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Strategic Planning Horizons Used by Both Small and Big Companies from the
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Conference Paper · September 2014

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Ioan Abrudan - Coordinator

Proceedings of the 4th

Review of Management and Economic Engineering
International Management Conference

„The Management Between

Profit and Social Responsibility”
18th – 20th of September 2014, Technical University of Cluj-Napoca, România

Organized by
AMIER (Romanian Managers and Economic Engineers Association)
and
Technical University of Cluj-Napoca

Todesco Publishing House

2014
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ISSN 2247 – 8639

ISSN-L = 2247 - 8639
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Strategic planning horizons used by both small and big companies

from the north-west Romania

Author(s)*: Gabriela LOBONȚIU1, Vasile BÎRLE2, Nicolae UNGUREANU3

Position: Lecturer, PhD1,2, Professor, PhD3
University: Technical University of Cluj-Napoca, North University Center of Baia Mare1,2
Address: Baia Mare, Dr. V. Babeș str., no 62A, Romania
Email: gabriela.lobontiu@cunbm.utcluj.ro1, vasile.birle@yahoo.com2,
nicolae.ungureanu@cunbm.utcluj.ro3
Webpage: http://www.utcluj.ro/

Abstract

Purpose – The paper aims to analyze the importance both small and big firms managers put on
long, mid-, or short-range planning, through empirical evidences collected from 35 firms and 43
respondents from Maramureș region.
Methodology/approach - The survey method, based on a closed answers questionnaire.
Findings – The investigated managers approach strategic planning differently: some use short-
term planning more extensively than the long-range one, whilst others do not. Also, comparing to
a previously conducted study, some changes in their strategic behavior occurred.
Research limitations/implications – The investigated sample was randomly selected, no
statistical criteria being pursued in choosing the participants. Consequently, the conclusions we
drew are valid only for the sample in question. The investigation can be further developed though,
by extending the sample to a bigger region and even trying a statistical approach.
Practical implications – The paper brings an insight into the reality of the strategic behavior of
active managers, providing useful information for both academics and researchers of the field.
Originality/value – We tried to look for differences in the strategic behavior of micro- and small
enterprises vs. medium sized ones or even bigger companies.
Key words: strategic horizon, strategic planning, small business

Introduction

Nowadays, the use of strategic management is not optional any more, being a mandatory
decision in front of serious challenges that organizations have been experiencing (Al Ghamdi,
2005). The need for developing a strategy has increased due to globalization, technology
advancement, deregulation, emerging of new markets and industries, and economic
restructuring, Al Ghamdi (2005) says.

The notion that strategic management is important for a firm’s success or failure has produced an
extensive stream of literature. However, in the aggregate, empirical studies have concentrated on
large firms in Western business society, Hin, Kadir and Bohari (2012) concluded. Researchers
that focused upon small business sector had found conflicting results, with some arguing SMEs
use formal strategic planning, while others argued that formal strategic planning has little practical
relevance to SMEs (Robinson et al., 1984).

When comparing to their bigger counterparts, it is far known that most small firms are applying an
intuitive or somehow empirical strategy, rarely formalized, emergent and crisis-driven, targeting a
short-range strategic horizon, due to the bigger uncertainties their environment is inducing. It is
therefore worthwhile to carry out a series of studies with the purpose of identifying and discussing
the strategic behavior of the owner-manager comparing to the one deployed by top managers in
bigger companies.

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Our paper introduces the results of such a study, which intended to identify, within a given sample
of managers, their preference in using long, mid-, or short-range planning, and also comparing
the results to a previously conducted study (Stăncioiu & Militaru, 1998).

The paper is structured in four major sections. Following Introduction, the next section reviews
the dedicated literature on the strategic process and the importance of strategic planning for both
small and big firms. Section 3 presents the empirical findings, while the final section concludes.

Strategic planning and strategic behavior

Firm’s performance is determined, at least in part, by how effectively and efficiently the firm’s
business strategy is implemented (Olson, Slater & Hult, 2005). Strategic planning can contribute
to performance by generating relevant information, by creating a better understanding of the
important environment, and by reducing uncertainty (Gică & Negrușa, 2011).

SMEs are major providers of new jobs (Audretsch et al., 2002; Stokes and Wilson, 2006)
providing approximately 75 million jobs, and representing 99% of the 23 million enterprises in the
EU (Nymen, Berck & Worsdofer, 2006). In the US, SMEs have generated 22.5 million (64%) of
net new jobs between 1993 and 2008, according to the US Small Business Administration
(Hulbert, Gilmoreb & Carson, 2013).

