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Journal of Business Research 61 (2008) 99 108

Strategic planning and performance: Extending the debate

John M. Rudd a,, Gordon E. Greenley a , Amanda T. Beatson b , Ian N. Lings c
a

Aston Business School, Aston University, Birmingham B4 7ET, UK

b
Queensland University of Technology, Australia
c
University of Technology, Sydney, Australia

Received 1 February 2007; received in revised form 1 April 2007; accepted 1 June 2007

Abstract
This article extends the debate regarding the relationship between strategic planning and performance. It addresses criticism of previous
empirical studies that have largely investigated direct and bi-variate relationships, producing equivocal results. The current study investigates the
mediating effects of four types of flexibility on the strategic planning and performance relationship. Flexibility is defined as the extent to which
new and alternative decisions are generated and considered in strategic planning, allowing for positive organizational change and adaptation to
environmental turbulence. Through investigating simultaneous equations in a structural equation model, we find that two types of flexibility
mediate the relationship between strategic planning and financial performance, while the other two types mediate the relationship between
strategic planning and non-financial performance. The results are new empirical insights that have not been previously reported.
Crown Copyright 2007 Published by Elsevier Inc. All rights reserved.
Keywords: Strategic planning; Performance; Flexibility

1. Introduction
While there is empirical support for a positive association
between strategic planning and performance (Rhyne, 1986; Miller
and Cardinal, 1994; Brews and Hunt, 1999; Andersen, 2000;
Delmar and Shane, 2003), there is also evidence suggesting that
no such relationship exists (Shrader et al., 1984; Pearce et al.,
1987). This dichotomy has hindered the development of this
important research domain (Boyd, 1991; Greenley, 1994; Hahn
and Powers, 1999). The empirical studies investigating a direct
relationship between strategic planning and performance have
attracted criticisms, including the use of a bi-variate methodology.
While this relationship is of importance to organizations practicing
strategic planning, the critics suggest that other factors will impact
on the relationship between strategic planning and performance
(Schwenk and Shrader, 1993; Meilich and Marcus, 1999).
Theory predicts that successful organizations will anticipate
and address environmental turbulence through strategic plan-

Corresponding author. Tel.: +44 121 204 3218; fax: +44 121 204 4917.
E-mail address: J.M.Rudd@aston.ac.uk (J.M. Rudd).

ning (Miller and Cardinal, 1994; Rogers et al., 1999). It also

predicts that they will demonstrate flexibility in strategically
planning decision options about how they will adapt when the
environment changes, in a preparatory or ex-ante state (Evans,
1991; p 77). Through flexibility organizations are better
prepared to cope with environmental turbulence, enhancing
the influence of their strategic planning on performance.
Although strategic planning, the notion of the flexibility and
performance have received much attention in the strategic
management literature, to date there have been no empirical
investigations of their simultaneous relationships; somewhat
compounded by a lack of conceptual clarity surrounding the
notion of flexibility (Dreyer and Gronhaug, 2004; Worren et al.,
2002; Ebben and Johnson, 2005). This is at odds with their
importance in the literature (Rapert et al., 2002; Dreyer and
Gronhaug, 2004), and is a major gap in understanding.
In this article we contribute to understanding the strategic
planning and performance relationship, by addressing the
criticisms of the previous bi-variate empirical studies. We
empirically investigate the mediating effects of flexibility on the
strategic planning and performance relationship, through
analyzing simultaneous relationships in a structural equation

0148-2963/$ - see front matter. Crown Copyright 2007 Published by Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2007.06.014

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J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

