By Tonuchi Emmanuel Joseph
This study sought to investigate factors affecting adoption of strategic planning by SMEs in Enugu state. It was guided by three objectives namely to determine organizational factors affecting adoption of strategic planning; to determine resources which affect adoption of strategic planning and to investigate strategic leadership factors influencing adoption of strategic planning by SMEs in Enugu state. This study used a descriptive survey research design. The target for this study was all SMEs owners and employees in Enugu state. There are 63 licensed manufacturing firms in Enugu state according to CAC. Simple random sampling was used to select respondents from each of the manufacturing firms. This study sampled 20% of the manufacturing firms in Enugu state. The average number of permanent employees in the manufacturing firms is five (5) and 20% of the manufacturing firms are 13. Most of the manufacturing firms are owner managed hence one (1) owner per hardware shop participated in the study. The sample size for the study was therefore the average number of employees in the manufacturing firms multiplied by number of sampled manufacturing firms. The sample size of the study was 78 respondents. This study used both primary and secondary data. Primary data was collected using semi-structured questionnaires. Questionnaires were administered by the researcher on the spot. Data collected was coded and analyzed using both qualitative and quantitative methods. Qualitative data from open-ended questions was analyzed using content analysis. Descriptive statistics such as frequencies, percentages and mean scores were used to analyze quantitative data. Results were presented in tables and charts. The study established that resources allocation affects strategic planning to a great extent. The organizational factors influenced strategic planning to a moderate extent. The study revealed that to a little extent there is inability to manage change effectively and lack of alignment between culture and strategy of organization. The study established that strategic leadership embraced strategic planning to a moderate extent. In the comparison of resource allocation, organization culture and strategic leadership as drivers of strategic planning and implementation, the study revealed that strategic leadership of the organization to a great extent is a driver of strategic planning and implementation. Allocation of resources in the organization and culture of the organization to a moderate extent are drivers of strategic planning and implementation. This study concluded that resources form a critical part of strategic planning adoption and implementation. It is important for SMEs to allocate enough resources and develop their human resource to support strategic planning and adoption. The size and nature of organization’s workforce and the industry that SMEs operate in determines their strategic planning adoption and implementation. This shows the need to have enough employees with the necessary skills and competency. Strategic leadership have key responsibilities that coordinate all units and elements of an organization and determine its operation. In comparison with resources and organizational factors, strategic leadership factors to a great extent take the lead as drivers of strategic planning adoption and implementation. The strategic leadership factors can therefore be termed as the most important driver influencing strategic planning and adoption. This study recommends that SMEs should embrace strategic planning practices by allocating enough resources towards this course and developing capacity of their employees to support it. The SMEs should allocate resources not only to achieve short-term goals but also focus on long-term growth.
1.1 Background to the Study
Today’s business environment is characterized by an increasing intensity of competition, globalization of the world economy, rapid technological changes and the growing expectations of customers, suppliers and the workforce. Surviving and growing in this turbulent and dynamic business environment requires strategic thinking and decisionmaking (Stonehouse & Pemberton, 2002). Although, research findings on the association between business planning and organizational performance have remained controversial and inconclusive (Temtime, Chinyoka and Shunda, 2003) there is much consensus that strategic planning is a vital means of meeting these challenges.
Small and medium-sized enterprises (SMEs) play a key role in around the world. In Europe’s economies, for instance, SMEs employ as much as 66% of the total employed personnel in the private sector and account for 55% of total revenues in the EU (Bauer, 2002). The role played by SMEs in any society is undoubtedly important, for instance, in Portugal around 98% of the industrial fabric is composed by SMEs. Most of times, firms are seen as a black box on what concerns to development however the measures taken by them, entrepreneurial strategies, and entrepreneurship actions, have influence in the development theatre (Stonehouse & Pemberton, 2002).
Due to an extensive application of strategic management instruments in big companies and a widely accepted notion that rational economic decision making should prevail in enterprises regardless of size, practitioners and academics alike have recently called for a more substantial use of strategic planning in SMEs. Most concepts and instruments of strategic management are considered to be irrespective of company size. However, SMEs in particular often cannot acquire all required resources which prevent successful implementation of actions. In contrast to bigger companies, SMEs normally dispose of a lower level of resources, lower access to human and financial capital as well as to the selling markets, and possess an insufficiently developed administration. Thus, the application of formal planning mechanisms is often missing, especially up to a certain „critical size‟ (Kraus, Reiche and Reschke, 2008).
