An Article Review

On
Business Planning and Venture Level Performance:
Challenging the Institution of Planning








I n partial fulfillment of course requirement of New Venture & Market Creation
Master of Business Administration (MBA), 3rd semester 2014


Submitted To:
Prof. Dr. Madhav Raj Koirala

Submitted By:
Prabin K.C.
Roll no: 18

May 17, 2014

Article Title: Business Planning and Venture Level Performance: Challenging the
Institution of Planning
Author: Benson Honig and Mikael Samuelsson
Article Type: Research Article
Publisher: Swedish Entrepreneurship Forum , 2011

Major Purpose
This research seeks to establish the relationship between business planning and venture
performance. It attempts to explain how formal business planning or changes in business
planning affects outcomes of the firms. The authors aim to put light on whether or not
organization should institutionalize the business plan. This paper examines how methodological
bias and short duration studies might influence findings presented in scholarly journals,
particularly the effects of business planning on the entire range of entrepreneurial activity, from
startup, through the various life-cycles, toward maturation through comparative studies. It gives
insight that management journals tend to lag other fields in their willingness to publish research
that either replicates or extends the existing research and very often this leads to erroneous
findings.
Hypotheses and Variables
The article consists of two sets of hypothesis. The first set of hypothesis examines formal
planning asserting the relationships between planning and performance would be positive,
neutral or negative under four hypotheses:
H1a: Formal business planning has a positive impact on persistence in the nascent venturing
process.
H1b: Formal business planning has a positive impact on performance in the nascent venturing
process.
H1c: Formal business planning has a no impact on performance in the nascent venturing process.
H1d: Formal business planning has no impact on performance in the nascent venturing process.
The next set of hypothesis examines the relationship between changing a plan, asserting that
either changing a plan would have a positive relationship with performance, or else is neutral
under two hypotheses:
H2a: Changing a formal business plan has a positive impact on performance in the nascent
venturing process.
H2b: H2a: Changing a formal business plan has no impact on performance in the nascent
venturing process.
As far as variables for the study are concerned, five measures of performance are used as the
dependent variables namely survival, sum of gestation behaviors, value creation, wealth creation,
and return on investment. Together, these five performance measures capture the process of
creation, survival and growth as well as the ultimate termination of the venture. Persistence is
captured by survival, strategic impact is captured by sales, financial impact by return on
investment and wealth creation by number of jobs created. The independent variables consist of
formal business plan and changes in business plan. The study also includes gender, resource and
network effects, age, growth aspirations and education as moderating variables.
Method and Sample
Of the 49,979 Swedish individuals randomly selected, a raw sample of 623respondendents was
collected. The study consists of three sets of samples that were followed over a period of six
years starting 1998 from conception, through exploitation venture level performance, as well as
termination. The first, second and third set of sample consists of 623, 420 and 223 nascent
entrepreneurs respectively. The similar studies by Delmar Shane in 2003 and Honig and
Karlsson in 2004 asserted that planning activities led to better performance outcomes. Both
articles are based on the exact same data 623 as our current study, but used two different sub
samples of the data, Delmar and Shane used 223 nascent entrepreneurs and Honig and Karlsson
used 396 nascent entrepreneurs that were followed over a period of two years starting 1998. So,
the second and third set of samples of 420 and 223 are indeed the replication of samples used in
other two studies previously. Through extended research and data replication, the author intend
to examine to what extend the findings of either Honig and karlsson(2004) or Delmar
Shane(2003) are biased by the time horizon or methodology (sub sampling) they employed in
their studies by comparatively reanalyzing their data.
In order to understand how business planning influences venture level performance, the analysis
utilize multiple and logistic regression, using the sample analysis across all three samples in
order to be able to compare the results.
Results and Concluding Remarks
By developing various correlation matrix, mean comparisons and regression equation, the results
were concluded. Firstly, the results give no empirical reason to reject hypothesis: H1a Formal
business planning has a positive impact on persistence in the nascent venturing process. From the
regression of all three samples, there is almost no statistically significant relationship between
planning and performance, as measured by jobs created, sales, profit, or return on equity. Thus,
the conclusion is that H1c, which stated Formal business planning has no impact on
performance in the nascent venturing process is upheld, and H1b and H1d are rejected. As far as
relationship between plans change and performance is concerned, changing the business plan had
a statistically positive significance for jobs created for year 2 for sample 623. However, changing
plans had no other impact in the subsequent year, nor did it impact profitability or return on
equity in other two samples. So, the interpretation would be to uphold H2b, which stated
Changing a formal business plan has no impact on performance in the nascent venturing process
and reject H2a. In sum, the research indicates that both formal business plans and changes in
business plans have no impact on the performance of nascent entrepreneurs. However, business
planning seems to relate to persistence in the nascent venturing process. Our findings highlight
the importance of data replication, data extension, and sample selection bias.
All in all, this study provides an important contribution to the business planning literature,
indeed, for scholarship in the field of strategic management. However, the conclusion drawn is
not supported by most of the existing literatures. This article introduces a controversial empirical
and theoretical debate regarding business planning, examining the contradictory results regarding
the efficiencies and inefficiencies of business planning. In addition, the paper introduces a
serious discussion about replication and extension of prior management studies research. With
emphasis on replication and extension, the article points out the importance of further re-analysis
and extension of other studies questioning their findings. Besides, the result explained is not
enough to understand how formal business planning impacts different measures of performance.
Like stated in the article, in order to fully understand the findings, the article further needs extend
to 30 pages for original data which is made available by the authors upon request. Yet, not even a
single graph or table has been used in this article to summarize the results expect few
explanations. So, my understanding of the article is limited by the non- availability of original
results to the extent of understanding acceptance/rejection of various hypothesis only and lacking
to properly explain why. Thus, the results could have been even better and reader friendly if the
explanations of the findings were supported by some forms of tables. This would have enabled
even the readers to find out the major conclusions without much effort and spending little time
rather than reading the whole text rigorously.
Moreover, the findings provide important implications to the practioners of business plan and
policy makers. The efforts to teach planning at the University level may actually be
misallocation of pedagogical resources. The same implication applies to potential entrepreneurs
who might end up misallocating scare resources. Policy makers must understand that business
plan are not reliable predictor of venture performance, so the alternative to them including
entrepreneurs would be to invest in a research project with a focus on experiments to develop
new and more efficient tools for entrepreneurs.