Strategic Planning Process Characteristics and SMEs ... · 103 Strategic Planning Process Characteristics and SMEs Performance: A Study of SME’s in Delta and Edo States. 1IBEGBULEM

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Strategic Planning Process Characteristics and SMEs

Performance: A Study of SME’s in Delta and Edo States.

1IBEGBULEM Andreas Brutus &

2OKORIE Chiyem

1Department of Business Administration and Management

School of Business Studies

Delta State Polytechnic, Ozoro Delta State, Nigeria

2Department of Marketing

School of Business Studies

Delta State Polytechnic, Ozoro, Nigeria

ABSTRACT

This study examines the impact of strategic planning process characteristics on the SMEs

performance. Regarding the critics about the bi-variate methodology on previous research that have

been conducted on Strategic Planning performance relationship the present study attempts to examine

this relationship taking account the role of contextual variables. A total of 150 SMEs responded to the

survey. Data were analyzed by PLS technique. The findings revealed that Strategic planning process

characteristics have positive effect on the performance. Result of analyses showed that there is a

positive relationship between the level of formality and comprehensiveness of Strategic Planning and

performance and to large extent there is positive relationship between participation of Strategic

Planning and performance. The current research reflects the value of strategic planning to the SMEs

and the role that strategic planning plays in improving their performance. The study recommends that

SMEs vigorously carry out the various strategic planning process qualities that is related to their

performance. More so, SMEs owners/managers should encourage the use of strategic planning

formality which will ultimately lead to a higher level of performance for financial and non-financial

variables.

Keywords: Strategic Planning, Performance, Process, Characteristics.

1. INTRODUCTION

Strategic Planning process is an exercise in which all firm owners/managers should be involved with

it. Therefore, Strategic scholars are interested in understanding why firms make the strategic choices

they do, and how these choices and other factors affect firm performance, Understanding these may

lead to suggest ways firms can improve performance.(Grover & Segars, 2005).Indeed, the relationship

and effects of strategic planning on organizational performance has been a central field of studies for

researchers over the past three decades. There are numerous research findings on the relationship

between strategic planning and organizational performance, but many of these findings have proved

uncertain and ambiguous (Glaister et al., 2008, Rudd et al,2008, O‘Regan and Ghobadian, 2002a).

These findings include the range from positive relationships between strategic planning and

performance to no relationships; to negative relationships (Efendioglu and Karabulut, 2010). For

example there are empirical supports for a positive relationship between strategic planning and

performance (Glaister et al., 2008, Al-Shammari and Hussein, 2007, Phillips et al., 2001, Baker and

Leidecker, 2001), On the other hand, there are also evidences signifying that no such relationship

exist (French et al., 2004, Falshaw et al., 2006), and some researchers have countered that explicit

strategic planning is dysfunctional, or at best irrelevant (Millerand Cardinal, 2014). This inconsistency

raised the critics suggest that other factors will affect on this relationship (Meilich and Marcus, 2006,

Rudd et al., 2008, Hoffman, 2007). In addition these studies have been criticized for little

consideration on examining organizational or contextual influences (Glaister et al., 2008). This study

International Journal of Innovative Finance and Economics Research 6(2):103-116, April-June, 2018

© SEAHI PUBLICATIONS, 2018 www.seahipaj.org ISSN: 2360-896X

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attempts to examine the relationship between process characteristics of Strategic Planning and

performance of SMEs in Delta and Edo States considering the role of contextual variables like the

size of company, type of industry, position of respondents in company, years of establishment of

company and demographic features of SMEs owners/managers.

Objectives of the Study

From the above discussion, this research seeks the following specific objectives:

To investigate the relationship between the process of strategic planning and SMEs performance.

To determine the relationship between the level of formality of strategic planning and SMEs‘

performance.

To determine the relationship between the level of comprehensiveness of strategic planning and

SMEs‘ performance.

To determine the relationship between the level of participation in strategic planning and SMEs‘

performance.

To identify the differences that exist in the relationship between Strategic Planning and

performance in terms of different (a) firm sizes, (b) industry types, (c) position in company, (d)

years of establishment and (e) demographic features of SMEs owners/managers (i.e.. race, age,

gender and education background).

Research Questions

In other to achieve the objectives of this research work, the following questions guided the work.

(1) What is the extent of the relationship between the process of strategic planning and SMEs

performance?

(2) To what extent does the formality of strategic planning influence SMEs performance?

(3) What is the relationship between the level of comprehensiveness of strategic planning and

SMEs performance?

