GLOBALIZATION AND BUSINESS, #5 / 2018

INTERNATIONAL SCIENTIFIC-PRACTICAL MAGAZINE

THE IMPACT OF STRATEGIC PLANNING ON ORGANIZATIONAL PERFORMANCE

THROUGH STRATEGY IMPLEMENTATION
TORNIKE KHOSHTARIA https://doi.org/10.35945/gb.2018.05.012
European University, Georgia
[email protected]

KEYWORDS: BUSINESS STRATEGY, STRATEGIC MANAGEMENT, STRATEGY IMPLEMENTATION,

ORGANIZATIONAL PERFORMANCE

Actuality of the research. Strategic management is be noted, that some works showed positive effect of strategic
a key factor of the success of any organization. At what planning on companies’ results. Though, some researchers
degree managers pay attention to strategy formulation and did not find any connection between these two phenomena.
its implementation is reflected on a company performance. Besides, the most researchers did not indicate the field or the
worldwide experience shows, that successful companies sector of their studies.
have clearly formulated the strategic choice so they reach set Review of empirical literature. After reviewing the
goals step by step. In this way, they get desired results at local strategy formulation models, the choice was made in favor
or international levels. of strategy formulation rational choice model. According to
Theoretical basis of the work. Literature analysis this method, the strategy should be made with the assistance
showed that the main field of interest of strategic manage- of formal strategic planning and analytical techniques. The
ment is to answer the following question–what causes perfor- formal strategic planning is a clearly formulated process
mance heterogeneity between the competitor organizations? consisting of the following elements: goal identification,
(Rummelt, 1994). According to the existing point of view, het- strategy formulation and its evaluation (Armstrong, 1982,
erogeneity in the performance indicators can be explained by Steiner, 1979; Boyd, 1991).
strategic planning process, strategy formulation and the de- Measurements for the strategic planning process.
gree of planning strategy implementation (Minzberg, 1990; Various measurement methods were used by strategy
Parnell, 1997). Therefore, the impact of the above mentioned scholars. It is seen that those methods defer significantly
three factors on organizational performance is discussed in the from each other. After the studying several works Boyd and
following research. The organizational results are measured Raining-Elliot (1998) revealed incoherence and discordance in
with two mechanisms - “Objective fulfillment” and “Relative the process of measuring strategic planning. They identified
competitive performance”. The objective fulfillment shows the following indicators: formality, analysis, efficiency,
how an organization manages to reach its outlined short-term comprehensiveness, size, completeness, meaning, rationality,
or long-term goals, while “Relative competitive performance” goal formulation, observation and analysis, processes,
show the degree of improvement or worsening the company’s factors, systems, clarity, innovation, specifications, abilities
performance according to sales, profit, market share, etc. and strategy. Most of these works characterized the strategic
The scientific novelty of the work. It is estimated, that planning according to the meaning of indicators and formality
the manufacturing companies’ in Georgia, which are focused (Pierce, Friedman and Robinson, 1987) while, other works
on a rational and comprehensive strategic planning have indicated that knowledge and abilities play more important
better results than those putting less emphasis on strategic role than other aspects (Vencatraman and Ramanujam,
planning. Also, it is empirically proved that the companies 1987). Boyd and Roining- Elliot (1998) considered the
adopting rational and comprehensive strategic planning in strategic planning to be a normative process and identified
Georgia do not focus on the degree of planning the strategy its main indicators: mission statement, tendency analysis,
implementation. competition analysis, long-term annual goals, action plans
Practical value of the work. The research results are and liquidity.
important not only for those studying strategic management
issues but for the managers of running enterprises in Georgia 2. The degree of planning of strategy implementation
who try to succeed on a competitive market through the
strategic planning process. Given study will help managers Strategy Implementation and Performance - Although
to identify impeding factors in making a strategic choice and there is significant theoretical and or empirical literature
overcome difficulties arising in this process. available on strategic processes, its implementation process
has not yet been studied widely enough. According to Noble
1. The impact of Strategic planning on and Mokwa strategy implementation is the most important
organizational performance link between a strategy formulation and a firm’s performance.
Strategic planning process. Strategy formulation rational Nutt has conducted research studying on both the U.S. and
and comprehensive choice is used in this research. This method Canadian organizations. He came to the conclusion that not
is used by many researchers to explain the phenomenon of even half of these organizations have fulfilled their goals
different performance of competitor organizations. It should because of the mistakes in the implementation process.

