performance

Robert Arasa, PhD
Senior Lecturer
School of Management and Commerce
Strathmore University
Nairobi-Kenya.

Professor Peter K'Obonyo
Deputy Principal
College of Humanities and Social Sciences
Department of Business Administration
University of Nairobi
Nairobi-Kenya.

Abstract

Organizations from both the private and public sect or are increasingly embracing the practice of strat egic
planning in anticipation that this will translate t o improved performance. Past studies have mainly fo cused on the
direct relationship between strategic planning and performance and did not give attention to the speci fic steps
that make up the strategic planning process. The ma nner and extent to which each of the steps is pract iced could
have implications on the expected strategic plannin g results. This study examined the relationship bet ween
strategic planning and firm performance giving atte ntion to the strategic planning steps. Correlation analysis
results indicate the existence of a strong relation ship between strategic planning and firm performanc e. Further,
all the strategic planning steps (defining firm’s c orporate purpose, scanning of business environment,
identification of firm’s strategic issues, strategy choice and setting up of implementation, evaluatio n and control
systems) were found to be positively related to com pany performance.

1. Introduction

Over time the concept and practice of strategic pla nning has been embraced worldwide and across sector s because
of its perceived contribution to organizational eff ectiveness. Today organizations from both the priva te and public
sectors have taken the practice of strategic planni ng seriously as a tool that can be utilized to fast track their
performances. Strategic planning is arguably import ant ingredient in the conduct of strategic manageme nt. Steiner
(1979) noted that the framework for formulating and implementing strategies is the formal strategic pl anning
system. Porter (1985) noted that despite the critic ism leveled against strategic planning during the 1 970s and 80s,
it was still useful and it only needed to be improv ed and recasted. Greenley (1986) noted that strateg ic planning
has potential advantages and intrinsic values that eventually translate into improved firm performance . It is,
therefore, a vehicle that facilitates improved firm performance.

Many of the studies on the relationship between str ategic planning and firm performance were done betw een
1970s and early 1990s, in the developed economies. These studies focused on the direct relationship be tween
strategic planning and firm performance. Although t he studies within the African context by Woodburn ( 1984),
Adegbite (1986) and Fubara (1986) noted that firms that practiced strategic planning recorded better p erformance
compared to non-planners, their focus, however, was on the formality of planning rather than the link between
planning and firm performance. It is noted that the past studies did not give attention to the individ ual steps that
make up the strategic planning process. It is perce ived that the manner and extent to which each of th e strategic
planning steps is addressed could have implications on the realization of the expected corporate goals .

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This study set out to examine the relationship betw een strategic planning and firm performance in a de veloping
country’s context (Kenya). Most of the research don e is based on the developed countries’ context. Giv en the fact
that even strategic planning is fast being embraced in the developing countries, it is important that the
implications of this practice is researched and doc umented. This study made an attempt towards finding answers
to the research questions: is there a link between strategic planning and firm performance given diffe rent
contexts? and, is there a link between the strategi c planning steps and firm performance? Therefore, t here are two
main objectives in this study. First we examine the relationship between strategic planning and firm p erformance
and thereafter examine the relationship between str ategic planning constituent variables and firm perf ormance.

2. Literature Review

2.1 The concept of strategic planning

Strategic planning has been explained by various wr iters and scholars in different but complementary w ays.
Drucker (1954) contends that strategic planning is management by plans, an analytical process and is f ocused in
making optimal strategic decisions. Other writers h ave expanded on Drucker’s definition. Ansoff (1970)
conceptualizes strategic planning as the process of seeking a better match between a firm’s products o r technology
and its increasingly turbulent markets. He looks at it in terms of change from a familiar environment to an
unfamiliar world of strange technologies, strange c ompetitors, new consumer attitudes, new dimensions of social
control and above all, a questioning of the firm’s role in society. Sharing this view, Hofer and Schen del (1978)
define strategic planning as an evolution of manage rial response to environmental change in a focus mo ving from
internal structure and production efficiency, to th e integration of strategy and structure and product ion innovation,
multinational expansion and diversification. Wendy (1997) explained strategic planning as the process of
developing and maintaining consistency between the organization’s objectives and resources and its cha nging
opportunities. Wendy further argues that strategic planning aims at defining and document an approach to doing
business that will leads to satisfactory profits an d growth.

