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Received 10 June 1998
Final revision received 21 April 1999
Key words: formal strategic planning, logical incrementalism, environmental stability, firm performance
This paper resolves the long-standing debate between the two dominant process schools in strategy. Analysis of the planning practices of 656 firms shows that formal planning and incrementalism both form part of 'good' strategic planning, especially in unstable environments. Environment neither moderates the need for formal planning nor the direction of the planning/performance relationship, but does moderate firm planning capabilities and planning flexibility. In unstable environments planning capabilities are far better developed and formal plans more amenable to change. The planning/performance relationship is, however, moderated by planning duration: at least four years of formal planning are required before external performance associations are noted. Copyright (C) 1999 John Wiley & Sons, Ltd.
INTRODUCTION
A recent bitter debate between two prominent strategy academicians considers a question vital to the theory and practice of strategy: what types of planning should firms utilize in their strategy formation behaviors? Ansoff, flying the Planning School flag, contends that formal planning is beneficial in both stable and unstable environments (Ansoff, 1991, 1994) while Mintzberg, articulating the Learning School view, favors logical incrementalism, especially in unstable environments (Mintzberg, 1991; 1994a, 1994b). This paper presents a resolution to the debate, and reports on a study investigating whether environmental conditions moderate the type of planning firms employ in their strategy formation activities. The impact of the length of time a planning regime has been employed at a firm on the planning/performance relationship was also explored, together with other Learning School critiques of the Planning School. After reviewing prior research, the key constructs utilized in the study are presented and discussed. Then, hypotheses are presented, followed by the study methodology and a report of the findings. Once the study limitations are acknowledged, a discussion of the key implications of the findings, for research and practice, concludes the paper.
THEORY DEVELOPMENT
Prior research
Few issues have attracted more attention in strategy research than the relationship between the mode of strategic planning adopted by the firm and the economic performance of the firm. Regrettably, decades of planning/performance research have yielded inconsistent findings. A review of 18 empirical studies testing the effect of formal strategic...