But SMEs behave differently from large companies in the way that they do business; they are run
by owner-managers who have an individual or personal style of management. Owner managers
tend to be generalists rather than specialists and are more likely to have a technical background
rather than a business one (Hulbert, Gilmoreb & Carson, 2013). Storey (1994) has emphasized
that too often large-firm models are taken as given and the small firm is assumed to be a “scaled-
down” version of a large firm. In the context of studying the small firm, however, it is important to
realize that small firms are not just “little big businesses” and that each small firm is unique and
very much reflects the personal characteristics of the enterprise owner.

The process of strategy making can vary greatly among firms. Small organizations tend to have
inexplicit, intuitively derived strategies that reside mainly in the mind of CEO (Scott, 1971;
Mintzberg, 1973). Time horizons may be very short as executives of small, simple firms react in
unplanned and piecemeal fashion to conditions. It is not possible, in small business, to talk of
strategic planning in the way that term is used in the corporate sector (Julien, 1998).

Robinson and Pearce (1984) suggested that strategic planning in small businesses use shorter
planning horizons than for bigger companies, is relatively informal in its nature, incorporate
participants other than the owner-manager, and accept relatively open initial objectives. Actually
several studies (d’Amboise & Gasse, 1980; Rice & Hamilton, 1979) showed that often the goals
of the small businessperson are vague, inadequately defined, pragmatic, and short-ranges.

An empirical study about strategic planning horizons

Methodology
The method used for collecting inputs from small business owners from the area of Maramureș,
Northern Romania (NUTS3 level - RO114) was the survey method. The sample of small
businesses contained 35 items, randomly selected.

Survey instrument
A self-administered questionnaire, with multiple-choice answers, consisting of two sections, was
designed. Section I began with general items querying the firm’s characteristics: its legal form of
existence, the industry to which it belongs, the number of employees, the position of the
respondent on the firm’s hierarchy. In Section II, the items elicited information regarding the
amount of time the manager is dedicating to planning, and the way (s)he is dividing this time
between short, mid- or long-range planning horizons.

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The distribution of firms based on their size is shown in Figure 1, where the division into
categories was made in accordance with the Commission Recommendation 2003/361/EC (2003).

Figure 1. The size categories of the investigated firms

Practical Results
The first question that the managers had to answer was related to the amount of time they are
spending for planning. The average results are illustrated in figure 2.

Figure 2. The amount of time spent for planning

Ranging from a minimum of seven percent to 90 percent, the overall average of time spent for
planning reaches 29.5 percent. On an average, we can appreciate that managers from the
investigated sample develop a correct strategic behavior, allocating almost 30 percent of their
time working on strategic planning. What is somehow unexpected is that managers from the
medium-sized firms are scoring higher than those from the big companies, when generally we
would have expected otherwise. A possible explanation for this lays in the extremely
heterogeneous behavior of the big company managers, reaching extremes from only seven
percent of the working time allocated for planning to 90 percent, consequently decreasing the
average value of the category.

These results are comparable to the ones Robins and DeCenzo (1995) got on their study, where
the time dedicated to planning by the investigated top managers accounted for 28 percent. On a
similar study, performed by Miricescu (2008) on 33 Romanian managers, planning reached only
15.71 percent of the total working time. So, by comparison, the managers from our sample are
developing a more appropriate attitude towards planning.

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Although a formal strategic planning process is considered to be positively related to firm

performance (Schwenk & Shrader, 1993; Brews & Hunt, 1999), evidence suggests that the
effectiveness of strategic planning declines when environmental uncertainty increases as the
perceived value of strategic planning decreases in kind (Dibrell, Craig & Neubaum, 2014), which
is, nowadays, the case for most businesses around. A formal strategic planning process creates
a degree of inflexibility and rigidness, making efforts to adapt to changes in the external
environment difficult (Mintzberg, 1994), and orienting business leaders towards shorter ranges
when planning.

When asked about their preference in using the planning horizons, the managers ranked short-
range planning as the most used in their strategic activity, declaring that, as an average, they spend
43 percent of their time making strategies for 3 to 6 months, and 27 percent planning on mid-range
horizons (1-2 years) - see figure 3. Again, this behavior may be a consequence of the increased
environmental uncertainty, most business leaders voicing the frequent need for their firms to alter
their strategic plans to match changing external environments (Grant, 2003; Wiltbank et al., 2006).
Consequently, they probably consider the effort to write plans for longer periods of time to be
unproductive, since these plans are most likely to be changed within one year period.

Figure 3. The use of time horizons during the process of planning for the whole sample of firms

Analyzing data grouped by the firm’s size, we’re noticing that micro- and small enterprises do
prefer very short time horizons in their planning process, with 62 percent of their time dedicated to
making plans for periods that do not exceed one month (see figure 4). This corresponds to what
Scott (1971), Mintzberg (1973), Rice and Hamilton (1979), d’Amboise and Gasse (1986), or
Robinson and Pearce (1994) have observed over time.

