CHAPTER TWOLITERATURE REVIEW2.1 IntroductionIn this chapter theories and/or models relative to strategic planning are reviewed. This is followed by a thorough review of past empirical studies in relation to internal factors influencing effectiveness of strategic planning. The chapter also illustrates the conceptual framework which outlines study variables and their hypothesized relationships.
In addition, a critique and summary of the reviewed studies is covered followed by an outline of the identified research gaps. 2.2 Theoretical FrameworkThe theories reviewed and discussed in the contest of various internal factors and strategic planning include the stakeholder theory, resource-dependency theory and, the balanced scorecard theory.2.
2.1 Stakeholder TheoryStakeholder theory was proposed by Freeman (1984). The theory states that the aim of an organization is to create as much value as possible for stakeholders. The theory further stipulates that for any entity to succeed and/or be sustainable, the senior management ought to align the interests of various stakeholders including employees, customers, suppliers, shareholders, and communities in the same direction as the firm. In addition, it is as asserted that being innovative in keeping the foregoing interests aligned is more crucial when compared to the easy strategy of trading off stakeholders’ interests against each other. Freeman (1984) states that the conventional definition of a stakeholder is any group of individual who can affect or is bound to be affected by the achievement of the objectives of an organization.
On the other hand, it is postulated that an organization should be conceptualized as a grouping of stakeholders and the purpose of the organization is supposed to manage stakeholders’ interests, needs and also their viewpoints (Friedman, 2006). The management of stakeholders is thought to be the responsibility of the organization’s managers. It is further stated that the managers should manage the corporation for the benefit of its stakeholders. This is in order to make sure the stakeholders’ rights and their participation in decision making are upheld (Fontaine, Haarman&Schmid, 2006). Freeman (2004) adds that stakeholders have a right to hold to account directors or managers of a firm for their failure to execute their responsibilities. In relation to the strategic planning in state corporations, the stakeholder theory can be employed to explain the aspect of stakeholder involvement. The stakeholders of the corporations include its employees, customers (who are mainly farmers), shareholders and the government. As aforesaid, the theory underscores the role of the management in ensuring that stakeholders take part in decision making since the managers are their agents (Fontaine et al.
, 2006), and as such should run the organization in the interest of all the stakeholders. 2.2.2 Resource-Dependency TheoryThe resource dependency theory (RDT) was proposed by Pfefer and Salancik (1978). The theory states that actors who lack essential resources are bound to strive to establish relationships with or be dependent upon other actors or entities in order to obtain the requisite resources. The rationale underscored by the RDT is the object of organizations to maximize their power.
The intra-organizational and inter-organizational relationships are grounded on this theory. As such, RDT is a manifestation of relationships among organizations as a set of power relations premised on exchange of resources. According to Pfefer (1981) the RDT states that organizations will strive to alter their dependence relationships whereby they reduce their own dependence, or optionally, increase the dependence of other organizations on them. It is imperative to assert that the competitiveness and/or sustainability of an entity is subject to how it manipulates the stipulations of the RDT. It is important to reckon that the theory holds some assumptions.
For instance, the feasibility of the theory is subject to the assumption that organizations constitute both internal and external coalitions which result from social exchanges. The theory also assumes that the environment contains scarce and valued resources which are imperative to the sustainability of the organization. Thirdly, it is assumed that organizations strive to achieve two related objectives. That is, to acquire control over resources that reduces their dependence on other entities and also control over resources which maximize the dependence of other organizations on them.
In relation to strategic planning in the agricultural State Corporations, it is imperative for the entity to consider the availability of resources especially how to address the ever-increasing demand with the limited resources. In tandem with the RDT theory as explained by Pfefer and Salancik (1978), it is important for the corporations to strive to strike a balance of their present and projected resources when drafting their strategic plans. They should also form strategic partnerships and alliances with other entities in order to address scarcity of resources. Granted that, resources are requisite for success of planned activities of State Corporations, and that there is a limit of funds disbursed to them by the National Treasury, it is imperative to address the aspect of resource-imbalance level by engaging other organizations which can inject more capital to their operations. 2.2.
