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This study determines the effectiveness of strategic planning as an effective tool of strategic management in public transit agencies. It finds that an effective strategic planning requires top managers' active roles in defining the strategic direction of the organization and creating an environment that recognizes strategic planning as a tool of strategic management. Also, it requires good working relationships between the strategic planning staff, unit or division managers, and the top management team; the location of the strategic planning staff close to top management; integration of unit or division plans into an organization-wide strategic plan; and a planning process that is not too rigid or mechanical. Finally, the article finds that the strategic planning process of an organization must be responsive to environmental changes and challenges. 88

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U.S. urban transit systems receive operating and capital subsidies from various levels of government. Each firm minimizes its cost net of subsidies subject to its production function. The first order conditions from this minimization give a set of equations that are estimated using a stochastic frontier approach. From the results are calculated technical and allocative inefficiencies. The allocative inefficiencies are further decomposed among two sources, subsidies and factors internal to the firm. The analysis reveals large allocative inefficiencies between labor, fuel, and capital. Furthermore, it finds that subsidies lead to excess use of labor relative to capital and excess use of fuel relative to capital and labor. Also, most allocative inefficiencies in firms are due to internal factors and not subsidies, and the sizes of the inefficiencies vary substantially among transit firms. Copyright 1997 Western Economic Association International.

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