model, which is novel research in this domain. Also, this study

renews investigative attention of the relationship between
strategic planning and performance, which is central to the
strategic management paradigm.
2. Theory development
Despite nearly forty years of empirical study (Ansoff, 1965;
Delmar and Shane, 2003), evidence regarding the relationship
between strategic planning and performance has been criticized as
equivocal (Pearce et al., 1987; Mintzberg, 1994; Grant, 2003).
Indeed, a prominent and on-going debate in the literature surrounds the efficacy of formalized strategic planning versus nonformalized strategic planning (Ansoff, 1965; Andrews, 1971;
Mintzberg, 1990, 1994). Advocates of non-formalized strategic
planning suggest that formalized strategic planning is rigid and
inflexible (Quinn, 1980; Mintzberg, 1994), whereas advocates of
formalized strategic planning suggest that non-formalized
strategic planning is without structure, and hence direction
(Steiner, 1979). Despite this claim, proponents of non-formal
strategy development suggest that the planning school, residing in
a largely formal approach to planning, is an important branch of
the literature (Mintzberg and Lampel, 1999; p22), and that
scholars and consultants should continue to probe into this
paradigm (Mintzberg and Lampel, 1999; p29).
Criticism regarding empirical studies investigating the relationship between strategic planning and performance has focused
on three main criticisms: 1) they have been restricted to bi-variate
investigations of varying conceptualizations of strategic planning
and performance, 2) there is little evidence of researchers
addressing mediating variables, and 3) they have been limited
to financial measures of performance (Boyd, 1991; Greenley,
1994; Miller and Cardinal, 1994; Capon et al., 1994; Brews and
Hunt, 1999). Given the fundamental importance of strategic
planning to the strategic management literature, the slow
development of theory in this domain is unusual and has hindered
advancement. A further methodological issue relating to the latter
is the method of analysis used in previous studies. Comparison of
statistical means (O'Regan and Ghobadian, 2002), comparison of
percentages (Kallman and Shapiro, 1978) and regression
(Andersen, 2000) have all been used. Whilst these techniques
were appropriate for the studies cited, none have utilized the
benefits of structural equation modeling, or more specifically,
latent variable path analysis. This method has three main
strengths. First, the ability to estimate multiple and interrelated
dependence relationships, second, the ability to incorporate
unobserved concepts within these relationships, and third the
estimation of measurement error (Hair et al., 1998). In the current
study we build on the planning school and respond to these
criticisms of the strategic planning and performance studies.
2.1. Flexibility
Flexibility is the extent to which new and alternative
decisions are generated and considered in strategic planning,
allowing positive organizational change and adaptation to
environmental turbulence (Combe and Greenley, 2004; Evans,

1991; Fiegenbaum and Karnani, 1991; Grewal and Tansuhaj,

2001). Despite the intuitive appeal of flexibility, it suffers from
two main problems, 1) semantic issues, whereby the use of the
word flexibility is ubiquitous, yet it is not always clear what is
meant by the term (Evans, 1991, p. 73), and 2) no empirical
development or testing within a strategic planning context, as the
literature states that, flexibility as a competitive goal still lacks
clear and accurate definition (Aranda, 2003, p. 1403). Much of
the theoretical discussion regarding the notion of flexibility is
divided into four main types; operational flexibility (Tang and
Tikoo, 1999), financial flexibility (Mensah and Werner, 2003),
structural flexibility (Harris and Ruefli, 2000) and technological
flexibility (Adler, 1988; Harris, 2002). However, an assessment
of their respective impact on performance in a strategic planning
context is absent from the literature.
Organizations, through strategic planning, anticipate environmental turbulence and allocate resources accordingly. By being
flexible alternative decision options are generated and considered,
which may be deployed as and when particular opportunities or
threats arise within the environment. As this process occurs prior
to the impact of turbulence, flexibility in the organization is
anticipatory and preparatory in nature (Evans, 1991). Hence,
flexible organizations will adapt rapidly to environmental change
as it occurs, through the exploitation of the appropriate alternative
decision options generated in their strategic plans, giving a
potentially valuable route to superior performance. The flexibility
exhibited by an organization in dealing with environmental
turbulence can therefore be strategically planned. In essence
flexibility is a consequence of strategic planning, and therefore an
important mediator of the relationship between strategic planning
and performance. Hence, inconclusive findings cited within the
strategic planning and performance literature are unsurprising,
given the predicted mediating influence of flexibility.
2.2. Theoretical model
In order to address these criticisms, a model of strategic
planning, flexibility and performance is proposed in Fig. 1 for
empirical testing. Four types of flexibility exert mediating
influences on the strategic planning and performance relationship.
The conceptual development of the model and theorized relationships are discussed in the following sections. Of specific note are
the dependent variables, financial and non-financial performance.
The financial pre-occupation (Ramanujam and Venkatraman,
1987, p. 454) of the studies examining the relationship between
strategic planning and performance has been highlighted above. A
criticism is that financially based assessments of performance are
no longer sufficient to manage organizations competing in
modern markets (Kennerly and Neely, 2003, p. 214), and that
further development is required. Non-financial measures of
performance, or those performance measures not directly
contributing to financial performance, are argued for in the
strategic planning literature, based on morale and retentionbased factors relating to involvement in the planning process
(Greenley, 1983, 1986). Little empirical development has
occurred, possibly due to measurement difficulties (Greenley,
1994). In order to address this, the theoretical model presented

J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

101

Fig. 1. Theoretical model.

in Fig. 1 has two dimensions of performance, financial and

non-financial.