(4) What is the relationship between the level of participation of strategic planning and SMEs

performance?

Research Hypothesis

The following hypotheses were also tested.

H1: There is a positive relationship between strategic planning and SMEs Performance (financial

and non-financial).

H2: There is a positive relationship between the level of strategic planning formality and

performance of SMEs (financial and non-financial).

H3: There is a positive relationship between the level of strategic planning comprehensiveness

and performance of SMEs (financial and non-financial).

H4: There is a positive relationship between the level of strategic planning participation and

performance of SMEs (financial and non-financial).

Literature Review

The majority of researches and studies that have conducted in strategic planning have focused on two

areas: the impact of strategic planning on firm performance and the role of strategic planning in

strategic decision making (Grant, 2003). Bromiley (2004) suggests that strategic management

research has three primary objectives: Explaining firm behavior at the strategic level; explaining

performance differences among firms and providing suggestions to improve firm performance. Table

1 shows some of the selected empirical studies that have been conducted on strategic planning-

performance relationship. As can be seen in Table 1 there are numerous research findings on the

relationship between strategic planning and organizational performance, but many of these findings

have proved uncertain and ambiguous (Glaister et al., 2008, Rudd et al, 2008, O‘Regan and

Ghobadian, 2002a). These findings include the range from positive relationships between strategic

planning and performance to no relationships; to negative relationships (Efendioglu and Karabulut,

2010). Reviewing the literature, in spite of growing importance of small businesses in the global

economy and research efforts that have conducted in this field, there is surprisingly little empirical

work that has examined the relationship between strategic planning process and organizational

performance in SMEs.

Ibegbulem & Okorie ….. Int. J. Innovative Finance and Economics Res. 6(2):103-116, 2018

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Strategic planning process contains several characteristics. Phillips et al (2001) stated four

characteristics for strategic planning process, including: formality, participation, sophistication and

comprehensiveness. Groverand Segar (2005) have emphasized on the comprehensiveness,

formalization, participation and consistency and two other features that are related to information

systems. Although, small businesses follow a much less complex process (both in terms of steps

followed and methods used) in making their strategic decisions than that used by larger organizations

(Jocumsen, 2014). Accordingly, in this research three characteristics of strategic planning process that

are more common between academics were considered as main characteristics of strategic planning

process in SMEs, including: formality, comprehensiveness and participation (Hutzschenreuter and

Kleindienst, 2006). WEBOMETRIC ANALYSIS

Table 1: Outline of Selected Empirical Studies on Strategic Planning Performance Relationship

Authors Variables Studied Research Method Analytic Tools Key Findings

(Al-Shammari and Hussein, 2007)

The relationship between strategic planning and firm

performance, both

financial (ROA and growth in revenue) and

behavioural indicators in

Jordan

Data was gathered via a self administered questionnaire

that sent to the CEOs of 37

firms based on a sample of Jordanian manufacturing

organizations

One-way analysis of variance of

(ANOVA)

This study shows firms that engaging in strategic

planning than firm that

are not implementing this practice

(Baker and

Leidecker, 2001)

The relationship between

the use of strategic

planning tools and firm performance (ROA,

profitability, annual sales).

Questionnaire was mailed to

the CEOs of the 25

companies in the state of California

Correlation

analysis

There is a strong

relationship between the

use of strategic planning tools and firms‘ ROA.

There is a strong positive

correlation between three specific strategic

management tools and

firm profitability

(Efendioglu and

Karabulut, 2010)

The impact of strategic

planning on financial

performance

The data were gathered via a

questionnaire that was mailed

to the CEO of the top 500 manufacturing Turkish firms

in (2006)

Correlation There is not a clear

answer for the basic

question about the link/positive correlation

between the use of

strategic tools and company performance.

(Falshaw et al, 2006) The relationship between

strategic planning and

performance (with considering the effect of a

set of contextual variables

on this relationships)

Data gathered via a

questionnaire that was sent to

CEOs from 500 companies

Regression

analysis

No relationship between

formal planning

processes and subjective company performance

(French et al, 2004) Strategic planning factors

and performance

relationship

Questionnaire was sent to 145

small regional professional

firms in new South Wales, Australia.

Standard multiple

regression, One-

way ANOVA

There is a link between

planning and

performance but the link is not strong

(Glaister et al, 2008) The relationship between

degree of formality of strategic planning and

performance regarding the

moderating effect of organizational structure,

environmental turbulence,

firm size.

Data collected through

questionnaire that was sent to CEOs of 135 Turkish

manufacturing companies.

