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Given the growth of multinationals, it is important that managers learn whether strategic planning enhances firm performance in cross-cultural situations. Using an international sample of firms, this study found that the general planning-performance model is relevant across the cultures sampled. While there appears to be little direct relationship between culture and planning, culture did moderate the planning-performance relationship. Furthermore, specific cultural values were found to account for some of the cross-cultural differences in the planning-performance relationship. Implications for management and future research are discussed.
Introduction
Concerns of increased international competition abound not only in the U.S. but also in Europe with the further expansion of the European Union and in Asia and Latin America with increased economic integration (Rugman, 2003) in those regions. Theorists (Goll & Rasheed, 1997; Brews & Hunt, 1999) have argued that firms should respond to environmental changes, such as increased competition, by engaging in more systematic strategic planning to anticipate and respond to changing events. There is evidence that U.S. firms have responded to greater environmental uncertainty and complexity with more extensive planning (Javidan, 1984; Kukalis, 1989). Furthermore, it appears that formal strategic planning enhances firm performance although the relationship is not unequivocal (Boyd, 1991; Capon, Farley & Hulbert, 1994; Miller & Cardinal, 1994). It is worth noting that, as firms in other regions of the world are confronting increasingly volatile environments, there is a need to extend planning research to firms representing a diversity of national and cultural settings (Brock, Barry & Thomas, 2000). Such research will help ensure that current prescriptions concerning the use of planning have external validity in a variety of locales. Thus, the purpose of this study is to examine the relationship between strategic planning and firm performance among a group of firms representing different cultural regions.
Strategic Planning Processes
Strategic management seeks to align the firm's activities with its external environment. At the heart of this management approach is the strategic planning system. As firms face increased environmental change (e.g., more globalization) theorists (Grant, 2003) argue that firms benefit from strategic planning. For over thirty years, a plethora of studies have examined formal long range or strategic planning. Many of these studies have found that firms that plan possess different characteristics than non-planners. In particular, many studies have sought to examine the relationship between planning and firm performance (Boyd, 1991). A review of much of the literature suggests that strategic planning can be described along two broad dimensions, planning content or ends and planning processes or means (Boyd, 1991 ; Brews & Hunt, 1999; Miller & Cardinal, 1994; Ramanujan & Venkatraman, 1987). Planning content refers to the ends of the planning process such as: goals, mission statements, environmental information programs (Veliyath & Shortell, 1993), and internal resources. Much of this content helps distinguish strategic planning from that which is purely operational planning. Planning processes focus on the means or methods by which the planning process is carried out. Characteristics such as commitment, system maturity, comprehensiveness, time horizon, and importance are typical examples of such system or process characteristics (Capon, Farley & Hulbert, 1994; Ramanujam & Venkatraman, 1987; Rhyne, 1986).
This study focuses on planning processes or system characteristics because these processes have been examined far more in the literature (Boyd, 1991; Miller & Cardinal, 1994) on planning and performance. This makes it easier to compare this study to the stream of literature that has preceded it. Second, culture is believed to affect planning processes (Haiss, 1990). As Brock et al. (2000) note, cultural values shape acceptable organization processes such as planning and decision making. Furthermore, Hofstede (2001) has observed that planning processes often reflect the dominant values of a culture.
Previous studies have examined the planning and performance relationship in non-U.S, settings, but the results have been mixed. There was no consistent relationship between formality of planning and firm performance among Swedish firms (Rhenman, 1973), Canadian firms (Sheehan, 1975), or British firms (Grinyer & Norburn, 1975). However, positive relationships between formal planning and performance have been observed between planning importance/impact and performance among Australian firms (Burr, 1978), Finnish firms (Harju, 1981), and another sample of British firms (Smith, 1980). Thus, planning processes other than formality do appear to be related to performance in these latter studies. Similarly, U.S. planning and performance studies suggest significant correlations between strategic planning processes and relevant measures of firm performance (Boyd, 1991 ; Miller & Cardinal, 1994; Shrader, Taylor & Dalton, 1984) when the planning processes other than the formality of the system are examined (Brews & Hunt, 1999). Since strategic planning helps the firm focus its attention on salient environmental trends and define the firm's goals, the act of going through such a process should enhance the firm's performance. In the case of multinationals facing multiple changing environments (Brock & Barry, 2003; Goll & Rasheed, 1997; Grant, 2003; Miller & Cardinal, 1994), planning should have a positive effect on firm performance. Taken as a whole these studies suggest that strategic planning may be related to performance for most multinationals in today's changing global markets.
