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Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors
Author(s): Robert M. Grant
Source: Strategic Management Journal, Vol. 24, No. 6 (Jun., 2003), pp. 491-517
Published by: Wiley
Stable URL: http://www.jstor.org/stable/20060552
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Strategie Management Journal
Strat. Mgmt. J., 24: 491-517 (2003)
Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.314
STRATEGIC PLANNING IN A TURBULENT
ENVIRONMENT: EVIDENCE FROM THE OIL MAJORS
ROBERT M. GRANT*
McDonough School of Business, Georgetown University, Washington, DC, U.S.A.
The long-running debate between the 'rational design ' and 'emergent process ' schools of strategy
formation has involved caricatures of firms ' strategic planning processes, but little empirical
evidence of whether and how companies plan. Despite the presumption that environmental
turbulence renders conventional strategic planning all but impossible, the evidence from the
corporate sector suggests that reports of the demise of strategic planning are greatly exaggerated.
The goal of this paper is to fill this empirical gap by describing the characteristics of the strategic
planning systems of multinational, multibusiness companies faced with volatile, unpredictable
business environments. In-depth case studies of the planning systems of eight of the world's
largest oil companies identified fundamental changes in the nature and role of strategic planning
since the end of the 1970s. The findings point to a possible reconciliation of 'design ' and 'process '
approaches to strategy formulation. The study pointed to a process of planned emergence in
which strategic planning systems provided a mechanism for coordinating decentralized strategy
formulation within a structure of demanding performance targets and clear corporate guidelines.
The study shows that these planning systems fostered adaptation and responsiveness, but showed
limited innovation and analytical sophistication. Copyright ? 2003 John Wiley & Sons, Ltd.
INTRODUCTION
Since the early 1980s, strategic planning?syste
matic, formalized approaches to strategy formula
tion?has come under heavy attack from manage
ment scholars. Criticisms have addressed the the
oretical foundations of strategic planning, partic
ularly the impossibility of forecasting (Mintzberg,
1994b: 110), while empirical evidence?both lon
gitudinal case studies (e.g., Mintzberg and Waters,
1982; Pascale, 1984) and investigations of strategic
decision making (e.g., Bower, 1970; Burgelman,
1983)?points to strategies emerging from the
weakly coordinated decisions of multiple organi
zational members.
Increased volatility of the business environment
makes systematic strategic planning more difficult.
Rapid change requires strategies that are flexi
ble and creative?characteristics which, accord
ing to Hamel, are seldom associated with formal
ized planning: 'In the vast majority of compa
nies, strategic planning is a calendar-driven rit
ual ... [which assumes] that the future will be
more or less like the present' (Hamel, 1996: 70).
Eisenhardt's research into 'high velocity envi
ronments' points to the advantages of 'semico
herent' strategic decision-making processes that
are unpredictable, uncontrolled, inefficient, proac
tive, continuous, and diverse (Eisenhardt, 1989;
Brown and Eisenhardt, 1997). If complexity and
uncertainty render decision making impossible,
Key words: strategic planning systems; oil and gas indus tries
^Correspondence to: Robert M. Grant, McDonough School of
Business, Georgetown University, Old North Building, Wash
ington, DC 20057, U.S.A.
Copyright ? 2003 John Wiley & Sons, Ltd. Received 25 October 1999 Final revision received 15 December 2002
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492 R. M. Grant
then self-organization may be more conducive to
high performance than hierarchical direction (Pas
cale, 1999).
The goal of this paper is to explore whether
and how companies' strategic planning practices
have adapted to a world of rapid, unpredictable
change. The study identifies the key features of
strategic planning systems in an industry that tran
sitioned from stability to turbulence?the world
petroleum industry. It explores the changing char
acteristics of the oil majors' strategic planning
processes and the changing role of strategic plan
ning within the companies. The study fills a gap in
the literature: despite the intense debate over the
merits of strategic planning and continued inter
est in strategic decision processes within firms,
we know little about the formal systems through
which companies formulate their strategic plans.
