Cultural Differences in Planning/Success Relationships: A Comparison of Small Enterprises in Ireland, West Germany, and East Germany [*]

By Rauch, Andreas; Frese, Michael et al. | Journal of Small Business Management, October 2000 | Go to article overview

Cultural Differences in Planning/Success Relationships: A Comparison of Small Enterprises in Ireland, West Germany, and East Germany [*]


Rauch, Andreas, Frese, Michael, Sonnentag, Sabine, Journal of Small Business Management


Research has already examined the relationship between planning and success of small firms, but the conclusions drawn are inconsistent. In this study, we argue that the relationship between planning and success is dependent on the cultural context. Planning strategies and their relationship to success were compared in 77 Irish, 102 East German, and 98 West German small-scale enterprises. In Germany, planning had a positive influence on success, while this relationship was negative in Ireland. Moreover, planning strategies were found to mediate the relationship between business owners' achievement orientations and success. This mediating influence was positive in Germany and negative in Ireland. These differences are interpreted to be due to a higher level of uncertainty avoidance in Germany (Hofstede 1991), which makes planning culturally appropriate and successful.

Planning, Success, and Culture

This study looks at the correlation between planning and small business success in two different cultures, Ireland and Germany, to examine how cultural context might affect this correlation. Much of the literature on success in small business seems to assume the importance of planning for small firms' performance (for example, see Ryans 1997). However, empirical investigations of the planning/success relationship have not led to consistent results. While some studies have shown extensive planning in the founding phase to be related to small-scale business success (Jungbauer-Gans and Preisendorfer 1991; Ackelsberg and Arlow 1985; Bracker, Keats, and Pearson 1988), others found no correlation between planning and success (Robinson and Pearce 1983; Shuman, Shaw, and Sussman 1985; Lumpkin, Shrader, and Hills 1998).Although Lyle et al. (1995) found a significant correlation between formal planning and the growth rate of sales in small enterprises, they found no effects on return on equity or return on assets. In a recent meta-analysis, Schwenk and Shrader (1993) reported a significant but small relationship between planning and small venture performance.

In the literature, two arguments are generally proposed to explain the low and sometimes conflicting relationships between planning and success of small enterprises. The first argument focuses on the methodological quality of entrepreneurship research (see Low and McMillan 1988). For example, planning has been operationalized in a number of different ways. It has been defined as a characteristic of the business owner (Frese, van Gelderen, and Ombach, 2000) or as a business activity. Some researchers have evaluated the formality of planning (Robinson and Pearce 1983), while other authors have measured planning sophistication (Capon, Farley, and Hulbert 1994) or differentiated between strategic and operational planning (Shrader, Mulford, and Blackburn 1989). Like planning, sample and performance measures have also been operationalized in a variety of ways.

A second explanation for the inconsistent findings about the planning/success relationship is concerned with other variables that impact the relationship between entrepreneurs' planning and success (Schwenk and Shrader 1993). Thurston (1983) argued that planning can hinder firm performance because it reduces the flexibility of small businesses, and that "the relevance of planning to a particular company situation ... is the key" (p. 164). Risseeuw and Masurel (1993) found that small firms' planning was negatively related to success in a highly dynamic environment. Another prominent potential moderator is culture. Different cultures lead to different organizational structures (Adler 1991) and ask for different leadership and management theories (Erez and Earley 1993). Similarly, a theory of entrepreneurial success has to make the cultural (and potentially sub-cultural) issues explicit. Hofstede (1991) defined cultural values as broad tendencies to prefer specific behavioral patterns over others. He identified four value dimensions that pattern behavior -- uncertainty avoidance, power distance, individualism versus collectivism, and masculinity versus femininity. …

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