Hypothesis 1 : Strategic planning processes will be positively related to performance among multinational firms representing a variety of social cultures.
Culture and Planning
Previous research (Brews & Hunt, 1999; Goll & Rasheed, 1997; Miller & Cardinal, 1994) has indicated that the firm's context may mitigate the planning-performance relationship, such factors as company size, industry, environmental change, and firm strategy. In a cross-national setting another contingency likely to affect this relationship is social culture. Culture is defined as the values, attitudes and behaviors shared by the peoples of a region (Hofstede, 2001). A culture represents assumptions, values, and behaviors that have enabled people to successfully adapt to their external environment. Since strategy is the means by which firms seek to adapt to their environments, a link between culture and strategy appears likely (Schneider & Barsoux, 2003). Culture may influence the strategic planning process (Brock et al., 2000) and, thereby, firm performance in the following ways. First, culture shapes the way people think, behave, and evaluate (Hofstede, 2001; Schneider & Barsoux, 2003). This, in turn, affects decision processes such as planning. Second, cultures vary along critical values and beliefs that affect a variety of management processes including planning.
The concept of culture is broad, making assessment difficult (Leung, Bhagat, Buchan, Erez & Gibson, 2005). There are essentially two means of assessing culture: culture-centered and personality-centered approaches (Clark, 1990; Lenartowicz & Roth, 1999). Culture-centered approaches use qualitative anthropological approaches to describe a single culture in terms of its ethnology, religion, customs, etc. This approach is suitable when studying a single culture. Personality-centered assessments use quantitative measures. Some of these can be proxies such as nationality or place of birth. Another personality-centered method is the use of value inferences based on either primary or secondary measures. This study uses two personality-centered assessments because they provide quantitative secondary measures, capture different aspects of culture, and enable us to compare across multiple cultures.
The primary assessment of culture used in this study is based on Ronen and Shenkar's (1985) cultural clusters. These were empirically derived from eight major studies of goals, values and norms in work settings. This measure reflects that cultures extend beyond national boundaries by grouping nations based on similarity of goals, values, and norms. Our secondary assessment is an indirect values inference measure based on Hofstede's (2001) value dimensions of power distance (degree of status differences), uncertainty avoidance (fear of unknown and risk taking), assertiveness (emphasis on results versus process), and self-orientation (individual versus collective self-identity). This assessment of culture has been widely used in management research (Leung et al, 2005; Sivakumar & Nakata, 2001) but to a much lesser extent in planning research (Haiss, 1990). Brock et al. (2000, p. 689) have described these value dimensions, "... as perhaps the most straight forward means to describe systematic cultural variation ..." and, therefore, particularly applicable for examining planning in the multinational firm.
The use of these two assessments of culture makes it easier to relate this study to previous research (Haiss, 1990; Hoffman & Hegarty, 1993). Employing cultural clusters is a coarser measure in that nations are grouped into a cluster based on a variety of information regarding prevailing work goals and values. It is coarser because it is essentially a nominal measure. This is our primary cultural assessment because this study is exploratory and not much is known about how specific cultural characteristics impact planning. Our second assessment of culture is based on Hofstede's (2001) values data for the nations in our sample. This measure permits us to examine an exploratory hypothesis regarding the potential effects of specific cultural values on the planning-performance relationship.
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