strategic management

Factors affecting Strategic Management Practices

Abstract

The study investigated the internal and external factors affecting strategic management practices in Nigeria, using Lagos State as a case study. The study used the purposive sampling technique to select 200 SMEs across the five administrative centers of Lagos State, in which 178 SMEs responded. Self-administered questionnaires were used to generate data for the study, and the data collected were analyzed with the use of descriptive statistics.  The finding proved that the leading internal factors are the size of the firm, technical and managerial expertise, competitive advantage, finance and quality of staff. In addition, the frontline external factors include an industrial and economic policy of the government, macroeconomic environment, and nature of the business environment, political conditions and influence of the market leader. The study advised amongst others that SMEs are encouraged to form a strategic partnership with multinational firms through input suppliers and maintenance services for the MNCS. This will aid the MME to take necessary actions to improve managerial practices in their businesses.

  1. Introduction

1.1 Background to the Study

Strategic management can be likened to a map that guides a motorist to successfully arrive at his destination. Every organization aims to grow, expand and develop, hence the need to plan strategically to ensure the accomplishment of desired goals. The use of strategic management practices has been adopted by the world of management as tools for stimulating the performance of SMEs (Project Management Institute (PMI, 2013)). Organizations, big or small, have adopted the use of strategic management to ascertain the strategies that will result in increased performance and enhanced competitive advantage. Strategic management is capable of expanding the existing size and capability of a firm (Yakubu & Alasan, 2011). Experts in the area of strategic management have advocated its implementation in every organization (Ikaharehon & Briggs, 2016). The key to the successful acquisition, distribution, and processing of resources by an organization depends greatly on the adoption of strategic management practices. Abosede, Obasan, and Alese (2016) maintained that strategic management assists to enhance the organizational performance, provide effective measures to address environmental challenges, aids change management and equally help to tackle human resources challenges. Njeru (2015) added that strategic management is used to predict likely changes in relative environmental factors that might arise unexpectedly.

Majority of SMEs involved in strategic management focus more attention on drafting the mere paper plan but exert less energy on towards the implementation of the organisation plans to achieve cogent results. SMEs generally do not adopt formal strategic planning and even those who try to plan strategically do so irregularly and inconsistently (Abosede, Obasan & Alese, 2016). The practice of strategic management by SMEs has been found to be unstructured, inarticulate, inconsistent and informal. Chen (2007) contended that information which drives strategic management practices in SMEs is obtained through informal sources, which might not be authentic. Most times, owners of SMEs engage in informal strategic thinking as a result of lack of cost, poor business acumen, and a low level of education and poor technical know-how of owners/managers.

The principal objectives of SMEs in every economy are to foster economic growth, generate employment and alleviate poverty (Adeyemi, 2014). However, SMEs have been effectual in advanced economies but the reverse is the case in developing economies. Over the years, SMEs in Nigeria have been performing below expectation due to series of challenges confronting them, such as infrastructure deficiencies, poor financing, harsh business environment, unfavourable economic and industrial pthe olicies of government, multipletaxations, lack of proper documentation of records and inability to separate self from the business entity. It has been pointed out in the literature that poor performance of SMEs in Nigeria could be attributed to the non-adoption or poor implementation of strategic management. Some SMEs lack knowledge about strategic management, while those who are aware of it, are not appropriately implementing it. Majority of SMEs in Nigeria have cold attitude towards creating effective strategy to stimulate performance (Dauda, Akingbade & Akanbi, 2010). Also, there are varied attitudes towards the implementation of strategic management among SMEs in Nigeria, and this could be one of the reasons behind their poor performance.

There have been empirical evidence as regard the successful implementation of strategic management practices by large corporations and multinational firms while there is a paucity of evidence of strategic management practices with respect to SMEs especially those domiciled in emerging economies. Based on the researcher’s knowledge, no studies have been conducted to investigate the factors affecting strategic management practices among SME in Lagos State, Nigeria. This, however, prompted the need for the study in a state widely recognized as the commercial nerve center of Nigeria.

1.3   Objective of the Study

The objective of the study is to empirically investigate the factors (internal and external) that affect strategic management practices among SMEs in Lagos State, Nigeria.

2. Literature Review

2.1 Strategic Management

Ramachandran, Mukherji, and Sud (2006) defined strategic management as the development of sustainable competitive advantages by an organization leading to the creation of value. Chen (2007) stated that strategic management involves harnessing and taking advantage of opportunities that are available to a firm.  Kinyua and Ali (2016) contended that strategic management is all about identifying variations in the performance of organizations by assessing their efforts to create competitive advantages, which greatly determines their capacity to create value. Abosede, et al, (2016) averred that strategic management refers to the act of formulating and implementing the organizational goals and policies by the firm’s management on behalf of the shareholders, premised on the availability of resources and the evaluation of internal and external environment where the firm operates. Strategic management provides direction to an organization how to achieve its stated objectives. It encompasses the formulation of objectives, developing sustainable measures and policy framework to achieve the objectives and allocating financial and non-financial resources to execute the plans. Strategic management assists the organizations to formulate sound business decisions by making them more sensitive to the threats and opportunities. Strategic management assist an organization to be swift in executing formidable plans given the uncertainty and dynamics that surround today’s business environment especially in emerging economies like Nigeria (Ikaharehon & Briggs, 2016).

