The Impact Of Strategic Planning On Financial Performance Of Small And Medium Scale Enterprises

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The Impact Of Strategic Planning On Financial Performance Of Small And Medium Scale Enterprises


Abstract


Strategic planning process determines the long-term objectives of an organization by developing and implementing decisions is critical for the survival of most institutions. Financial performance of small and medium scale enterprises in Nigeria has been found to be affected by strategic planning processes. This research purposed to study the impact of strategic planning on financial performance of small and medium scale enterprises in Nigeria. The current research made use of a descriptive survey design. The population consisted of all the registered small and medium scale enterprises operating in pel-extra industry, Lagos, Nigeria, 90 of them was sampled out for the study. Primary data was used in this research work. The primary data was collected through questionnaires. Raw data was analyzed majorly by way of inferential, descriptive, and frequencies techniques. Results from the study indicated that mission and objectives, environmental scanning, strategy formulation, strategy implementation and strategy evaluation all had an impact on financial performance as indicated by majority of the respondents. Correlation results also indicated that mission and objectives, environmental scanning, strategy formulation, strategy implementation and strategy evaluation were positively associated with financial performance. Regression findings indicated that mission and objectives, environmental scanning, strategy formulation, strategy implementation and strategy evaluation were statistically significant predictor of financial performance. The researcher concluded that mission and objectives, environmental scanning, strategy formulation, strategy implementation and strategy evaluation did have an impact on financial performance and that mission and objectives was an important determinant of financial performance in small and medium scale firms in Nigeria. As a suggestion for further studies, another study on strategic planning process can be done in a different sector like the private sector, manufacturing sector, agricultural sector, etc. to find out whether there will be consistency in findings and results.


Chapter One


Introduction

1.1 Background of the Study

Strategic planning is defined as unified, comprehensive and integrated plan design to ensure that the basic objectives of an enterprises is achieved, it also known as long-term planning simply defined as the formal process of determining long, medium and short-term objectives and goals of an industry and how to achieve them.

Enterprises employ strategic planning on financial planning of varying degree of completeness.

Sexton and Auken identify four levels of strategic planning in small and medium enterprises as: strategic planning at zero level (i.e no strategic planning) strategic planning at level 1 (i.e. knowledge of sales but not profit) strategic planning at level 2 (i.e knowledge of sales but not profit) and strategic planning of level 3 (i.e knowledge of sales and profit and adopting measures to achieve the projected sales and profits).

On a variety of financial performance strategic planning measures for both medium and small scale enterprise. These studies have been undertaken especially those of small firms have drawn conflicting conclusion by saying that strategic planning provides structure for decision making helping small and medium scale enterprises manager take a long-term view.

It is a highly value tool that is usually employed by successful and best-managed business enterprises throughout the world it is a plan of business enterprises reveals it’s objectives, purpose, goals and patterns of and defines the range of business the enterprises is to pursue.

Planning is the fundamental function of management, it is the formal process of setting objectives and determining the means of achieving objectives.

Strategic planning is a process by which some one can envisioning future and develop the necessary procedures and operations to influence and achieve that future.

Strategic planning consists of set of underlying processes that are intended to create or manipulate a situation to create a more favourable outcome for an industry.

Industries, however appear to gain more because they can derive considerable benefits not only from adaptive thinking but also from integration and control.

Small scale enterprises can derive considerable benefits from adaptive thinking but probably gain less than large firms from integration and control aspects of strategic planning.

The effectiveness of strategic planning can be measured in terms of the extent to which it influences organizational performances which affect it’s survival rate. Pel extra industry will be use as case study.


1.2 Statement of the Problem

Business firm needs strategic plans to set direction for themselves in order to outperform competitions, exploit opportunities and circumvent through threatening environment.

It is an annual process and considered a very import enterprises activity. It can be considered a longitudinal study because it examines a set of institutions to identify changes in their performance over time.