3 Balanced ScorecardThe balanced scorecard (BSC) was developed by Kaplan and Norton (1992). The BSC which is a strategic planning and management system, is employed by organizations to communicate what they are intending to accomplish; and align what all stakeholders do on a day-to-day basis in relation to the strategy.The scorecard also enables organizations to prioritize projects, products and services, in addition to facilitating them with means of measuring and monitoring progress towards strategic targets.
Essentially, the BSC is used to manage strategy.The basic components of the balanced scorecard include the mission, vision and strategy. Others are objectives, key performance indicators (KPIs), actions, organizational capacity, internal process, customers, and financial components. The following is a simplified model of BSC.Table 2.1: Components of Balanced ScorecardMission / Vision / Values / Strategic Themes / ResultsStrategy Map/Objectives Measures Targets InitiativesFinancial Customer Process Organizational Capacity In relation to BSC illustrated in Table 2.
1, strategic objectives constitute continuous improvement activities which an organization is required to implement in order to realize its vision. On the other hand, strategy maps enable a firm to visualize its strategy. In order to track the performance of an organization, specific measures are outlined by the BSC. In tandem, the firm has specific targets which essentially define the desired level of performance of each of the foregoing measures. Moreover, strategic initiatives refer to those projects and/or activities which facilitate an organization to realize its targets. In relation to the agricultural State Corporations, the balanced scorecard can be used to explain how monitoring and evaluation of the strategic plan will be carried out. This is due to the fact that as outlined by the BSC (Kaplan & Norton, 1996), strategic plan has various metrics in line with key performance areas (KPAs) and KPIs.2.
3 Empirical ReviewIn this section past empirical studies in respect of various determinants of strategic planning effectiveness are reviewed. The studies are specifically in reference to stakeholder involvement, top management support, organization’s environment, resource imbalance level, and effectiveness of strategic planning. 2.3.1 Stakeholder Involvement and Effectiveness of Strategic Planning In Norway, a study conducted by Johnsen (2016) analyzed strategic planning and management in local government. The study closely examined the status of the foregoing after three decades. This is in line with the assertion that strategic planning and management was introduced in the public sector more than 30 years ago. The study was delimited to municipalities in Norway.
According to the results of the study it was indicated that by 2012, most of Norwegian municipalities were using strategic planning and management. Of interest, is the revelation that municipalities which had a high level of stakeholder involvement had better perceived impacts of strategic planning that other municipalities whose stakeholder involvement was low.A study by Bijlsma, Bots, Wolters and Hoekstra (2011) empirically analyzed the influence of stakeholders on policy development. The study employs an analytical framework. The study acknowledged that participation of stakeholders is advocated widely; however, there has been little empirical research regarding how it influences policy development. The study established that the wider frame that was adopted in the participatory approach resulted from active handling of process uncertainty. In Nigeria, Yaro, Arshad and Salleh (2017) conducted a study on relevance of stakeholders in policy implementation.
The study adopted a qualitative research approach where a total of 15 respondents were purposively interviewed. The analysis was facilitated by Nvivo software. According to the results of the study, it was established that stakeholders played a significant role in implementation of policy. In this respect, the study recommended that stakeholders should be fully engaged in provision of education.A study conducted by Wanyama (2013) at Kenya Port Authority (KPA) sought to determine the extent of stakeholder involvement in change management at the aforesaid state corporation. The investigation was a case study where interviews and semi-structured questionnaires were used in data collection. The KPA management and staff comprised the sample for the study. It was determined that the corporation involved its stakeholders in its affairs, however, the involvement was not done at all stages of change management.