Figure 4. The use of planning horizons in micro- and small enterprises

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The medium sized firms and the big ones too are maintaining the general trend previously
mentioned, with a big majority of 55 percent of the managers preferring short-range horizons (3-6
months). Though, it is somehow surprising that the medium-sized firms managers exceed
managers from large companies in using longer range planning horizons (three to four years),
more precisely 14 percent in medium sized firms (see figure 5) versus only six percent in the
large companies (see figure 6).

Figure 5. The use of planning horizons in

medium sized firms Figure 6. The use of planning horizons in big
companies

In 1998, Stăncioiu and Militaru performed a study on a set of Romanian companies which tried to
establish how do managers split their planning time between multiple time horizons. The results
they got are introduces by figure 7.

1% 2% 5% 10% 15% 27% 30% 10%

President

2% 4% 10% 29% 20% 18% 13% 4%

Vice-president

4% 8% 15% 35% 20% 10% 5% 3% General

manager
2% 5% 15% 30% 20% 12% 12% 4%
Chief engineer

10% 10% 24% 39% 10% 5% 1% 1% Head of

department
15% 20% 25% 37% 3% Head of any
productive
department
38% 40% 15% 5% 2%
Supervisor

1 3-6 2 3-4 5-10

1 day 1 week 1 year
month months years years years

planning horizons
Figure 7. Distribution of time horizons used by managers from various hierarchical levels in an
organization (Stăncioiu & Militaru, 1998)

Our study tried to find answers for pretty much the same questions, but we didn’t split the time
horizons into so many categories, and we didn’t have respondents placed on so many
hierarchical levels. So, in order to enable comparison between the results, we merged the time
intervals from Stancioiu and Militaru’s study (1998) into four categories only (the ones we used in
our own study). We also condensed the hierarchical levels into three categories: top

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management, functional management and operational management, but since we had no

respondents belonging to the latter, we didn’t calculate the average values for this category as
well. The average values for Stancioiu and Militaru’s study (1998), after all the previously
mentioned mergers, are introduced by table 1.

Table 1. The average values for Stancioiu and Militaru’s study (1998)
Time horizon 1 day- 1 3-6 1-2 years > 3 years
Hierarchical level month months
President 8% 10% 42% 40%
Vice-president 16% 29% 38% 17%
General manager 27% 35% 30% 8%
Top management average 17% 25% 37% 21%
Chief engineer 22% 30% 32% 16%
Head of department 44% 39% 15% 2%
Functional management average 33% 35% 23% 9%

With these values at hand, we did the actual comparison and we represented the results on two
graphs: one for the distribution of planning time by forecasting horizon amongst top managers
from both studies (figure 8), and another one for the distribution of planning time by forecasting
horizon amongst functional managers (figure 9).

Figure 9. Functional management’s usage of

Figure 8. Top management’s usage of
planning horizons - comparison between
planning horizons - comparison between
studies
studies

When looking at figure 8, one major difference is really striking: the values trend in our study
seems to be quite the opposite to that of the previous study (Stăncioiu & Militaru, 1998). After
more than 15 years, top managers are planning mostly on short and very short ranges, allocating
two thirds of their time to such plans (33.8 percent, and 34 percent), and only one third to mid-
and long-range strategies. Again, this may be the consequence of a very unstable environment,
which makes all long-range planning efforts to become obsolete, due to the almost disruptive
changes, which occur with high frequency in the organizational environment.

Concerning the functional management (figure 9), another unusual behavior appears: functional
managers from our study do not plan on very short terms, while the top managers do. Even more,
the functional managers appear to use more of their time on mid-range planning (35 percent)
comparing to the average for top managers, which is 20.4 percent (figure 8). This behavior is

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quite deficient, since the top managers should emphasize more on mid- and long-range planning,
while the functional managers should look more into details when planning, and use shorter
horizons on the planning process than their higher ups. One main shortage of such an approach
is that top managers will lose valuable time on detailed plans, when they actually should be
setting up the main strategic framework, and also the directions for the firm’s development, letting
the functional and the operational levels do the detailing.

If compared to Stăncioiu and Militaru’s study (1998), the general trend in our study follows
approximately the same line of evolution, with one major exception: the functional managers from
our sample do not plan on very short-term (ranging from one day up to one month).

Discussion and conclusions

Concluding, the overall tendency of the managers nowadays is to spend less time on mid- or
long-range planning, setting up short-term objectives and plans. This switch may be an outcome
of the increased uncertainty and unpredictability of the business environment.
Looking at the behavior each category of firms is showing, the micro- and small enterprises are
preferring very-short terms in their planning process, while the medium sized and the big firms
are not using such short terms at all.

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