Strategic planning is one of the most misunderstood and poorly used tools in many organizations with detailed plan created arduously over months at great effort only to gather dust and languish after they have duly acknowledged and then filed away.


1.3 Objectives of the Study

Strategic planning is important on financial performance of an enterprises.

The purpose of these study are as follows:

  1. To examine the extent in which strategic planning intensity determined managerial and environmental factors.
  2. To determine whether there is a link between strategic planning and organizational survival.
  3. To ascertain whether strategic planning implementation enhance organization return on investment.
  4. To determine whether strategic planning enhance better organizational probability.

1.4 Research Question

In order to achieve the objective of the study the following question will be addressed.

  1. To what extent does strategic planning enhance better organizational profitability?
  2. To what extent does strategic planning intensity determine by managerial and environmental factor?
  3. Is there a link between strategic planning and organizational survival?
  4. To what extent does strategic implementation enhance organization return on investment?

1.5 Hypotheses

To provide answers to the research questions the following hypotheses will be tested.

  1. Ho: Strategic planning intensity is not determined by managerial and environmental factors.
    Hi: Strategic planning intensity is determined by managerial and environmental factors.
  2. Ho: There is no link between strategic planning and enterprises survival.
    Hi: There is link between strategic planning and enterprises survival.
  3. Ho: Strategic implementation does not enhance organization return on investment.
    Hi: Strategic implementation enhances organization return on investment.

1.6 Scope of the Study

The study embraces the strategic planning on financial performance in small and medium scale enterprise. It covers primary objectives in strategic planning like the quality objective timeless and reliability objectives.


1.7 Significance of the Study

A study like this is suppose to make a theoretical and practical contribution to strategic planning. It would provide basis for closer search of the methodology and practice of strategic planning in small and medium scale enterprises it will try to answer the question of what is to be done, how it should be done and when it should be done. This research study will stimulate further research into other aspect of strategic planning and how it will aid the financial performance of an enterprise.


1.8 Limitations of the Study

This study shall be carried out among junior, senior and management of financial aspect of Pel-extra Industry Lagos State, in order to ensure a balance response.

However it is pertinent to state that such content as: Inadequate time, unavailable resources and some other things for the study might limit the scope of the study.


Chapter Five


Summary, Conclusion and Recommendations

5.1 Introduction

The chapter presents the summary focusing the main results in line with the study variables. A conclusion on the relationship between the study variables was deduced in line with the variables. Suggestions for policy recommendations relative to various stakeholders and areas for further studies were then drawn.


5.2 Summary

The first variable of the study was mission and objectives and its impact on financial performance in Nigerian small and medium scale firms. Results indicated that mission and objectives had an impact on financial performance as indicated by most study participants who affirmed that the firm had a clear mission indicating its direction and mandate, objectives of the firm were specific without ambiguity, the firm objectives were measurable in nature, the objectives of the company were achievable and time bound and that set objectives were related to the planning process and were achievable and realistic. Correlation results also indicated that mission and objectives was positively associated with financial performance. Regression findings indicated that mission and objectives was a statistically significant predictor of financial performance.

The second variable of the study was environmental scanning and its impact on financial performance in Nigerian small and medium scale firms. Results indicated that environmental scanning had an impact on financial performance as indicated by most study participants who affirmed environmental scanning in the firm had helped in identifying and seizing opportunities, scanning had enabled the firm identify and work towards overcoming threats, that environmental scanning had enhanced development of agenda for boards of management leading to better decision making in the firm, environmental scanning information had led to better organizational design development and that environmental scanning had aided the firm in identifying stakeholder needs which had enhanced performance. Correlation results also indicated that environmental scanning was positively associated with financial performance. Regression findings indicated that environmental scanning was a statistically significant predictor of financial performance.

