Effects Of Strategic Planning On The Performance Of SMEs

Project and Seminar Material for Entrepreneurship

Effects Of Strategic Planning On The Performance Of SMEs


Abstract


This study sought to investigate the effects of strategic planning on the performance of Small and Medium Scale Enterprises. This study employed case study research design making use of questionnaires to collect quantitative data. Hundred research participants were selected using simple random sampling by lottery method from ten purposively selected Small and Medium Scale Enterprises in South-West, Nigeria. Questionnaires were used to collect data and were quantitatively analyzed. The study found that SMEs do implement strategic management practices. When these strategic management practices were subjected to the on sample t-test statistics, almost all of the practices proved significant at alpha level of 0.05. However, planning to put the business in the foreseeable years was not significant at the set alpha level. The study also found that the strategic management implementation faces challenges such as inability to manage change and top managers not supporting strategy. Based on these findings among others, it was recommended that the goals of, and incentives for, the workforce along with the allocation of resources should be aligned with the strategy of the organisation.


Table Of Contents


Preliminary Page(s)

  • Title
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One:

Introduction

  • 1.1 Background to the study
  • 1.2 Statement of Problem
  • 1.3 Objectives of the Study
  • 1.4 Research Questions
  • 1.5 Significance of the Study
  • 1.6 Scope of the Study
  • 1.7 Limitations to the Study
  • 1.8 Organization of the Study

Chapter Two

Literature Review

  • 2.1 Introduction
  • 2.2 Small and Medium Scale Enterprises (SMEs)
  • 2.3 Growth of SMEs in Nigeria
  • 2.4 Contribution of SMEs in Nigeria
  • 2.5 Strategic Management
  • 2.6 Theories of Strategies
  • 2.7 Strategic Management in SMEs And SMEs Performance
  • 2.7.1 Environmental Scanning in SMEs
  • 2.7.2 Strategy Formulation in SMEs
  • 2.7.3 Strategy Implementation in SMEs
  • 2.8 Summary of the Theoretical Framework
  • 2.9 Performance Measures
  • 2.10 Empirical Review
  • 2.11 Conceptual Framework

Chapter Three

Research Methods

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.4 Population
  • 3.5 Sample Size/Technique
  • 3.6 Sources of Data
  • 3.7 Data Collection
  • 3.8 Pre-Testing of Questionnaire
  • 3.9 Data Analysis
  • 3.9.1 Reliability and Validity
  • 3.10 Ethical Consideration

Chapter Four

Findings And Data Analysis

  • 4.1 Introduction
  • 4.2 Demographic Characteristics
  • 4.3 Strategic Planning Activities by SMEs
  • 4.3.1 Reliability of Response for Strategic Planning
  • 4.4 Performance of SMEs
  • 4.5 Effects of Strategic Planning on SMEs
  • 4.6 Strategic Planning Challenges Facing SMES

Chapter Five

Summary, Conclusion And Recommendation

  • 5.1 Introduction
  • 5.2 Summary of Findings
  • 5.3 Conclusion
  • 5.4 Recommendations
  • 5.4.1 Suggestions for Further Research
  • References
  • Appendix

Chapter One


Introduction

1.1 Background to the study

In the 20th century, the subject of strategic planning has been particularly applied to Organizations. It is viewed as the science and art of the formulation, implementation and evaluation of cross-functional decisions that enable an organization to achieve its objective. Strategic planning applies the integration of all functional units in the organization consisting of marketing, finance and accounting, operations and production and management to attain organizational success. Strategic planning constitute as an organizational process which aims at channeling both human and other organizational resources in the profitable attainment of the needs of customers and other principal stakeholders. Strategic planning implementation is guided by the stated policies, mission statement and strategic goals and objectives. The behavior of top management and other key managers in the organization. Strategic management requires the specification of strategic aims and objectives in the light of its internal resources and external factors. It specifies the target customers to serve with the right product and services through the effective and efficient allocation of resources (Cole, 1997).Strategic planning as explain by Lamb (1984) indispensable for SMES to be more proactive and secure the future. The research therefore seek to investigate Effects of strategic planning on the performance of SMES in south-west Nigeria.


