Strategic planning as a complex and enabling managerial tool

Research summary : The role of the strategic planning process in the ongoing generation of innovative knowledge is vital to the survival and growth of a firm, especially when technologies and market conditions are rapidly changing. We analyze data from a survey of firms in high‐technology industries to determine whether it is possible to break the commonly experienced trade‐off between strategic planning's positive influence on firm profitability and its negative influence on firm innovation. We draw on Adler and Borys's (1996) conceptualization of bureaucratic process types to identify several firm characteristics that have the potential to affect whether employees perceive strategic planning as enabling to their creative endeavors. We find that contingent effects between strategic planning and the identified firm characteristics exist that can break the trade‐off. Managerial summary : A tension exits in the literature about whether strategic planning hurts or helps innovative activity. Our analysis of data from 227 business units in high‐technology industries indicates that strategic planning is a complex process that can be perceived by employees as enabling or coercive. Our results confirm that strategic planning negatively affects innovative activity but positively affects profitability for average firms. We find, however, controllable firm characteristics—risk‐taking and knowledge‐based reward systems—affect the trade‐off. Given the higher levels of risk‐taking and knowledge‐based reward systems, firms can use strategic planning to achieve both high returns on investment and a high level of innovative activity. Copyright © 2015 John Wiley & Sons, Ltd.     

Does Strategic Planning Enhance or Impede Innovation and Firm Performance?*

Does strategic planning enhance or impede innovation and firm performance? The current literature provides contradictory views. This study extends the resource‐advantage theory to examine the conditions in which strategic planning increases or decreases the number of new product development projects and firm performance. The authors test the theoretical model by collecting data from 227 firms. The empirical evidence suggests that more strategic planning and more new product development (NPD) projects lead to better firm performance. Firms with organizational redundancy benefit more from strategic planning than firms with less organizational redundancy. Increasing R&D intensity boosts both the number of NPD projects and firm performance. Strategic planning is more effective in larger firms with higher R&D intensity for increasing the number of NPD projects. The results reported in this study also consist of several findings that challenge the traditional views of strategic planning. The evidence suggests that strategic planning impedes, not enhances, the number of NPD projects. Larger firms benefit less, not more, from strategic planning for improving firm performance. Larger firms do not necessarily create more NPD projects. Increasing organizational redundancy has no effect on the number of NPD projects. These empirical results provide important strategic implications. First, managers should be aware that, in general, formal strategic planning decreases the number of NPD projects for innovation management. Improvised rather than planned activities are more conducive to creating NPD project ideas. Moreover, innovations tend to emerge from improvisational processes, during which the impromptu execution of NPD activities without planning spurs “thinking outside the box,” which enhances the process of creating NPD project ideas. Therefore, more flexible strategic plans that accommodate potential improvisation may be needed in NPD management since innovation‐related activities cannot be planned precisely due to the unexpected jolts and contingencies of the NPD process. Second, large firms with high levels of R&D intensity can overcome the negative effect of strategic planning on the number of NPD projects. Specifically, a firm's abundant resources, when allocated and deployed for NPD activities, signal the high priority and importance of the NPD activities and thus motivate employees to acquire, collect, and gather customer and technical knowledge, which leads to creating more NPD projects. Finally, managers must understand that managing strategic planning and generating NPD project ideas are beneficial to the ultimate outcome of firm performance despite the adverse relationship between strategic planning and the number of NPD projects.     

Strategy,human capital investments,business‐domain capabilities,and performance: a study in the global software services industry

Research summary : In knowledge‐based industries, continuous human capital investments are essential for firms to enhance capabilities and sustain competitive advantage. However, such investments present a dilemma for firms, because human resources are mobile. Using detailed project‐level operational, financial, and human capital data from a leading multinational firm in the global IT services industry, this study finds that deliberate investments in improving general human capital can help firms develop superior capabilities and maintain high profits. This paper identifies two types of capabilities essential for success in this industry—technological and business‐domain capabilities—and provides empirical evidence justifying such investments. Theoretical and practical implications of capability‐seeking general human capital investments are discussed. Managerial summary : The primary managerial implication of this research is that capability‐seeking investments in developing general human capital through strategic learning (training and internal certifications) can enhance firm performance. Although investing in general human capital is risky, the firm considered this a strategic necessity in order to thrive in the fast paced IT services industry. By leveraging general technological skills in combination with business‐domain knowledge to address customer's business problems firms can earn and sustain higher profits. Our study also demonstrates how a developing‐country firm responded to strong competitive challenge from global rivals possessing superior capabilities by upgrading the capabilities of its employees through internal development. In doing so the firm was able to narrow the capability gap vis‐à‐vis its foreign peers and expand its business globally. Copyright © 2016 John Wiley & Sons, Ltd.     

