Strategic Philosophy and High Performance: Implications for Managers of Smes

By Parnell, John A.; Lester, Donald L. | Journal of Business and Entrepreneurship, March 2006 | Go to article overview

Strategic Philosophy and High Performance: Implications for Managers of Smes


Parnell, John A., Lester, Donald L., Journal of Business and Entrepreneurship


ABSTRACT

Research has demonstrated that strategic planning in small and medium-sized enterprises (SMEs) enhances performance. Top executives of SMEs are faced with three ostensible philosophical contradictions when formulating strategies for their companies: 1) Should strategy formulation be viewed as an art or a science? 2) Should strategies be flexible or remain consistent? 3) Should the process be top-down or bottom-up? This paper examines top and middle managers ' predispositions along these lines. The findings reveal a need for top managers or management teams of SMEs to employ a blend of discipline and innovation and a strong preference for either top-down or bottom-up planning, not an integration of the two methodologies. Implications for future research are also presented.

INTRODUCTION

The influence of managers on strategy, including their self-interest, personalities, and interpretations, has been linked to the strategy formulation process, and ultimately to performance (Guth & MacMillan, 1986; Janis, 1972; Smircich & Stubbart, 1985; Walsh & Fahey, 1986). Hence, in some respects, strategic management remains an intuitive and philosophical undertaking (Beaver, 2003). Strategic managers of SMEs are faced with making some critical "judgment calls" when formulating strategy for their companies, each of which involves apparent inconsistencies that must be resolved if the firm is to succeed. These formulation issues involve three ostensible philosophical contradictions that are addressed in this paper: 1) Should strategy formulation be viewed as an art or a science? 2) Should strategies be flexible or remain consistent? 3) Should the process be top-down or bottom-up?

Although arguments can be made for either of two opposing perspectives along each dimension (e.g., strictly art or strictly science), we contend that effective SME managers should synthesize and balance such extremes when approaching strategic decision-making. Because managers' philosophical perspectives on each issue can greatly influence the role played in strategy formulation, it is argued that the resolution of these concerns should be the result of an established strategic philosophy. The differences in these three dimensions and the reluctance of SME managers to adopt strategic or long-range planning, despite evidence that it is strongly and positively related to success, are addressed.

The relationship between strategic planning and performance in SMEs is strong and positive (Peel & Bridge, 1998). However, many top managers of SMEs are reluctant to adopt strategic planning processes for their organizations, and those who do are actually involved more in business planning with a time frame of one year rather than strategic or long-term planning (Stonehouse & Pemberton, 2002). SME managers also frequently encounter barriers to plan implementation (O'Regan & Ghobadian, 2002). This paper empirically examines planning philosophies of top and middle managers of all sizes of organizations in an effort to provide SME managers with some insight into the effect of planning philosophy on performance.

PLANNING AND THE SME MANAGER

Much has been written regarding strategic planning methods in large corporations throughout the world. Indeed, strategy researchers have tended to focus their energies on studying larger organizations in their quest to further the still-young field of strategic management. The vibrant world of SMEs, however, is fertile ground for management research of planning methodologies and strategic management of organizations in general. Yet O'Regan and Ghobadian (2000) relate that little research has been undertaken that specifically addresses the process of strategic planning and strategy-making in SMEs.

In new entrepreneurial firms, formal planning tends to get in the way of the founder's vision of what it will take to be successful (Mintzberg, 1994). As entrepreneurial firms grow and develop, however, a need for some kind of systematic approach to operations becomes obvious. …

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