The paper contributes to strategic management
knowledge in three areas. First, it provides descrip
tive data on the strategic planning practices of
some the world's largest and most complex compa
nies during the late 1990s and how these practices
changed in response to increasing environment
turbulence. Second, it informs the long-running
debate between the 'design' and 'process' schools
of strategic management and suggests a possible
reconciliation of the two. Third, it sheds light
upon the coordination and control in large, com
plex enterprises operating in fast-changing busi
ness environments.
PLANNING AND ENVIRONMENTAL
TURBULENCE: THEORY AND EVIDENCE
The literature
Interest in strategy as an area of management
study followed the diffusion of strategic planning
('long-range planning') among large companies
during the 1950s and 1960s. Articles on long
range planning began appearing in the Harvard
Business Review during 1956-61 (Ewing, 1956;
Wrap, 1957; Payne, 1957; Platt and Maines, 1959;
Quinn, 1961) and by 1965 the first systematic,
analytically based frameworks for strategy for
mulation appeared (Ansoff, 1965; Learned et ai,
1965).1 Empirical studies of corporate planning
practices included, in the United States, Cleland
(1962), Henry (1967), the U.S. House of Repre
sentatives Committee on Science and Technology
(1976), Ang and Chua (1979), and Capon, Farley,
and Hulbert (1987); and in the United Kingdom,
Denning and Lehr (1971, 1972) and Grinyer and
Norburn (1975).
As strategic management developed as an area
of academic study, interest in companies' strategic
planning practices waned. By the 1980s empiri
cal research in strategic planning systems focused
upon just two areas: the impact of strategic plan
ning on firm performance and the role of strate
gic planning in strategic decision making. The
first area spawned many studies but no robust
findings. Ramanujam, Ramanujam, and Camil
lus (1986: 347) observed: 'The results of this
body of research are fragmented and contradic
tory,' while Boyd's (1991) survey concluded: 'The
overall effect of planning on performance is very
weak.'2
The second area of research explored the orga
nizational processes of strategy formulation. Lon
gitudinal studies of strategy formation (Mintzberg
and Waters, 1982; Mintzberg and McHugh, 1985;
Mintzberg, Brunet, and Waters, 1986) and Pas
cale (1984) identified a process of emergence that
bore little resemblance to formal, rational, strategic
planning processes. Corporate-level strategic deci
sions emerged from complex interactions between
individuals with different interests and different
perceptions (Bower, 1970; Burgelman, 1983). The
resulting debate pitted the advocates of system
atic, rational analysis (Ansoff, 1991; Goold, 1992)
against those who favored the empirical valid
ity and normative merits of emergent processes
(Mintzberg, 1991, 1994a).
The contribution of both areas of research has
been limited by lack of empirical investigation
of the phenomenon itself. Planning-performance
studies relied upon largely superficial characteriza
tions of strategic planning practices based mainly
1 Professional organizations for corporate planners stimulated
the development of strategy ideas and techniques. The North
American Society of Corporate Planners was founded in 1961.
It merged with the Planning Executives Institute to create the
Planning Forum (later renamed the Strategic Leadership Forum).
In the United Kingdom, the Long Range Planning Society
(later renamed the Strategic Planning Society) was founded in
1966. Both societies launched journals: Planning Review (since
renamed Strategy & Leadership) and Long Range Planning.
2 Miller and Cardinal (1994) did find that 'strategic planning
positively influences firm performance;' however, their 'meta
analysis' of 35 previous studies meant accepting the method
ological weaknesses of prior studies.
Copyright ? 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J, 24: 491-517 (2003)
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Strategie Planning in a Turbulent Environment 493
upon questionnaire data.3 The 'design vs. pro cess' debate has centered on a few well-known
case examples?notably Honda's entry into the
U.S. motorcycle market (Pascale, 1984; Mintzberg
et al., 1996); yet the validity of the Honda case
remains dubious?its author described it as a
'small foundation of anecdote' arising from a
'quest for amusement rather than scholarly ambi
tion' (Mintzberg et al, 1996: 112).