Correlations,

LISREL, casual modeling

There is a strong and

positive relationship between formal strategic

planning and firm

performance. For firms in the high environmental

turbulence group and

more organic structure, the relationship between

FSP and firm

performance is stronger

(Hoffman, 2007) Relationship between

strategic planning (process

and content) and

performance (subjective & objective) regarding the

moderating effect of

culture

Data was collected via a

mailed questionnaire that sent

to stratified random sample of

CEOs of 150 multinational manufacturing firms

Correlation and

One-way analysis

of variance

(ANOVA)

The analysis shows

culture has a moderating

effect on the relationship

between strategic planning and

performance

(Kraus et al, 2006) The performance

implications of essential

elements of strategic planning in smaller firms

The study was based on a

representative sample of 290

small Austrian enterprises

Logistic regression

analysis

The analysis shows

planning formalizations

has a positive significant impact on the probability

of belonging to the group

of growth firms. Other aspect of strategic


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planning (time horizon,

control and strategic

instruments) did not

impact on performance.

(O‘Regan and

Ghobadian, 2004)

The relationship between

strategy, culture, leadership, capability and

performance.

A series of semi-focused

interviews and sel-reporting survey questionnaire were

used with managers from

1000 SMEs

Correlation

analysis

The analysis shows that

strong strategy characteristics as well as

strong leadership and

culture styles, irrespaective of the style

itself, are associated with

long-term performance improvement.

(Phillips et al, 2001) The interactive effects

between strategic planning and performance

The data gathered by

questionnaire from general managers from 100 hotels

Neural network There is direct and

positive effect of the constructs of planning

sophistication and

planning thoroughness on overall performance. The

degree of planning

formality and rigidity can hamper overall

performance.

(Rudd et al, 2008) The relationship between

strategic planning and performance (financial and

non-financial) regarding four types of flexibility as

mediators between

strategic planning and performance

Data were collected via 2300

questionnaires that were administered to a database of

large to medium sized UK manufacturing organizations

Structural equation

modeling (SEM)

The flexibility mediates

the relationship between strategic planning and

performance

Strategic Planning Formality The field of strategic planning and the formality of planning have been associated together from their

earliest foundation (Falshaw et al., 2006). The reason of having a written and detailed strategic

planning is to ensure strategic planning process receives commitment from those who are affected by

it and to allow an explicit evaluation and clearly specify objectives is part of the formal strategic

planning. The meaning of the term formal strategic planning is to express that a firm‘s strategic

planning process involves explicit systematic procedures of determining the mission, major

objectives, strategies, and policies that manage the gaining and distribution, of resources to achieve

organizational goals. These systematic procedures used to gain the involvement and commitment of

those principal stakeholders affected by the plan (Mintzberg and Lampel, 2012).

According to Papke-Shields et al. (2002), formality is ―the extent to which the planning process

structured through written procedures, schedules and other documents and the extent of

documentation resulting from the planning process‖. Grover and Segar (2005) also have defined the

formality of strategic planning as the existence of structures, techniques, written procedures, and

policies which guide the planning process.

A formal strategic plan implies a resolute means to contain factors and techniques in An organized

and methodical way to achieve specified tasks and an attempt to adjust a company‘s strength relative

to that of its competitors, in the most efficient and effective way. Nevertheless, the empirical evidence

about the impact of formal strategic planning on the performance is largely questionable and

uncertain. Doubtfully this is an outcome of a lack of a generally accepted definition of formal and

informal strategic planning. O‘Regan and Ghobadian (2002a) revealed the accentuation and stress on

the characteristics of strategic planning by firms who utilize formal planning is higher in every case

compared with non-formal planning firms.

On one hand, formality in strategic planning proves to have positive result for small firm

performance. However, Lyles et al (2013) n their study on small firms found mixed results that

indicate formal strategic planning may have its greatest impact in large firms. Moreover, Schwenk

and Sharder‘s (2013) analysis found a positive association between formal strategic planning and

performance. Hassan and Minden (2010) argued that the using formalized strategic planning depends

on to the defender strategic orientation. On the other hand, some authors have also stated that

formalization of planning does not affect performance (Ackelsberg and Arlow, 2005). French et al


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(2004)‘also stated that there is r- strong link between strategic planning and SME & performance.