Strategic management refers to a set of decisions and actions that sharpen the establishment of potent strategies to help a firm accomplish its corporate objectives.  Irefin, Oyebola, and Akintelu (2017) reported that strategic management focuses on relating a firm to its environment on a consistent basis, formulate appropriate strategies to sustain the relationship between a firm and its environment and implementing strategies and evaluating and controlling to ensure that strategies are appropriately implemented to yield expected results. Strategic management hints the firm about the future consequences of its present decisions. Strategic management has its pitfalls. The demerits of strategic management as identified by Ogundele and Onakoya (2008) are it requires longer period of time and efforts, it tends to be more rigid, might be unable to accurately predict the business environment due to its dynamic and uncertain nature and it requires heavy financing. This justifies why majority of SMEs in Nigeria is at the planning stage because they lack the financial, managerial and technical capacity to implement strategic management.

According to Ogundele and Onakoya (2008), strategic management is into five aspects namely setting of goals, analysis, and formulation ofthe strategy, implementation of strategy and monitoring of strategy. The synergy of these five aspects differentiates strategic management from operational management, strategic planning, and long-term planning.  Strategic management thus involves integration among these five aspects. There are divergent approaches to strategic management in the process of decision-making of firms because firms vary in terms of the type of strategy formulated whether formalized, unstructured or informal and kind of business environment whether simplified or complex. These divergences inform firms as regard to the approach they would employ. According to Kinyua and Ali (2016), the approaches to strategic management open to firms are adaptive, planning and entrepreneurial. The entrepreneurial approach is considered superior because it requires a high level of foresight to be able to predict opportunities and threats in the business environment where an enterprise operates.

Gareth (2012) opined that strategic management can be dissected into two parts namely strategy formulation and strategy implementation. The formulation of strategy involves evaluating the internal and external environment in which a firm operates, then formulating strategic decisions that will help such a firm to compete in its environment. The formulation stage stops when the goals, measures, and initiatives which the firm is meant to pursue is developed. At the formulation stage, the environmental analysis can be classified into three parts namely internal environment, external environment and industry environment (Mintzberg & Quinn (2005). The internal environment is concerned with the strengths and weaknesses of the organization. External environment captures political, cultural, economic, legal, geographical, financial and technological factors that can affect the operations of the firm while industry environment encapsulates competition from rivals, new entrants into the industry, cost-competitiveness of firm’s products relative to rivals and activities of supplier and customers. The second part, which is strategy implementation, focuses on how organizational resources will be utilized towards the accomplishment of an organization aim and objectives. Implementation of strategy delves into the process of structuring the available resources to meet firms’ objectives.

2.2    SMEs in Nigeria: Concept, Characteristics, Importance, and Challenges 

There is no consensus on the definition of SME because classifying businesses in terms of asset base, size of the workforce, technological advancement, capital employed and net-worth cannot be subjectively measured as economies of countries differs and each economy establishes its own standard for defining SME. Okeke (2009) viewed SME as a private or jointly-owned business, which is owned and funded by the owner(s) and its equity is not publicly traded. Ebringa and Okafor (2011) described SME as an enterprise that has employment capacity ranging between 10 to 300 personnel and a maximum asset base of N200 million. Eniola (2015) defined SME as any entity that has less than 50 employees and total assets less than N50 million. The “Small Scale and Medium Enterprise Development Agency of Nigeria” (2012) classified micro, small and medium enterprises with respect to employment size and asset base. According to them, a micro enterprise has less than 10 employees and less than N5million asset base. A small enterprise has an employment size between 10 and 49 employees and asset base between N5- N50million and a medium enterprise have a workforce between 50 and 199 employees and asset base between N50 – N500 million. The “Central Bank of Nigeria” differentiated small enterprises from their medium counterparts. The employment size of small enterprises is less than 50 and that of medium enterprises is less than 100. Also, the asset size of SME is less than N1 million and N150 million respectively.

Isa (2013) enumerated the peculiar characteristics of SME. Firstly, the owner(s) takes the production, financing, sales and marketing decisions and also bear the risk of the firm. Secondly, capital is financed mostly from personal savings, profits from business and borrowings from family and friends. Thirdly, SMEs operate to meet the immediate demands of their host communities and the business operates without the knowledge of wider markets. Fourthly, inability to keep proper records of finances emanating from the lack of will to separate personal self from the business entity and lastly, the owner(s) tend to be conservative and reluctant to reveal vital information about the business arising from fear of inviting unwelcomed tax investigations.

SMEs serve as a catalyst for economic growth, poverty alleviation, employment-generation and wealth-creation. SMEs provide promising alternatives for countries to fasten their level of industrial development. SMEs provide opportunities for harnessing local skills and acquiring new technologies (Ijir & Gbegi, 2015). SMEs serve as a training avenue for equipping local entrepreneurs and enhance the managerial expertise of potential and actual entrepreneurs. SMEs help to improve the standard of living of the populace and generate foreign exchange for economic development (Adisa, 2014). The “Small and Medium Development Agency of Nigeria” in its national policy on MSMEs assert that MSMEs provides employment generation, wealth creation, poverty alleviation and growth to the Nigerian economy. Anywhere in the world, SMEs are the largest employers of labour. They create more jobs per unit of an investment than large corporations. They provide a substantial amount of local capital formation and help to enhance the level of competition, invention, innovation, efficiency, productivity, and capability. Osotimehin, et al, (2012) opined that SMEs provide opportunities for entrepreneurial sourcing, training, development, and empowerment.