Steiner (1979) defines strategic planning as the sy stematic and more or less formalized effort of a co mpany to
establish basic company purposes, objectives, polic ies and strategies. It involves the development of detailed
plans to implement policies and strategies to achie ve objectives and basic company purposes. On the sa me breath,
Bateman and Zeithml (1993) view planning as a consc ious, systematic process during which decisions are made
about the goals and activities that an individual, group, work unit or organization will pursue in the future. It
provides individuals and work units a map to follow in their future activities. Hax and Majluf (1996) supporting
this argument explain strategic planning as a disci plined and well-defined organizational effort aimed at the
complete specification of a firm’s strategy and the assignment of responsibilities for execution. From these
diverse views expressed above, strategic planning i n its general and basic understanding can be said t o be a
process of selecting organizational goals and strat egies, determining the necessary programs to achiev e specific
objectives enroute to the goals, and establishing t he methods necessary to ensure that the policies an d programs
are implemented.

Wendy (1997) explains that strategic planning proce ss comprises of three main elements which helps tur n an
organizations vision or mission into concrete achie vable. These are the strategic analysis, strategic choice and
strategic implementation. The strategic analysis en compasses setting the organization’s direction in t erms of
vision, mission and goals. Therefore this entails a rticulating the company’s strategic intent and dire cting efforts
towards understanding the business environment. Str ategic choice stage involves generating, evaluating and
selecting the most appropriate strategy. Strategy i mplementation stage consists of putting in place th e relevant
policies and formulating frameworks that will aid i n translating chosen strategies into actionable for ms. For
purposes of this study, the three main steps have b een sequenced into five generic components that can be
considered to complete the strategic planning proce ss. These are; defining firm’s corporate direction, appraisal of
business environment, identification and analysis o f firm’s strategic issues, strategy choice and deve lopment of
implementation, evaluation & control systems.

2.2 Link between strategic planning and performance

It is conceptualized that firms that have effective ly embraced strategic planning, records better perf ormance as
compared to those that have not.

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Hofer and Schendel (1978), Henderson (1979), Greenl ey (1986), Miller and Cardinal (1994) and David (19 97)
argue that firms record improved performance once t hey effectively embrace strategic planning. Carryin g out the
various steps in the strategic planning process is expected to facilitate the realization of organizat ional
effectiveness. By defining a company’s purpose and goals, strategic planning provides direction to the
organization and enhances coordination and control of organization activities. McCarthy and Minichiell o (1996),
note that a company’s strategy provides a central p urpose and direction to the activities of the organ ization and to
the people who work in it. Howe (1986) and Kotter ( 1996) argue that the primary goal of strategic plan ning is to
guide the organization in setting out its strategic intent and priorities and refocus itself towards r ealizing the same.
Porter (1980), Greenley (1986), Miller and Cardinal (1994), Hax and Majluf (1996) and Grant (1998) arg ue that
an objective analysis of external and internal envi ronment facilitates the establishment of the firm-e nvironment fit
and improved decision-making. Adding to this view, Porter (1980), Quinn (1980), Ohmae (1983) and Kotte r
(1996) note that the identification of strategic is sues and, strategy analysis and selection facilitat es the
achievement of efficient allocation of resources, s ustainable competitive advantage, and improved inno vation. It is
also perceived that the development of implementati on programme, evaluation and control systems facili tates
smooth execution and implementation of the planned tasks. Figure 1 below presents the conceptualized
relationship between strategic planning (independen t variable) and firm performance (dependent variabl e).

Strategic planning H1

H2

Figure 1: A conceptual model on the relationship be tween strategic planning, strategic planning steps and
firm performance

Bryson (1989), Stoner (1994) and Viljoen (1995) arg ue that strategic planning assists in providing dir ection so
organization members know where the organization is heading and where to expend their major efforts. I t guides
in defining the business the firm is in, the ends i t seeks and the means it will use to accomplish tho se ends.
McCarthy and Minichiello (1996), note that a compan y’s strategy provides a central purpose and directi on to the
activities of the organization and to the people wh o work in it. Adding to this argument, Kotter (199 6) contends
that the primary goal of strategic planning is to g uide the organization in setting out its strategic intent and
priorities and refocus itself towards realizing the same. David (1997) argues that strategic planning allows an
organization to be more proactive than reactive in shaping its own future, initiate and influence (rat her than just
respond to) activities, and thus to exert control o ver its destiny. It assists in highlighting areas r equiring attention
or innovation.