Moreover, they have brought into question the value of classical strategic planning process for small

firms. Falshaw et al (2006) claimed that there is no relationship between formal strategic planning

process and subjective performance of companies. They have used three contingent variables: size,

environmental turbulence and Industry. They stated organizational size (in terms of turnover),

environmental turbulence and organization‘s industry lead to more formalized planning systems. In

conclusion, regardless of the supposed positive association between strategic planning and firm

performance in the prescriptive literature, but after decades of research, there is not yet an established

theory/model on the actual differences regarding performance between formalized and non-

formalized plans (Glaister et al., 2008) and the effect of formal strategic planning on a firm‘s

performance is still ambiguous.

Strategic Planning Comprehensiveness

The comprehensiveness has identified as ―the extent to which an organization attempts to be

exhaustive or inclusive in making and integrating strategic decisions‖ (Grover and Segars,‖ 2005).

Academics believe that comprehensiveness is the extent to which an organizations key decision

maker, have tendency to use an extensive process for decision making that includes high level of

investigation to developing alternatives courses of action, evaluating alternatives and developing

multiple criteria to screen alternatives (Elbanna and Child, 2016, Forbes, 2005, Miller, 2018, Papke-

Shields et al., 2012). Although, according to Jocumsen (2014), small businesses follow a much less

complex process (both in, terms of ‗steps followed and methods used) in making their strategic

decisions than that suggested by theoretical framework and used by larger organizations. Even

though, he added that before attempting to introduce changes to methods and process of strategic

decisions, the currently methods used in strategic decision making process should be fully accepted.

Comprehensiveness process seems to have effect on firm performance. Three reasons support this

idea.

Firstly, it helps to‘ decision makers dealing effectively with inherent complexity of strategic

decisions. Secondly, it helps to‘ decision makers in reducing the effect of cognitive biases, and finally,

it enhance implementation motivation among decision makers (Miller, 2018). Although, the

relationship between strategic planning comprehensiveness and performance is not clear and the

empirical studies in this field seem to produce contradictory results (Elbanna, 2017). Figure 1:

conceptual framework of the study

As a result, there is not a clear understanding of the effects of comprehensiveness on firm

performance, even though this is a dominant paradigm in the teaching and practice of strategic

management (George, 2007); furthermore, there are not empirical evidences who clarify this

relationship in SMEs context. Accordingly, in this research the relationship. Between strategic

planning comprehensiveness and performance was tested.

Strategic Planning Participation

Participation is the other-important component of strategic planning process. Although, the major

responsibility of an organization‘s owner or chief executive officer is making good strategic decision,

both managers and employees must also be involved in all activities of strategic management process.

Actually, participation is a key to gain commitment for needed changes (David, 2001).

To initiate planning process and systems in a meaningful way, the organization needs participation

and commitment of all organizational levels (McDonald, 2016). Indeed, the only way to gain

ownership and commitment to strategic plan is participation in planning (Phillips, 2016). According to

Grover and Segar (2005) participation contains the extent of involvement in strategic planning, or

variety of individuals involved in strategic planning (Papke-Shield et al, 2012).

In line with Ketokivi and Castaner (2004) participation in the strategic planning process can generate

informational, affective and emotional effects. Indeed, in a participative strategic planning process,

top management usually forms a number of teams of. employees from different units and hierarchical

levels in order to analyze the implementation of past strategies and the organizational environment

and to propose goals, as well as strategies, and budgets for achieving those goals. Participation

indecisions as the extent to which lower level managers participate in the organization‘s strategic

decision making processes and thereby influence the organization‘s strategic outcomes (Andersen,

2017).


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The role of participation in the process of strategic planning has highlighted with authors (e.g.

(Elbanna, 2018, Fiegener, 2005). Most of researchers have emphasized on the management

participation in strategy development as an important factor for organizational performance (Elbanna,

2018). According to Andersen, (2017) participation in decisions, and strategic planning processes

were all positively correlated with economic performance. Although, most of these studies have been

conducted on large firms‘ context, the basic elements of strategic planning are same in large and small

companies (Tapinos et al., 2005). Yet, empirical evidences that concentrate on the relationship

between the levels of staff participation in strategic planning process in SMEs context are scarce

(Phillips et al., 200; Papke-Shield et al., 2012).

Control variables

Researchers argue that every investigation on relationship between strategic planning and

performance should be considered in relation with organizational or contextual variable& (Glaister et

al., 2008). In this study some contextual and organizational variables that have been examined

.Previous researches are controlled. Although, there may be several determinants of strategic planning

performance relationship this study posits that firm size, type of industry, position in company, years

of company establishment and demographic characteristics of SMEs owner-managers (i.e. age, race,

gender and education level) are major variables that are controlled in this research.