Competitive positioning within and across a strategic group structure: the performance of core,secondary, and solitary firms

Drawing from economic and cognitive theories, researchers have argued that firms within an industry tend to cluster together, following similar strategies. Their positioning in strategic groups, in turn, is argued to influence firm actions and firm performance. We extend this research to examine performance implications of competitive positioning not just among but also within groups. We find that performance differences within groups are significantly larger than across groups, suggesting that some firms within groups develop better resource or competitive positions. We also find that secondary firms within a group outperform both core firms within the group and solitary firms, the latter being those not belonging to any multifirm strategic group. This suggests that secondary firms may be able to effectively balance the benefits of strategic distinctiveness with institutional pressures for similarity. We conclude that the primary implication of strategic groups does not relate to the ability of firms to create stable, advantageous market segments through collusion. Instead, strategic groups represent a range of viable strategic positions firms may stake out and use as reference points. Moreover, our results concerning secondary firms indicate that firm positioning within a group structure can have performance implications. Copyright © 2002 John Wiley & Sons, Ltd.     

The sustainable growth model: A tool for evaluating the financial feasibility of market share strategies

Market share objectives constitute a key element of a firm's corporate strategy. Market share strategy decisions—to build, maintain, or harvest share—are generally based on a careful consideration of the long-term and short-term profitability and cash flow implications of such decisions. The product sales growth rate and capacity expansion implications of share building strategies, the sustainability of implied sales growth targets and its consistency with the established financial policies and objectives of the firm are the subject of this report. The sustainable growth model outlined provides a framework for evaluating the financial feasibility of sales growth objectives at the strategic business unit level and the firm level, from the standpoint of expected return on sales, investment requirements per dollar of sales, target capital structure and the dividend policy of the firm.     

Rookies and seasoned recruits: How experience in different levels,firms, and industries shapes strategic renewal in top management

Research summary : This study explores the effect of knowledge integration on strategic renewal. In particular, it examines how executives from different levels and sources influence renewal when added to top management teams (TMT). In contrast to prior work, the study hypothesizes and finds that new outside rookies—those new to top management and the firm—are associated with higher firm growth than other types of executives. We also find that seasoned outsiders—those with prior TMT experience outside the focal industry—contribute to growth only when the existing TMT has a long tenure. The results suggest that the ability of the TMT to integrate new members varies by executive type and has an important effect on incremental strategic renewal. Managerial summary : Conventional wisdom holds that firms are better off hiring those who can demonstrate prior experience and skill in tasks as close as possible to the job. In the realm of the top management team (TMT), however, we find that many firms benefit from hiring rookies from other firms who are new to the top management team level. These candidates bring useful knowledge of the operations of competitors and other firms, and they are easier to socialize and integrate with the existing team. While more experienced senior leaders may bring valuable strategic knowledge, this study suggests that only top management teams with long shared experience can weather the disruption that they cause to realize the potential benefits. Copyright © 2016 John Wiley & Sons, Ltd.     

Pricing process as a capability: a resource‐based perspective

Strategists following the resource‐based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price—and hence in appropriating value created. Our view of pricing as a capability contributes to the resource‐based view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource‐based‐view straight to the heart of what is perhaps the central economic question: the best use of resources. Copyright © 2003 John Wiley & Sons, Ltd.     

Planning and financial performance of small,mature firms

This article develops a classification scheme of planning process sophistication in small firms, categorizes small firms according to planning process sophistication, and examines the relationship between planning process sophistication and the financial performance of a select group of small, mature firms. The study overcomes several methodological shortcomings of prior research on strategic planning and firm performance. Multivariate analysis of variance is used to identify statistically significant differences between the financial performance data of firms that employ structured, strategic plans and those that do not. The results confirm previous research on strategic planning and financial performance. Finally, recommendations are made for future research.     