1.2 Statement of Problem

The growing significance of SMES cannot be overemphasized in view of its contribution to the economic growth of the country through the provision of employment for a large segment of the population and revenue derivation.
However SMES are faced with challenges in respect of formulating and implementing strategic plans. The inability to be proactive and secure the future with success has been the reason for many folding up of SMES and as well as their inability to grow rapidly. Consequently management experts have advocated the need for SMES to deploy strategic planning as a measure to ensure the effective and efficient channeling of resources to profitably meet the growing needs of customers with innovative products and services. Many of the growing challenges encountered by SMES in the evolution and implementation of strategic planning include management inability to support strategy, lack of adequate resources, no alignment of activities with strategy and inability to manage change and lack of human resources to implement strategic plans. Consequently the problem confronting the research is to appraise Effects of strategic planning on the performance of SMES in south-west Nigeria


1.3 Objectives of the Study

The study primarily aimed at assessing the effects of strategic planning on the performance of some selected SMEs in South-West, Nigeria.

Specifically, this study sought to;

  1. Examine strategic planning activities of selected SMEs in South-West, Nigeria.
  2. Assess the performance of selected SMEs in South-West, Nigeria.
  3. Investigate the effects of strategic planning on selected SMEs in South-West, Nigeria.
  4. Identify challenges in strategic planning facing selected SMEs in South-West, Nigeria.

1.4 Research Questions

  1. What strategic management activities are undertaken by selected SMEs in South-West, Nigeria?
  2. How is the performance of selected SMEs in South-West, Nigeria?
  3. What are the effects of strategic planning on selected SMEs in South-West, Nigeria?
  4. What are the challenges in strategic planning facing selected SMEs in South-West, Nigeria?

1.5 Significance of the Study

This study will be of importance to three main groups of people. Firstly, it will serve those in industry and the economy as a whole. The findings from this study will serve to inform the policy and decisions regarding the SMEs in the country. This will help create an enabling environment for SMEs to operate.

In academia, this study will benefit other scholars who are engaging in studies related to strategic planning in general and strategic planning related to SMEs in particular. This work will serve as a reference guide to such studies for them to build upon.

Lastly, this study will benefit SMEs in Nigeria. The findings of this study can be used by these SMEs in devising plans and strategies so that they can perform in their business environments.


1.6 Scope of the Study

The scope of this study covered the role of strategic management in Small and Medium Scale Enterprises in Nigeria with particular interest on some randomly selected SMEs operating in the South-West, Nigeria metropolis. By choosing different SMEs, which engaged in different businesses, the researcher was able to assess the role of strategic management process and its implication for organizational performance across different environments. The study stayed within the scope of SMEs and strategic planning and the implications thereof.


1.7 Limitations to the Study

Any research work inevitably is expected to encounter some basic limitations and this study is no exception. Time frame for the completion of this research was a major limiting factor which affected the conduct of a comprehensive research. Lack of readily available organise data was also a major limiting factor. This is because most Nigerian businesses particularly, the Small and Medium scale Enterprises have not developed the culture of proper records keeping and updates. However, within the constraints, all attempts were made to undertake a valid and comprehensive study.


1.8 Organization of the Study

The project shall be structured in five (5) chapters. The Chapter One shall be the general introduction which will include the background of the study, the objectives of the study, research questions, justification of the study, the scope of the study, and so on. Chapter

Two shall be on literature review which will spell out other works on the subject area Chapter Three will discuss the methodologies used or what the research design is all about. Chapter Four look at the presentation of the research findings and analysis. Chapter Five of the report shall look at the summary of the findings, limitations recommendations and conclusion.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

The purpose of this study is to assess how Small and Medium Enterprises in Nigeria use strategic planning in the day-to-day running of their businesses, an empirical study from strategic planning perspective. This chapter summarizes the findings, draw conclusion from the study and makes recommendations. It went on to suggest further research study.

It also aims to explore the main characteristics of the strategic planning process in these SMEs. Based on these objectives, research has been done by in-depth surveys to 10 SMEs in Nigeria, and the findings are concluded as below by answering to the three research questions.


5.2 Summary of Findings

The study was conducted using ten purposively selected SMEs in South-West, Nigeria as case study. Most of these SMEs were into general services and agriculture and were Nigerian owned. Only few were foreign-owned. It was also gathered that majority were into importation while the rest were into exportation and had operated for more than five years.

Regarding the respondents, males constituted the majority followed by females and were mostly below the age group of 25 years. Highest educational background ranged from senior high school to masters‘ degree with majority of them being senior high school certificate holders.

5.2.1 Strategic Planning Practices

With particular reference to this objective, it was found that in coming out with strategic planning and its implementation, SMEs assess the skills and abilities of employees and also considers the use of resources for long term goal achievement of the organization. It must be argued here that these were the two most practiced together with devising solution against business failure. Other found practices strategic management practices were planning to put business in foreseeable years (sustainability), assessing daily operations against long term plans, and analysing strategies of competitors and assessing factors essential for sustainability.