Theoretical Framework of Research

Figure 1, summaries the theoretical framework of this study. As shown, this research focuses on the

relationship between the strategic planning process characteristics (i.e. formality, comprehensiveness

and participation) and performance.

Figure 1: Conceptual Framework of the study

RESEARCH METHODOLOGY

This study kicks starts with knowing the number of registered SMEs with Cooperate Affairs

Commission (CAC) as well as sending email to the number of the number of SMEs in these two states

Context (control variables)

Size

Industry type

Years of company establishment

Position in company

Demographic characteristics of

SMEs owners/managers

Financial

Non-Financial

Formality

Participation

Comprehensiveness


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(Delta and Edo).The owners/managers are surveyed as respondents, because, they have a significant

impact on every aspect of the strategic and activities of SMEs.

Considering the control variables, the stratified random sampling method was used for gathering

quantitative data, because the stratifying criterion help researcher to be sure that the resulting sample

is distributed in the same way as the population (Bryman, 2008).

Two stratifying criterion were used in this study, namely size and type of industry. Size has two

levels, small and medium. Type of industry includes 6 groups of SMEs that have the majority of them

(75.8%) including, Textiles and Clothing; Metal and Non-Metallic Mineral Products; Food Products

and Beverages; Paper and Recorded Media; Furniture and Wood Products; and Rubber and Plastic

Products.

The email describes the purpose of the survey and provides a link to the questionnaire. The

questionnaire was mailed in three rounds. The first round generates 100 responses, followed by a

reminder and 38 responses in the second round and finally 12 responses in the third round giving a

response rate of 150 respondents. It is not easy to get a high respond rate from the respondent in

SMEs context.

3.1 Strategic Planning measures

In assessing the level of formality of strategic planning process two measures were employed by

researchers. The first measure that has been used with a number of prior studies is the presence or

absence of a written strategic plan (Ghobadian et al., 2008).

This measure dichotomizes firms into planner and non-planners. But the formality of strategic

planning process is a multi-dimensional phenomenon. Therefore, using a one-dimensional variable to

conceptualize a multi-dimensional phenomenon is inefficient. To overcome this problem researcher

has to make use of multiple indicators to assess how closely the element of written documentations

looks like to the normative strategic planning process. Some researchers stated dimensions that define

the main characteristics of the formal strategic planning process (Ghobadian et al., 2008, Phillips et

al., 2001).

Phillips (2016) measured the formality of planning based on some elements included: existence of

explicit goal setting; long-range and written planning; specifying the responsibilities and assigning

implementation responsibilities to specified individuals; level of commitment to long-range plan;

budgeting based on market segments; reviewing the performance against the budget. Similarly,

Ghobadian et al. (2008) have used seven dimensions that define the main characteristics of the formal

strategic planning process. They argued these dimensions have identified by several authors to

describe the features of formal strategic planning. It seems that there is convergence and overlapping

between these dimensions and which stated by other researchers.

After a synthesis of above literature, in this study, a mixed instrument has been decided and used to

determine the level of formality of strategic planning process. Beside, to compare strategic planning

of SMEs, in this study two other dimensions that have been identified as main dimensions of strategic

planning process were used. These dimensions are planning comprehensiveness and planning

participation.

According to Phillips (2016), the comprehensiveness of planning is a suitable measure to compare

strategic planning practice of companies, especially when we do not have access to detailed market

share and, profitability data. Reviewing the literature, there are some measures that have been used by

researchers for measuring the comprehensiveness (e.g. (Atuahene-Gima and Haiyang, 2004, Forbes,

2005, GoIl and Rasheed,. 2005, Papadakis and Barwise, 2014). Considering the common measures in

literature the level of planning comprehensiveness was determined in terms of the following criteria:

• Using experiences from a number of management levels.

• Using divers set of ideas that include a number of internal and external sources of ideas, rather

than limited internal sources.

• Evaluating thoroughly each possible action before planning.

• Attempting to determine optimal courses of action from identified alternatives in planning.

The participation level for this study was assessed based on the level of influence from two

dimensions that had been validated in earlier research by Phillips (2016) and Phillips et al (2001) and

Papke-Shield et al (2012). First dimension is the level of influence that differing staff levels exert on

the strategic planning process. Second dimension is the level of influence that differing functional

areas exert on the strategic planning process.