SMEs in Nigeria have performed below expectation over the years due to the plethora of challenges bedeviling them. Agwu and Falohun (2016) pointed that the challenges militating the performance of SMEs in Nigeria are infrastructure deficiency, lack of proper documentation of records, inadequate financing, lack of business succession plans, lack of formidable business strategy, inadequate experience and skill in management and poor market research. Adisa (2014) classified SMEs challenges in Nigeria into internal and external factors. Internal challenges include low working capital, inability to procure sufficient amount of raw materials, competition from large firms in the industry where SMEs operate and illiteracy of owner(s). Also, the external challenges are political instability, economic instability, multiple taxation policy, tough business environment and government policy inconsistencies.

2.3    Theoretical Review

The frontline theories are ownership theory, resource-based theory, survival-based theory and Porter’s five forces model.

The ownership theory claimed that the skills of SMEs owners/managers are germane to the progress and development of the firm. The principal strategist of firms at small and medium scale level is the owner/managers. SMEs owners/managers are responsible for making key decisions, bear the burden of the firm, map out the vision and mission statement of the firm and outline veritable procedures of achieving organizational targets. The attitude and entrepreneurial orientation of SMEs largely determine the choice of the firm’s strategy as well as its approach to execution of a strategy (Abosede, Obasan & Alese, 2016).

The survival-based theory is the strategy used by firms to ensure continuity in operations. The theory stressed that business owners and managers must have sound intellectual capacity and sharp business acumen to be able to resist threats and intimidation from competitions and survive in the industry where it operates. According to Brain (2006), firms must cultivate the habit of consistently adapting to its competitive environment so as to survive as there are always new attitudes, discoveries, innovations, and inventions about the business environment year-in and year-out.

The resource-based theory argued that firms gain competitive advantage though the optimization of its internal resources. The degree at which a firm utilizes its tangible and intangible resources at its disposal determines the strength of its competitive advantage. Competitive advantage emanates from the unique resources and capabilities of a firm owned and these resources have the capacity to create competitive advantage and improved organizational performance (Barney, 1995).

The Porter five-force model was championed by Michael Porter in 1980. The model explained the five competitive factors that influence the strengths and weaknesses of every organization. The model analyzed why different organizations in the same industry have varying levels of profitability. The model provides an analytical framework to measure and assess the competitive strength and position of an enterprise. The five-force model analyzed the industrial structure and corporate strategy of different organizations. The forces are used to determine how competitive, viable and attractive a firm, market, sector or industry is, with respect to its profitability (Kinyua & Ali, 2016). The five-forces are competition in the industry, potentials of new entrants in industry, power of suppliers, power of customers and threat of substitutes.  These forces enable firms in an industry to identify the areas that will be profitable to them, makes firms with conflicting interests to communicate and ascertain the reactions of competitors, customers, and distributors.

  •      Empirical Review

Empirical evidence have been provided as regards the importance of strategic management to SMEs in Nigeria and Diaspora. Kinyua & Ali (2016) explored the “role of strategic management factors on the growth of SMEs in Mombasa County”, Kenya. The study sought the effect of strategic planning, strategic training and strategic resource allocation on the growth of SMEs in Mombase District. The sample of the study comprised 128 SMEs drawn from seven industries. The questionnaire was used to generate data for the study and was analyzed with the use of descriptive statistics and regression analysis. The study found that strategic planning, strategic training, and strategic resource allocation positively and significantly influences the growth of SMEs in Mombasa County.  Ikharehon and Briggs (2016) investigated the strategic factors that are important to the development of SMEs in Nigeria. Priority was placed on the factors that are yet to be inculcated in the plans and management of SMEs. The study randomly selected 97 SMEs in Abuja Metropolis. The study used a self-administered questionnaire to solicit information from respondents. The descriptive statistics were employed for the analysis of data. The results indicated that insufficient capital, infrastructure deficiencies, inadequate fiscal incentives, technological and knowledge contribution and the problem of inheritance and succession are the strategic factors that affected the efficient development of SMEs in Nigeria.

Sandada, Pooe, and Dhurup (2014) investigated the dimensions of strategic planning adopted by SMEs in Africa. The study also investigated if there are significant differences in strategic planning practices amongst SMEs in terms of gender. The sample of the study comprised 200 SMEs in Gauteng Province. Questionnaires were administered to owners/managers of selected SMEs to generate dat and were analyzed using factor analysis and Mann-Whitney test. The results indicated that the dimensions of strategic planning applicable to SMEs are environmental scanning, “mission” and “vision”, the formality of strategic plans, informing sources, evaluation, and control, implementation incentives, employee participation and time. Also, the results proved no significant difference in term of the strategic planning-dimensions of SMEs based on gender.  Irefin, Oyebola, and Akintelu (2017) examined the “impact of strategic management on the performance of SMEs” in Nigeria, with respect to sales, profit and competitive advantage. The findings revealed that strategic management significantly enhance the competitive advantage, sales growth and profitability of SMEs in Nigeria. The study maintained that strategic management is critical to the sustainable development of SMEs in Nigeria.

