Strategy Formulation in the Context of Smes: Relevant or Irrelevant?

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Strategy Formulation in the context of SMEs: relevant or irrelevant?

ABSTRACT
A study was made to determine whether SME’s in the northern region of Peninsular Malaysia applies the strategic management concept as described by the Wheelen and Hunger model. Specifically, this study was intended to determine whether SMEs do strategic planning and what methods were used. Findings indicated that most SMEs were found to have strategic planning process in-place. Further study shows that these SMEs also formulate visions, missions, objectives, policies, budget and procedures during the course of their strategy planning processes. It is also interesting to note that there are little variations between the theoretical concepts as described by Wheelen and Hunger and in actual practise. The model is very relevant for companies in order to be successful and gain competitive advantage.

ABSTRAK

INTRODUCTION
Do SMEs in the Northern states strategise?
Do they use the Wheelan and Hunger Model? If not, what other models do they use? Findings indicated 54% of SMEs in the Northern Region used the W&H Model.  
DEFINITION AND RELEVANCE OF STRATEGY FORMULATION
Strategy formulation is a knowledge creation process which involves not only individual knowledge but organisational knowledge as well (Ilmola and Mustonen, 2003). Wheelan and Hunger (2012) referred to strategic planning and long range planning as synonyms to strategic formulation and consists of sequential activities of developing a corporate’s mission, objectives, strategies and policies. Strategy formulation is one of the vital elements of Strategic Management. Understanding the industry each organisation belongs to is a major pre-requisite of strategic formulation process. Leitner (1998) discussed that firm’s resources and competencies should determine the paradigm of strategic formulation. The importance of strategic formulation for any organisation has been widely researched by linking strategic activities to organisations’ performance (Adendorff, Appels and Botha, 2011; Kraus, Harms and Schwarz, 2006). It has been well proven that organisations that behave strategically performed better.

Figure 1: Basic Elements of the Strategic Management Process (Wheelen and Hunger, 2012)

There are three levels of strategy for consideration of any business firm that is corporate, business and functional. Business firms might be using all three levels of strategy concurrently (Wheelen and Hunger, 2012). Lee (1999) argued that there had been very few research addressing the limitations of business strategy for SMEs despite the high recognition of the role SMEs played in the emerging economy (As cited in Sharma, 2011, p.7). Many research had concluded that the widely available strategy and strategy models were designed for large organisations and may not necessary be suitable to be applied to SMEs especially due to its differences in terms of resources, structure, ownership scale of operations and many other parameters (Sharma, 2011; Lobuntiu, 2002).   SMALL MEDIUM ENTERPRISES

Definitions and categories of SMEs
According to Small and Medium Industries Development Corporation (SMIDEC), SMEs in Malaysia is defined according to its respective sectors. The categorisation of SMEs is normally defined by its annual sales turnover or the strength of its full time employees. Table 1: Category of SMEs in Malaysia compared to United Kingdom and European Union Category of SMEsMalaysia

(Muhammad, Char, Yasoa’ and Hassan; 2010)United Kingdom
(Kipley and Lewis; 2009)European Union
(Kipley and Lewis; 2009)
MicroManufacturing, manufacturing related & Agriculture industriesTurnover less than RM 250,000

Less than 5 employeesLess than 10 employeesLess than 10 employees
Services (including ICT) and primary agricultureTurnover less than RM 200,000

Less than 5 employees
SmallManufacturing, manufacturing related & Agriculture industriesTurnover between RM 250,000 – RM 10...
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