When these strategic planning practices were subjected to the on sample t-test statistics, almost all of the practices proved significant at alpha level of .05. However, planning to put the business in the foreseeable years was not significant at the set alpha level. This means that despite its high practice, it is not significant for SMEs performance.

5.2.2 Performance of SMEs

Some questions were asked to ascertain the performance of the selected SMEs. It was found that more than half of the SMEs did not have any performance indicators against which to assess their performance. Also majority of the SMEs value profits followed by customers and then employees. This certainly has implication for performance as the employees may feel unappreciated and underperform. However, almost all the
respondents said their firms are performing as far as they do not make losses but profits.

5.2.3 Effects of Strategic Planning on SMEs

The effects of strategic planning practice on SMEs were investigated. It was found that increased profit was the most common positive effect of strategic planning practice on SMEs. This was followed by increased customer base, expanding output, sustainability, employees‘ commitment and lastly reducing of waste during operations.
These were subjected to the one sample t-test, most of the effects were significant at alpha level of .05 except two. These two were sustainability and reducing waste during operations. This means that despite the fact that they are considered positive effects of strategic management practices by SMEs, they not very significant statistically.

5.2.4 Strategic Management Challenges Faced by SMEs

Among the strategic planning practice challenges faced by SMEs was resource allocation no aligning with strategy and inability to manage change. There was also the issue of top managers not supporting strategy, making it difficult to be implemented. It was also found that human capital was not developed to effectively support strategy and there was also the ineffective control of strategy implementation.

These various challenges were put to a statistical test using the one sample t-test at 95% confidence level. It was found that all were significant challenges except inability to manage change and top managers not supporting strategy.


5.3 Conclusion

This research was set out to assess the implementation of strategic planning practices in SMEs in Nigeria. The results show that most SMEs current strategic practices are within the set standards they are able to identify the factors that are critical to the long-term success of the business, visualize what the business might be like five to ten years from now, identify impediments to success in the business and develop solutions to overcome them, assess how everyday operating decisions affect their long-range plans, analyse the strategies of competitors, assess the strengths and limitations of the business as well as the skills and abilities of the people involved, and assess the skills and abilities of the people involved in your business.

It can be concluded that most SMEs are not able to implement proper strategic decisions as a result of the organisation‘s strategy not being effectively communicated to the workforce and the workforce not understanding the organisation‘s strategy. The research also concludes that barriers to the application of strategic planning decisions are the allocation of resources not being aligned with the strategy of the organisation, an ability to manage change effectively, top managers not in support of strategy implementation, implementation of strategy not being effectively controlled. The results of this study need to be, however, interpreted with caution given its cross-sectional nature and the focus is on SMEs in Nigeria.

Despite the fact that SMEs and large companies differ significantly in terms of size and type of resources, it has be shown that decision-makers of SMEs are aware of strategic planning practices and do apply them but do encounter barriers and impediments in the application and implementation process.


5.4 Recommendations

On the basis of the above conclusion, the researcher makes the following recommendations;

The organisation‘s strategy should be communicated to the workforce. Communication is key in every business and the quality is also of essence. Hence effective communication should be encouraged to when a strategic decision has been taken by top management and needs to be implemented by the workforce. The organisation‘s workforce gets to understand the organisation‘s strategy when there is unequivocal in the language of communication.

The goals of, and incentives for, the workforce along with the allocation of resources should be aligned with the strategy of the organisation. When the business strategy is parallel to resources needed to execute, it gives the workforce enough motivation to push ahead.

Top managers should support strategy implementation in order to manage change effectively and also human capital should be effectively developed to support strategy implementation. With the quality human capital, businesses can implement strategic decisions effectively.

As discussed in the introduction chapter, SMEs in Nigeria play a significant role in terms of contribution to Nigeria‘s economic growth. They also enjoy high rates of growth with the shares of GDP and their foreign exchange activities. Therefore, we consider that the government of Nigeria should focus on giving technical assistance to SMEs‘ in the area of strategic planning so that it can have a positive impact on the country‘s economy growth.

5.4.1 Suggestions for Further Research

Furthermore, this study focused only on SMEs that are operating in South-West of Nigeria. Future research could embark on a study in other regions of the country in order to test the reliability and validity of the scale.

Another panorama for future research is to conduct comparative studies of the relationship between strategic planning and business performance, for example between SMEs in an emerging country and that of less developed country.

Again, a research can be examined for SMEs falling under different sectors as to the strategic management and business performance relationship within a particular economic sector, as the findings of that research will be more concentrated and appropriate to that specific sector.


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