Tunji, et al, (2014) assessed the strategic management practices of SMEs in the construction sector in Lagos. The study adopted the quantitative research design. The sample of the study comprised 47 SMEs firms in the construction sector in Lagos. The results showed that selected SMEs have their strategies for managing their business activities, in which most of them review their strategies annually. The ability to identify potential competitors, political instability, economic instability, inadequate infrastructures and dearth of experts and professionals are the leading SWOT of SMEs in the construction sector. Dauda, Akingbade, and Akinlabi (2010) examined the relationship between “strategic management practice and corporate performance of SMEs in Lagos Metropolis” with respect to profitability and market share. Data was solicited by administering questionnaires to owners/managers of SMEs, and the data were analyzed using the descriptive statistics and Pearson correlation technique. The results showed that strategic management has a significant relationship with profitability and market share of selected SMEs.

Ragui (2013) examined the “managerial practices on the implementation of strategic plans by SMEs in Nairobi, Kenya”. It was discovered among others that the managerial practices adopted by SMEs are planning, organizational, leadership, control and staffing practices. Also, it was found that managerial practices have significant impact on the implementation of strategic plans by selected SMEs. Njeru (2015) investigated the strategic management practices adopted by SMEs in Kenya. Strategic management practice was measured by strategy formulation, strategy implementation, and strategy evaluation. The results showed that strategic formulation, implementation, and evaluation positively influences the performance of SMEs with respect to return on asset. However, strategy evaluation is the only variable that has a significant impact on SMEs performance.

  • Methodology

This research was carried in Lagos State. Lagos State is located in the South-West geopolitical zone of Nigeria. Lagos State inhabits the highest number of SMEs in Nigeria (Small and Medium Scale Enterprise Development Agency Report, 2016). The study employed a descriptive survey design. The researcher collected a random sample of 200 SMEs from the five administrative centers (Ikeja, Epe, Lagos, Badagry, and Ikorodu) of Lagos State.

The study used a self-administered questionnaire to collect data from owners/managers of selected SMEs in Lagos State. The questionnaire was divided into three parts. The first part supplied information on the firm-characteristics of SMEs. The second part supplied information on the internal factors affecting strategic management practices amongst SMEs. The third part concentrated on external factors. The data collected were analyzed using descriptive statistical techniques.

4.  PRESENTATION OF RESULTS

Out of the 200 copies of questionnaires administered, only 178 copies were returned, giving a response rate of 89%. The results obtained from the survey exercise are discussed as follows:

Table 1:  Firm-Characteristics of selected SMEs (N=178)

Variables Frequency Percentage
Type of SMEs    
Sole proprietorship 76 42.7%
Partnership 35 19.7%
Family-owned business 31 17.4%
Limited Liability Company 12 6.7%
Co-operatives 24 13.5%
Industry of SMEs    
Manufacturing 37 20.8%
Trading 79 44.4%
Service 62 34.8%
Net-Worth of SMEs    
Less than N10 million 35 19.7%
N10 – N100 million 75 42.1%
Above N100 million 68 38.2%
Size of Workforce    
Less than 10 employees 29 16.3%
10-50 employees 81 45.5%
Above 50 employees 58 32.6%
Years of Active Operation    
Below 10 years       58 32.6%
10-20 years 83 46.6%
Above 20 years 37 20.8%

Source:  Field Survey (2018)

Table 1 above, present the firm-characteristics of selected SMEs. Information about the type of SMEs, industry of operation, net-worth, size of workforce and age are outlined in Table 1. The results showed that majority of selected SMEs operate a sole-proprietorship form of business. This implies that the affairs of the business is managed and controlled by one person, who is the owner. On the basis of industry, majority of the SMEs operate in trading and service sectors. On the basis of net-worth, the majority of SMEs, which is about 80.3%, have a net-worth above 10 million. Furthermore, most of the SMEs have a size of workforce between 10 and 50 employees. With reference to their age, 32.6% have been in active operation for than less than 10 years while 46.6% and 20.8% are have been existent between 10-20 years and above 20 years respectively.

Table 2:  Descriptive Statistics of Respondents’ Opinions on the Internal Factors affecting Strategic Management Practices (N=178)

S/N Factors Mean Standard Deviation Decision
1. Size of firm 3.24 0.43 Agreed
2. Technical and managerial expertise 3.15 0.58 Agreed
3. Size of working capital 2.89 0.67 Agreed
4. Financing 3.09 0.58 Agreed
5. Location of firm 2.86 0.71 Agreed
6. Access to information 2.65 0.89 Agreed
7. Quality of employees 3.02 0.65 Agreed
8. Firm’s  marketing strategy 2.70 0.62 Agreed
9. Competitive Advantage 3.10 0.54 Agreed
10. Investment opportunities 2.97 0.61 Agreed
11. Growth of business 2.89 0.67 Agreed

Source:  Field Survey (2017)

The result in Table 2 showed the mean and standard deviation of the internal factors affecting strategic management practices in SMEs. The benchmark mean was pegged as 2.50 and standard deviation was benchmarked at 1.  Factors whose mean values is above 2.50 is considered acceptable, and vice-versa while a standard deviation below one is considered to be normally distributed. Although, respondents agreed that all the internal factors outlined above affect strategic management practices, but the major ones are size of firm, technical and managerial expertise, competitive advantage, finance and quality of staff.

