Does Strategic Planning Determine Innovation in Organizations? A Study of Indian SME Sector

Abstract

Innovation is considered to be a source of competitive advantage. Not surprisingly, innovation has been a matter of scholarly interest for several decades now. However, despite its critical importance to the strategy literature, the linkage between strategic planning and innovation in organizations has not been the focus area of researchers. The current literature is mostly conceptual and lacks empirical validation leading to fragmentation in findings. For example, while some researchers argue that strategic planning helps in new product development and can be seen as a framework for innovation, others believe that it restricts creativity and innovation. Apparently, the fragmentation in findings engenders from a narrow view of strategic planning. The concept of strategic planning has undergone a metamorphosis from the time it originated in 1960s and 70s. From being a rigid to-do organizational activity, it has come to evolve as a fluid continuous organizational level activity in the 2000s. This study views strategic planning as a comprehensive integrative mechanism (comprising of function coverage, external and internal emphasis, and resource allocation and commitment), and hypothesizes that strategic planning positively influences innovation in organizations. Data for this study, measuring the extent of strategic planning, perceptions of organizational structure, commitment to learning and innovation in organizations, were collected by administering standardized survey questionnaires to entrepreneurs or other senior executives of small businesses. Quantitative analysis (structural equation modeling) of data obtained from 123 small and medium businesses in the manufacturing industry yielded a positive relationship between strategic planning and innovation. Further, this relationship was found to be equally strong for various kinds of innovation. This study also established a significant positive moderating role of commitment to learning on the relationship between strategic planning and innovation. However, contrary to the hypothesized relationship, structural flexibility in organizations did not exhibit any moderating effect on this relationship. This research contributes to existing literature in many ways. This is probably among the first studies to explore a comprehensive array of dimensions of strategic planning and innovation together in order to expand our current understanding of this relationship. By conceptualizing strategic planning as a comprehensive integrative mechanism and operationalizing it as a second-order multi-dimensional construct, this dissertation offers several theoretical and practical insights. The findings clearly reveal that strategic planning, coupled with organizational learning, helps organizations assess the complexities of their external environment and respond effectively to external contingencies, which in turn leads to successful innovation in organizations.