H1c. Operational flexibility mediates the relationship between

strategic planning and financial performance.

2.2.1. Operational flexibility

Operational flexibility is organizational ability to rapidly adjust
market offerings, product/service mix and production capacity.
Organizations able to do this in light of environmental pressures
perform relatively better than competitors that do not (Tang and
Tikoo, 1999; Jack and Raturi, 2002; Aranda, 2003). The
performance benefits relate to financial efficiencies generated by
matching demand and operational scheduling. As such, overcapacity is minimized in periods of slow demand and correspondingly, the organization can respond in a timely manner to increases
in demand. However, in large to medium sized manufacturing
organizations that generally produce on a large scale with
significant lead-times, this may not be simple. Organizations
willing to reap the benefits of operational flexibility must
strategically plan resources in order to maximize financial benefits.
In previous studies, the measures used to capture performance have
been financially based, with no attempt to capture non-financial
performance. Hence, in the absence of empirical support regarding
non-financial performance, the following hypotheses are specified.

2.2.2. Financial flexibility

Financial flexibility is organizational ability to rapidly gain
access to, and deploy financial resources. Empirical evidence suggests that organizations possessing this ability perform better than
those that do not (Tan and Peng, 2003; Mensah and Werner, 2003).
The notion has significant intuitive appeal, with organizations able
to rapidly access and deploy funds outperforming than those that
cannot (Billet and Garfinkel, 2004). Additionally, organizations
planning these resource investments and preparing the organization
for rapid change will facilitate a positive impact on performance
(Greenley and Oktemgil, 1998). Indeed, organizations strategically
planning for financial flexibility are likely to avoid the inefficient
and unproductive financial resource allocations of competitors that
do not plan this flexibility (Trigeorgis, 1993). As such, strategic
planning will have a positive impact on financial flexibility that
in turn will impact on financial performance.

H1a. Strategic planning has a direct and positive impact on

operational flexibility.

H2b. Financial flexibility has a direct and positive impact on

financial performance.

H1b. Operational flexibility has a direct and positive impact on

financial performance.

H2c. Financial flexibility mediates the relationship between

strategic planning and financial performance.

H2a. Strategic planning has a direct and positive impact on

financial flexibility.

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J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

2.2.3. Structural flexibility

Structural flexibility is organizational ability to rapidly restructure (Huber, 1990). The literature shows that organizations
able to rapidly alter structural design, in line with competitive
pressures, perform well (Nahm et al., 2003). In large to medium
sized organizations this would be manifest in a flattened/delayered structure, effective communication across departments
and reduced bureaucracy. Studies have shown that some
bureaucracy in organizations is facilitative (Adler and Borys,
1996; Adler et al., 1999), hence a reduction in bureaucracy to an
appropriate level is proposed, rather than complete removal.
Strategic planning allows organizations to anticipate change and
create strategic options for that change. Organizations planning
structural flexibility are likely to benefit in terms of enhanced
financial performance. The literature suggests that organizations
undertaking structural alterations in an ordered and well
planned manner are likely to have less employee-related problems (e.g. morale and retention issues), than those organizations
that undertake change in an ad-hoc and unplanned fashion
(Adler et al., 1999; DiPaola and Hoy, 2001; Ahmed and Rafiq,
2003). However, the effects of such benefits are facilitative in
nature, and are likely to be lagged, directly impacting on nonfinancial performance, as opposed to financial performance.
H3a. Strategic planning has a direct and positive impact on
structural flexibility.
H3b. Structural flexibility has a direct and positive impact on
non-financial performance.
H3c. Structural flexibility mediates the relationship between
strategic planning and non-financial performance.
2.2.4. Technological flexibility
Technological flexibility is defined as organizational ability
to alter technological capacity in line with competitive
requirements (Miller, 2002). More specifically, organizations
operating outmoded technology, or organizations operating
very specific software, possess little scope or opportunity for
change. The facilitative importance of technology to strategic
plans is highlighted in the literature (Tracey et al., 1999; Kotha
and Swamidass, 2000; Morgan, 2004; Andersen, 2005), and
organizations strategically planning technological flexibility
will perform better than those competitors that do not.
Importantly, the literature suggests that technology has an
extremely facilitative impact on the employees that use it
(Barley, 1986; Zuboff, 1988), through helping managers to cope
with uncertainty and to make more effective strategic responses
(Mandal et al., 1998; Miller, 2002; Andersen, 2005). This
essentially non-financial impact is an immediate effect for the
users of the technology. The financial benefit for the
organization is likely to manifest itself later. Hence, strategic
planning will have a positive impact on technological flexibility
that in turn, will have a positive impact on non-financial
performance. This notion is specified within the theoretical
model presented in Fig. 1, as the direct performance impact of
technological flexibility is on non-financial performance, with
an indirect impact on financial performance.