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Performance measures

Previous studies have used either a subjective or an objective approach to measuring performance

(Greenleynd Foxall, 2017). It seems that the simplest way to measure performance is using the

objective financial measures (Haber and Reichel, 2005, Sousa et al., 2006). The principal performance

measures are financial returns and firm growth i.e. short and long term) (Daily et al., 2002). Some

researchers (Sa‘ari, 2005, Hashimand Zakaria, 2007) have measured the performance of exporting

SMEs by using the return on assets (ROA), return on sales (ROS), return on investment (ROI), and

also growth. Growth is based on the composite of the average performance of the ROA,

ROS and ROI of the SMEs (BPCI= (ROA+ ROI+ROS)/3) (Lee, 2008). Nevertheless, it seems that

selection of each of these indicators depends on data, availability and data accuracy. Although,

obtaining objective financial data is difficult in SMEs, because the most of small firms are privately

held, it is unlikely that CEOs will be willing to provide detailed accounting data on the firm‘s

performance (Garg et al., 2003). Hence, these data are sometimes confidential. Furthermore, checking

the accuracy of objective financial data on SMEs is impossible, because these data are not openly

available (Haber and Reichel, 2005). The point of this discussion is to highlight the fact that data

availability and accuracy associated with financial measures in SMEs are two main problems that lead

to using subjective measures for evaluating SMEs‘ performance. In addition, industry-specific factors

affect on absolute scores on objective financial performance measures. Consequently, making any

comparison between objective financial data obtained for SMEs in different industries could be

misleading and inappropriate. In contrast, subjective measures are more flexible and useful for SMEs,

particularly for multi-industry comparison (Covin and Slevin, 2009).

It is well documented that subjective performance measures are valid and reliable for founder reported

performance measures (Chandler and Hanks, 2004, Brush and Vanderwerf, 2012, Simpson et al.,

2004). On the other hand, there is a strong relationship between owner/managers mentality and

subjective financial performance of their enterprises (Wijewardena et al., 2008). Moreover, the

subjective approach has, been used widely in empirical studies. Using subjective measures based on

executives‘ perceptions of performance, have ‗been justified by several authors (McDougall et al.,

2014, Golden, 2012, Hart and Banbury, 2014, Powell, 2012). All of them have found consistency

between executives‘ perceptions of performance and objective measures (Falshaw et al., 2016).

The SME owners-managers are the best sources for obtaining direct measures of firm performance.

Nonetheless, the researchers have often restricted their request for data to firm growth in sales/or in

number of employees) because of the sensitivity surrounding financial measures and concerned about

response rate (Watson, 2007).

Furthermore, growth is very important for business survival and also for policy makers.

Consequently, firm growth (in sales/or number of employees) has selected as a good indicator for

performance of unlisted firms (Delmar and Shane, 2003). Conversely, it is argued by some

researchers that performance measures should include both financial and non-financial meters

(Laitinen, 2002). Because the financial measures alone are not sufficient for making decisions in

modern firms. According to Reijonen and Raija Komppula (2007) these non-financial meters usually

contain the time, flexibility, quality of manufacturing and entrepreneurial satisfaction. These measures

can be turned into numbers and evaluated numerically.

Having synthesized above literature, and given the difficulty in collecting valid data in one hand and

the need for valid performance measures on the other hand, in this study both subjective financial and

non-financial performance measures were used simultaneously. The term ―subjective measures‖ refers

to self-reported measures (Haber and Reichel, 2005). These measures include: growth in market

share; growth in revenues (sales); growth in profitability; growth in number of employees, growth in

quality of products and growth in customer satisfaction, in last three years of SMEs activities that are

used as subjective (financial and non-financial) performance measures.

4. DATA PRESENTATION AND ANALYSIS

Based on the collected data the majority of respondents are Male (66%). The sample was slightly

dominated by respondents with 20-30 years old (38%) and 31- 40 years old (24%). Approximately

70% of respondents are managers in their company. More than62% of respondents had at least

undergraduate degree.


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Regarding the population of this research was the SMEs; small-to-medium •size companies were

selected as sample of this study. Firms that participated in the survey were divided into two

categories: small (56.2) and (43.8%) Type of industry was including 6 groups of SMEs that had the

majority in Delta and Edo States (75.8%). The study‘s analysis was based on 121 usable responses

from different industry types.

About 13.22% of respondents were from textiles and clothing industries, metal and nonmetallic

mineral products (25.62%), food products and beverages (9.91%), paper and recorded media

(16.52%), furniture and wood products (14.04%), rubber and plastic products (1 3.22%) and other

firms (7.43%). Table 4.3 shows the information about the status of participating firms.