Impact of Strategic Type on Success Measures for Product Development Projects*

Does the strategic type of firm affect which success measures should be used for product development (PD) projects? This paper theorizes that it should and finds that it does because the PD projects undertaken are usually an expression of the strategic type of the firm. The purpose of this research is to affirm a 1996 survey of members of the Product Development & Management Association (PDMA) that proposes that firms' PD performance measures should vary by their strategic type. Thus, for example, prospectors, the strategic type most likely to introduce new products to new markets, should place greater importance on PD success measures consistent with their characteristic strategies of changing product lines and early market entry. In contrast, defenders, the strategic type most likely to maintain stable product lines for existing markets, should place greater importance on PD success measures consistent with their characteristic strategies of stable product lines and market penetration. Analyzers, a hybrid type between prospectors and defenders, should prefer measures consistent with their characteristic strategies for improving products and being early followers in newer markets. To relate strategic types to specific success measures for PD projects, this paper proposes a model of the relationship based on the degree of project newness to the firm and then catalogs measures of PD project success and groups them according to degree of project newness. The research findings are based on survey responses from 222 individuals who are employed by financial service providers, who identified their firms by strategic type and rated the importance of PD success measures to their firms. The importance of 21 performance measures is compared by strategic type to find significant differences among prospectors, analyzers, and defenders. This research finds several significant relationships. prospectors, for example, attach greater importance to customer satisfaction, launch timeliness, and product return on investment, all of which may be characterized as relating to a higher degree of project newness to the firm. defenders and analyzers, on the other hand, attach more importance than prospectors to measures of unit volume, cost reduction, and margin goals, all of which relate to a lower degree of project newness to the firm. In short, because prospectors seek to introduce new products to new markets, they consider important those measures, which accord with greater product and market newness. The major conclusion of this paper is that strategic type affects the importance of project performance measures and that all firms should not use the same success measures. Firms should contextualize their success in PD projects based on their strategic type. This conclusion resonates with previous findings that strategy is a key determinant of PD success, though it is infrequently included in PD success studies. This paper, therefore, challenges the implicit assumption in the mainstream of PD success literature that success can be determined without regard to firm strategy.     

Specificity and opacity as resource-based determinants of capital structure: evidence for Spanish manufacturing firms

In this work we develop an analytical framework to examine the effects of strategic investments on the financial policy of the firm. From the resource-based approach of the firm, nontradable and difficult-to-copy assets are the basis of a sustainable competitive advantage. However, imperfections in the resource markets can also be interpreted as sources of costs and/or restrictions from a financial point of view. Specificity and opacity are the features of strategic resources that enable us to identify the financial implications of the resource-based strategy. We have tested our theoretical framework using a sample of Spanish nonfinancial firms. Our results show that highly specific and opaque resources limit the borrowing capacity of the firm, while other transparent strategic assets affect financial leverage positively. Our findings suggest two main implications for strategy formulation and implementation: (1) there are unobservable financial costs that must be considered for a correct evaluation of a sustainable competitive advantage based on strategic resources; and (2) the financial policy of a ‘resource-driven’ firm is partially determined by the features of its strategic resource bundle. Copyright © 2001 John Wiley & Sons, Ltd.     

The legitimacy of strategic alliances: an institutional perspective

Drawing on an institutional perspective, this paper suggests that strategic alliances serve an important legitimating function for firms and that this role, mediated by alliance governance structure and partner selection preferences, has a significant influence on firm and alliance performance. A theoretical framework is proposed that identifies five types of legitimacy associated with strategic alliances and the specific conditions under which legitimation may be an important outcome of strategic alliances. Propositions are developed to explain when firms are most likely to enter into alliances for legitimacy purposes and how the legitimating role of strategic alliances contributes to firm and alliance performance. The paper concludes with a summary and implications of a legitimacy‐based view of alliances. Copyright © 2007 John Wiley & Sons, Ltd.     