It was therefore deduced that the corporation ought to engage stakeholders more in the change management planning in order to win their contribution in the entire change management process.Another local study conducted by Ng’ong’aandAlang’o (2015) examined stakeholder involvement in respect of change management. The study particularly looked into the extent to which stakeholders were engaged in change management process at Kenya Power and Lighting Company (KPLC), presently, the Kenya Power (KP) company. The study used a cross sectional research design and conducted interviews to managing director, chief executive officer, chief manager of finance, supplier chain logistics, head of commercial services, human resource managers among others to obtain first hand data. Secondary data were also used. It was noted that stakeholders were engaged or involved in giving feedback to the company management on the change process and also in the drafting of procedures of ensuring that the changes are effective. Stakeholders were also engaged in the piloting phase of change management. The stakeholders were not involved in in the design stage of change process.
It was recommended that the company should involve stakeholders in the whole process of change management.2.3.2 Top Management Support and Effectiveness of Strategic Planning A study carried out by Koufopoulos, Zoumbos, Argyropoulou and Motwani (2008) analyzed the top management team and corporate performance. The study zeroed in on Greek firms listed on the Athens Stock Exchange (ASE).
In particular, the study explored the role of boards of management in relation to performance of organizations. More so, the study empirically examined the relationship between the board’s chairperson, key board composition variables and organizational performance. The results of the study indicated that the competitive positioning of the firm was proportionate to the age of the top managers. However, the age factor was found to be negatively correlated with performance. A study by Garrett Jr and Nuebaum (2013) centered on top management support and initial strategic assets.
The study adopted a dependency model for internal corporate venture performance. Both the resource dependency theory and resource-based view guided the study. The study involved 72 firms from which primary data were collected. According to the study findings, it was revealed that as the level of top management support increased, there was a possibility of raising the levels of initial strategic assets endowed in the corporate venture.
It was further found that top management’s support of the corporate venture enhances the subsequent performance of the internal corporate venture (ICV). In Ghana, a qualitative study conducted by Asamoah, Osei-Kojo and Yeboah-Assiamah (2013) investigated how productivity in the country’s public sector was enhanced. The study used content analysis to analyze secondary data with the view of understanding the low productivity in the Ghanaian public sector. The study admitted that both productivity and performance could be conceptualized differently. To this end, the study argued that the two concepts are the function of many factors including the top management support. It was further revealed that in order to enhance productivity and organizational performance, it was necessary to overhaul the employees’ character starting with that of the top management. A study conducted by Mutunga (2017) evaluated challenges facing strategy implementation in state corporations in Kenya. In particular, the study focused on the case of Agricultural Finance Corporation.
The study adopted a face-to-face interview where selected management staff took part in the study. In the study, it was observed that for strategic management to be successful the participation and support of all stakeholders including the top management is very necessary. The foregoing is founded on the argument that both the management and the employees play a crucial role in implementation of strategies. 2.3.3 Organization’s Environment and Effectiveness of Strategic Planning A study carried out by Falshaw, Glaister and Tatoglu (2006) centered on evidence on formal strategic planning and firm performance. The study empirically analyzed a total of 113 companies in the United Kingdom particularly in regard to the relationship between formal strategic planning and financial performance.
The study employed a set of questionnaires to collect primary data. Multivariate analysis was used to test pertinent research hypotheses. The study factored in environmental turbulence in respect of the aforementioned relationship.
It is further acknowledged that indeed both internal and external environments are factors that need consideration in the strategic planning process. Moreover, in the study, it is noted that strategic planning which has hitherto been adopted by many organizations is one of the instruments that is employed to management environmental turbulence.A study by Mendes (2017) empirically examined the Portuguese business environment in relation to strategic tools. The objective of the study was to analyze the strategic planning processes and tools employed by firms in Portugal. The study underscored the rationale of companies understanding both their internal and external environment. The foregoing is aimed at enabling such firms to formulate strategies that ensure growth and long-term profits.
It was further observed that the prevailing dynamic business environment obliges companies to accustom to the new trends for them to remain afloat and/or sustainable. A study conducted in Ghana by Agyapong and Muntaka (2012) evaluated strategic planning and business performance. The study was a comparative analysis of micro, small and large firms in the country. According to the results of the study which indicated that the relationship between strategic planning and performance was positive and moderately significant, there emerged a new dimension on the strategic planning-performance debate.