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Hickson identified eight influential factors on the strat- implementation processes employed by Georgian based
egy implementation process and classified them into two manufacturing companies and their impact on performance.
groups. The first group factors are based on experience and For this two hypotheses have been formulated. One of them
include: acceptability, resourcing, familiarity and specificity. tested whether or not there is a link between strategic plan-
The second group factors are based on readiness and include: ning and company performance and the other looked at the
structural facilitation, priority and receptivity. According to relationship between strategic planning and the degree of
the authors, companies have only two options in successfully planning strategy implementation.
implementing the strategy. One is a planned option and the • Hypotheses H1. Rational, Comprehensive strategic
other is a prioritized option. Adopting either of the aforemen- planning contributes towards better organizational
tioned approaches in the process of strategy implementation performance.
will make a company’s results better but Hickson based on • Organizations with strong emphasis on strategic
their research findings, has concluded that those companies planning also pays significant attention to strategy
choosing to employ an integrated approach have better re- implementation.
sults in their performances. Research Strategy - The following research undertook
a quantitative strategy through a deduction approach.
3. Organizational performance Hypotheses were formulated from the existing knowledge
which has been tested using the primary data collected from
Performance Measures - The majority of studies use administering the questionnaire. A random sample of the
a variety of measures, such as non-financial (success) or manufacturing organizations that were selected for this study
financial. Financial measure comprises such indicators as: and the findings that were generalized. Due to the above
profit turnover, return on investment, return on capital stated reasons, this quantitative research strategy is the most
employed and inventory turnover. Non-financial measures appropriate for this study. The hypothesized relationships
include innovation and market standing. between the variables are tested using appropriate statistical
The measures in the success of a firm’s performance techniques in order to assess and model the relationships.
generally include the bottom-line, and financial indicators Survey Instrument - The questionnaire was constructed
such as sales, profits, cash flow, return on equity, and to investigate the relationship between the generic strategies
growth. These factors are important to determine how a and the organizational performance. Already existing
firm compares with its industry competitors when assessing measures were employed to test the hypotheses mentioned
a firm’s performance. With the multitude of competitive in this chapter. The questionnaire was distributed accordingly
environments faced by firms in differing industries, knowing and responses were collected through an internet survey
only absolute financial numbers such as sales, profits, and or tool. However, in some cases (when we did not receive a
cash flow is not very illuminating unless viewed in the context response) we made contact with the intended person and
of how well the firm is doing compared to their competition. conducted the survey over the phone. Only, 12 cases required
Therefore, it is important to use an industry comparison call intervention. The questionnaire was accompanied with a
approach when making firm performance assessments for cover letter clearly explaining the reason for the research and
organizations sampled from a wide variety of industries. anonymity was negotiated beforehand (Khoshtaria T. 2016).
This research is going to adopt the two types of perfor- The survey instrument was divided into three sections. A
mance measures (objective achievement and competitive strategy related question (cost related, differentiated and
performance, including financial performance measures like: focus), strategy implementation and performance related
return on assets, return on equity, return on sales end etc.) (objective achievement and competitive performance). The
used by many researchers in different combinations. survey tool contained 50 Likert scale questions. Taking into
account the number of questions and the fact that top-level
4. Research Methodology managers lack time, respondents were allowed sufficient
time to fill it in.
The aim of The Study – The following study is concen- Sample Selection and Survey Execution - The research
trated on researching the strategic planning and strategy population of manufacturing companies for this research has

