An empirical investigation of the relationship between strategic planning and performance of large construction firms

The purpose of this study was to investigate strategic planning in the construction industry. The primary research objective was to determine if there is a relationship between strategic planning and financial performance of large general contractors in the US. A secondary objective was to identify the strategic planning practices of the top performing firms to facilitate the development of a 'best practices' listing. The constructs used to conceptualize the strategic planning process included planning flow, formality, comprehensiveness, participation, intensity, and integration. Performance was evaluated on both a qualitative and quantitative basis over a five-year period. The research was designed as an exploratory study involving general builders with an annual volume of greater than fifty million. During the initial phase of the study a self-administered survey was used to collect quantitative performance and planning data from one hundred forty-five firms. Subsequently, personal interviews were conducted with twenty-five of the top performing firms to obtain qualitative data on their planning practices. The research design accounted for the known moderating variables of industry, firm size, construction type, contracting method, and area of operations. Finns practicing strategic planning were comparatively evaluated with firms that did not plan. The strategic planning process was examined to determine which planning variables were associated with superior performance and the top performers were interviewed to facilitate the development of a 'best practices' listing. The findings are that a vast majority of large builders employ strategic planning, although it is a relatively new practice. Senior management initiates most strategic objectives and planning formality is associated with firm size rather than performance. Larger firms are more likely to develop strategic plans and there is a positive relationship between firm size and planning comprehensiveness. General builders that develop strategic plans have a higher level of financial performance than firms that do not develop strategic plans. Top performers have a higher level of planning intensity and are more committed to the strategic planning process. They also more highly integrate, or operationalized, their strategic plans. In addition, firms that perceive their planning process as effective have better financial performance. The planning practices of the best performing firms are presented, the strategic planning 'best practices' are tabulated, and a planning model is developed.