H4a. Strategic planning has a direct and positive impact

technological flexibility.
H4b. Technological flexibility has a direct and positive impact
on non-financial performance.
H4c. Technological flexibility mediates the relationship between strategic planning and non-financial performance.
Although a relationship between non-financial performance
and financial performance is conceptually specified in the
literature (Chakravarthy, 1986; Greenley, 1994), empirical
evidence is scarce and equivocal (Markoczy, 2001). This notion
is based on consensus building through strategic planning (Dess
and Oringer, 1987; Lyles, 2001; Armstrong, 1982; Markoczy,
2001), whereby the setting of organizational goals and objectives
is achieved by managers who are not exclusively derived from
the top management team; creating strategic consensus among
managers through a shared set of organizational priorities (Floyd
and Wooldridge, 1992). By being more inclusive within this
consensus building process, the literature suggests that organizations reap an immediate non-financial performance benefit
regarding factors such as job satisfaction, job involvement,
commitment, trust and well-being (Edwards, 1991; Kristof, 1996;
Barney and Arikan, 2001). The theoretical model suggests that
organizations that are planning strategically for both structural
and technological flexibility are likely to reap non-financial
performance benefits, as previously discussed. These organizations are likely to have well motivated employees, and are likely
to better retain staff than organizations that do not. Hence a direct
effect from non-financial performance to financial performance
is specified in the theoretical model.
H5. Non-financial performance will exert a direct and positive
impact on financial performance.
3. Research design and methodology
3.1. Measures used
Previously tested and validated measures were used to
capture the constructs of strategic planning (Boyd and ReuningElliot, 1998), and financial and non-financial performance
(Greenley, 1983; Chakravarthy, 1986; Thomas, 1988; Cadogan
et al., 2002). Perceptual responses were gauged using Likertstyle responses on five and seven-point scales. Subjective
assessments of financial and non-financial performance were
used, consistent with established practice in strategy research
(Brews and Hunt, 1999; Andersen, 2000; Morgan and Strong,
2003). The literature suggests a high degree of correlation
between perceptual and objective measures of organizational
performance (Venkatraman and Ramanujam, 1986; Dess and
Robinson, 1984; Murray et al., 2005), and hence confidence in
their use was high. Following protocols and a pre-test
(Diamantopoulos et al., 1994), adaptations to these scales
were made in line with established procedures (Spector, 1992;
DeVellis, 2003). No face validity issues were identified. The
scales are listed in Appendix 1.

J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

Table 1
Results of non-response testing
Measure

Mean value Mean value Significance

of t
Early
Late
respondents respondents

Planning
4.03
Flexibility (aggregate measure for 3.30
non-response testing)
Financial performance
3.30
Non-financial performance
3.51
Organization size
4.7

4.02
3.49

0.89
0.41

3.46
3.61
4.3

0.12
0.38
0.41

103

issues of dimensionality, reliability and validity (Churchill,

2002; DeVellis, 2003). No problematic statistics were identified, and hence confidence in their use in the main survey was
high. Further discussion of measurement testing is presented in
Section 4.
3.3. Questionnaire administration

Significant at the 0.05 level.