Table1. Constructs and measurement scales

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Table 2.Reliability of the scales

been derived from the database of the National statistics most commonly used. This approach assesses the consistency
office of Georgia. The companies were chosen from D between the variables in a summed scale. One method of
(manufacturing) section with 1.5 million of yearly production assessing the internal consistency is to test the correlation
and 50 or more employees. However, the initial number of of each item to the summed scale score in order to check
companies in section D is 1750, the research population is the correlation significance. Another method is a reliability
estimated by the top 455 companies after the aforementioned coefficient or Cronbach’salpha which checks the whole scale
characteristics. The preliminary research suggested that the consistency. Cronbach’salpha was used for this study to
majority of mid-sized, and particularly small companies, do determine the reliability of the scales. According to many
not have or maintain any strategic process. authors the lower limit of acceptability for Cronbach’s alpha
The questionnaire was sent to all 455 firms and respons- value is 0.7, in exploratory research 0.6 is also acceptable.
es were collected via an internet based survey instrument. Analytical Techniques - Data analysis techniques were
104 responses were obtained, which is 24 more than the adopted by this research are those previously used by
sample size intended. The response rate for this survey was other studies on strategy processes, those are: ANOVA and
calculated according to Sunders 61 estimated by 22.85 % correlation analysis.
which is acceptable for business researches.
Sampling Techniques - According to Salant and Dillman 5. Hypothesis Testing
for business research studies the minimum sample sizes can
The aim of this section is to test proposed hypothesis
be estimated at 95% confidence level and +/- 10% sampling
based on the data gathered from the survey.
error. Consequently, a simple random sample of 455
organizations was generated, which consists of 80 companies. Strategic planning and organizational performance
The contact information about 455 manufacturing companies
was inquired from the National statistics office of Georgia and Hypotheses H1. Comprehensive rational strategic planning
was received within 7 working days. contributes towards better organizational perfor­mance.
Reliability and Validity of the Measures – Reliability Determining variables: according to H1 strategic planning
assesses the degree of consistency between multiple is an independent variable and organizational performance
measurements of the variable. Mainly, there are two methods (which consists of two variables: objective fulfillment and
used in empirical studies, which are: test-retest reliability and relative competitive performance) is a dependent variable.
internal consistency. The internal consistency approach is the Analytical technique: because there is only one depen-

Table 3. correlation coefficient between strategic planning, objective fulfillment and relative competitive performance

**. Correlation is significant at 0.01 level (two tailed)

Table 4.Regression model summary (objective fulfillment)

As it can be seen R2 is 0.476 which means that change strategic planning

variable causes 47.6% change in objective fulfillment variable.

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THEORY, METHODOLOGY AND SYSTEMIC PROBLEMS TORNIKE KHOSHTARIA

Table 5.Regression model summary (relative competitive performance)

As it can be observed R2 is 0.415 which means that change strategic planning variable causes 41.5% change in relative
competitive performance variable. According to bivariate regression and correlation analysis hypotheses H1 is supported.

Table 6.Correlation coefficient between strategic planning and the degree of planning strategy implementation

**. Correlation is significant at 0.01 level (two tailed)

Table 7.Regression model (Strategic planning and degree of planning strategy implementation)

As it can be observed R2 is 0.000 which means that there is no impact of strategic planning on the degree of planning
strategy implementation. According to bivariat linear regression and correlation analysis hypothesis H2 is not supported.