There is consensus in literature that strategic management is originally developed for large and multinational corporations. It is however difficult for small and medium scale businesses to adopt similar techniques due to varying characteristics between large and small firms. The small size factor has constrained SMEs from fully practicing strategic management. Even when some of them attempt to practice, their plans tend to be unstructured, inconsistent, irregular and informal. SMEs lack the required technical and managerial expertise and adequate financial resources to practice strategic management. The adoption and implementation of strategic management require experts and professionals to formulate a strategic plan, and a good financial base is needed to execute the plan. Unfortunately, most SMEs do not have these.  Quality of staff is an important factor that affects the practices of strategic management in SMEs. Majority of SMEs in Nigeria employ few staff, in which a significant proportion of their work-force is unskilled and/or semi-skilled. It is only when capable hands are employed that the implementation of strategic management can come to fruition. The reason why strategic management is effectual in large corporations is because of their ability to attract and maintain competent personnel. SMEs lack the strength to hire quality staffs, who understands the nitty-gritty of business management. In addition, competitive advantage stimulates the effective implementation of strategic management. A firm that is head and shoulder above its rivals will find it easier to practice strategic management. Competitive advantage and strategic management are intertwined. In the case of SMEs, majority of them do not have a competitive advantage due to the limitation(s) posed to their growth and expansion.

This has however made the practice of strategic management complicated in SMEs. From the table, we could see that all the variables are normally distributed since their standard deviation are relatively low and fall below one (1).

Table 3:  Descriptive Statistics of Respondents’ Opinions on the External Factors affecting Strategic Management Practices (N=178)

S/N Factors Mean Standard Deviation Decision
1. Government economic and industrial policy 3.25 0.47 Agreed
2. State of infrastructures 2.84 0.65 Agreed
3. Taxation policy 2.64 0.78 Agreed
4. Macroeconomic environment 3.16 0.51 Agreed
5. Political conditions 3.07 0.56 Agreed
6. Fiscal incentive framework 2.57 0.93 Agreed
7. Nature of business environment 3.14 0.53 Agreed
8. Threats of Competitors 2.60 0.71 Agreed
9. Influence of market leader(s). 3.05 0.63 Agreed
10. Potentials of new entrants 2.76 0.77 Agreed

Source:  Field Survey (2017)

The result in Table 3 showed that respondents agreed with the outlined external factors since their mean value are all greater than 2.5 and the standard deviation revealed that the variables are normally distributed which entails that there is no outlier in the responses. The leading external factors are government economic policy and industrial policy, nature of business environment, macroeconomic environment, political conditions and influence of market leader(s).1

The economic and industrial policies of the government are important to strategic management in SMEs. Strategic plans developed by SMEs can be distorted by policies formulated on the inflation rate, interest rate exchange rate or tariff. For instance, an increase in monetary policy rate increases the cost of borrowing. This implies that SMEs intending to obtain loan facilities from financial institutions will be charged a higher interest rate. Thus, such SMEs would have to go back to re-evaluate its plan to see whether borrowing is advantageous or not. The nature of business environment is yet another important factor. A business environment that is unpredictable, uncertain and harsh may not support the practice of strategic management. The macroeconomic environment matters as well. An environment characterized by high rates of inflation, continual fluctuations in exchange rate and astronomical rates of interest may be injurious to the practices of strategic management. Most SMEs are dominated by the market leader(s), who determine the pricing and output decisions of SMEs. SMEs in this situation have no other choice than to comply with the directives of the market leader(s), whether favorable or otherwise. Political conditions are equally a veritable factor.  Strategic management is functional in an environment that is free from violence, demonstration, chaos, disorder, civil war, assassinations, and frequent changes in government policies, bureaucracy, and insecurity. An unstable political clime repels the practice of strategic management.

To validate the findings from the descriptive statistics and enable the generalization of the findings, the study operational hypotheses shall be tested using the chi-square (x2) technique. The chi-square technique is used to ascertain if “two or more nominal and ordinal variables are significantly independent” (Kothari 2009, p. 233). The decision rule to accept or reject a hypothesis under the chi-square technique is to compare the calculated value of chi-square with the table value of chi-square at a particular level of significance and degrees of freedom. If the calculated value of chi-square is higher than its table value at specified degrees of freedom and significance level (say 5% LOS), the null hypothesis is rejected (or the alternate hypothesis is accepted). Conversely, if the calculated value of chi-square is less than its table value at specified degrees of freedom and significance levels, the null hypothesis is therefore accepted. The level of significance used for testing the hypotheses is set at 5%. Relevant hypotheses were then generated, and chi-square analysis was undertaken sequentially.

Hypothesis One

H0: Identified Internal Factors affecting Strategic Management Practices among SMEs do not have significant influence in SMP practice among SME in Lagos State, Nigeria.

H1: Identified Internal Factors affecting Strategic Management Practices among SMEs have significant influence in SMP practice among SME in Lagos State, Nigeria.