In this study, exploratory factor analysis (EFA) was used to test factorial validity. The results of EFA

analysis revealed 13 factors with an Eigenvalue greater than one and no single factor explained a great

amount of variance (i.e. variances ranged from 2.28% to11.71%). This test confirmed the lack of

significant systematic common method bias or variance in the data. Principal Components Analysis

(PCA) has been used as the most common EFA procedure. Thus, a PCA/EFA analysis was conducted

in SPSS 19.0using collected data. Initially, KMO index (i.e. Kaiser-Meyer-Olkin measure of sampling

adequacy) was 0.798 indicating adequacy of sample size for EFA test. The PCA analysis of main

variables confirmed all items did align properly with their related theoretical constructs and thus

satisfy three objectives of EFA as discussed previously. Convergent validity is the agreement among

measures that are related theoretically. Item loadings, and average variance extracted values (AVE)

are two methods to examine this validity. The AVE values of the variables, indicated in Table 2, are

between 0.55 and 0.80, providing more proof for convergent validity. As suggested by Hair et al.,

(2013), all AVEs were above 0.5 indicating those constructs can explain high percentage of variance

of the latent variable.

Table 2: AVE, CR, and Cronbach Alpha of the constructs

Construct AVE Composite Cronbach Alpha

Formality 0.669 0.920 0.892

Comprehensiveness 0.704 0.904 0.859

Participation 0.801 0.923 0.877

Financial

performance

0.616 0.905 0.873

Non-Financial

Performance

0.605 0.932 0.917

As is presented in Table 2, all variables have the CR greater than 0.70. Therefore, both Cronbach

alpha and composite reliability suggest satisfactory level of construct reliability Partial least Square

analysis (PLS) using Smart PLS was utilized as the second main statistical technique in this study for

testing the main relationship between variables. The Smart PLS is one of the PLS software

applications that is flexible and useful tool for building statistical models provide results for all types

of variables, regardless of whether they have metric, quasi-metric, ordinal, or categorical scales(e.g.,

binary coded) (Ringle et al., 2005). However, recent review of PLS-SEM use in the strategic

management field, the method‘s dissemination is not as widespread as in other (Hair et al., 2013).

According to Hair et al. (2013) hierarchical component models are relatively easy to conduct in PLS-

SEM; thereby Smart PLS is a recommended analysis tool for models involving hierarchical constructs

that are those constructs with more than one dimension. Another advantage of using Smart PLS in this

study was that it has the ability to handle smaller sample sizes and nonlinear effects can be easily

included in a PLS path model (Hair et al., 2013).

Using SPLS analysis, it is necessary to generate the significance of estimates using resampling

methods because data normality is not an assumption in SPLS. The most common resampling

methods in SPLS are Bootstrapping, jackknifing, blindfolding.

However, among those methods, to generate t-values and valid standard errors, bootstrapping

considered superior to the jackknifing and blindfolding. In bootstrapping approach, PLS creates N

sample by replacement from the data set of the study, then, reestimates confidence interval, standard


112

error, and related t-test (Chin et al., 2003). In this study, the distribution of all path estimates was

approximated using bootstrapping method.

As can be seen in Table 2, based on the results of bootstrapping for main relationships-statistics were

significant for most of the main relationships (p<0.05, or p<0. 01),thus, establishing the accuracy and

significance of path estimates. A summary of hypotheses and results of related analyses are shown in

Table 3.

Table 3: Supported hypothesis, Path coefficients and T-statistics

Hypotheses Original

Sample

Sample

Mean

Standard

Error T Statistics Result

H1:SP =>TPERF, 0.4214 0.4221 0.0623 6.7589 Supported

H1a:SP => FPERF 0.3410 0.3566 0.0698 4.8829 Supported

H1b:SP=>NFPERF 0.4534 0.4695 0.0611 7.4162 Supported

H2a:form =>Fperf 0.3174 0.2654 0.1367 2.3218 Supported

H2b:form =>NFperf 0.2585 0.2328 0.1140 2.2664 Supported

H3a:comp =>Fperf 0.2826 0.2346 0.1297 2.1788 Supported

H3b:comp=>NFperf 0.3093 0.2381 0.1073 2.8813 Supported

H4a:part =>Fperf 0.2096 0.1994 0.0876 2.3915 Supported

H4b:part=>NFperf 0.0852 0.0889 0.0828 1.0285 Not

Supported

In this study, race, gender, age, education background, position in company, firm size, industry type,

and years of company establishment, were assumed as control variables.