SME‟s are considered to be the principal driving force of economic development in almost all economies (Tonuchi, 2018). In Kenya, SMEs are vital. According to Gakure and Amurle (2013), the SMEs sector employs 74% of the labour force and contributes over 18% of the country‟s Gross Domestic Product (GDP). Despite its great contribution to Kenyan society, and the numerous policy prescriptions, SMEs sector encounter series of challenges and constraints that inhibit its growth. The effect is less growth, low competitiveness, high failure rate, and an average lifespan of five years. On the other hand, for a long time strategic planning is known to be an essential activity that generates positive outcomes for firms of all sizes. However, little is known of the strategic planning practices among SMEs in Africa and in particular Kenya (Gakure and Amurle, 2013).
In Kenya, there are different definitions of small and medium enterprises which are yet to be consolidated. A national baseline survey of small and medium firms carried out in 1999, for instance, defines a small firm as one which employs 6-10 people while a medium one is expected to have 11-100 employees (CBS et al, 1999). However, an MSE bill has been in process for 10 years but has not yet been enacted into law. This bill takes a different approach by combining employment with other measures of size. It defines a micro enterprise as a business activity whose annual turnover does not exceed Ksh. 500,000 and/or employs less than 10 people with total assets and financial investment subject to determination by the Minister from time to time. For the purpose of this study, Small and Medium Enterprises was determined by number of employees. An SME was considered to have 11-100 employees.
Strategic planning, among other things, deals with assessing the internal and external business environment for the purpose of identifying organizational strengths, weaknesses, opportunities and threats. It is based on this assessment that firms establish organizational goals and determine the strategies to achieve them. Strategic planning is the attempt to prepare for future contingencies and thus to account for environmental dynamics and complexity. This entails the need to build alternative future scenarios and configurations.
Although the future cannot be predicted, it is possible to prepare for the future and/or alternative „futures‟ and align the enterprise accordingly. Unlike strategic management, planning is not concerned with the development of strategic goals and visions but rather deals with extrapolating present tendencies into the future.
Hence, strategic planning provides guidelines and programs for the achievement of specific goals and visions. It specifies the basic conditions as well as the scope for future business activities and is thus a key instrument for the overall strategic management. Five types of planning of varying depth can be conceptualized: (1) simple financial plans, (2) planning based on forecasts, (3) externally oriented planning (the entrepreneur begins to think strategically), (4) pro-active planning of the corporate future (instead of reacting to market-based changes), and (5) strategic planning as a systematic instrument of strategic management. Many decision-makers in SMEs are convinced that real entrepreneurs do not plan. Instead, it is assumed that they use their limited time resources more effectively for operational or sales activities.
Additionally, formal planning is often regarded as limited to large enterprises and thus not transferable to the requirements of the fast-moving and flexibly-structured SMEs. From an entrepreneur’s perspective, three major objections are expressed against the use of strategic processes in SMEs (Fuglistaller, Frey and Halter, 2003): first, that strategic instruments limit the flexibility and the ability for improvisation; second, it is preferable to use the limited time resources for operational, sales or research and development activities rather than for strategy development processes; and third, that strategic management is too bureaucratic.
Small and Medium Enterprises are often the main drivers of economic growth and their survival and success is crucial to economic stability (Lange, Ottens, and Taylor, 2000).
However, as the number of SMEs increases so does competition, which might then result in a decrease in prices, low customer base, or both. This might in turn erode existing profits and create less incentive for people to start SMEs. Adoption of strategic planning plays an important role in the survival of SMEs because it helps to create business opportunities and combat pressure from competition.
1.2 Statement of the Problem
In times of increasing environmental dynamics and uncertainty it is vital to keep informed about corporate goals and their attainment on a regular basis and therefore view strategy development as a future investment. In this respect, the main use of strategic planning lies in the predictability of possible future scenarios and variations.
Although, the majority of well-known strategy concepts have been developed for large companies that generally display a higher level of awareness for existing problems and hence allocate more resources to this topic, some of these concepts and instruments also seem to be suitable for implementation in SMEs in stratgic planning. A specific strategy concept for SMEs, however, needs to account for their unique conditions and problems. Small and medium enterprises (SMEs) are faced with many challenges, and the development of a sound strategy for the SME could define how these challenges are met which, in turn, could mean the difference between success or failure of the enterprise. If a sound strategy is major contributing factor to the success of a small business, but the evidence of sound strategic management is not present in successful SME‟s, one could question the way strategic management is conceptualized (Wang, Walker & Redmond, 2007).
