Academic journal article International Review of Management and Business Research

Effects of Strategic Planning on Performance of Medium Sized Enterprises in Nakuru Town

Academic journal article International Review of Management and Business Research

Effects of Strategic Planning on Performance of Medium Sized Enterprises in Nakuru Town

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

Globalization has resulted in fierce competition internally and externally to many organizations. Given the intense competition and constantly changing market conditions, business performance has become a crucial issue among scholars and practitioners. Consequently, both scholars and business practitioners have been interested in identifying the antecedents of business performance. Mission and vision, environmental scanning and formality of strategic planning are among the factors that have been recognized in the extant literature as predictors of business performance (Bart and Hupfer, 2004; Forbes and Seena, 2006). The researchers demonstrate why it is crucial for businesses to scan their environment inorder to formulate the correct strategies. They also advise SME's to have a mission and vision statement to give direction to the business and to have a formal strategic plan as it guides the strategy implementation process. Therefor these factors are regarded as success factors in achieving competitive advantage (Bart and Hupfer, 2004; Kantrabutra, 2010).

Pearce and Robinson (2011),assert that from a resource based view strategic planning can result in strategic change which may increase strategy-environment fit, hence can become a source of sustained competitive advantage especially when strategic planning system improves flow of products and services between manufacturers and users.

Although small and medium size enterprises typically employ a major share of an economy's total employees, formal plans and cost controls are often only provided on a regular basis and planning instruments are usually only used by a small number of individuals and developed rather intuitively (Brinkmann, 2002). These shortcomings point towards the importance of examining the value of strategic planning for SME's in detail.

Strategic planning is concerned with the setting of long term organizational goals, the development and implementation of plans to achieve these goals and the allocation or diversion of resources necessary for realizing these goals (Stonehouse& Pemberton 2002). In practical sense, strategic planning is about competitive advantage. The purpose of strategic planning is to enable a business to gain as efficiently as possible, a sustainable edge over its competitors.

Research has consistently shown that most small and medium sized enterprises do not engage in strategic planning (Berman et al,(1997); Orser et al, (2000); Sandberg et al, (2003). This is at odds with much of the strategy literature that dictates that enterprises must actively plan for the future to compete effectively and survive (Ennis 1998). Accordingly, SME owner-managers have been accused of being strategically myopic and lacking the long term vision as to where their company is headed(Mazzarol, 2004). The concern is that by neglecting strategic management and planning, SMEs may not achieve their full performance and growth potentials, and their survival could be placed at risk (Berry 1998).

Strategic planning is more likely in to be, in those enterprises that are innovative, that have more newly patented products and that employ new processes and management technologies and that achieve international growth (Upton et al, 2001).

With respect to performance, strategic planning and management are more common in better performing SMEs. SMEs that engage in strategic planning, compared to those that don't, are more likely to be th ose that achieve higher sales growth, higher returns on assets, higher margins on profit and higher employee growth (Bracker et al, 1988).

Literature Review

Strategic Planning

Strategic planning is the process of developing and maintaining consistency between the organization's objectives and resources and its changing opportunities (Robson 1994). Strategic planning is a management tool, used to help the organization to focus its energy, to ensure that the members of the organization are working towards the same goals, to assess and adjust the organization's direction in response to a changing environment. …

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