In this respect, the study suggested that the aforementioned relationship varied on the premise of economic environment among other factors such as firm level and size.An empirical study conducted by Odundo (2012) analyzed the environmental context, implementation of strategic plans and performance of state corporations in Kenya. The main objective of the study was to examine the moderating effect of environmental context on the nexus between level of implementation of strategic plans, its effectiveness and performance of state corporations. The political goodwill and support and policy framework were the parameters of the environmental context. Eighty three state corporations from sectors of the economy were evaluated. Cross sectional survey and relational research design were adopted by the study. The study revealed that the political goodwill and support influenced the relationship between the extent of the implementation of strategic plans and financial performance. Organizational policy framework was noted to have an effect on the relationship between the extent of strategic plans implementation and effectiveness of state corporations.
A local study carried out by Mathenge (2013) focused on the challenges facing effective corporate management in State-owned enterprises. The study specifically looked into the effect of corporate environment on the effectiveness of corporate governance and management in State owned enterprises in Kenya. The study adopted descriptive survey research design. The board members and executive management of selected state owned enterprises were targeted. Questionnaires were used to gather data from study respondents.
The study noted that the environment to which the selected state owned enterprises tended to be a hindrance to effective governance of state owned enterprises in Kenya. It was recommended that there ought to be a boundary between business and politics in order to separate corporations from government agencies that patronize them. The foregoing if enforced would prevent conflict of interests that result to unethical decision making.2.3.
4 Resource Imbalance Level and Effectiveness of Strategic Planning In Macedonian context, Suklev and Debarliev (2012) conducted a comparative study on strategic planning effectiveness. The major objective of the study was to examine the relationship between strategic planning and organizational effectiveness. The results of the empirical analysis revealed that strategic planning generally influences organizational effectiveness. In the study it was indicated that strategic planning involves resource allocation among other factors in order for an organization to realize its strategic goals.
In the same perspective, the study noted that strategic planners have the ability to retain current human resource while attracting quality labour force. The study acknowledges the tenets of strategic planning which strives to find the best fit between the resources possessed by an organization and opportunities presented by the environment. A study conducted in Nigeria by Monday, Akinola, Ologbenla and Aladeraji (2015) examined strategic management and firm performance. The study focused on a sample of manufacturing firms in the country.
The study used structured questionnaires to collect done from 50 purposively sampled respondents from five large-scale listed manufacturing companies in Nigeria. In the study it was found that top managers are required to allocate requisite resources in order to facilitate strategic planning implementation. The study further revealed that most of the respondents held the view that strategic management facilitated the utilization of both human and material resources. A local study by Juma (2014) investigated organizational resources and corporate governance structures in relation to performance level of state corporations in Kenya. The study sought to establish the influence of organizational resources on performance of Kenyan state corporations. Cross sectional descriptive survey was used. Data were obtained by use of questionnaires which were administered to 95 state corporations.
The results indicated that organizational resources are fundamental for enhancing performance of state corporations. The study, however, recommended that state corporations ought to better integrate, renew and recombine their resources for better performance.A survey study conducted by Were (2007) evaluated the factors that influence strategic responses by state corporations following changes in the operating environment. The object of the study was to determine the significant factors that cause strategic responses by different state corporations in the event of changes in environment.
A total of 40 state corporations were investigated where structured questionnaires were used to collect raw data. The study noted that availability of resource largely influenced strategic responses by corporations in changing environment.2.
3.5 Effectiveness of Strategic Planning in State Corporations A study by Ugboro, Obeng and Spann (2010) investigated strategic planning effectiveness in public sector organizations in the United States. The main objective of the study was to determine the effectiveness of strategic planning as a tool for strategic management in public sector organizations in the country.