Although small and medium-sized enterprises (SMEs) typically employ a major share of an economy’s total employees, SME management suffers from an insufficient businessrelated knowledge base that top managers in SMEs possess. Indeed, formal plans or cost controls are often only provided on an irregular basis and planning instruments are usually only used by a small number of individuals and developed rather intuitively (Brinkmann, 2002). There is no research that has been conducted to assess the factors which affect adoption of strategic planning by SMEs operating in Enugu state. These shortcomings point towards the importance of examining the value of strategic planning for SMEs in more detail. This study sought to investigate factors affecting adoption of strategic planning by SMEs in Enugu state in stratgic planning .
1.3 Research Objectives
This study was guided by the following general and specific objectives:
1.3.1 General Objectives
To investigate factors that affects adoption of strategic planning by SMEs in Enugu state
1.3.2 Specific Objectives
This chapter covers a review of relevant literature. It commence with a review of strategic management and strategic planning. It also covers characteristics of strategy processes in SMEs and concept of strategy adoption and implementation. Theoretical, empirical and conceptual frameworks are presented in this chapter.
2.2 Strategic Management and Strategic Planning
The strategy development process is closely related to management. From a corporate perspective, strategy can be defined as an approach to reach corporate goals in order to be successful on a long-term basis (Kraus, Reiche and Reschke, 2008). The discipline of strategic management was formed in the 1980s based on advancements in the field of strategic planning. In general, strategic management is regarded as long-term oriented (at least three years), directed towards future yield potentials, substantial, holistic, and predominantly associated with the highest management level which determines the vision, mission, and culture of the enterprise (Tonuchi, 2018).
Strategic planning is the attempt to prepare for all eventualities by abstraction and thus to account for the complexity and the dynamics of the environment. This entails the need to build alternative future scenarios and configurations. Although the future naturally cannot before seen, it is possible to prepare for the future and/or alternative futures and align the enterprise accordingly. In contrast to strategic management, it is not about visionary future concepts, but rather about extrapolating present development tendencies into future. Hence, strategic planning does not provide visions but, more specifically, guidelines and programs for the achievement of specific goals. Consequently, strategic planning specifies the basic conditions as well as the scope for future business activities and thereby is a central instrument for strategic management, which, in turn, is responsible for goals and visions (Kraus, Reiche and Reschke, 2008; Tonuchi, 2018). The investigation of young, small enterprises is of special interest since their strategies have to be developed in a highly emergent way (Tonuchi, 2018), reflecting their fast changing requirements. The following stages of planning can be delineated: 1.
Simple financial plans; 2. Planning based on forecasts; 3. Externally oriented planning (the entrepreneur begins to think strategically); 4. Pro-active planning of the corporate future (instead of reactions to market-based changes); 5. Strategic planning as a systematic instrument of strategic management.
2.3 Characteristics of Strategic Planning in SMEs
O’Regan and Ghobadian, (2004) depict small and medium enterprises (SME‟s) as the “bloodline of modern complex economies”, as the establishment and longevity of SME‟s are a sign of a healthy and expanding economy. In order to preserve the competitive position of SMEs, they are constantly challenged to optimally utilize the resources apportioned to innovative endeavors (Bennett & Robson, 2003).
Protecting the competitive position of SMEs also requires attention to business strategy and the management of strategy within the SME. Strategic management is thus not the exclusive realm of corporate enterprises. In fact, SME‟s face many of the same challenges encountered by their larger, corporate counterparts (O’Regan & Ghobadian, 2004). Meers and Robertson (2007) similarly affirm that firms of all sizes are constantly challenged due to a multitude of factors such as globalization, technology, emerging new markets and deregulation; and thus pro-activity in the form of sound strategy is needed to face these challenges. Strategy is thus no longer considered a luxury or optional; it is now a necessity.
Rapid economic and technological changes in the global marketplace have resulted in SME‟s exhibiting many of the management development needs traditionally reserved for corporate enterprises. In this regard, Mughan, Lloyd-Reason and Zimmerman (2004) state that insufficient research evidence exists on the significance, value and process of strategy and strategic management for SME’s. Meers and Robertson (2007) pointed out that there is currently no evidence pointing towards an effective method for SME’s when engaging in the process of strategy. Kraus, Harms and Schwarz (2006) reviewed a total of 24 empirical studies dealing with strategic management issues in SME’s; and concluded that research into of strategic management efforts within SME’s is still in its infancy. Similarly, Griggs (2002) conveys concern pertaining to the depth of previous research related to SME’s and strategy; and further argues that such research used one dimensional measures, which is not in line with the multi-dimensional nature of strategic management.
Many studies have shown that business failure is largely due to an organization’s failure to plan. Norman and Thomas (2003) argue that by lacking a clearly defined strategy, a business has no sustainable base for creating and maintaining a competitive edge in the marketplace. According to Norman and Thomas (2003), businesses tend to have more chance to succeed when there is strategic planning in the organization. They continue to reason that without a clearly defined strategy, a business has no sustainable basis for creating and maintaining a competitive edge in the market place. In other words, strategic planning can lead to increase in performance whereas performance can lead to business success. However, such statements require the support of empirical research.
