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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
104
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.
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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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107
(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
Ibegbulem & Okorie ….. Int. J. Innovative Finance and Economics Res. 6(2):103-116, 2018
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;
Ibegbulem & Okorie ….. Int. J. Innovative Finance and Economics Res. 6(2):103-116, 2018
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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