Table 4: Decision Table for Hypothesis One

X2 Cal. X2. Tab Significance Level DF Remark
89.66 14.07 0.05 14 Reject H0

The complete calculation of the chi-square is presented in the appendix for ease of cross-reference. The degree of freedom was obtained by subtracting the number of rows and columns from one. (C-1) (R-1): The number of rows is 8 and number of columns are 3.

= (8-1) (3-1)

= (7) (2)

= 14 degrees of freedom.

From the result of the chi-square it evidence that the identified internal factors affecting strategic management practice among SME in Lagos state Nigeria actually do have a strong influence in the strategic management practice. These findings collaborate with the earlier findings from the descriptive statistics and the findings from other researchers as analyzed earlier. The implication is that such factors as size of the firm, managerial expertise, organisation working capital, financing arrangement available, firm location, access to information, quality of employees, competitive advantage and firm marketing strategy all played significant role in the strategic management practice by the SME.

Hypothesis Two

H0: Identified External Factors affecting Strategic Management Practices among SMEs do not have significant influence in SMP practice among SME in Lagos State, Nigeria.

H1: Identified External Factors affecting Strategic Management Practices among SMEs have significant influence in SMP practice among SME in Lagos State, Nigeria.

Table 5: Decision Table for Hypothesis One

X2 Cal. X2. Tab Significance Level DF Remark
22.21 14.07 0.05 14 Significant

The complete calculation of the chi-square is presented in the appendix for ease of cross reference. The degree of freedom was obtained by subtracting the number of rows and columns from one. (C-1) (R-1): The number of rows is 8 and number of columns are 3.

= (8-1) (3-1)

= (7) (2)

= 14 degrees of freedom.

Similarly, the result of the chi-square test as presented in table 5, revealed that the identified external factors affecting strategic management practice among SME in Lagos state Nigeria actually do have strong influence in the strategic management practice among SME in Lagos state Nigeria. This findings collaborate with the earlier findings from the descriptive statistics and the findings from other researchers as analyzed earlier. Similarly, the implication of the findings is that such factors as government policy on SME, infrastructural development, macroeconomic environment, competitors, and potential new entrants among others do play substantial role in the strategic management practice adopted among the SME in Lagos state Nigeria.

Conclusion and Recommendations

Strategic management is central to the attainment of organizational objectives. Strategic management solidifies competitive advantage of a firm and equally prepares them for the occurrence of unexpected events in the business environment. However, there are certain factors that affect the practices of strategic management in SMEs. These factors are attributable to the weak implementation of strategic management. Relevant amongst them are small size factor, technical and managerial know-how, competitive advantage, finance, industrial and economic policy, influence of market leaders, political conditions and nature of business environment.

In an attempt to enhance the practices of strategic management in SMEs, the following suggestions are proposed:

  • SMEs are advised to invest in projects where they have formidable competitive advantage. They are beseeched to know their areas of strength and weaknesses. This will help them develop strategic plans to maximize their areas of strength and minimize their weaknesses.
  • SMEs are encouraged to form strategic partnership with large and multinational firms. This will enable them to take necessary actions to improve managerial practices in their businesses. This will equally advance their technical and managerial know-how to harness opportunities in their environment.

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Appendix 1

QUESTIONNAIRE

Evaluating the Factors affecting Strategic Management Practices in Small and Medium Scale Enterprises in Nigeria: Evidence from Lagos State

Dear valued respondent,

I am currently conducting a research study aimed at investigating the internal and external factors affecting strategic management practices in Nigeria, using Lagos State as case study.The following questionnaire will require approximately 2-3 minutes of your time. There is no compensation for responding nor is there any known risk. In order to ensure that all information will remain confidential, please do not include your name.

If you choose to participate in this survey, please answer all questions as honestly as possible and return the completed questionnaires immediately by replying to the email. Participation is strictly voluntary, and you may refuse to participate.

Thank you for taking the time to assist in the research endeavors. If you would like a summary copy of this study, please send me a request through e-mail. If you require additional information or have questions, please contact me immediately.

Section A:      Firm-Characteristics of SMEs

  1. Type of SMEs
  2. Sole-proprietorship                                                [                 ]
  3. Partnership                                                            [                 ]
  4. Family Business                                                    [                 ]
  5. Limited Liability Company                                  [                 ]
  6. Cooperative                                                           [                 ]
  • Nature of Business
  • Manufacturing                                                      [                 ]
  • Agriculture/Agro-Allied                                       [                 ]
  • Service                                                                  [                 ]
  • Wholesale and Retail Trading                               [                 ]
  • Net-Worth of SMEs
  • Less than N10 million                                           [                 ]
  • N11-N100 million                                                 [                 ]
  • Above 100 million                                    [                 ]
  • Size of Workforce
  • Less than 20 staff                                                 [                 ]
  • 20-50 staff                                                            [                 ]
  • Above 50 staff                                                      [                 ]
  • Age of SMEs
  • Less than 10 years                                                 [                 ]
  • 11-20 years                                                            [                 ]
  • Above 20 years                                                     [                 ]

Section B: Factors affecting Strategic Management Practices among SMEs in Lagos State, Nigeria

You are required to tick one option out of the four options provided for each item in this section. Please note that SA= strongly agree; A=agree; D=disagree, SD= strongly disagree