Many decision-makers in SMEs are convinced that real entrepreneurs do not plan. Rather, it is assumed that they use their limited time resources more effectively for operational or sales activities. Additionally, formal planning is mostly regarded as being only applicable to big enterprises and/or bureaucratic organizations and thus not transferable to the requirements of the fast-moving and flexibly structured SMEs. From the entrepreneur’s perspective, three major objections are expressed against the use of strategic processes in SMEs (Fuglistaller, Frey, & Halter, 2003): Strategic measures and instruments constrain flexibility and the ability for improvisation; It makes more sense to use the limited time resources for operational or sales activities or R&D rather than for strategy-formulation processes; Strategic management is too bureaucratic. However, the authors state that especially in times of increasing dynamics and uncertainty it is vital to stay informed about corporate goals and their attainment on a regular basis and therefore recommends regarding the strategy-formulation process as a future investment. In this respect, the main use of strategic planning lies in the predictability of possible future scenarios and variations. At the same time, the refusal to plan can be explained with managers’ fear of committing themselves too much to particular targets and thus becoming controllable for their employees (Kraus, Reiche and Reschke, 2008). Although the majority of the well-known strategy concepts mostly originating in the 1980s have been developed for big companies, which generally display a higher awareness for existing problems and hence allocate more resources to this topic, some of these concepts and instruments also seem to be suitable for implementation in SMEs. A specific strategy concept for SMEs, however, needs to account for their unique situation and problems (Tonuchi, 2018).
Compared to big companies, SMEs tend to offer a more limited range of products on a more limited number of markets and rather use market penetration and product development strategies instead of market development or diversification strategies. Moreover, since SMEs mainly operate in a single or a limited number of markets with a limited number of products or services – often even in a market niche – they usually cannot afford central service departments that are able to conduct complex market analyses and studies (Johnson & Scholes, 1997). In addition, they usually have a lower level of resources as well as lower access to human and financial capital. As a result, particularly up to a certain „critical size’, the application of formal planning mechanisms is often missing. The most important success factor for a „small business owner’ is time. Consequently, it has a big influence on the result of any „activity-optimizing’ considerations of the entrepreneur (Delmar & Shane, 2003; Tonuchi, 2018)). Moreover, the process of strategic decision-making in SMEs is often based on experience, intuition or simply on guessing (Welter, 2003). These arguments entail unique problems but also opportunities for strategy development in SMEs (Fuglistaller et al., 2003).
The view that better trained or educated entrepreneurs are more likely to think and act strategically is well established (Gibson & Cassar, 2002). Gibson and Cassar (2002), for instance, discovered in their study of Australian SMEs in the year 2002 that enterprise leaders with university degrees plan more frequently than others. Whether these characteristics, in turn, positively correlate with corporate growth and success is not clear. Therefore it seems fruitful to examine this relation in the future. In addition, the study revealed that for economic graduate founders the probability for the existence of a business plan is higher than for those of other degrees. However, the study did not detect an influence of business experience on corporate growth and success.
Planning in SMEs does not always take place in a highly sophisticated or formal way. It often occurs at least sub- or unconsciously as a sign of strategic thinking. Therefore, it remains to be seen whether SMEs do not plan „strategically’ at all or whether they just do not plan „in a formal way’. Along these lines, Welter (2003) states that not only strategic planning itself but especially the quality of planning plays an important role. Planning in
SMEs seems to be rather unstructured, sporadic, incremental and often not formalized. This suggests a rather systemic type of thinking in the entrepreneur / entrepreneurial team which might be imprinted on the organization for years to come. The actual process of decision-making that can be observed in reality often deviates substantially from the ideal picture of rationality. In this process entrepreneurs might engage too much in (informal) strategic management as vision development while neglecting bread and butter planning (Tonuchi, 2018).
According to Simpson, Padmore, Taylor and Frecknall-Hughes (2006), the level of strategic awareness of owner-managers appears to be strongly influenced by the personal competence of the owner-managers and the type, uncertainty and complexity of the business. In businesses where customer relationships were well defined and relatively stable, strategic awareness was often low. This could be due to their perception of the external business environment being narrowly defined and stable. In companies that experienced fast growth and turbulent market conditions the level of strategic awareness was uniformly high and the motivation for a continually better understanding of the external business environment was strong.