The study found that effective strategic planning calls for top managers’ active roles in defining the strategic direction of the organization and more so create an environment that creates room for strategic planning in strategic management. Furthermore, it was noted that effective strategic planning requires sound working relationships among units of an organization, top management crew, integration of units into organization wide strategic plan and a flexible planning process.In Zimbabwe, a study conducted by Majaha (2015) determined strategic planning practices and performance of state corporations. The objective of the study was to determine the influence of strategic planning practices on performance of state corporations in Zimbabwe.
The research design used by the study was cross sectional survey. The line, general managers and senior executives were the target population for the study. Questionnaires were used to collect data from the respondents. It was found out that most corporations in the country adopted a participatory approach in the strategic planning process, established and communicated clear mission and goals to stakeholders and more so engaged stakeholders in strategy formulation.
It was also noted that there was an evaluation of strategies against the set performance in order to unearth gaps and take corrective measures. It was concluded that state corporations in Zimbabwe embraced strategic planning practices which enhanced performance.Locally, Kitoto (2012) conducted a study on strategic planning practices adopted by the Kenya Pipeline Company (KPC). The researcher determined to achieve the foregoing by evaluating the factors that influence planning practices and the efficiency of strategic planning at KPC. Managers of KPC were targeted by the study. Interviews and questionnaires were used to obtain data. The findings of the study revealed that strategic planning practices used at the company were comprised of strategies that clearly outlined the objectives and action plans for such strategies.
It was further noted that internal and external factors influenced strategic planning practices at the company. The study however failed to determine the effectiveness of strategic planning at KPC.A study conducted by Mwangi (2013) focused on state corporations in Kenya. The study purposed to determine the strategic planning practices applied by state corporations and their influence on performance of state corporations. A total of 40 different corporations in the financial, regulatory, public universities, regional development authorities, training and research, service and tertiary education sectors were considered.
Cross sectional survey design was used by the study. The findings showed that the management of the surveyed corporations had the mandate of strategic planning. More so, it was established that all departments in studied corporations were involved in planning of strategy. Notably, the efficiency of planning for strategy and performance of a corporation was enhanced when corporation mandate is linked to strategies and goals prioritized are set.2.4 Conceptual FrameworkA conceptual framework is defined as a diagrammatic representation of study variables or constructs and how they are hypothesized to interact. In respect to the present study, the conceptual framework is as illustrated in Figure 2.1.
sAccording to the conceptual framework (Figure 2.1), the study will have two distinct sets of variables. These are independent and dependent variables. Independent variables will include stakeholder involvement, top management support, organization’s environment, and resource imbalance level. Strategic planning effectiveness will constitute the dependent variable.
Each of the aforementioned study constructs is operationalized using measurable parameters. In addition, it is presumed that there exists a relationship between each of the mentioned independent variables and the dependent variable. The study will seek to address this hypothesis going forward. 2.5 Critique of the Reviewed LiteratureHitherto empirical studies are critiqued with the view of acknowledging what they have addressed and what they have failed to look into in respect of determinants of strategic planning effectiveness in state corporations in Kenya.
In respect of stakeholder involvement, a study conducted by Wanyama (2013) at KPA noted that involvement was not done at all stages of change management. Another study carried out by Ng’ong’a andAlang’o (2015) focused on the Kenya Power. The study noted that stakeholders were not involved in in the design stage of change process. Though the foregoing studies addressed the aspect of stakeholder involvement, it was in the context of change management, as such, they fell short of relating stakeholder involvement to strategic implementation. In respect of top management support, a study conducted by Mutunga (2017) examined various challenges facing strategy implementation in state corporations in Kenya. The study found that for strategic management to be successful the participation and support of all stakeholders including the top management is very necessary. However, the study though focusing on the Agricultural Finance Corporation, did not closely examine the subject of top management support and how such influences effective strategic planning. Regarding the environment of an organization, Odundo’s (2012) study examined the environmental context, implementation of strategic plans and performance of state corporations in Kenya.