Code Item SA A D SD
  Internal Factors        
IN1 Size of firm        
IN2 Technical and managerial expertise        
IN3 Financial capacity        
IN4 Location of firm        
IN5 Access to information        
IN6 Quality of workforce        
IN7 Business growth        
IN8 Competitive advantage        
           
  External Factors        
EX1 Government policy        
EX2 Infrastructure        
EX3 Macroeconomic environment        
EX4 Political conditions        
EX5 Nature of business environment        
EX6 Threats of competitors        
EX7 Activities of market leaders        
EX8 Potentials of new entrants.        
Type of SMEs
  Frequency Percent Valid Percent Cumulative Percent
Valid SOLE-PROPRIETORSHIP 45 47.4 47.4 47.4
PARTNERSHIP 15 15.8 15.8 63.2
FAMILY BUSINESS 12 12.6 12.6 75.8
LIMITED LIABILITY COMPANY 13 13.7 13.7 89.5
COOPERATIVE 10 10.5 10.5 100.0
Total 95 100.0 100.0  
Nature of Business
  Frequency Percent Valid Percent Cumulative Percent
Valid MANUFACTURING 19 20.0 20.0 20.0
AGRICULTURE/AGROALLIED 18 18.9 18.9 38.9
SERVICE 20 21.1 21.1 60.0
WHOLESALE/RETAIL TRADING 38 40.0 40.0 100.0
Total 95 100.0 100.0  
Networth of SMEs
  Frequency Percent Valid Percent Cumulative Percent
Valid LESS THAN N10 MILLION 17 17.9 17.9 17.9
N11-N100 MILLION 60 63.2 63.2 81.1
ABOVE N100 MILLION 18 18.9 18.9 100.0
Total 95 100.0 100.0  
Size of Workforce
  Frequency Percent Valid Percent Cumulative Percent
Valid LESS THAN 20 STAFF 45 47.4 47.4 47.4
20-50 STAFF 43 45.3 45.3 92.6
ABOVE 50 STAFF 7 7.4 7.4 100.0
Total 95 100.0 100.0  
Years of Active Operation
  Frequency Percent Valid Percent Cumulative Percent
Valid LESS THAN 10 YEARS 51 53.7 53.7 53.7
11-20 YEARS 33 34.7 34.7 88.4
ABOVE 20 YEARS 11 11.6 11.6 100.0
Total 95 100.0 100.0  

INTERNAL FACTORS

SIZE OF FIRM
  Frequency Percent Valid Percent Cumulative Percent
Valid STRONGLY DISAGREE 1 1.1 1.1 1.1
DISAGREE 8 8.4 8.4 9.5
AGREE 47 49.5 49.5 58.9
STRONGLY AGREE 39 41.1 41.1 100.0
Total 95 100.0 100.0  
TECHNICAL AND MANGERIAL EXPERTISE
  Frequency Percent Valid Percent Cumulative Percent
Valid STRONGLY DISAGREE 1 1.1 1.1 1.1
DISAGREE 5 5.3 5.3 6.3
AGREE 34 35.8 35.8 42.1
STRONGLY AGREE 55 57.9 57.9 100.0
Total 95 100.0 100.0  
FINANCIAL CAPACITY
  Frequency Percent Valid Percent Cumulative Percent
Valid STRONGLY DISAGREE 1 1.1 1.1 1.1
DISAGREE 7 7.4 7.4 8.4
AGREE 38 40.0 40.0 48.4
STRONGLY AGREE 49 51.6 51.6 100.0
Total 95 100.0 100.0  
LOCATION OF FIRM
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 4 4.2 4.2 4.2
AGREE 42 44.2 44.2 48.4
STRONGLY AGREE 49 51.6 51.6 100.0
Total 95 100.0 100.0  
ACCESS TO INFORMATION
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 38 40.0 40.0 40.0
AGREE 37 38.9 38.9 78.9
STRONGLY AGREE 20 21.1 21.1 100.0
Total 95 100.0 100.0  
QUALITY OF WORKFORCE
  Frequency Percent Valid Percent Cumulative Percent
Valid STRONGLY DISAGREE 1 1.1 1.1 1.1
DISAGREE 8 8.4 8.4 9.5
AGREE 45 47.4 47.4 56.8
STRONGLY AGREE 41 43.2 43.2 100.0
Total 95 100.0 100.0  
BUSINESS GROWTH
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 4 4.2 4.2 4.2
AGREE 42 44.2 44.2 48.4
STRONGLY AGREE 49 51.6 51.6 100.0
Total 95 100.0 100.0  
COMPETITIVE ADVANTAGE
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 9 9.5 9.5 9.5
AGREE 48 50.5 50.5 60.0
STRONGLY AGREE 38 40.0 40.0 100.0
Total 95 100.0 100.0  