dent variable bivariate regression and correlations analysis Strategic planning andits impact on organizational
will be used. performance. Several theoretical and empirical works,
As it can be seen from the table above correlation published in the leading journals, were reviewed in order to
coefficient is significant at 0.01 level. Correlation coefficient observe links between strategic planning and organizational
between strategic planning, objective fulfillment and relative performance. Consequently, it was clear that more studies
competitive performance is 0.690 and 0.644 respectively. need to be performed in this direction. It was found, that
Also, Bivariate regression analysis was performed in there is a slight inadequacy between the measurements of
order to determine whether or not strategic planning has strategic planning employed by various researches.
an impact on organizational performance (the analysis was Strategy implementation. It should be pointed out,
performed twice in relation with objective fulfillment and that the number of works on a strategy implementation
relative competitive performance). process is very little. Consequently, the number of works
studying connection between strategic planning and the
Strategic planning and the degree of degree of strategy implementation are fewer. However,
planning strategy implementation works of Hinson, Miller and Wilson (2003) played significant
role in the development of strategy implementation process.
Hypotheses H2. Organization with strong emphasis
Accordingly, this study will apply their approaches in the
on strategic planning also pays strong attention to strategy
process of strategy implementation.
implementation.
Findings and recommendations. Hypotheses H1.
Determining variables: according to H2 strategic plan-
Rational, Comprehensive strategic planning contributes
ning is an independent variable and the degree of planning
towards better organizational performance. According
strategy implementation is a dependent variable.
to the bivariate regression and correlation hypothesis
Analytical technique: because there is only one depen-
H1 is supported. Meaning that, companies with focus on
dent variable bivariate regression and correlations analysis
rational and comprehensive strategic planning have better
will be used.
performance indicators, those less focused on mentioned
It is seen from the table that the correlation coefficient
process. Accordingly, executives should be engaged in
between two variables is 0.010. also, bivariate regression
strategic planning process.
analysis was performed in order to check if there is a
Hypothesis H2: Organizations with strong emphasis on
dependency between variables.
strategic planning also pays significant attention to strategy
Conclusion and findings implementation. Bivariate regression and correlation of
This work is focused on the strategic planning process of hypothesis H1 did not support it. Manufacturing companies
manufacturing organizations in Georgia. Systematic literature focusing on strategic planning pay less attention to the degree
review lead to the formulation of two hypotheses that were of effective strategy implementation planning.
tested primary data gathered from the survey.

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REFERENCES:
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strategic Decisions”.Journal of Management Studies, 40(7),pp. 1803-1836.
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THEORY, METHODOLOGY AND SYSTEMIC PROBLEMS TORNIKE KHOSHTARIA

THE IMPACT OF STRATEGIC PLANNING ON ORGANIZATIONAL PERFORMANCE

THROUGH STRATEGY IMPLEMENTATION
TORNIKE KHOSHTARIA https://doi.org/10.35945/gb.2018.05.012
European University, Georgia
[email protected]

KEYWORDS: BUSINESS STRATEGY, STRATEGIC MANAGEMENT, STRATEGY IMPLEMENTATION,

ORGANIZATIONAL PERFORMANCE

SUMMARY fulfillment” and “Relative competitive performance”. The

Actuality of the research. Strategic management is a objective fulfillment shows how an organization manages to
key factor of the success of any organization. At what degree reach its outlined short-term or long-term goals while “Rel-
managers pay attention to strategy formulation and its ative competitive performance” shows the degree of im-
implementation is reflected on a company performance. The provement or worsening of company’s performance accord-
worldwide experience shows that successful companies have ing to sales, profit, market share, etc.
clearly formulated strategic choice so they reach set goals Scientific novelty of the work. It is estimated, that the
step by step. In this way, they get desired results at local or manufacturing companies’ in Georgia, which are focused
international levels. on a rational and comprehensive strategic planning have
Theoretical basis of the work. Literature analysis showed better results than those putting less emphasis on strategic
that the main field of interest of strategic management is to planning. Also, it is empirically proved, that the companies
answer the following question – what causes performance adopting rational and comprehensive strategic planning in
heterogeneity between competitor organizations? (Rum- Georgia do not focus on the degree of planning of strategy
melt, 1994). According to the existing point of view, hetero- implementation.
geneity in the performance indicators can be explained by Practical value of the work. Research results are
the strategic planning process, strategy formulation and the important not only for those studying strategic management
degree of the planning strategy implementation (Minzberg, issues but for the managers of running enterprises in Georgia
1990; Parnell, 1997). Therefore, the impact of the above who try to succeed on a competitive market through the
mentioned three factors on organizational performance is strategic planning process. The given study will help managers
discussed in the following research. The organizational re- to identify impeding factors in making a strategic choice and
sults are measured with two mechanisms – the “Objective overcome difficulties arising in this process.

89