The process of strategic planning shapes a company’ s strategy choice. It reveals and clarifies future opportunities
and threats and provides a framework for decision m aking throughout a company. It helps organizations to make
better strategies through the use of more systemati c, logical and rational approach to strategic choic e. Steiner
(1979) noted that strategic planning stimulates the future on paper and it encourages and permits a ma nager to see,
evaluate and accept or discard a far greater number of alternative courses of action than he might oth erwise
consider.
• Defining firm’s corporate
Direction
• Appraisal of business
environment
• Identification and analysis of
firm’s strategic issues
• Strategy generation, evaluation
and selection
• Development of
implementation, evaluation &
control systems

Firm
performance

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Stoner (1994) and Viljoen (1995) argue that strateg ic planning tends to make an organization more syst ematic in
terms of its development and this can lead to a gre ater proportion of the organization’s efforts being directed
towards the attainment of those goals established a t the planning stage, that is, the organization bec ome more
focused.

Strategic planning applies a system approach by loo king at a company as a system composed of subsystem s. It
permits managers to look at the organization a whol e and the interrelationships of parts, rather than deal with each
separate part alone without reference to others. Th erefore, it provides a framework for improved coord ination and
control of an organization’s activities. Strategic planning provides a basis for other management func tions. Steiner
(1979) observes that strategic planning is inextric ably interwoven into the entire fabric of managemen t. It
provides a framework for decision-making throughout the company and forces the setting of objectives, which
provides a basis for measuring performance. Manager s are able to spend time, efforts and resources in activities
that pay off. Setting of goals and targets on the o ther hand facilitate evaluation of organization per formance.
Individuals in an organization will strive to achie ve clear objectives that are set.

It is argued that strategic planning results in a v iable match between the firm and its external envir onment.
Strategy concerns an analysis of the firm’s environ ment, leading to what the firm, given its environme nt, should
achieve. Environmental scanning and analysis allows the firm to be connected to its environment and gu arantees
the alignment between the firm and its environment. Environmental analysis reveals the market dynamics ,
business opportunities and challenges, customer exp ectations, technological advancements and the firm’ s internal
capacities and this provides the basis for strategy selection.

Kotter (1996) argues that the strategic planning pr ocess can be used as a means of repositioning and t ransforming
the organization. Thompson, Strickland and Gamble ( 2007) postulate that the essence of good strategy m aking is
to build a market position strong enough and an org anization capable enough to produce successful perf ormance
despite unforeseeable events, potent competition, a nd internal difficulties. Quinn (1980) explains tha t well-
formulated strategies helps marshal and allocate an organization’s resources into a unique and viable posture
based upon its relative internal competencies and s hortcomings, anticipated changes in the environment , and
contingent moves by intelligent opponents. Indeed O hmae (1983) contends that strategic planning enable s a
company to gain, as effectively as possible, a sust ainable edge over its competitors. Bryson (1989), S toner (1994)
and Viljoen (1995) share Ohmae’s contention, pointi ng out that strategic planning assists organization s to develop
a comparative advantage or an edge over competitors and creates sustainable competitive advantage. Gre enley
(1986) points out that a range of potential benefit s to intrinsic values accrues to both the company a nd external
stakeholders from the use of strategic planning.

Various empirical studies have been done to establi sh the relationship between strategic planning and firm
performance with varied conclusions. The initial st udies include that done by Thune and House (1970). Thune
and House studied 36 companies employing the approa ch of examining the performance of each company bot h
before and after formal strategic planning was init iated. This covered both informal and informal plan ners. The
comparison showed that formal planners outperformed the informal planners on all the performance measu res that
were used. Herold (1972) in an attempt to cross-val idate Thune and House (1970) study, surveyed 10 com panies,
comparing performance of formal and informal planne rs over a 7-year period. Based on the survey result s, He
concluded that formal planners outperform informal planners and hence, supporting the results of Thune and
House (1970). Gershefski (1970) in his survey compa red the growth of sales in companies over a 5-year period
before strategic planning was introduced, and over a period of 5 years after planning was introduced. The results
of the comparison led Gershefski to conclude that c ompanies with formal strategic planning outperforme d
companies with little planning. Ansoff (1970) studi ed 93 firms using various variables of financial pe rformance.

The findings revealed that companies, which do exte nsive strategic planning, outperformed the other co mpanies.
Karger and Malik (1975), taking a similar approach to that taken by Ansoff, compared the values of a r ange of
variables of planners to those of the non-planners and based on the results concluded that the planner s
outperformed the non-planners. Greenley (1986) exam ining empirical data from nine surveys (8 in USA an d 1
UK within the manufacturing business) on the relati onship between strategic planning and company overa ll
performance noted mixed conclusions with five studi es concluding the existence of the relationship whi le the rest
conclude that higher levels of performance did not necessarily relate to the utilization of strategic planning.

