Auditing a plan’s value Available to Purchase

Strategic planning has become an indispensable tool for management, and while its effectiveness is widely assumed, its contribution is rarely quantified. In order to assess the value of strategic decision making in terms of its contribution to a firm’s sales, net income, and earnings, Leon Reinharth and his associates have prepared a case study of the 10‐step strategic planning process undertaken about seven years ago by a leading multinational insurance brokerage company. The firm is Alexander & Alexander Services, Inc., a highly profitable organization both before and after implementation of its 1976 strategic plan. Readers can draw their own conclusions about the order of magnitude of the plan’s value by comparing the financial results of two five‐year periods in the firm’s history (see Table 3). The benchmark period, 1970 through 1974, was the pre‐plan era, and the years 1976 through 1980 are the ones Dr. Reinharth believes were most affected by the plan. There is some evidence that the firm’s strategic decision making capabilities gave it a definite competitive advantage. A 1979 Fortune survey found that among the five largest publicly held insurance borkerage firms in the United States, A&A had the highest average return on equity from 1975 to 1977 and the highest average annual growth in dividends from 1973 to 1978. Dr. Reinharth’s case study outlines the problems that A&A identified in 1976 and summarizes the management philosophy that guided the strategic responses of the plan. For a detailed version of this case history the reader is directed to The Practice of Planning, by the authors, and published by Van Nostrand Reinhold Company, 1981. The most recently reported financial results for A&A are presented in the separate section, Alexander and Alexander in 1981.