The study established that the political goodwill and support influenced the relationship between the extent of the implementation of strategic plans and financial performance. Nevertheless, the study did not adequately examine organization’s environment in relation to effectiveness of strategic planning. Another study conducted by Mathenge (2013) noted that the environment to which the selected state owned enterprises tended to be a hindrance to effective governance of state owned enterprises in Kenya. These two studies, nonetheless, did not examine the influence of organization’s environment on effective strategic planning. Relative to resource imbalance level, a survey study by Were (2007) found that that availability of resource largely influenced strategic responses by corporations in changing environment.
Yet, this study did not focus on the level of resource imbalance in relation to effective strategic planning. Another study conducted by Juma (2014) indicated that organizational resources are fundamental for enhancing performance of state corporations. The foregoing study, however, fell short of relating imbalance resources to strategic planning. 2.6 Summary of the Reviewed LiteraturePast studies indicated that most of Norwegian municipalities were using strategic planning and management.
It is acknowledged that participation of stakeholders is advocated widely. It is established that stakeholders played a significant role in implementation of policy. A reviewed local study has found that the stakeholder involvement was not done at all stages of change management in KPA. In respect of the KP, past studies have indicated that stakeholders were engaged or involved in giving feedback to the company management on the change process and also in the drafting of procedures of ensuring that the changes are effective.It has been indicated that the competitive positioning of the firm was proportionate to the age of the top managers. Another study revealed that as the level of top management support increased, there was a possibility of raising the levels of initial strategic assets endowed in the corporate venture.Another study argued that productivity and performance are the function of many factors including the top management support. A local study observed that for strategic management to be successful the participation and support of all stakeholders including the top management is very necessary.
A study conducted in the UK noted that strategic planning which has hitherto been adopted by many organizations is one of the instruments that is employed to management environmental turbulence. Another study underscored the rationale of companies understanding both their internal and external environment. The reviewed studies further indicated that the relationship between strategic planning and performance is partly influenced by economic factors. It is further revealed that external environment as characterized by political goodwill influence effectiveness of strategic plan implementation in local state corporations. Moreover, it is noted that operating environment determines effectiveness of governance in state corporations in Kenya.
It is indicated that strategic planning involves resource allocation among other factors. A study conducted in Nigeria observed that top managers are required to allocate requisite resources in order to facilitate strategic planning implementation. In Kenya, hitherto empirical studies indicate that organizational resources are fundamental for enhancing performance of state corporations. Moreover, it is noted that availability of resource largely influenced strategic responses by corporations in changing environment.A study conducted in the US found that effective strategic planning calls for top managers’ active roles in defining the strategic direction of the organization in addition to creating an environment that creates room for strategic planning in strategic management. A regional study conducted in Zimbabwe concluded that state corporations in Zimbabwe embraced strategic planning practices which enhanced performance. A local study revealed that strategic planning practices used at the KPC comprised of strategies that clearly outlined the objectives and action plans for such strategies.
Moreover, it is observed that the management of the local state corporations had the mandate of strategic planning.2.7 Research GapsAfter critiquing the local reviewed studies, crucial research gaps pertinent to effectiveness of strategic planning were identified. The reviewed studies conducted by both Wanyama (2013), and Ng’ong’a andAlang’o (2015) did not link stakeholder involvement to strategic implementation. Another study carried out in Kenya by Mutunga (2017)focused on the Agricultural Finance Corporation without examining the subject of top management support and how it influences effective strategic planning. Other local studies revealed that political goodwill and support are crucial in strategic planning (Odundo, 2012); and also that the environment in which state corporations operate may be a hindrance to the organizations’ governance (Mathenge, 2013). However, the foregoing studies did not examine the influence of organization’s environment on effective strategic planning.
A study conducted by Were (2007) did not analyze the level of resource imbalance in relation to effective strategic planning. A study by Juma (2014) also fell short of relating imbalance resources to strategic planning. The identified research gaps in respect of determinants of strategic planning effectiveness in Kenya’s state corporations are purposed to be addressed by the present study.