Managing Knowledge for Innovation: The Case of Business‐to‐Business Services*

The present study builds a typology of organizational knowledge in business services and empirically examines the effects of knowledge on innovation performance. It is suggested that firms differ with respect to their knowledge creation approaches and that these approaches have implications for firms' innovation activities. A conceptual framework of knowledge assets with degrees of tacitness and collectiveness as the principal axes is used to ground the empirical analysis. The organizational knowledge framework is empirically operationalized using survey data from 167 business service firms and supplementary case study evidence from 16 other firms. It is found that business service improvements and new service introductions are significantly associated with collectively held knowledge, such as codified service solutions or team‐based competences and procedures. In contrast, relying solely on tacit knowledge held by individuals may hamper innovation. The results also suggest that tacit collective knowledge is more closely associated with new service introductions, whereas explicit collective knowledge is associated with service improvements. Tacit collective knowledge is thus conducive. A managerial implication is that new service introductions necessitate team competences and routines, whereas incremental service improvements are more likely if procedures are in place to codify services into explicit solutions or technologies. Thus, the knowledge management approach should depend on the strategic orientation of the service firm toward continuous improvement of existing services or development of completely new services.     

Strategy and environment as determinants of performance: Evidence from the Japanese machine tool industry

This study examines the roles played by the environment and realized strategies on firm-level performance in the Japanese machine tool industry. We examine the effect of environment and strategy on performance using longitudinal data on a sample of 25 Japanese machine tool firms over the period 1979-92. Our results indicate that both firm strategies and the environment play significant roles in influencing profitability and growth. More specifically, whereas both strategy and environmental variables are significantly related to firm profitability, only environmental variables are associated with firm growth. Additionally, in contrast to U.S. based studies, we find that capital expenditures and technological change are not negatively associated with profitability. Rather technological change has a positive impact on firm growth. We discuss the implications of these results for strategic management and provide suggestions for future research.     

Pioneering advantages in manufacturing and service industries: empirical evidence from nine countries

Although one might expect differences between manufacturing and service firms in pioneering advantages, the extent of these differences has not yet been investigated. This is the first cross‐national study that compares such differences in nine countries/regions: the United States, the United Kingdom, Germany, Japan, China, Taiwan, Hong Kong, South Korea, and Singapore. We develop several hypotheses concerning the perceptions of managers of manufacturing firms and service firms regarding the benefits and post‐entry risks of pioneering, and the cost and differentiation advantages accruing to the pioneering firm. We test the hypotheses with data from 2,419 firms representing all nine countries and both industrial sectors. We find that: (1) managers from all countries perceive pioneering to be associated with higher market share and/or profitability; (2) manufacturing firm managers perceive pioneering risks to be significantly more important than do service firm managers; (3) cost and differentiation advantages of pioneering are, for the most part, more significant to manufacturing than to service firm managers; (4) Western manufacturing firm managers perceive the cost advantages to be more important than Asian Pacific manufacturing firm managers. We conclude by presenting the managerial implications of our findings. Copyright © 1999 John Wiley & Sons, Ltd.     

The Effects of Environmental Turbulence on New Product Development Strategy Planning

Managers need guidance on how to cope with turbulent environments in order to improve corporate performance. Research on environmental turbulence has suggested that firms adopt a less centralized, more organic structure in dynamic, uncertain environments. Little work has been done specifically, however, on how environmental turbulence affects strategy planning for new product development (NPD). In this article, we specify a baseline model with firm innovativeness, market orientation and top management risk taking as antecedents to NPD speed and corporate strategic planning; these in turn are modeled as antecedents to NPD program (not project) performance. Two conceptualizations of the role of environmental turbulence are examined: (1) that market turbulence and technological turbulence are additional direct antecedents to NPD program performance; and (2) that the baseline model is moderated by turbulence (that is, that the strengths of the paths differ depending on levels of turbulence). A cross-sectional survey methodology including four diverse industries [automotive, electronics, publishing, and manufacturing/research and development (R&D) laboratories] was used to test the hypotheses. The latter conceptualization is supported. In particular, the paths from innovativeness to strategic planning and from risk taking to NPD speed are significantly greater in highly turbulent environments. A set of managerial recommendations and implications are provided. First, managers must recognize the possible improvements in new product performance by actively including NPD personnel in corporate strategic planning and also by involving corporate planners in NPD activities. Second, managers also should recognize that turbulent environments heighten the need to make risky investments, and sometimes, risky decisions; risk-taking decisions ought to be encouraged in such environments.     

How do interdependencies among human‐capital deployment,development, and diversification strategies affect firms' financial performance?