The impact of environmental turbulence
Changes in the business environment reinforced
the case against formal strategic planning. In the
last quarter of the twentieth century, macroeco
nomic disequilibrium, exchange rate volatility, the
microelectronics revolution, and the emergence of
newly industrializing countries marked the end of
postwar economic stability. Since economic and
market forecasts provided the foundation for strate
gic planning, inability to predict demand, prices,
exchange rates and interest rates represented a fun
damental challenge to companies' ability to plan.
The challenge of making strategy when the
future is unknowable encouraged reconsideration
of both the processes of strategy formulation and
the nature of organizational strategy. Attempts to
reconcile systematic strategic planning with turbu
lent, unpredictable business environments included
the following.
Scenario planning
Multiple scenario planning seeks not to predict
the future but to envisage alternative views of the
future in the form of distinct configurations of
key environmental variables (Schoemaker, 1993,
1995). Abandoning single-point forecasts in favor
of alternative futures implies forsaking single-point
plans in favor of strategy alternatives, emphasiz
ing strategic flexibility that creates option values.
However, as recognized by Shell?the foremost
exponent of scenario planning within the corporate
sector?the primary contribution of scenario plan
ning is not so much the creation of strategic plans
as establishing a process for strategic thinking
and organizational learning. Shell's former head
of planning observed: 'the real purpose of effective
planning is not to make to plans but to change the
mental models that decision makers carry in their
heads' (De Geus, 1988: 73). With scenario analy
sis, strategic planning is a process where decision
makers share and synthesize their different knowl
edge sets and surface their implicit assumptions
and the mental models.
Strategic intent and the role of vision
If uncertainty precludes planning in any detailed
sense, then strategy is primarily concerned with
establishing broad parameters for the development
of the enterprise with regard to 'domain selec
tion' and 'domain navigation' (Bourgeois, 1980).
Uncertainty requires that strategy is concerned less
with specific actions and the more with establish
ing clarity of direction within which short-term
flexibility can be reconciled with overall coordina
tion of strategic decisions. This requires that long
term strategic goals are established, articulated
through statements of 'vision' and 'mission' (Van
Der Heijden, 1993), and committed to through
'strategic intent' (Hamel and Prahalad, 1989).
Strategic innovation
If established companies are to prosper and sur
vive, new external environments require new strat
egies (Baden-Fuller and Stopford, 1994; Markides,
1998). Strategic planning may be a source of institutional inertia rather than innovation: 'Search
all those strategic planning diagrams, all those
interconnected boxes that supposedly give you
strategies, and nowhere will you find a single
one that explains the creative act of synthesiz
ing experiences into a novel strategy' (Mintzberg,
1994b: 109); 'The essential problem in organiza
tions today is a failure to distinguish planning from
strategizing' (Hamel, 1996: 71). Yet, systematic
approaches to strategy can encouraging managers
to explore alternatives beyond the scope of their
prior experiences: 'Good scenarios challenge tun
nel vision by instilling a deeper appreciation for
the myriad factors that shape the future' (Schoe
maker, 1995: 31). Strategic inertia may be more
to do with the planners than of planning per se.
If top management teams are characterized by
lack of genetic diversity and heavy investments
3 In some cases questionnaire data were from managers not
directly involved in strategic planning. Thus, Brews and Hunt
analyzed relationships between strategic planning and 'overall
firm performance' using written questionnaires given to 'senior
and mid-level executives attending 39 educational programs
offered at three business schools' (Brews and Hunt, 1999: 896).
