Strategic Planning Effects on Small and Medium Enterprises (SME) Performance
Strategic plans are the action by which a firm plans to achieve their goals. These goals explain where the business wants to be in the future, and apply to the whole organization as opposed to specific sections or departments. Strategic planning affects the performance of the entire business. This paper will focus on the importance of strategic planning, effective or otherwise, on small and medium businesses. Small enterprises are especially interesting because in this time of global competition as well as changing dynamics in markets, the growth of small businesses depends on their ability to use effective strategic planning. Small firms are useful drivers in the economy and key sources of employment. Implementing more effective planning strategies could prevent many necessary small businesses from going bankrupt in their first few years.
Several researchers have apparently taken note of the lack of information focused on small enterprises and businesses. Strategy is the most important future indicator of firm growth. Strategic planning is near universally considered a major small business growth factor. Small business managers use and perceive strategy and planning in different ways than large firm managers. Understanding what strategic planning means to small businesses is necessary to gather information on the types of strategy used and the effect they have on performance.
Many studies have recommended that business failure is due largely to an organization’s failure to plan. “Without a clearly defined strategy, a business has no sustainable basis for creating and maintaining a competitive edge in the marketplace.” (Norman and Thomas, 2003) This view is shared by various empirical studies that show a link between strategic planning and firm success (e.g., Bracker et al., 1988; Lyles et al. 1993). Studies have shown that the high failure rate among small firms, particularly among start-ups, can be attributed to the lack of effective business planning (Castrogiovanni, 1996)
Although planning does not guarantee business success, many of the indicators of failure can be identified, and therefore, avoided during the planning process. Because a business is especially small and vulnerable when first started, strategy and an effective plan are essential to the success of the start-up. Generally, firms that plan produce more profitable financial results than those that implement no plan. Despite the strong evidence supporting strategic planning as a tool to be used for a firm’s benefit, many researchers still say that company management pays this subject little attention. Managers either cannot establish an effective strategic plan for business, or do not understand the significant impact such a plan has on their business performance. Strategic conversations need to be held between managers and employees on all levels, concerning the team and the firm’s vision, strategic themes, as well as the values that assist them in attaining their goals.
Larger companies pay more attention to strategic planning and often have more effective, detailed plans compared to SME’s. Again, despite considerable evidence proving strategic planning leads to improved business performance, the majority of small businesses do not plan. Owner aspirations and goals are a key factor in whether or not a small business will spend time on a strategic plan. For many small enterprise owners and managers, the performance of their business comes after the intangible goals-autonomy, the freedom and control in owning a business, personal satisfaction- the important feeling gained from running a company, and lifestyle- the increased income from achieving owner status. These owners lack the long-term vision for their business, being too caught up in other aspects.
“Rarely is a small-business president selected because of his planning abilities. Yet in a large company top...
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