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Miller and Cardinal (1994) employed a meta-analytic approach using data from 26 previously published s tudies
and concluded that strategic planning positively in fluences firm performance. Caeldries and VanDierdon ck (1988)
surveyed 82 Belgian Business firms and reported a l ink between strategy and performance. They noted th at
strategy enables a firm to strengthen its competiti ve position, and facilitates integration and coordi nation of
members’ behavior. Pealtie (1993) observed that the main reason for the introduction of formalized str ategic
planning is to improve company performance through the development and implementation of better strate gies.
Pealtie noted that managing a large business withou t a plan is like trying to organize a car rally wit hout a map, not
impossible, but difficult. Published research from Africa also indicates that strategic planning is a n effective tool
in improving firm performance. Imoisili (1978), stu dying indigenous and multinational companies in Nig eria,
concluded that the more effective companies are fou nd among organizations which maintain consistency b etween
environmental perception and management practices, do long-term planning, use more flexible control sy stems
and have smaller spans of control. Fubara (1986) di d a survey in Nigeria and observed that companies t hat engage
in formal planning experienced growth in profits.

It has been argued that although there is a general perception and belief that strategic planning impr oves
organization effectiveness, if wrongly pursued the anticipated value may not be tapped. Steiner (1979) points out
that a wrong strategy or a wrongly formulated strat egy may not translate into the anticipated value fo r the
organization. Johnson, Scholes and Whittington (200 5), note that strategic drift occurs when the organ ization’s
strategy gradually moves away from relevance to the forces at work in its environment. Tourangeau (198 7) shares
these sentiments but cautions that strategic busine ss planning cannot be expected to cure all that ail s an
organization i.e. address other shortcoming of the management process, but can best be seen as a parti al solution
to management problems. Strategic planning, or any other management technique is of limited value by i tself,
only a partnership with all parts of the management particularly execution, controls and rewards can r esult in
synergy and lead to substantial advancement. In the ir survey to see how successful companies translate s their
strategies into performance, Mankins and Steele (20 05) observed that companies typically realize only about 60
percent of their strategies potential value because of defects and breakdowns in planning and executio n. Hofer and
Schendel (1978) argue that strategy is important an d therefore its formulation should be managed and n ot left to
chance. Therefore, each of the stages in the strate gic planning process cannot be taken for granted.

To effectively address the study’s research questio ns and objectives, the following hypotheses were fo rmulated
for testing.

H1 There is a relationship between strategic planni ng and firm performance
H2 There is a relationship between the strategic pl anning constituent variables and firm performance

3. Research Methodology

3.1 Research design

Towards establishing relationships between the vari able of interest, there was need to formulate and t est
appropriate hypotheses. The underlying concepts wer e translated into measurable forms to facilitate te sting of the
formulated hypotheses. A quantitative analytical ap proach was employed in an attempt to empirically de termine
the relationship between the variables of interest by applying appropriate statistical data techniques . Survey
design was used. This was the most appropriate meth od towards effectively addressing the research obje ctives.
The study involved collecting data from across sect ion of firms within the studied sector. Interviews were
conducted across the firms targeted and where possi ble focused group discussions were held.

3.2 Data collection

Both primary and secondary data was sourced and uti lized for purposes of addressing the research objec tives.
Secondary data was extracted from existing publishe d and unpublished records such as the Commissioner of
Insurance and Association of Kenya Insurers’ annual reports. Primary data was collected on strategic p lanning
process and also on some performance indicators usi ng the likert type scale. Our main data collection instrument
was a questionnaire consisting of structured closed and open-ended questions. Top management (CEO/MD,
general managers, line managers) were the study’s k ey target respondents. We managed to have interview s with
CEOs of two companies, General Managers from eleven companies and Managers from eighteen companies.

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3.3 Reliability and validity of measurement instrum ent

Test of reliability was carried out to check on the internal consistency of data measurement instrumen t.
Cronbach’s alpha was used to measure this reliabili ty. Nunnally (1978) notes that coefficient alpha pr ovides a
good estimate of reliability. Alpha values of betwe en 0.80 and 1.00 are considered reliable, values of between
0.50 and 0.80 are acceptable while values of below 0.50 are considered less reliable and therefore una cceptable
(Sekaran, 2003). Table 1 below presents the compute d reliability coefficients for various data groups.

Table 1: Results of the test of internal consistenc y reliability

Variable Number of items in variable Alpha coeffi cient
Strategic planning 5 0.901
Performance 9 0.817

Table 1 indicates that the computed Cronbach’s alph a for all the various measurement instrument fall a bove 0.50,
all recording high coefficients an indication of ve ry high reliability.