3.2. Flexibility: development of the measures

Following a review of the literature, no appropriate scales
were identified for the four types of flexibility, and therefore
measures were developed in line with established scale
development procedures (Spector, 1992; DeVellis, 2003). As
discussed earlier, four types of flexibility were identified, 1)
structural flexibility, 2) operational flexibility, 3) technological
flexibility, and 4) financial flexibility. Academic and practitioner sources created a large pool of items for each type,
which were subsequently purified. Of note, during the scale
development process, participant senior managers highlighted a
difference between technology involved in day to day
manufacturing operations, and the software/infrastructure. It
was important to clearly separate these two areas and therefore
consistent with these comments, operational technology was
captured by operational flexibility, the ability to alter product
mix/output, and technological flexibility captured software/
infrastructure related technology. Based on data from the pretest sample, both exploratory and confirmatory factor analyses
were undertaken on the measures. In the interests of parsimony
and rigor, a spilt-sample methodology (Kelloway, 1998) was
adopted in order to confirm the factor structure obtained from
initial factor rotations (Hair et al., 1998). No problematic factor
loadings, cross-loadings or issues with face validity were
observed, and therefore confidence in their use was high.
Based on data from the pre-test, and prior to administering
the main survey, the chosen scales for strategic planning, financial and non-financial performance were examined regarding

A cross-sectional approach was adopted, consistent with

previous empirical studies of the relationship between strategic
planning and performance (Hopkins and Hopkins, 1997; Hahn
and Powers, 1999; O'Regan and Ghobadian, 2002, Tanriverdi
and Venkatraman, 2005). Prior to the administration of the main
survey, a two-stage pre-test was undertaken, again in-line with
established recommendations (Churchill, 1979), including
protocols (Diamantopoulos et al., 1994) and a pre-test mail
survey. No statistical or semantic issues were identified, and
hence 2300 questionnaires were administered to a database of
large to medium sized UK manufacturing organizations. Size
and sectoral influence were controlled for by limiting the
sample data to medium/large manufacturing organizations.
CEOs, Managing Directors and General Managers were
targeted as key respondents because of their perspective on
strategy, their extensive knowledge of their respective organizations and their access to relevant information (Tan and Tan,
2005; Tuominen et al., 2004). In an attempt to increase the
response rate the covering letter asked recipients to pass on the
questionnaire to the most senior strategist in their organizations
(Leontiades and Tezel, 1980). Additionally, organizations not
responsible for their strategic planning, for example a branch
organization, were asked not to return the questionnaire. By
including these instructions it was felt that appropriate
respondents would be sampled. Respondents were ensured of
the confidentiality and anonymity of their responses and, in line
with established procedures, reminder postcards were sent
seven days after mailing the survey (Dillman, 2000). As an
additional check for data quality, respondents were asked to
indicate the size of their organizations on a scale from 1, less
than fifty employees, to 7, more than 5000 employees. Surveys
where respondents had indicated less than fifty employees in
their organizations were excluded from the final sample.
As a cross-sectional, single respondent approach was used to
collect data, common method variance was controlled for by

Table 2
Measures used: summary statistics

1
2
3
4
5
6
7

Strategic planning
Operational flexibility
Financial flexibility
Structural flexibility
Technological flexibility
Financial performance
Non-financial performance

CR

CA

AVE

0.80
0.85
0.89
0.81
0.78
0.86
0.78

0.81
0.84
0.89
0.81
0.79
0.85
0.78

0.86
0.78
0.78
0.66
0.63
0.73
0.71

1.00
0.34
0.07
0.96
0.18
0.18
0.19

1.00
0.30
0.27
0.46
0.35
0.28

1.00
0.21
0.20
0.23
0.43

1.00
0.20
0.33
0.12

1.00
0.34
0.10

1.00
0.43

1.00

Key: significant result 0.01 level.

CR = Composite reliability, CA = Cronbach Alpha, AVE = Average variance extracted.

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J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

Table 3
Structural model: standardized path coefficients and t-values
Hypotheses

Path specified:

Standardized path coefficients

t-value

H1 supported

Strategic planning Operational flexibility

Operational flexibility Financial performance
Strategic planning Financial flexibility
Financial flexibility Financial performance
Strategic planning Structural flexibility
Structural flexibility Non-financial flexibility
Strategic planning Technological flexibility
Technological flexibility Non-financial flexibility
Non-financial performance Financial performance

0.16
0.31
0.12
0.26
0.15
0.16
0.23
0.49
0.12

2.66
5.12
1.94
4.59
2.57
2.98
3.61
7.65
1.29

H2 supported
H3 supported
H4 supported
H5 unsupported

Key: significant result 0.01 level/significant result 0.05 level.