These variables were chosen for this study in order to characterize the relationship between strategic

planning and performance based on its different organizational and managerial aspects. By doing so,

the researcher analyzed the different categories formed by those factors. Hence, any influence of each

of eight control variables in the relationship between strategic planning dimensions and performance

was elaborated in next sections using analysis of variance (ANOVA). The result did not show any

significant difference for the relationship between strategic planning and performance in terms of

different groups of age, education background, years of company establishment, type of industry, and

position in company. Based on the result of ANOVA analysis the relationship between strategic

planning formality and performance is different according to the size of companies. Furthermore, the

relationship between strategic planning comprehensiveness and performance is different according to

race and gender of participants.

FINDINGS AND CONCLUSION

To enlighten the ambiguous and inconsistent strategic planning aspects and SMEs‘ performance, in

this study, strategic planning characteristics have been proposed tobe related to performance Result of

analyses showed that there is a positive relationship between strategic planning and performance and

was consistent with studies in strategic planning and performance relationship (Mazzarol et al, 2009,

Siu et al, 2004, Ogunmokun and HsinTang, 2012).

Based on the result of this study there is a significant relationship between strategic planning and total

performance. The relationship between strategic planning and non-financial performance is stronger

than the relationship between strategic planning and financial performance. It means that the SMEs

that used higher level of strategic planning, had higher level of non-financial performance (rather than

financial performance) in terms of customer satisfaction, quality of products and increase in market

share during the last three years of their activities. These findings to great extent are consistent with

Ogunmokun and Tang (2012) which states that the extent to which the strategic planning activities

performed by SMEs is related to the level of performance. Indeed the extent to which firms carried

out the various strategic planning process activities is related to the performance of the SMEs

(Ogunmokun and HsinTang, 2012).

Result of analyses showed that there is a positive relationship between formality of strategic planning

and performance. This finding supports the hypotheses H2a, b and shows the importance of formality

in strategic planning for SMEs and was consistent with previous studies (Philips et al.,2001; French et

at., 2004; Kraus et al, 2006; Mazzarol et al., 2009; Siu et at., 2004, Claycomb et al., 2000;


113

Ogunmokun and Tang, 2012). Formality in strategic planning proved to have positive result for small

firm performance.

Regardless of barriers to strategic planning in SMEs the results of this study showed that the SMEs‘

owners/managers who have formal strategic planning (e.g. adapting specified objectives and having

long-range and written plans to guide the operating activities) have higher level of performance

(financial and non-financial).

The results of analyses supported the relationship between strategic planning comprehensiveness and

performance. Indeed, the analysis implied that the SMEs who had higher level of comprehensiveness

had also higher level of performance (financial and non-financial).

The level of comprehensiveness was determined in terms of using various internal and external

sources in planning, attempting to determine optimal courses of action from identified alternatives and

evaluating thoroughly each possible action before making strategic decisions. Although, small

businesses follow a much less complex process(both in terms of steps followed and methods used) in

making their strategic decisions than that suggested by theoretical framework and used by larger

organizations(Jocumsen; 2004).

Based on the result of analyses there is a positive relationship between strategic planning participation

and financial performance and was consistent with limited previous research in this area (Elbana,

2008; Andersen, 2004). Indeed, the analysis showed that the SME5 who had higher level of

participation in strategic planning had also higher level of financial performance. A likely explanation

of this finding is that the participation in strategic planning is likely to have strong effect on

employees‘ awareness and understanding of organizational goals that is necessary for employees to

orient themselves toward the achievement of the organization‘s goals, not only the goals associated

with their position (Ketokivi and Castaner, 2004). Practically, the significant relationship between

participation in strategic planning and financial performance implies that if SMEs‘ owners/managers

communicate the priorities resulting from the planning process to the different managerial levels and

functions after having engaged in a participatory process, participants‘ expectations will be fulfilled,

even if they do not fully agree with the announced goals and it would cause improving the planning

effectiveness and performance (Elbanna, 2008).

RECOMMENDATIONS

Based on the above conclusion and findings, the following recommendations were made:

SMEs should vigorously carry out the various strategic planning process activities that is related

to their performance.

SMEs owners/managers should encourage the use of strategic planning formality which will

ultimately lead to higher level of performance for financial and non-financial.

Small business follows a much less complex process both in terms of steps followed and methods

used in making strategic decisions; therefore, SMEs should apply higher level of

comprehensiveness in order to achieve a higher level of performance for financial and non-

financial variables.

SMEs owners/managers should communicate the priorities resulting from planning process to

different managerial levels and this will help SMEs to have a higher level of participation in

strategic planning and at the same time will ultimately improve the level of financial performance.

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