Planning Behavior Variables in Small Firms

Article excerpt

Much of the empirical data that identifies the incidence of planning in small firms and the variables associated with that planning is based on small samples subject to geographic and industry constraints. The intent of this article is to partially overcome those limitations by testing relationships using results from a large Australian-wide, multiple-period sample. For each of three years, the frequency with which firms maintained documented business plans was determined and tested for associations with a range of traditional "business structure" demographic variables and a group of "management structure" variables. Results support expectations that size, volume, training, intention to change operations, and the major decision-maker's education are positively associated with business planning. Results also indicate that a significant number of firms change planning behavior states over time.

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Dealing with the future is an essential activity in the management of all businesses regardless of size. Because planning can help a firm structure future expectations, it is not surprising that there is strong support for the notion that planning generates some positive outcomes for firms (Schwenk and Shrader 1993). However, in the research on these outcomes, the empirical data identifying the extent to which planning takes place and the variables associated with planning often are based on small samples subject to geographic and industry constraints. For example, Matthews and Scott (1995) obtained their findings from 130 small businesses located in one United States city. Risseeuw and Masurel (1994) used a sample of 1,211 businesses located in the Netherlands, but the sample was comprised entirely of real estate firms. The absence of large samples with a substantial variation in business characteristics such as industry and location has made drawing inferences from previous planning studies to other busine ss populations difficult. As Matthews and Scott (1995) conclude, 'Additional studies with larger samples are needed.., to more fully explain sophistication of planning in small and entrepreneurial firms" (p. 49). The objective of this study was to partially overcome the small sample problem by examining a large, multiple-period sample in a database collected by the Australian Bureau of Statistics (ABS).

Interest in the study of planning in small firms seems to have emerged for two reasons. First, there is a general belief that planning, because it is so prevalent in large firms, is a good management practice. This is supported by the belief, reflected in most business practice research, that rational economic behavior dictates the structured evaluation of alternatives (as present in traditional planning activities) as the dominant decision-making approach in firms of all sizes (Gibson 1997). Because large organizations that use sophisticated planning systems are seen to be successful, "entrepreneurs are urged to follow suit and install planning systems" (O'Neill, Saunders, and Hoffman 1987, p. 38). When smaller firms are observed to "not engage in the type of structured planning reflected in . . . normative models" (Shuman and Seeger 1986, p. 8), they often are regarded as exhibiting inappropriate behavior. This insistence on the large firm model continues to be dominant despite the frequent warnings that e xtending large firm practices to small firms is not always appropriate (O'Neill, Saunders, and Hoffman 1987; Glen and Weerawardena 1996).

Second, and more importantly in the context of small enterprises, there is a growing body of research that finds some association between planning activity in small businesses and a variety of performance measures. The underlying construct in such studies concentrates on either the content of the plans or the process of planning (Rue and Ibrahim 1998). However, Matthews and Scott (1995) suggest that in the planning literature the most widely used dimension of strategic planning has been the mere existence of planning documents (formality). …