3.4 Data Analysis

Statistical analyses were applied to describe and e stablish existence and extent of strategic planning and firm
performance levels. A six point likert type scale w as used to capture the extent of strategic planning . In applied
management studies, the likert type scale is an acc eptable technique for purposes of carrying out para metric
statistical analysis. The Statistical Package for t he Social Sciences (SPSS) version has been used to facilitate this
analysis. The focus of the study was to examine the relationships between variables of interest and no t the causal
effects. Therefore, in addressing our study objecti ves, we utilized the correlation analysis technique . In this
regard, the Pearson’s product correlation coefficie nts(r) have been computed.

4. Research Findings

4.1 Strategic planning and firm performance

It had been anticipated that most or all companies being surveyed do embrace and practice the concept of strategic
planning. This turned to be true as all the 31 firm s that responded indicated. During the introductory stages of the
interviews probing questions were put forward and r esponses revealed that actually all firms did/do st rategic
planning and the difference only arose on the exten t and rigour of conducting it. Before addressing th e real
objectives of this study, it was imperative that th e researcher gets an understanding of the conduct o f strategic
planning in the sector under study. To achieve this , a six point likert type scale running from 0 to 5 was used to
capture data for purposes of ascertaining the exten t of strategic planning. Findings are presented bel ow.

4.1.1 Responses on the strategic planning process

In order to have a feeling on the extent to which s trategic planning is embraced, probing questions wi th respect to
each of the specific steps were presented before th e respondents. Table 2 below presents a summary in respect to
responses on the extent to which firms practice str ategic planning as defined by the various strategic planning
steps. The table reveals that of all the strategic planning steps, majority of the firms do very well in the step of
defining the business of the organization and hence setting the company direction with all the means f alling above
3.7 out of a possible maximum 5.0 and standard devi ations of close to 1.0 for all the variables.

Table 2: Extent to which various strategic planning steps are carried out

Strategic planning steps Mean Standard deviation
Defining company purpose and goals 4.419 0.672
Analysis of business environment 3.774 0.805
Analysis of strategic issues 3.871 0.763
Strategy selection 3.741 0.855
Strategy implementation, evaluation and control fra mework 3.806 0.749

These means and standard deviations are based on th e data captured through a six point likert type sca le running
from 0 to 5, representing “not attended to at all a nd attended to a very large extent” respectively.

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4.1.2 Responses on firm performance

As discussed in Chapter III, performance is the key dependent variable in this study and both the fina ncial and
non-financial dimensions have been examined. A rang e for absolute values was used to capture financial
performance. After the initial pre-testing of the q uestionnaire it was evident that respondents were m ore willing to
indicate the range where their respective firms fal l on the indicators of interest as opposed to stati ng the absolute
values/figures. As for the non-financial indicators a six-point likert scale was used. The banding of the financial
measures was harmonized with the non-financial ones in an effort to providing an indication of overall
performance. This was also aimed at facilitating an alysis. The responses on the financial indicators w ere based on
the immediate preceding 3-year averages.

Three financial indicators were used to measure fin ancial performance. These are: premium growth rate, claims
ratio, and profit in percentage forms. Respondents were asked to indicate the band where their respect ive
companies fall on each of the indicators. Table 3 b elow provides a summary of the comparative analysis on
financial performance indicators across the firms s tudied. Findings reveal high performance on indicat or claims
ratio (with a mean of about 3.5) compared to perfor mance on the other two measures (premium growth rat e and
profit earnings whose mean ratings stand at 1.8 and 0.9 respectively). There are great variations acro ss the firms
in terms of the level of realization of premium and profit indicators as compared to claims ratio.

Table 3: Comparative analysis of financial indicato rs for all the firms

Performance Indicator n Mean Standard Deviation
Premium Growth 31 1.838 1.067
Claims Ratio 31 3.451 .767
Profit 31 .903 1.106

These means and standard deviations were based on r esponses where respondents indicated the bands(s) t heir
firms fall within in terms of performance in respec t of the three indicators. A six point likert type scale was used
to represent each of the bands with 0 representing the lowest band and 5 representing the highest band .

As an additional ingredient to the previous studies on the relationship between strategic planning and firm
performance, non-financial indicators were of inter est in this study. The indicators used in this stud y are: lead
time in claims payment, growth in market share, emp loyee turnover, new products and cancellation of po licies
rate. Respondents were asked to indicate on a six p oint likert type scale the performance of their res pective firms
on each of these indicators. The findings for each indicator are explained below.

Of those who responded, 3.2 percent indicated that lead-time in claims payments within their firms had improved
to a small extent, 35.5 percent indicated that this had improved averagely in their firms, another 35. 5 percent
indicated that this had improved to a large extent while 25.8 percent indicated that it had improved t o a very large
extent. This gave a mean score of 3.8 out of a poss ible maximum 5 points, implying that majority of th e firms
surveyed did improve to a great extent in terms of lead time in claims payment.