Copyright ? 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 24: 491-517 (2003)
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494 R. M. Grant
of emotional equity in the past, breaking the con
servative bias of strategic planning may require
involving younger organizational members who
are further from the corporate HQ (Hamel, 2000:
148). Strategic innovation can also be enhanced
through sensitivity to emerging discontinuities in a
company's evolution?these strategy/environment
misalignments ('strategic inflection points') offer
the potential for radical strategic change (Burgel
man and Grove, 1996).
Complexity and self-organization
Mintzberg and Pascale's arguments in favor of
strategy making as an organic, unsystematic, infor
mal process have received conceptual reinforce
ment from complexity theory. Models of complex
adaptive systems developed mainly for analyz
ing biological evolution have also been applied to
the evolution of organizations (Anderson, 1999).
These models offer interesting implications for
organizational strategy. For example, faced with
a constantly changing fitness landscape, maximiz
ing survival (reaching high fitness peaks) implies
constant exploration, parallel exploration efforts by
different organizational members, and the com
bination of incremental steps ('adaptive walks')
with occasional major leaps (Beinhocker, 1999).
What kinds of strategy can achieve this adap
tation? Brown and Eisenhardt's (1997) study of
six computer firms points to the role of 'limited
probes into the future' that involve experimenta
tion, strategic alliances, and 'time-based transition
processes' that link the present with the future. A
key feature of strategic processes is the presence
of 'semistructures' that create plans, standards, and
responsibilities for certain activities, while allow
ing freedom elsewhere (Brown and Eisenhardt,
1997: 28-29). One application of the semistructure
concept to strategy formulation concerns the use
of simple rules that permit adaptation while estab
lishing bounds that can prevent companies from
falling off the edge of chaos (Eisenhardt and Sull,
2001).
Empirical evidence
Empirical evidence points to the coexistence of
formal and informal strategic planning processes.
Most large companies maintain some form of
formal strategic planning. Bain & Company's
annual survey of business techniques consistently
identifies strategic planning as the most popular
and widely utilized of any management tool
(Rigby, 1999), while studies by the American
Productivity and Quality Center (1996a, 1996b)
report features of strategic planning systems
among leading-edge U.S. corporations. Yet most
strategic decisions appear to be made outside of
formal strategic planning systems. Analyzing 1087
decisions by 127 Fortune 500 companies, Sinha
concluded: 'the overall contributions of formal
strategic planning systems ... are modest' (Sinha,
1990: 489). In unstructured and fast-moving
contexts, strategies tend to emerge: Mintzberg and
McHugh (1985) identified a 'grass roots' process
of strategy formulation, while Burgelman's study
of Intel's exit from DRAM chips (Burgelman,
1994, 1996) pointed to the smooth and timely
adaptation to external change that resulted from
unplanned decision processes forming an 'internal
selection mechanism.'
Evidence of the impact of environmental tur
bulence upon strategic planning is limited. Cross
sectional studies have produced inconsistent find
ings.4 Longitudinal evidence is fragmented, but
more consistent: in response to increasing envi
ronmental turbulence, strategic planning systems
have changed substantially from the highly for
malized processes of the 1960s and 1970s. Busi
ness Week's (1996: 46) proclamation that 'strategic
planning is back with a vengeance' acknowledged that 'it's also back with a difference.' Details of
how strategic planning systems have been adapted
to increasingly unstable, unpredictable business
environments are sparse. Descriptions of strategic
planning practices are available for some com
panies, e.g., General Electric (Aguilar, Hamer
mesh and Brainard, 1993; Slater, 1999), Royal
Dutch/Shell (De Geus, 1997), MCI (Simons and
Weston, 1990), and PowerGen (Jennings, 2000),
while Wilson (1994) provides more general evi
dence on changes in strategic planning practices.
Overall, the evidence points less to a 'decline
of strategic planning' (Mintzberg, 1994a), than to
fundamental changes in the ways in which compa
nies undertake their strategic planning.
4 Lindsay and Rue (1980) and Kukalis (1991) found external
uncertainty to be positively associated with completeness of
planning processes. Similarly, Grinyer et al. (1986) found that
the use of specialist planners was associated with the vulnerabil
ity of companies' core technology to external threats. However,
Javidan (1984) found that increased external uncertainty had no
significant impact on the extent of planning.