The third variable of the study was strategy formulation and its impact on financial performance in Nigerian small and medium scale firms. Results indicated that strategy formulation had an impact on financial performance as indicated most study participants who affirmed the firm’s vision statement had been clearly defined and was well perceived by stakeholders, the firm’s mission statement was clear to its purpose, any objective set in the firm was well specified, measurable, achievable realistic and time bound, strategy development was well carried out in the firm involving all affected stakeholders in the process and that setting of policy guidelines regarding a strategy was well emphasized in the firm and this had enhanced success in formulation. Correlation results also indicated that strategy formulation was positively associated with financial performance. Regression findings indicated that strategy formulation was a statistically significant predictor of financial performance.

The forth variable of the study was strategy implementation and its impact on financial performance in Nigerian small and medium scale firms. Results indicated that strategy implementation had an impact on financial performance as indicated by most study participants who affirmed that the firm ensured qualified and skilled personnel in implementing its strategic decision, there was a good strategic match on how the planning decisions were carried out and the implementation process, that adequate resources were usually put in place for the entire implementation process of the plan, that proper communication of the strategy status was done pre, during and post implementation of strategic planning decisions and that control measures within which execution was done were well in place in the firm. Correlation results also indicated that strategy implementation was positively associated with financial performance. Regression findings indicated that strategy implementation was a statistically significant predictor of financial performance.

The fifth variable of the study was strategy evaluation and how it impacts financial performance in Nigerian small and medium scale firms. Results indicated that strategy evaluation had an impact on financial performance as indicated by most study participants who affirmed that that the firm had fixed performance benchmarks in place in steps towards managing performance, that performance measurement was continuously done during the proposed strategy life, analysis of variance to assess the deviation of the strategy from the expected performance was done after the strategy, there was corrective action taken to ensure that it met the intended objective and that review of the strategy was done with recommendations to address areas where they did not meet expected performance. Correlation results also indicated that strategy evaluation was positively associated with financial performance. Regression findings indicated that strategy evaluation was a statistically significant predictor of financial performance.


5.3 Conclusions

From the research findings, these conclusions can be made:

  1. Mission and objectives did have an impact on financial performance and that mission and objectives was a vital predictor of financial performance in small and medium scale firms in Nigeria. Furthermore, mission and objectives as a variable was positively linked to financial performance.
  2. Environmental scanning did have an impact on financial performance and that environmental scanning was a vital predictor of financial performance in small and medium scale firms in Nigeria. Furthermore, environmental scanning as a variable was positively linked to financial performance.
  3. Strategy formulation did have an impact on financial performance and that strategy formulation was a vital predictor of financial performance in small and medium scale firms in Nigeria. Furthermore, strategy formulation as a variable was positively linked to financial performance.
  4. Strategy implementation did have an impact on financial performance and that strategy implementation was a vital predictor of financial performance in small and medium scale firms in Nigeria. Furthermore, strategy implementation as a variable was positively linked to financial performance.
  5. Strategy evaluation did have an impact on financial performance and that strategy evaluation was a vital predictor of financial performance in small and medium scale firms in Nigeria. Furthermore, strategy evaluation as a variable was positively linked to financial performance.

5.4 Recommendations

  1. The management of small and medium scale firms in Nigeria should make use of these research findings in assessing the how better to come up with better strategies and work on the existing ones in the conduct of their business so as reach more clients with their services.
  2. Scholars and academicians should use the results of this research as a basis for their literature and support of gaps in terms of concept, context or even contradictory findings. The methodology used in this study would be used by the scholars as a model for their study if the respective study assumes the same study discipline. Researchers in performance and strategic management could use this study as a basis for their literature. They could also use the findings in this study to understand how different strategic management processes impact performance in different contexts
  3. The Nigerian government through Small and medium scale Regulatory Authority should use the findings of this study to come up with better ways to enhance better environment in the sector by creating a favorable environment for the planning to be introduced, formulated, implemented, monitored and evaluated in a stable environment.
  4. Policymakers should use the findings of this study in coming up with better and robust policies to improve the link amidst strategic planning and financial performance as to enhance better service delivery to the beneficiaries.

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