EXTERNAL FACTORS

GOVERNMENT POLICY
  Frequency Percent Valid Percent Cumulative Percent
Valid STRONGLY DISAGREE 5 5.3 5.3 5.3
DISAGREE 11 11.6 11.6 16.8
AGREE 28 29.5 29.5 46.3
STRONGLY AGREE 51 53.7 53.7 100.0
Total 95 100.0 100.0  
INFRASTRUCTURE
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 5 5.3 5.3 5.3
AGREE 39 41.1 41.1 46.3
STRONGLY AGREE 51 53.7 53.7 100.0
Total 95 100.0 100.0  
MACROECONOMIC ENVIRONMENT
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 1 1.1 1.1 1.1
AGREE 44 46.3 46.3 47.4
STRONGLY AGREE 50 52.6 52.6 100.0
Total 95 100.0 100.0  
POLITICAL CONDITIONS
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 7 7.4 7.4 7.4
AGREE 40 42.1 42.1 49.5
STRONGLY AGREE 48 50.5 50.5 100.0
Total 95 100.0 100.0  
NATURE OF BUSINESS ENVIRONMENT
  Frequency Percent Valid Percent Cumulative Percent
Valid STRONGLY DISAGREE 1 1.1 1.1 1.1
DISAGREE 7 7.4 7.4 8.4
AGREE 50 52.6 52.6 61.1
STRONGLY AGREE 37 38.9 38.9 100.0
Total 95 100.0 100.0  
THREAT OF COMPETITORS
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 4 4.2 4.2 4.2
AGREE 44 46.3 46.3 50.5
STRONGLY AGREE 47 49.5 49.5 100.0
Total 95 100.0 100.0  
ACTIVITIES OF MARKET LEADERS
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 9 9.5 9.5 9.5
AGREE 48 50.5 50.5 60.0
STRONGLY AGREE 38 40.0 40.0 100.0
Total 95 100.0 100.0  
POTENTIALS OF NEW ENTRANTS
  Frequency Percent Valid Percent Cumulative Percent
Valid DISAGREE 10 10.5 10.5 10.5
AGREE 40 42.1 42.1 52.6
STRONGLY AGREE 45 47.4 47.4 100.0
Total 95 100.0 100.0  

DESCRIPTIVE FOR INTERNAL FACTORS

Descriptive Statistics
  N Mean Std. Deviation
Size of firm 95 3.31 .670
Technical and managerial expertise 95 3.51 .650
Financial capacity 95 3.42 .678
Location of firm 95 3.47 .581
Access to information 95 2.60 1.148
Quality of workforce 95 3.33 .675
Business growth 95 3.47 .581
Competitive advantage 95 3.31 .637
Valid N (listwise) 95    

DESCRIPTIVE FOR EXTERNAL FACTORS

Descriptive Statistics
  N Mean Std. Deviation
Government policy 95 3.32 .878
Infrastructure 95 3.48 .599
Macroeconomic environment 95 3.52 .523
Political conditions 95 3.43 .630
Nature of business environment 95 3.29 .650
Threat of competitors 95 3.45 .579
Activities of market leaders 95 3.31 .637
Potentials of new entrants 95 3.37 .669
Valid N (listwise) 95    

CHI-SQUARE TECHNIQUE

Agreement and Disagreement Categories of Internal Factors

S/N Benefits Agree Category (SA +A) Disagree Category (D+SD) Row Total
1. Size of firm 86 9 95
2. Technical and managerial expertise 89 6 95
3. Financial capacity 87 8 95
4. Location of firm 91 4 95
5. Access to information 57 38 95
6. Quality of workforce 86 9 95
7. Business growth 91 4 95
8. Competitive advantage 86 9 95
  Total 673 87 760

Chi-Square Table for Hypothesis One

Cells O E O-E O-E2 O-E2/ E
1 86 84 2 4 0.05
2 9 11 -2 4 0.36
3 89 84 5 25 0.29
4 6 11 -5 25 2.27
5 87 84 3 9 0.11
6 8 11 -3 9 0.82
7 91 84 7 49 0.58
8 4 11 -7 49 4.45
9 57 84 -27 729 8.68
10 38 11 27 729 66.2
11 86 84 2 4 0.05
12 9 11 -2 4 0.36
13 91 84 7 49 0.58
14 4 11 -7 49 4.45
15 86 84 2 4 0.05
16 9 11 -2 4 0.36
          89.66

Decision Table for Hypothesis One

X2 Cal. X2. Tab Significance Level DF Remark
89.66 14.07 0.05 7 Accept H1

Agreement and Disagreement Categories of External Factors

S/N Benefits Agree Category (SA +A) Disagree Category (D+SD) Row Total
1. Government policy 79 16 95
2. Infrastructure 90 5 95
3. Macroeconomic environment 94 1 95
4. Political conditions 88 7 95
5. Nature of business environment 87 8 95
6. Threat of competitors 91 4 95
7. Activities of market leaders 86 9 95
8. Potentials of entrants 85 10 95
  Total 700 60 760

Chi-Square Table for Hypothesis Two

Cells O E O-E O-E2 O-E2/ E
1 79 88 -9 81 0.92
2 16 7 9 81 11.57
3 90 88 2 4 0.05
4 5 7 -2 4 0.57
5 94 88 6 36 0.41
6 1 7 -6 36 5.14
7 88 88 0 0 0
8 7 7 0 0 0
9 87 88 -1 1 0.01
10 8 7 1 1 0.14
11 91 88 3 9 0.10
12 4 7 -3 9 1.29
13 86 88 -2 4 0.05
14 9 7 2 4 0.57
15 85 88 -3 9 0.10
16 10 7 3 9 1.29
          22.21

Decision Table for Hypothesis Two

         
  14.07 0.05 7 Accept H1

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