The market share in absolute terms was not taken fo r purposes of this study. It was felt that growth i n market
share will give more meaning because the interest o f the researcher was to see whether there is growth in market
share as a result of embracing strategic planning. To gather data in this area, therefore, a six-point likert scale was
used to capture the extent if any to which market s hare has grown as a result of embracing strategic p lanning.
Responses indicated that 22.6 percent of the firms achieved a very small growth in market share, 32.3 percent
achieved a small growth, 22.6 percent achieved aver age growth, 6.5 percent realized such growth to a l arge
extent, while 12.9 percent realized growth to a ver y large extent.

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Like with the other variables, a six point likert s cale was used to capture data on employee turnover. The interest
of the researcher was to establish extent to which employee turnover if any has been reduced over the last 3 years.
Of those who responded, 3.2 percent indicated that no reduced employee turnover has been experienced a t all in
their firms, 9.7 percent indicated that this has be en experienced to a very small extent in their firm s, 35.5 percent
indicated that reduced employee turnover has been e xperienced to a small extent in their firms, anothe r 35.5
percent indicated that the reduction in employee tu rnover has been experienced somehow in their firms, 12.9
percent indicated that reduced employee turnover ha s been experienced in their firms to a large extent while only
3.2 percent had experienced the reduced employee tu rnover to a very large extent.

The extent to which target firms have launched new products was examined. Like on the other non-financ ial
performance indicators, a six point likert scale wa s used. Of the firms that responded, 9.7 percent ha ve new
products introduced to a very small extent, 32.3 pe rcent have achieved the introduction of new product s to a small
extent, 29 percent have achieved this averagely, 25 .8 percent have achieved this to a large extent, wh ile only 3.2
percent have attained the introduction of new produ cts to a very large extent.

The rate cancellation of policies or cover was also utilized as a non-financial performance indicator. The higher
cancellation rate could imply a state of non-satisf actory on the part of the clients. The extent to wh ich policies
have been and are being cancelled was therefore exa mined using a six point likert scale. Of those who responded,
6.5 percent indicated that their firms had experien ced a decline in policy cancellations to a very sma ll extent, 9.7
percent had experienced the decline in cancellation s to a small extent, 58.1 percent had somehow exper ienced the
decline in policy cancellations, 12.9 percent had e xperienced a decline in policy cancellations to a l arge extent,
while another 12.9 percent had experienced the decl ine in the rate of cancellations to a very large ex tent in their
respective firms.

Table 4 presents a summary of responses on the vari ous non-financial indicators. Findings indicate tha t firms have
performed better on lead time in claims payment wit h a mean score of 3.83 and standard deviation of 0. 86
followed by reduced cancellation of policies (with mean of 3.16 and standard deviation of 1.00). The r est of the
indicators had means of below 3.00. Overall, firms did well on the non-financial indicators as opposed to the
financial indicators. The responses also reveal gre ater variation across the firms in terms of level o f realization of
non-financial indicators.

Table 4: Comparative analysis of non-financial indi cators for all the firms

Performance Indicator n Mean Standard Deviation
Lead Time in claims processing 31 3.838 .860
Growth in market share 31 2.451 1.362
Reduction in employee turnover 31 2.548 1.059
New Products 31 2.806 1.046
Cancellation of Policies 31 3.161 1.003

These means and standard deviations are based on th e data captured through a six point likert type sca le running
from 0 to 5, representing “no improvement at all an d improved to very large extent” respectively as a result of
embracing strategic planning .

4.2 Tests of the hypothesis on the relationship bet ween strategic planning and firm performance

Objective one of this study was to examine the rela tionship between strategic planning and firm perfor mance. To
address this objective the following hypothesis for mulated and tested.

H1: There is a relationship between strategic plann ing and firm performance
Results of the correlation analysis indicate that t here is a positive correlation between strategic pl anning and firm
performance with the Pearson correlation coefficien t of 0.616. This relationship is significant at p<0 .01.

4.3 Tests of the hypothesis on the relationship bet ween strategic planning steps and firm performance
Attempts were made to determine whether each of the strategic planning steps influences performance. T herefore
the following hypothesis was tested.

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H2: There is a relationship between strategic plann ing constituent steps and firm performance
A correlation analysis was carried out with a view to understanding the relationship between each of t he strategic
planning steps and firm performance. Table 5 below presents the results of the analysis.