adopting widely accepted practices in questionnaire design

(Lindell and Whitney, 2001; Podsakoff and Organ, 1986). First,
the issue of acquiescence or the tendency to agree with attitude
statements regardless of content (Podsakoff et al., 2003; p 883)
was addressed by reverse scoring the same proportion of items
in each of the scales used. Second, in order to avoid respondent
fatigue and avoid transient mood states (Podsakoff et al., 2003),
questions were not presented in a particular order, the length of
the final questionnaire was shortened, and variations were used
in the wording of the items. Third, respondents were unaware of
the nature of the relationships under investigation, in order to
avoid over-justification effects. Finally, Harman's single factor
test was used post hoc to test for common method variance
(Podsakoff and Organ, 1986). Results of the prescribed factor
analysis revealed eight factors, with no dominant factor
accounting for the majority of the total variance (Menon
et al., 1996). Therefore, common method variance was not
considered to be a problem. A total of 366 usable responses
were received, presenting a useable response rate of 16%. Nonresponse bias was assessed by comparing late and early
respondents (Armstrong and Overton, 1977). No statistically
different responses were observed for any of the measures,
suggesting that non-response bias was not present. The results
are presented in Table 1.
4. Results
This section is divided into three parts. First, the results of the
measurement testing, second the results of the model testing,
and third the results of testing for the mediating effects.
4.1. Measurement testing
All measures were assessed for reliability, convergent
validity and discriminant validity (Andersen and Gerbing,
1988). Reliability was assessed through Cronbach's Alpha
(Cronbach, 1951) and composite reliability (Fornell and
Larcker, 1981). All measures were above recommended limits
of 0.60 and 0.50 respectively. Convergent validity was assessed
through an examination of the average variance extracted
(AVE), whereby values greater than 0.50 are considered to
demonstrate convergent validity (Chin, 1998). All measures

were found be above the 0.50 threshold. Discriminant validity

was assessed after Fornell and Larcker (1981), where AVE
should exceed the sum of the measures squared correlations.
Summary statistics, including the measures of reliability and
validity are provided in Table 2.
The results support the discriminant validity of the measures
used, as the AVE for each of the measures is greater than the
squared correlations. Table 2 therefore shows no reliability or
validity problems with the measures.
In summary, following an examination of statistical tests of
measure reliability, validity and fit, the measures were deemed
acceptable for theory development purposes.
4.2. Model testing
The hypotheses and model (Fig. 1) were tested with
structural equation modeling in LISREL 8.50 (Jreskog and
Srbom, 2001), using latent path analysis; cited as the most
comprehensive and flexible method of multivariate analysis
(Hoyle, 1995). The results of the testing were assessed against
widely published and recognized criteria (Hair et al., 1998;
Diamantopoulos and Siguaw, 2000). Measures of Absolute fit
(2 = 483.02; df = 112), Goodness of fit (GFI = 0.90),
Incremental fit (IFI = 0.92) and Parsimonious fit (PGFI = 0.63),
were within acceptable limits for theory development purposes, and no issues with modification indices were identified.
The results suggest that the theoretical model (Fig. 1) is a good
representation of the data collected. Additionally, all but one
of the paths featured strong, positive and significant values
(Steenkamp and Van Trijp, 1991). Standardized path values
and t-values for the structural model are summarized in Table 3.
A competing model was also tested, to further examine the
validity and robustness of the theoretical model (Kelloway,
Table 4
Comparison of theoretical and competing models
Fit statistics

Theoretical model
Competing model

Comparative information
criteria

GFI

IFI

PGFI

ECVI

AIC

CAIC

0.90
0.83

0.92
0.90

0.63
0.61

1.55
1.98

565.02
724.22

766.03
920.32

J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

105

Table 5
Results of mediation testing
Flexibility type

Operational
Financial
Structural
Technological

Condition 1

Condition 2

Condition 3

Independent on mediator

Independent on dependent

Independent on dependent

Mediator on dependent

Path co-efficient

t-value

Path co-efficient

t-value

Path co-efficient

t-value

Path co-efficient

t-value

0.10
0.13
0.18
0.08

1.90
2.14
2.82
1.34

0.20
0.20
0.23
0.23

3.35
3.46
4.56
4.56

0.17
0.19
0.18
0.20

2.97
3.17
3.13
4.38

0.35
0.14
0.47
0.15

5.87
2.57
8.31
3.40

Key: significant result 0.01 level/significant result 0.05 level.