2.4 Strategic planning adoption and Implementation
Strategy implementation is the process of allocating resources to support the chosen strategies. This process includes the various management activities that are necessary to put strategy in motion, institute strategic controls that monitor progress, and ultimately achieve organizational goals. The implementation process covers the entire spectrum of managerial activities including such matters as motivation, compensation, management appraisal, and control processes (Barnat, 2005). Barnat (2005) further argues that implementation of an organization’s strategy involves the application of the management process to obtain the desired results. Particularly, strategy implementation includes designing the organization’s structure, allocating resources, developing information and decision-making processes, and managing human resources, including such areas as the reward system, approaches to leadership, and staffing. Barnat (2005) therefore concludes that, the implementation activities are in fact related closely to one another and decisions about each are usually made simultaneously.
As Higgins (1985) pointed out, almost all the management functions (planning, controlling, organizing, motivating, leading, directing, integrating, communicating, and innovation) are in some degree applied in the implementation process. Pierce and Robinson (1996) argue that for effective and direct control of an organization’s resources, mechanisms such as organizational structure, information systems, leadership styles, assignment of key managers, budgeting, rewards, and control systems are essential strategy implementation ingredients. Additionally, organizational culture does play an important role in strategy implementation. The management has an obligation to establish organizational culture adaptation techniques to support the implementation of the strategy.
Implementation of strategy is the „action phase’ of the strategic management process as it entails converting the formulated strategy into action and then into strategic results. This comprises eight critical managerial actions according to Thompson and Strickland (2003) and these include creating an organizational structure with the competencies, capabilities and resources required to implement strategy; developing budgets to ensure that resources are allocated for strategic success; establishing policies and procedures to support strategy implementation; instituting best practices and striving towards continuous improvement; creating and implementing organizational systems that enable employees to effectively execute strategic roles; aligning rewards and incentives with the achievement of individual and organizational objectives; creating a culture that is aligned with the strategy of the organization; and practicing strategic leadership that is inclined towards the effective implementation of strategy. The study was confined to three of the above mentioned managerial actions in strategy implementation namely resource
allocation, strategic leadership and organizational culture.
Effective management of an organization’s resources plays a critical role in the effective implantation of strategy. This is a strategic leadership action and probably the most important. Strategic management is concerned with the aligning the internal resources of an organization to the opportunities in the external environment in order to achieve the strategic intent of the organization. According to Barney and Hersterly (2006), an organization’s internal resources include financial resources (financial capital that organizations use to formulate and implement strategy), physical assets, human resource, and organizational resources that include the attributes of groups of individuals, the organization’s planning, structure, controls, culture, reputation and informal relationships among groups in the organization.
2.4.2 Strategic Leadership
Strategic leadership refers to a leader’s ability to anticipate, envision, maintain flexibility and to empower others to create strategic change in an organization (Hitt et al 2007). Strategic leadership is multifunctional, involves managing through others and assists in the processes required to ensure that organizations cope with change that seem to increasing in the current globalized business environment.
Strategic leadership actions include determining the strategic direction of the organization, establishing organizational controls, effective management of the organization’s resources, sustaining an effective organizational culture and emphasizing ethical practise. These actions are crucial in implementation of strategy and leaders who practice them are bound to have a smooth implementation of their strategy which results in improved performance.
2.4.3 Organizational Factors
According to Kaplan and Norton (2001), organizational culture reflects the predominant attitudes and behaviours that characterize the functioning of a group or organization. Organizational culture is the set of important assumptions that members of an organization share in common (Pearce and Robinson, 2005). The beliefs and practices that become embedded in the culture of the organization can originate from an influential individual, work group or department in the organization. In the context of strategy implementation, organizational culture refers to an „awareness and internalization of the shared vision, mission and values needed to execute strategy”.
Organizational culture is widely accepted as a driver to effective strategy implementation. It can be a source of competitive advantage for an organization as it influences the way an organization conducts its business, regulates and influences the behaviour of employees. The key to effective implementation of strategy is to align the values and related behaviours of employees at all levels of the organization with the strategic direction. This is done only when the strategic direction has been determined and the organizational resources have been established.
Strategic leaders are responsible for changing the culture of the organization to align it with the strategy as the CEO has the greatest influence on the organizational culture. Strong cultures promote effective implementation of strategy when the vision, mission, strategy and objectives of the organization are aligned with the organizational culture.
Implementation of new strategies requires changes in an organization’s existing culture. The strategic leaders of these organizations must introduce new attitudes and behaviours in all employees for the implementation of the new strategy to be effective.
Organizational culture affects performance. It reinforces behaviours that can be enhanced by incentives and controls that lead to effective strategy implementation which in turn affect organizational performance.