Table 5: Correlation (r) for the relationship betwe en strategic planning constituent variables and fi rm
performance

Variable Overall firm performance
Purpose, goals, and philosophies .458(**)
Analysis of business environment .671(**)
Analysis of strategic issues .558(**)
Strategy selection .514(**)
Development of implementation, evaluation and contr ol framework .523(**)
n 31

** Correlation is significant at the 0.01 level (2- tailed).

The results presented in table 5 indicate that each of the constituent strategic planning sub-variable s is positively
related to company performance. Among all the strat egic planning constituent variables, analysis of bu siness
environment exhibits a stronger relationship with f irm performance with a Pearson correlation coeffici ent of
0.671. Nevertheless, all the correlations are signi ficant at p<0.01.

4.4 Tests of the hypothesis on the relationship bet ween strategic planning and both financial and non-
financial firm performance

The relationship between strategic planning and bot h financial and non-financial performances was also
examined. The following hypothesis was tested.

H3 There is a positive relationship between strateg ic planning and both financial and non-financial fi rm
performance

The analysis result indicates the existence of a po sitive relationship between strategic planning and financial
performance with a Pearson Correlation coefficient of 0.600. This correlation is significant at p<0.01 . Further, the
analysis result reveals that there is a positive re lationship between strategic planning and all the f inancial
performance indicators. The relationship between st rategic planning constituent variables and financia l
performance was also examined. Results of the analy sis indicate that all the strategic planning consti tuent
variables are positively related to financial perfo rmance. The correlations between variables analysis of business
environment, handling of strategic issues, strategy selection and formulation of implementation framew ork and
financial performance are significant at the 1 perc ent level (all recording a Pearson correlation coef ficient of over
0.500). The correlation between defining company pu rpose and goals and, financial performance is signi ficant at
the 5 percent level (with a Pearson correlation coe fficient of 0.405). The analysis results also indic ate that there is
a positive relationship between all the strategic p lanning constituent variables and overall financial performance
indicators. Table 6 below presents a summary of the se findings.

Table 6: Correlation (r) for the relationship betwe en strategic planning constituent variables and fi nancial
performance

Premium Growth Claims Ratio Profit
Purpose, goals & philosophies .376(*) .267 .281
Analysis of business environment .228 .387(*) .462(**)
Analysis of strategic issues .342 .387(*) .419(*)
Strategy selection .318 .387(*) .537(**)
Implementation, evaluation framework .210 .389(*) .500(**)
n 31 31 31

** Correlation is significant at the 0.01 level (2- tailed).
* Correlation is significant at the 0.05 level (2-t ailed).

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The correlation analysis carried out to also reveal ed the existence of a positive relationship between strategic
planning and non-financial firm performance (r = 0. 539). This correlation is significant at p<0.01. Fu rther
examination results indicated the existence of a po sitive relationship between strategic planning and all the non-
financial indicators.

Analysis results also indicated that there is a pos itive relationship between all the strategic planni ng sub-variables
and non-financial performance and these correlation s are significant. The relationship between the str ategic
planning constituent variables and the specific non -financial indicators was examined. Table 7 below p resents
these findings.

Table 7: Correlation (r) for the relationship betwe en strategic planning constituent variables and non –
financial performance

Variable Lead time in
claims
payments Growth in
market
share Reduction in
employee
turnover Development
of new
products Cancellation
of Policies
Purpose, goals &
philosophies .640(**) .442(*) .134 .167 .490(**)
Analysis of
business
environment .716(**) .552(**) .346 .422(*) .583(**)
Analysis of
strategic issues .627(**) .475(**) .255 .302 .463(**)
Strategy selection .576(**) .275 .493(**) .129 .400(*)
Implementation,
evaluation
framework .519(**) .186 .516(**) .206 .398(*)
n 31 31 31 31 31

** Correlation is significant at the 0.01 level (2- tailed).
* Correlation is significant at the 0.05 level (2-t ailed).

As shown in table 7, there is a relationship betwee n all the strategic planning constituent variables and lead-time
in claims payment. However, the relationship is str onger between lead-time in claims payment and analy sis of
business environment reporting a Pearson correlatio n coefficient of 0.716. All these correlations are significant at
P<0.01. Growth in market share has significant corr elations with defining company purpose, analysis of business
environment and handling of strategic issues. Altho ugh there is a correlation between market share gro wth and
strategy selection and development of implementatio n framework it is a weak one and also not significa nt. The
correlation between all the strategic planning cons tituent variables and employee turnover is weak and therefore
not significant other than for strategy selection a nd implementation framework. Introduction of new pr oducts
correlate significantly only with analysis of busin ess environment. Lastly the correlation between all strategic
planning constituent variables and cancellation of policies is significant.