1998). The competing model stated that performance drives

strategic planning, that in turn impacts on flexibility. Here we
posit that successful organizations can allocate the necessary
resources to strategic planning, hence facilitating flexibility
through effective and well resourced strategic planning. The
competing model demonstrated inferior fit and comparative
criteria compared to the theoretical model. The results are
summarized in Table 4. The comparative criteria used were the
expected cross validation index (ECVI), the Aikake's information criteria (AIC) and the consistent version of AIC, adjusted
for sample size effects (CAIC).
When examining competing models lower values of the
comparative criteria are desirable (Diamantopoulos and Siguaw,
2000). Indeed, the competing model demonstrated higher
comparative criteria and lower fit statistics than the theoretical
model, further validating the theoretical model and providing
evidence of its robustness. Therefore, the hypothesized
relationships H1a, H1b, H2a, H2b, H3a, H3b, H4a and H4b
are supported, but H5 was not supported.
4.3. Mediating effects testing
Additional testing of the hypothesized mediator effects was
undertaken after Baron and Kenny (1986). Originally cited as a
regression technique, Baron and Kenny (1986) advocate
structural equation modeling (SEM) in order to incorporate
measurement error. We therefore used an SEM approach. Due to
model complexity, a three stage procedure was adopted for each
of the mediated hypotheses i.e. hypotheses H1c, H2c, H3c and
H4c. This procedure estimated 1) the impact of the independent
variable on the mediator variable, 2) the impact of the independent variable on the dependent variable, and 3) the impact of
both the independent and mediator variables on the dependent
variable. Baron and Kenny (1986) suggest that in order to
identify mediation, a) the independent variable must affect the
mediator, b) the independent variable must affect the dependant
variable, and c) the mediator must affect the dependent variable.
Also, if these conditions hold in the predicted direction, the
effect of the independent variable on the dependent variable
must be less in the third test than in the second. The results of
mediation testing are presented in Table 5.
All four hypothesized mediation effects from operational
flexibility, financial flexibility, structural flexibility and technological flexibility met the conditions specified (Baron and
Kenny, 1986) i.e. the independent variables affect the

mediators, the independent variables affect the dependent

variables, and the mediators affect the dependent variables.
Additionally, and in order to identify mediation, the affect of
the independent variables on the dependent variables are less
in the third test than in the second. Therefore, the mediating
effects predicted in hypotheses H1c, H2c, H3c and H4c are
supported.
5. Discussion
This article has extended the debate about strategic planning
and performance, and has renewed empirical investigation in
this domain. This was done by addressing the criticisms of the
previous empirical studies that had investigated a direct
relationship between strategic planning and performance.
Through the investigation of simultaneous equations in a
structural equation model, we find that flexibility mediates the
relationship between strategic planning and performance. Both
operational and financial flexibility mediate the influence of
strategic planning on financial performance, while structural
and technological flexibility mediate its influence on nonfinancial performance. These are new insights that have not
been empirically investigated in the literature.
In previous studies of strategic planning and performance,
where generally a bi-variate method for addressing the strategic
planning and performance relationship has been used, the results
have been equivocal and inconclusive. These mediation effects
from the four types of flexibility are an explanation for these
equivocal results, suggesting that a bi-variate method is not appropriate. Mediation in the current model means that the impact
of strategic planning on performance happens through flexibility,
in that flexibility is an influence that facilitates the impact of
strategic planning on performance. Hence, without flexibility
as a mediating variable in the model, the actual relationship
between strategic planning and performance is unlikely to be
demonstrated.
There are several implications of these results for both theory
and managers. Although strategic planning is a process for
anticipating environmental turbulence, the logical sequential
process often prescribed in the literature, is not enough to
influence performance. Flexibility in decisions is needed to
change operational issues, such as products and services or their
production, and to change financial issues, such as capital and
gearing, in order to impact on financial performance. Similarly,
flexibility in decisions is needed to change structural issues,

