The benefits of planning is echoed in Irving survey. Some of the responses that are quoted in the Taylor/Irving article illustrate that planning is seen differently in different situations, but in each situation, if planning is to develop at all, it must satisfy a need. For many years the Stanford Research Institute has been studying the reasons why certain companies have outstanding growth records and others merely drift along at the national rate of economic growth. The major conclusions are as follows:
1. They systematically seek out, find, and reach for growth products and growth markets.
2. They characteristically have organized programmes to seek and promote new business opportunities.
3. They are consistently self-critical about the adequacy of their present operations and therefore consistently demonstrate superior competitive abilities in their present line of business.
4. Their top management slots are staffed by uniquely courageous, adventurous, high-spirited executives who bubble with dissatisfaction and are driven by an energetic zeal to lead rather than to follow.
5. The companies almost invariably have established formal systems of discovering opportunities and offsetting extreme risks by ‘planning for the unseeable’ with the context of clearly defined and growth-inspiring statements of ‘company goals’.
6. The chief executives consciously and continuously, by word and by deed, establish an organizational environment of ruthless self-examination and effervescent high adventure.
Top management must see that the entire company becomes saturated with the idea of creativity and the merits of self-criticism. It must develop and transmit some guiding philosophy about the creative function – indeed, the creative necessity – of the really effective business enterprise.
A study by Thune and House was carried out in the USA analysing the results of certain companies up to 1965. A sample of matched pairs of formal and informal ‘planners’ was selected from a larger sample drawn from six industry groups: drug, chemical, machinery, oil, food, and steel. Performance of the sample companies was then examined over periods of seven to fifteen years in terms of five economic measures.The significant results of the study were that the formal planning companies outperformed their counterparts on three of the five measures: earnings per share, earning on common equity, and earnings on total capital employed. In fact results for average sales and stock price appreciation were also better for the planners, but these measures were not statistically significant. This is only a partial indication of results, and a comparison was also made of planning companies’ performance before and after the introduction of planning. Again, the finding was that formal planning brought better results and planning companies improved their results on three of the economic measures: sales, earnings per share, and stock-price appreciation. And after this the findings of planning companies were compared with that of the informal planners for a certain period of time There was no significant difference in results. The authors state:
The first major conclusion of the study was quite clear: formal planners from the time they initiated long-range planning through 1965 significantly outperformed informal planners with respect to earnings per share, earnings on common equity, and earnings on total capital employed. Furthermore, these companies outperformed their own records based on an equal period of time before they began formal planning. Finally, informal planners did not surpass formal planners on any of the measures of economic performance after long-range planning was introduced. On an individual industry basis the findings held good for the drug, chemical, and machinery industries. Steel had to be omitted because of the length of time this industry had been planning. While food and oil showed generally better results among planners, there was no clear association of these results with the introduction of planning, since these companies also showed better results in the pre-planning era. These findings go some way to supporting the contention of Denning and Lehr1 that some industries and company types are more likely to benefit than others from planning.
Herold extended and validated part of the Thune and House study,although it was possible to do this for only five of the original eighteen matched pairs of companies used in the original study. All were in the drug and chemical industries. The conclusion was that those companies that engaged in corporate planning significantly outperformed those that did not. Another study of considerable value, also performed in the United States, was carried out by Ansoff. This examined the effect of planning on the success of acquisitions in American firms, and was limited to companies with a four-year acquisition free period, followed by an acquisition period during which no more than one year elapsed between successive acquisitions, followed by a post-acquisition period of at least two years. The universe for companies which met these criteria was 412 . All 412 companies were approached, resulting in 93 usable replies (22.6 per cent). The study examined two types of acquisition behaviour: strategic planning and operational planning. Operational planning follows the strategic planning activities.Corporate performance was measured against thirteen variables: sales ,earnings, earnings/share, total assets, earnings/equity, dividends/share, stock price (adjusted), debt/equity, common equity, earnings/total equity, P/E ratio (adjusted), payout (dividends/earnings), and price/equity ratio. Three types of measurement were designed (average of annual percentage change, average percentage change over period, and the simple average value over period). The use, where relevant, of these three measures against the thirteen variables resulted in a total of twenty-one different measures of performance. The questionnaire established eight characteristics of managerial behaviour during acquisition activity – four were concerned with strategic and four with operational planning. This enabled the sample to be divided into four subgroups: companies with little planning, companies with strategic planning only, those with operational planning only, and those with both types of planning. Overall, the ‘planners’ – that is companies exhibiting at least six of the eight characteristics – comprised 22.7 per cent of the sample. A comparison of performance between what might be termed as the extensive planning firms and those with little or no planning revealed that on all the variables with the exception of total assets growth those firms which had extensively planned their acquisition programmes significantly outperformed those that did little or no formal planning. The variables which exhibited the most notable outperformance were sales growth, earnings growth, earnings/share growth, and earnings/common equity growth. The investigators carried out a second analysis. The performance of twentytwo of the twenty-six ‘planners’ was compared with that of the forty firms which had no more than four of the eight characteristics. This study supported the findings of superior average performance by planning, and also revealed that the planners performed more consistently. The four most notable variables of outstanding performance were the same as those in the first analysis. Further analysis supported the contention that planners did better mainly because they were able to avoid failure. A number of individual non-planners had performances which exceeded the best of the planners, but a much higher percentage of the non-planners had very poor performances.
The authors conclude:
1. Firms which engage in acquisition activity tend to take one of two distinctive approaches to acquisition planning. The first is an unplanned opportunistic approach and the other, a systematic planned approach. If a firm fails to plan any phase of the programme, it is likely to forgo planning altogether. If a firm does plan a phase, it is likely to make a complete strategic and operating plan.
2. Firms which do plan tend to use these plans and to exhibit deliberate and systematic acquisition behaviour.
3. Although subjective evaluation of results by management does not differ greatly between planners and non-planners, objective financial measurements show a substantial difference.
4. On virtually all relevant financial criteria, the planners in our sample significantly outperformed the non-planners.
5. Not only did the planners do better on the average, they performed more predictably than non-planners. Thus, planners appear to have narrowed the uncertainty in the outcomes of acquisition behaviour.
A further survey by Malik and Karger in 1975 concluded:So the answer to the question of whether long range planning is more promising than results seems clear: more results. Hard data suggests long range planning pays. And since studies by others have produced similar results, the weight of evidence is mounting rapidly. Companies engaged in long range planning are using a tool that has demonstrated its worth.