5. Summary, Discussion, Conclusions and Recommendat ions

5.1 Summary

The concept of strategic planning traces its roots to the USA. By 1960s formal strategic planning was increasingly
getting adopted in the USA and in other developed c ountries. Today the practice has gained a lot of pr ominence
worldwide and across businesses, public and private . Various writers have argued that strategic planni ng
facilitates effective organization performance. Thi s examined the relationship between strategic plann ing and firm
performance giving attention to the specific steps in the strategic planning process. To facilitate th e testing of the
formulated hypotheses, correlation analysis techniq ue was utilized where the Pearson correlation coeff icients
were computed. All firms that responded indicated t hat they do practice strategic planning. Results of the analysis
indicate that there is a positive relationship betw een strategic planning and firm performance with th e Pearson
correlation coefficient of 0.616. This relationship is significant at p<0.01.

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On examining whether there exists a link between th e individual steps in the strategic planning and pe rformance,
findings revealed that each of the steps in the str ategic planning process has a positive relationship with firm
performance. The element of business environmental scanning is noted as one of the critical activities during the
strategic planning process. This, according to the finding exhibits the strongest link to firm perform ance with a
Pearson coefficient of over 0.650. However, the cor relations are significant for all the strategic pla nning steps.

Analysis results further indicate that there is a p ositive relationship between strategic planning and both financial
and non-financial performance indicators with a Pea rson Correlation coefficient of 0.600 and 0.539 res pectively.
All these correlations are significant at p<0.01. I t was also observed that firms that exhibit higher levels of
strategic planning perform better in both financial and non-financial indicators compared to those exh ibiting low
levels of strategic planning.

5.2 Discussion

Various writers have argued that strategic planning leads to effective company performance. Our hypoth esis and
assumptions were drawn from such arguments and also similar past studies. We first acquainted ourselv es on the
conduct of strategic planning within the studied se ctor and thereafter examined the relationship betwe en strategic
planning and firm performance. Although similar stu dies have been carried out elsewhere, this study al so doubled
up as a replication with extensions study.

Results of the analysis reveal the existence of a r elationship between strategic planning and firm per formance with
a Pearson moment product coefficient of 0.616. Stud y findings also indicate existence of a relationshi p between
strategic planning and both financial and non-finan cial performance indicators. It was observed that f irms that
exhibit higher levels of strategic planning perform better in both financial and non-financial indicat ors compared
to those exhibiting low levels of strategic plannin g. Examining the strategic planning constituent var iables and
there link to performance, it was evident that no d oubt there are correlations between these constitue nt variables
and performance. This finding conforms to the theor etical arguments by Hofer and Schendel (1978), Hend erson
(1979), Greenley (1986), David (1997) that companie s record improved performance once they effectively
embrace strategic planning. These findings are also in agreement with those of other studies which obs erved that
indeed there is a relationship between strategic pl anning and firm performance. These include studies by Ansoff
(1970), Gershefski (1970), Thune & House (1970), Ca eldries & Van Dierdonck (1988) and Miller & Cardina l
(1994) all of which concluded that there is a link between strategic planning and firm performance. Th is finding,
therefore, is an indication that findings from prev ious studies, carried out in the developed countrie s, during
different time periods, within manufacturing busine sses and utilizing mainly financial performance mea sures are
in tandem with the ones from the developing countri es context i.e. the relationship between strategic planning and
firm performance could exist regardless of context (geographical or business sector).

5.3 Recommendations

After this study, a window has been exposed for fur ther specific studies to be pursued. Issues came ou t which
because of the initial intentions and scope of this study could not be attended to conclusively. Some of the areas
that may require attention include the examination of the relationship between the strategic planning intervening
outcomes and performance and the implications of a participatory orientation to strategic planning and
performance. In this study we did not control for t he effects of contexts and time periods because of our initial
scope and resource constraints. A study could be ca rried out giving attention to this dimension.

As revealed from the study findings, every step in the strategic planning process is important. If the company
business or purpose is not clear, how will the work ers know that they are on the right track? Or if th e business
environment has not been critically analyzed, how w ill the organization understand its internal compet ences or
business opportunities from where appropriate strat egies are crafted to facilitate a fit and success. In a nutshell
what we are saying is that the process of strategic planning should be given its deserved attention in terms of all
the prescribed steps within the existing literature .

This study mainly focused on the connection between the strategic planning process and and organizatio nal
performance. It would be of interest to investigate the role of intervening variables in translating t he strategic
planning intentions into reality.

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212
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