2.5 Theoretical Framework
2.8.1 Contingency Theory
Contingency theory is a class of behavioral theory that claims that there is no best way to organize a firm, to lead a company, or to make decisions. Instead, the optimal course of action is contingent (dependent) upon the internal and external situations. Contingency theory (Johnsen, 2005) states that complex organizations use performance measurement to reduce uncertainty and for legitimacy. Historically, contingency theory has sought to formulate broad generalizations about the formal structures that are typically associated with or best fit the use of different technologies. The perspective originated with the work of Joan Woodward in 1958 who argued that technologies directly determine differences in such organizational attributes as span of control, centralization of authority, and the formalization of rules and procedures. Proponents of this theory argue that the best way to organize depends on the nature of the environment to which the organization must relate. Organizations are open systems that need careful management to satisfy and balance internal needs and to adapt to environmental circumstances(Tonuchi, 2018).
There is no one best way of organizing. The appropriate form depends on the kind of task or environment one is dealing with. Management must therefore be concerned, above all else, with achieving alignments and good fits. Different types of organizations are needed in different types of environments. In the current study, contingency theory was applicable in emphasizing on the environment in which strategic planning adoption and implementation take place. In order to affect performance of SMEs, the environmental factors that influence strategic planning and implementation must be taken into consideration.
2.8.2 Institutional Theory
Institutional theory focuses on the deeper and more resilient aspects of social structure. It considers the processes by which structures, including schemes, rules, norms, and routines, become established as authoritative guidelines for social behavior (Scott, 1987). Different components of institutional theory explain how these elements are created, diffused, adopted, and adapted over space and time; and how they fall into decline and disuse. Institutional theory states that organizations exist in an institutional environment which defines and delimits its social reality (Scott, 1987). In the current study, institutional theory was applicable given that SMEs are organizations. It is the organization within which strategic planning adoption and implementation is taking place. The organization has structures, rules, norms and routines. The institutional theory therefore points out the need to focus on the institutional factors that are likely to influence strategic planning adoption and implementation(Tonuchi, 2018).
2.8.3 Agency Theory
One of the theories most frequently used to explain the adoption and implementation of strategic management and performance measurement in organizations is the agency theory. According to the agency theory (Bendor, Taylor and Gaalen, 1985), performance measurement is used in situations of asymmetric information and uncertainty for monitoring managers and linking them with the principal. Given that SMEs are more dependent than others on legitimacy and on financial resources, the formal implementation of structures such as strategic management may be used as a sign of efficiency and good business practices to respond to institutional or environmental pressure in order to secure legitimacy from owners or stakeholders and resources from the institutional environment. In the current study therefore, agency theory was useful in explaining SMEs performance to its principals namely the entrepreneur and other stakeholders. The performance enables justification to seek more resources and support from the principals to carry out its operations. Previous studies done on strategic management in organizations have also shown a weakness in focusing on strategy process with little or no attempt at evaluating their adoption and effect of strategy implementation on organizational performance (Okumus, 2001; Tonuchi, 2018). The study sought to address this gap by investigating the factors affecting adoption of strategic planning by SMEs in Enugu state.
2.6 Empirical Review
Gibson and Cassar (2002) conducted a longitudinal survey involving 3554 SMEs with less than 200 employees in Australia. They found that more than 30% of the enterprises apply documented planning, however only 50% of those on an annual basis. Bigger companies plan more than smaller ones. The higher the level of education, the more likely planning is. The higher the number of years of professional experience, the lower the probability to plan.
Leitner (2001) did a study comprising of 100 SMEs with 50-500 employees across three sectors namely wood/furniture, chemicals/synthetic and metal/machinery. A personal interview with questionnaires method was employed. The study established that most SMEs frequently apply SWOT analysis (55%), while those who applied portfolio techniques and product cycle analysis were less than 20%. None of the examined SMEs used core competency planning while 88% develop strategies due to experience, 31% due to intuition and 62% of the enterprises had a written corporate policy.
Peng and Litteljohn (2001) focused on organizational communication within multi-unit organizations in order to understand better the strategy implementation process from a communication perspective. They investigated hotel chains in UK with diversified business portfolios that were in the process of implementing a strategic initiative. They found that effective communication is a primary requirement of effective implementation but it does not guarantee the effectiveness of implementation.
The study by Peng and Litteljohn (2001) took place in the United Kingdom and involved hotels in the private sector. United Kingdom is considered to be a developed country with a different operating environment from Kenya for organizations. This study sought to investigate the situation in a developing country context focusing on SMEs.
