CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

Globally, academicians and practitioners have called for increased use of the strategic planning in SMEs, as the role of strategic planning in large companies and the conception that decisions-making triumphs in enterprises regardless of size have been advocated for. In this sense, many empirical studies point out a link between strategic planning and performance (Bracker et al., 1988).

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).

The development of any economy in the world cannot be achieved without vibrant Small and Medium Enterprises (SMEs) (Muritala, Awolaja, and Bako, 2012). Developed economies relied more on the development of the SME sector in order to achieve and sustain their economies. Safiriyu and Njogo (2012) opine in their study that the SME sector is a very critical factor in the attainment of economic prosperity while Muritala, et al. (2012) assert that there is a meaningful relationship between the importance of SME and economic growth and development of a country. Many developed economies have attributed their growth and development to a successful and virile SME sector and the developing economies also considered the sector as the ‘engine for economic development (Ale, Ahmed and Taha, 2010).

The small and medium scale enterprises have contributed to the growth and development of many countries in terms of employment generation thereby leading to poverty reduction or eradication and the Gross Domestic Product (GDP) as well as export (Onugu, 2005). According to Agu and Nwachukwu (2012), the development of SMEs is one of the necessary conditions for economic development and industrial development while Ayozie (2011) and Idowu (2012) see the SMEs as the backbone of economic development.

According to Gibson and Cassar (2002), large companies are more successful than SMEs because the large companies plan strategically. Strategic management is viewed as the set of decisions and actions that result in the formulation, implementation and control of plans designed to achieve an organisations vision, mission, strategy and strategic objectives within the business environment in which it operates (Pearce & Robinson, 2005). Strategy plan implementation is an integral component of the strategic management process and is viewed as the process that turns the formulated strategy into a series of actions and then results to ensure that the vision, mission, strategy, and strategic objectives of the organisation are successfully achieved as planned (Thompson & Strickland, 2003). In the light of the above literature and gaps existed, the study will try to investigate the relationship effect of strategic planning on the performance of small and medium size enterprises in Delta.

1. STATEMENT OF THE PROBLEM

According to Karagozoglu and Lindell (1998), it is argued that SMEs often do not have the resources to ensure the continued success of the strategic plan implementation. Unlike large companies, SMEs normally maintain a lower level of resources such as human resources and more limited access to financial capital and consumers, and also lack a well-developed administration. Therefore, the application of recognised strategic management tools is often not enough (Karagozoglu and Lindell, 1998).

This intense scrutiny has been against the backdrop of the low performance and inefficiency that characterized SMEs particularly in assessing their role on economic growth and development. Although there are government institutional and policy supports aimed at enhancing the capacity of SMEs, SMEs have fallen short of expectation because they are not adhering to proper strategic management practices (Orser et al., 2000). This has generated serious concern and scepticism as to whether SMEs can bring about economic growth and national development in Delta.

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).

1. AIM AND OBJECTIVES OF THE STUDY

The aim of the study is to investigate the relationship effect of strategic planning and performance of small and medium size enterprises.

Specifically, the study seeks to:

1. Identify challenges in strategic planning facing  SMEs in Delta
2. Examine the positive effect of strategic planning on SMEs in Delta
3. Examine the role of government institutions in ensuring strategic planning on the performance of  SMEs  in Delta
4. Ascertain the  strategic management activities undertaken by SMEs in Delta for effective performance

1. RESEARCH QUESTIONS

Arising from the research objectives, the following research questions will be addressed in the study:

1. What are challenges in strategic planning facing SMEs in Delta?
2. What are the positive effects of strategic planning on the performance of SMEs in Delta?
3. What are the roles of government institutions in ensuring strategic planning on the performance of SMEs in Delta?
4. Ascertain the  strategic management activities undertaken by SMEs in Delta for effective performance

1. STATEMENT OF THE HYPOTHESIS

The following hypothesis will be formulated to guide the study:

H0 there is no significant effect of strategic planning on the performance of small and medium size enterprises

H1 there is significant effect of strategic planning on the performance of small and medium size enterprises

1. SIGNIDFICANCE OF THE STUDY

The study is on effect of strategic planning on the performance of small and medium size enterprises in Delta State. This is very important because every enterprises whether small, medium and large needs strategic planning for their business to thrive.

The study will benefit entrepreneurs and business men/women who are engaging in studies related to strategic planning in general and strategic planning related to SMEs in particular. This work will serve as a reference guide to such studies for them to build upon.

Ultimately, the study will benefit SMEs in Delta. The findings of the study can be used by these SMEs in devising plans and strategies so that they can perform in their business environments.

1. SCOPE OF THE STUDY

The study focuses mainly on the investigation of the effect of strategic planning on the performance of small and medium size enterprises, specifically; the interest of the study will be restricted on the SMEs in Delta State, due to time and finance constraints. Thus, the investigation of the study will be conducted within SMEs and the focus of the study will be on the challenges in strategic planning facing SMEs in Delta; the positive effects of strategic planning on the performance of SMEs in Delta; the roles of government institutions in ensuring strategic planning of SMEs performance in Delta; the strategic management activities undertaken by SMEs in Delta for effective performance.

1. LIMITATION OF THE STUDY

TIME CONSTRAINTS: One the challenges experienced by the researcher is the issue of time; the research will simultaneously engage in departmental activities like seminars and attendance to lectures. But the researcher was able to meet up with the deadline for the submission of the project.

FINANCIAL CONSTRAINTS: Every research work needs funding; however lack of adequate funds might affect the speed of the researcher in getting materials for completion of the project.

1.9 DEFINITION OF TERMS

Strategic Planning

Strategic planning is the art of creating specific business strategies, implementing them, and evaluating the results of executing the plan, in regard to a company’s overall long-term goals or desires. It is a concept that focuses on integrating various departments (such as accounting and finance, marketing, and human resources) within a company to accomplish its strategic goals. The term strategic planning is essentially synonymous with strategic management.

Environmental Analysis

Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization's performance. The analysis entails assessing the level of threat or opportunity the factors might present. The analysis helps align strategies with the firm's environment.

Organization

Organization is the process of identifying and grouping work to be performed, defining and delegating responsibility and authority and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives.

Performance

Grüning (2002): Performance is understood as the ability of a company to achieve goals, i.e. meet expectations, and is therefore influenced by results in a wider sense, but also by the corresponding goal setting.

Performance is the level of attainment achieved by an individual, team, organization or process.

SMEs

Small and mid-size enterprises (SMEs) are businesses that maintain revenues, assets or a number of employees below a certain threshold. Each country has its own definition of what constitutes a small and medium-sized enterprise (SME). Certain size criteria must be met and occasionally the industry in which the company operates in is taken into account as well.