Using key insights from the resource‐based view of the firm, we develop and test a theory of how firms can successfully deploy and develop their strategic human assets while managing the trade‐offs in their service and geographical diversification strategies. In a sample of large law firms we find that, even though firms profit from expert human‐capital leveraging strategy and service and geographical diversification strategies individually, pursuing these strategies simultaneously at high levels produces negative interaction effects on firm profitability. In addition, the internally developed, firm‐specific associate human capital strategically fits better with high levels of expert human‐capital leveraging. While lateral hiring helps firms build new knowledge bases and take advantage of growth opportunities, pursuing high levels of both expert human‐capital leveraging and lateral hiring of associates results in lower profitability. To fully capture the economic benefits from strategies of diversification, human‐capital leveraging and lateral hiring, firms should understand and manage the complex interdependencies among multiple levels of strategy. Copyright © 2005 John Wiley & Sons, Ltd.     

Guanxi and organizational dynamics: organizational networking in Chinese firms

This paper focuses on the utilization of guanxi, which is an important cultural and social element in China, and the impact of guanxi on firm performance. Although guanxi is embedded in every aspect of Chinese social life, companies demonstrate different needs and capacity for guanxi cultivation. Chinese firms develop guanxi as a strategic mechanism to overcome competitive and resource disadvantages by cooperating and exchanging favors with competitive forces and government authorities. We develop an integrative framework theorizing guanxi utilization according to institutional, strategic, and organizational factors, and we explore the impact of guanxi on firm performance, primarily sales growth and net profit growth. Our findings, based on a survey of 128 firms in central China, provide strong support that institutional, strategic, and organizational factors are critical determinants of guanxi with competitive forces. However, only institutional and strategic factors are significant for guanxi utilization with government authorities. In general, guanxi leads to higher firm performance, but is limited to increased sales growth, and has little impact on profit growth. Guanxi benefits market expansion and competitive positioning of firms, but does not enhance internal operations. Copyright © 2001 John Wiley & Sons, Ltd.     

Achieving requisite variety in modeling firms' strategy heterogeneities: Explaining paradoxical firm-market performances

This study responds to the view that the crucial problem in strategic management (research) is firm heterogeneity—why firms adopt different strategies and structures, why heterogeneity persists, and why competitors perform differently. The present study applies complexity theory tenets and a “neo-configurational perspective” in proposing firms' complex antecedent conditions affecting firms' complex outcome conditions. The complex outcome conditions include firms with high financial performances in declining markets and firms with low financial performances in growing markets—the study focuses on seemingly paradoxical firm-market outcomes. Based on an analysis of firm strategies and outcomes for separate samples of cross sectional data of 1120 Finish and Hungarian manufacturing firms, this study bridges theory and practice in strategic management of complex firm-orientation configurations and complex firm-performance-capabilities. The study contributes by showing how executives can use “computing-with-words” (CWW) (Zadeh, 1966) for achieving requisite variety in explaining and predicting paradoxical firm performance outcomes.     

Software firm turnarounds in the 1990s: An analysis of reversing decline in a growing,dynamic industry

Investigations into management actions that reverse organizational decline have produced inconsistent findings. Prior studies have focused on the value of retrenchment actions versus strategic actions to engineer a performance turnaround. These studies, however, have generally not controlled for the cause of firm decline, overlooking a major theoretical contingency. Examining prepackaged software firms in the 1990s, we test the association of strategic and retrenchment actions in facilitating turnarounds in a munificent industry. The results show that measures of strategic actions—new product introductions, strategic alliances, and acquisitions—were positively associated with turnarounds. Conversely, measures of retrenchment actions—layoffs, asset reductions, and product withdrawals—were negatively associated with performance recovery. Our results suggest declining firms in munificent industries cannot retrench their way back to prosperity. Copyright © 2013 John Wiley & Sons, Ltd.     

Transformational shifts through digital servitization

Manufacturers increasingly look to digitalization to drive service growth. However, success is far from guaranteed, and many firms focus too much on technology. Adopting a discovery-oriented, theories-in-use approach, this study examines the strategic organizational shifts that underpin digital servitization. Notwithstanding strong managerial and academic interest, this link between digitalization and servitization is still under-investigated. Depth interviews with senior executives and managers from a global market leader revealed that to achieve digital service-led growth, a firm and its network need to make three interconnected shifts: (1) from planning to discovery, (2) from scarcity to abundance, and (3) from hierarchy to partnership. Organizational identity, dematerialization, and collaboration play a key role in this transformation. For managers, the study identifies a comprehensive set of strategic change initiatives needed to ensure successful digital servitization.