Implementation is widely recognized as one of the greatest point of weakness for all strategy initiatives. According to Meldrum and Atkinson (1998), there is a need to focus on the fundamental managerial attributes which they refer as meta-abilities. Meldrum and Atkinson (1998) noted that many organizations have tried to overcome this problem through building the management competencies of their managers. They also noted that what tends to be absent from the development programmes designed to do this is attention to any higher order or enabling competencies. They used a case study approach to illustrate the sort of pitfalls involved and some implications for using management development in this way. They argue that without greater attention to these more fundamental managerial attributes, most management development programmes will lose
their strategic effect.
Meldrum and Atkinson (1998) observed that using management development to improve strategy implementation demands a more sophisticated approach than tends to be used currently. They recommended that organizations should break out of the vicious circle of unsophisticated usage and to challenge their current practices in order to succeed in strategy implementation. Meldrum and Atkinson (1998) focused on the managerial attributes with the assumption that all the other factors affecting strategy implementation can be streamlined by managerial abilities. However, in reality, this might not be the case. There is a myriad of factors that influence strategy implementation that include individual and organizational factors.
With an aim of developing an implementation framework, Okumus (2001) conducted a critical review of previous research and identified ten implementation variables which were used to construct a conceptual framework. Okumus (2001) investigated the implementation process of a strategic decision in two international hotel groups via indepth, semi-structured interviews, observations and documentation analysis. Okumus (2001) found initial conceptual framework to be useful as it grouped key variables together and illustrated their roles when implementing strategic decisions. However, three new variables emerged from Okumus (2001) findings. The three variables were multiple project implementation, organizational learning and working with external companies.
Okumus (2001) proposed a revised framework to include these variables. He concluded by emphasizing the importance of contextual variables in implementation and dispelled the strategic management notion of “fit”. The study by Okumus (2001) is in line with this current study in regard to emphasizing contextual variables. However, Okumus (2001) study concentrates on large business organizations and therefore ignores the SMEs and also assumes that a proper implementation framework will result to better organizational performance.
Sakyi and Bawole (2009) did a study on challenges in implementing code of conduct within the public sector in Anglophone West African countries. They used perspectives from public managers to report on barriers to the implementation of code of conduct in the public sector. They adopted a qualitative research strategy using focused group interviews for 35 serving senior, middle and junior level managers drawn from Ghana (8), Nigeria (9), Gambia (7), Liberia (6) and Sierra Leone (5).
Sakyi and Bawole (2009) found that all the countries were making frantic efforts at improving the ethical conduct of public sector managers through the introduction of various reforms measures including code of conduct as key components. However, the practical application of the code of conduct in public administration was found to be limited. The reasons given for this included deficiencies in code implementation, lack of exemplary leadership, ineffective reward and punishment system and unsupportive public service organizational culture. Sakyi and Bawole (2009) recommended remedial actions as establishing a strong leadership, rigorous application of a reward and punishment system and supporting organizational culture.
Chiou (2011), drawing from the governance and relationship perspectives, did an empirical analysis on the reformation of organizations. He sought to establish the factors that will enhance the government’s administrative efficiency and effectiveness and how to improve organizational performance in Taiwan. Chiou found that some factors that enhance government’s administrative efficiency include organizational structure, management mechanism, resources and ability as well as partnerships. Chiou also found that some factors that will enhance organization performance include compatibility, complementality, collaboration, knowledge sharing, information technology, and effective governance. Chiou (2011) does not however explain the extent to which each of the factors affects adoption of strategic planning. In addition, Chiou (2011) does not cover the critical managerial actions of strategic leadership, and organizational culture. Equally, this study was conducted in Taiwan which has a different context from that of Kenya.
Sorooshian, Norzima, Yusof, and Rosna (2010) examined the structural relationships between strategy implementation and performance within the small and medium manufacturing firms in Malaysia. They identified three fundamental factors in strategy implementation namely the structure, leadership style and resources. Sorooshian et al. (2010) then came up with a structural equation model on the relationship among drivers of strategy implementation and organization performance and also sensitivity analysis on the drivers. The main focus of this study is in private sector and small as well as medium manufacturing firms in particular. Sorooshian et al. (2010) did not include organizational culture as one of the fundamental factors in the strategy implementation process.
2.7 Conceptual Framework
The conceptual framework in this study is made up of the independent variables (factors) which affect the dependent variable (adoption of strategic planning). The independent variables are resources, organizational factors and strategic leadership in the context of strategic planning adoption or implementation. There are two intervening variables that were expected to indirectly affect adoption of strategic planning by SMEs. These intervening variables include political factors and community support.
Figure 2. 1: Conceptual Framework at appendix
This chapter covers the methods and procedures that were employed in this study to achieve the set objectives. They include the research design, target population, sampling, sample size, research instruments, data collection, data analysis and presentation.