Copyright ? 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J, 24: 491-517 (2003)
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Strategie Planning in a Turbulent Environment 495
Investigating these changes in companies' strate
gic planning practices is likely to require richer
data than that used in most prior studies. Boyd and
Reuning-Elliot (1998) observed that researchers
have represented strategic planning?a complex,
multidimensional construct?by a few indicators.
However, despite their finding that 'strategic plan
ning is a construct that can be reliably mea
sured through seven indicators: mission state
ment, trend analysis, competitor analysis, long
term goals, annual goals, short-term action plans,
and on-going evaluation' (Boyd and Reuning
Elliot, 1998: 189), even multiple indicators may
fail to recognize the characteristics of overall
strategic planning configurations and their links
with other processes of decision making and con
trol.
RESEARCH QUESTIONS AND RESEARCH METHOD
The approach
To investigate how companies' strategic planning
systems had adapted to increased environmental
turbulence, I adopted an exploratory methodology
in preference to formal hypothesis testing. This
was for two reasons. First, a major goal of the
research was to gather descriptive data on contem
porary strategic planning practices in large corpo
rations and their changes over time. Second, there
is little theory relating to the design and func
tions of strategic planning systems within organi
zations. Analysis of the impact of organizational and environmental factors on the characteristics
of strategic planning processes (e.g., Lindsay and
Rue, 1980; Javidan, 1984; Grinyer, Al-Bazzaz, and
Yasai-Ardekani, 1986) has been based upon ad hoc
hypothesizing rather than any integrated theory of
the design and role of strategic planning processes.
This is not to imply that my research was
a-theoretic in motivation or conduct. My goal was
not simply to generate descriptive data, but to shed
light upon wider issues concerning the role of man
agement in strategic decision making and corporate
change. Despite the vast literature on organiza
tional adaptation to environmental change,5 little
explicit attention has been given to the role of
formal strategic planning. To understand the role
of strategic planning systems in companies' pro
cesses of decision making and change, the first
task is to recognize the characteristics of these sys
tems.
The research questions
The primary questions that the research addressed were:
1. What were the principal features of the strategic
planning systems of large, multibusiness, multi
national corporations?
2. What has been the impact of increased volatility
and unpredictability of the business environ
ment upon companies' strategic planning pro
cesses?
3. To what extent do companies' systems of strate
gic planning correspond to the rational, ana
lytic, formalized, staff-driven processes associ
ated with the 'design school' of strategic man
agement, and to what extent are they consistent
with the emergent strategies associated with the
'process school' ?
In researching these questions, I was guided by the
existing literature. The research cited in the previ
ous section suggested environmental volatility and
uncertainty might have the following effects on
firms' strategic planning systems:
1. Redistribution of strategic planning decision
making authority. Earlier studies pointed to
environmental turbulence as encouraging de
centralization of strategic decision-making au
thority from corporate to business level (Lind
say and Rue, 1980; Grinyer et al.y 1986) and
diminishing role of staff planners relative to that
of line managers (Wilson, 1994).
2. Shorter planning horizons. If strategic plan
ning requires prediction, greater uncertainty
about the future should shorten planning hori
zons. Empirical evidence is mixed: Lindsay
and Rue (1980) and Javidan (1984) found no
relationship between planning time spans and
external stability; Kukalis (1991) found plan
ning horizons were shorter in unpredictable
markets with high levels of innovation and
competition.
5 Theoretical streams include, inter alia, organizational ecology
(Hannan and Freeman, 1989), punctuated equilibrium (Romanelli
and Tushman, 1994), learning and evolution (e.g., March, 1981;
Nelson and Winter, 1982).
Copyright ? 2003 John Wiley & Sons, Ltd. Strut. Mgmt. J, 24: 491-517 (2003)
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