Strategic Planning Vs. Strategic Management, and the Performance Gap

The terms strategic planning (strategy formulation) and strategic management are synonymous and interchangeably used in the business world; however, both have different meanings. Strategic management encompasses strategic planning-in other words, strategic planning is a subset of strategic management. Strategic management evolved from strategic planning. Fundamentally, strategic planning incorporates environmental scanning and strategy formulation whereas strategic management incorporates two additional components (or processes) –strategy implementation, and evaluation and control. Research indicates that both strategic planning and strategic management approaches have delivered superior performance results in terms of return on investment, profitability, sales growth, and productivity, compared to those firms that did not engage in these activities. However, the performance gaps achieved through both processes were different.

The traditional strategic planning model uses a top-down approach of planning in which plans are created by top management and planning staff, with little or no involvement of lower-level staff responsible for implementation.^{1, 2} This type of strategic plan can be considered as an open-loop system because it de-emphasizes strategy implementation and the issues of interaction, and evaluation and control.  Open-loop refers to a system where information flows in one direction (for example, in top-down planning) and without any provision for feedback and corrective action.  After execution, such plans generated huge performance gaps between the company’s objectives and actual results. The gaps in performance and the unresolved issues as mentioned above led to the failure of strategic planning in the early 1980s. For example, General Electric downsized its strategic planning division and transitioned to strategic management during the 1980s.

Strategic management now incorporates all approaches (modes) of planning and elicits information and commitment from lower-level staff and managers.³ A strategic management model uses a closed-loop system that is capable of minimizing or closing the performance gap between strategy formulation and implementation (because of feedback and corrective action) and is certainly capable of delivering superior performance results than using strategic planning alone.⁴

References and Further Reading

1. M. E. Porter, Competitive Strategy (NY: The Free Press, 1998), p. xxvi.
2. H. Kerzner, Project Management (NY: John Wiley & Sons, 2001), p. 1011.
3. H. J. Thamhain, Engineering Management (NJ: John Wiley & Sons, 1992), pp. 71-73.
4. T. L. Wheelen & J. D. Hunger, Strategic Management & Business Policy (NJ: Prentice-Hall, 2000), Chapter 1.