3.2 Research Design
This study used a descriptive survey research design. This research design is suited for this study because it is economical and efficient. The research design enabled the researcher collect large amount of information efficiently and economically using questionnaires. This method has also been recommended by Babbie (2002) who observed that descriptive survey method is useful when a researcher wants to collect data on phenomena that cannot be observed directly. Its advantage is that, it allows the collection of large amounts of data from a sizeable population in a highly effective, easily and in an economical way, often using questionnaires. According to Mugenda and Mugenda (2003), descriptive studies determine and report things the way they are.
3.3 Target Population
Mugenda and Mugenda (2003) described population as, the entire group of individuals or items under consideration in any field of inquiry and have a common attribute. The target for this study was all SMEs owners and employees in Enugu state. Enugu state has been rated as one of the fastest growing towns in Africa and SMEs have been major contributors in this growth. Owing to the high number of SMEs owners and employees in Enugu state, this study concentrated on SMEs owners and employees in hardware business. There are 63 licensed manufacturing firms in Enugu state according to CAC.
3.4 Sampling and Sample Size
Simple random sampling was used to select respondents from each of the manufacturing firms. Mugenda and Mugenda (2003) recommended that 10%-30% of the target population is representative enough. This study sampled 20% of the manufacturing firms in Enugu state. The average number of permanent employees in the manufacturing firms is five (5) and 20% of the manufacturing firms are 13. The sample size for the study was therefore the average number of employees in the manufacturing firms multiplied by number of sampled manufacturing firms. Most of the manufacturing firms are owner managed hence one (1) owner per hardware shop participated in the study. The sample size of the study was therefore 78 respondents. Table 3.1 shows the sampling matrix.
|Category||Sample Method||Each hardware Shop||Total sample|
|Employees||simple random||5||5*13 = 65|
3.5 Research Instruments
Creswell (1994) noted that, data collection methods for primary data include: structured and semi-structure questionnaires, mailed questionnaires, structured and semi-structured interviews (personal and telephone interviews), observation and focus group discussions. Questionnaires are the most commonly used methods when respondents can be reached and are willing to co-operate. This study used both secondary and primary data. Secondary data was obtained from published journal articles, policy documents and any other official documents that were found relevant to the study. Primary data was collected using semi-structured questionnaires. The choice of semi-structured questionnaires was informed by the need to have a standardized test of factors affecting adoption of strategic planning by SMEs at the same time giving respondents flexibility they need to give more information regarding the same. The questionnaire had three sections. First section sought demographic information while the second section was seeking information on the level of strategic planning adoption. The third section sought information regarding factors affecting adoption of strategic planning by SMEs.
Reliability has to do with the accuracy and precision of a measurement procedure (Mugenda and Mugenda, 2003). A measuring instrument is reliable if it provides consistent results after repeated trials. In this study, pilot testing was done by administering five (5) questionnaires to respondents who were not part of the study sample. Pilot testing brought to light weaknesses that the questionnaire had and of the survey techniques which led to the improvement of the questionnaire to get rid of ambiguous questions.
According to Kothari, (2004), validity refers to the extent to which a test measures what we actually wish to measure. Validity also means the extent to which differences found with a measuring instrument reflect true differences among those being tested; content validity is the extent to which a measuring instrument provides adequate coverage of the topic under study. Validity in this study was ensured by subjecting research instruments to a panel of experts who reviewed them and made recommendations before they were administered to the respondents.
3.6 Data Collection
Questionnaires were used to collect primary data. Primary data according to Kothari (2004) is the data collected a fresh for the first time while secondary data is that data that has already been collected and passed through statistical process. Questionnaires were administered by the researcher on the spot. This data collection method was employed because some of the hardware owners and employees might not fully understand the contents of the questionnaires due to their low levels of education. This gave hardware owners and employees an opportunity to seek clarifications from the researcher hence a higher response rate. The researcher followed up with the respondents to ensure any problems they had in answering questions were addressed.
3.7 Data Analysis and Presentation
Data collected was coded and analyzed using both qualitative and quantitative methods.
In order to analyze quantitative data Miller (1991) observed that, a researcher needs to have the following descriptive and inferential information about the statistical data analysis tools. Descriptive statistics are used to describe data collected from a sample. The mean, median, percentages and standard deviation are the most commonly used descriptive statistics. Inferential statistics are used to make inferences from sample statistics to population parameters. These tools help the researcher to generalize the findings from the sample to the target population. Descriptive statistics such as frequencies, percentages and mean scores were used to analyze quantitative data. Results were presented in tables and charts. Qualitative data from open-ended questions was analyzed using content analysis.
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