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J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

such as managerial style and expertise, and to change technological issues, such as production technology and software,
in order to impact on non-financial performance. The results
suggest that the influence of strategic planning is more effective
when such changes are made. While financial performance is
improved through operational and financial flexibility, and nonfinancial performance is improved through structural and
technological flexibility, the results found no relationship
between non-financial performance and financial performance.
Hence managers focusing on structural and technological
flexibility will see improvements in employee morale and
retention, but not in financial returns. Managers seeking purely
financial returns should focus on operational and financial
flexibility and not structural and technological.
Appropriate flexibility will, however, be necessary for effective mediation. Implications here are that managers will firstly be
able to anticipate environmental turbulence over the period of
the strategic plan, and will also be able to monitor change over
this period. Second, flexibility requires managerial ability to
generate appropriate alternative decision options with respect to
operations, finance, structure and technology, in advance of when
environmental turbulence is likely to arise over the period of the
strategic plan. Flexibility requires managers to be in a preparatory
or ex-ante state. Third, to be flexible managers must be willing
to consider these decision options, some of which may entail
unfamiliar decisions and risk, as and when there is environmental
turbulence and opportunities and threats arise. Fourth, managers
must be willing to take appropriate decisions about changing their
operations, finance, structure or technology, in order to pursue
the necessary flexibility to impact on their performance. Fifth,
managers must have capabilities to exploit planned flexibility,
by ensuring that operational, financial, structural and technological changes are effective in allowing the company to adapt to
new opportunities and threats. Finally, managers must implement
necessary and important change effectively and efficiently, in
order to realize the anticipated benefits of planned change (Naveh
et al., 2006) The consequences of such adaptations could, of
course, be far reaching, having major impact on product/service
offerings in the market place, major changes to financial gearing,
major changes to the management of the company, and consequences for competitive advantage and the next round of
strategic planning.
The above implications suggest several directions for future
research. Clearly most of the above implications could be
investigated to pursue further understanding of how the process
of flexibility works together with strategic planning to impact
on performance. Some of these issues could be incorporated
into the model for further latent path analysis, but some may be
antecedents to strategic planning, which in turn may influence
the effectiveness of strategic planning.
6. Limitations
The limitations of the study are now discussed. A crosssectional approach to data collection has inherent limitations, and
while the issue of common method variance has been discussed
under questionnaire administration, generalizability of the results

is now addressed. While the rationale for the research design is

sound, any claims of generalizability of the results would be false.
The results are statistically sound, and present interesting
theoretical and practical insight with a specific national and
industrial context. Further empirical testing must take place in
order to claim any generalizability of the findings.
Causality is a further issue with the SEM approach used to
test the theoretical model. While association, isolation and
directionality are cited as three conditions constituting a causal
relationship (Bollen, 1989), SEM satisfies only the association
and isolation criteria clearly. However, as theoretical support
is available for the direction of causality presented in the
theoretical model, causality is assumed (Kelloway, 1998; Hair
et al., 1998).
Appendix 1. Measures used
Flexibility: operational, financial, structural and technological
Type

Item

Operational
flexibility

Change production
with market demand
Change product mix
with market demand
Fund resource
changes from within
Obtain funding
externally
Financially flexible
Communicate
between departments
Reduce bureaucracy
Structurally flexible
Up to date
computer system
Adaptable
computer system
Add/reduce
computing capacity

Financial
flexibility

Structural
flexibility

Technological
flexibility

Item

0.77

Type Cronbach

0.77

0.84

0.78
0.78
0.78
0.79
0.78
0.77
0.79

0.89

0.81

0.79
0.78

0.79

Strategic planning (adapted from Boyd and Reuning-Elliot,

1998)
Scale item

Item Scale Cronbach

Mission statement
0.84
Analysis of competitor trends
0.80
Analysis of supplier trends
0.76
Analysis of market trends
0.72
Internal analysis
0.62 0.81
Long term, corporate level strategies
0.67
Medium term, business level strategies 0.70
Short term, functional level strategies 0.50
barriers to strategy implementation
0.61
Analysis of contingencies
0.69
On-going evaluation and control
0.73

J.M. Rudd et al. / Journal of Business Research 61 (2008) 99108

Financial and non-financial performance (adapted from

Thomas, 1988; Cadogan et al., 2002)
Financial performance
scale item
Profit growth
Sales growth
Market share

Item

0.81
0.94
0.89

Scale Cronbach

Non-financial performance
scale item
Employee satisfaction
Employee retention

Item

0.89
0.91

Scale Cronbach

0.85

0.78

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