An investigation into the relationship between strategic planning and business performance in small, micro and medium scale enterprises (SMMEs)

Abstract

Orientation: The manner in which SMMES use the strategic planning process and practise strategy formalisation might affect their business performance and realisation of set goals and objectives. Research purpose: The objectives of this investigation were to determine whether the strategic planning process (formulation, implementation and control and evaluation) influence business performance in SMMEs. Secondly, to determine whether there is a significant relationship between strategy formalisation and business performance in SMMEs. Also, to investigate literature on SMME performance measures. Lastly, to investigate literature on the hindrances on strategic planning.

Motivation for the study: Conflicting views still exist on the concept of strategic planning and it contribution or link to business performance. Hence, an investigation that looks into the relationship between the strategic planning process and business performance of SMMEs in South Africa can provide a better understanding and conclusion on the link between the two variables. Thus, evidence from the research could help in better preparing, guiding and advising SMME managers and owner on whether and how to use the strategic planning process.

Research design, approach and method: A cross-sectional survey design was used and a questionnaire was self-administered to a sample of convenience consisting of 275 SMMEs in the Buffalo City Municipality drawn from a population 950 SMMEs available in the Eastern Cape Development Corporation (ECDC) data base. Main findings: The results of this study showed a similarity with others obtained in prior studies. The reliability coefficients of all the other sub-scales were above 0.7 except for strategy implementation which was 0.662. The result drawn from the statistical analysis of this study showed that the strategic planning process had a positive effect on the performance of SMMEs. Furthermore, each section of the strategic planning process (formulation, implementation and evaluation and control) possessed a positive correlation with business performance of SMMEs. Lastly, strategy formalisations was found to have a significant relationship with business performance of SMMEs in the Buffalo City Municipality. Practical implications: The impact of strategic the strategic planning process is positive, it is a good predictor of organisational performance. Hence, organisations ought to put the strategic planning process to use. Furthermore, there is need to practise formal strategic planning since the results of the study showed that strategy formalisation had a significant relationship with business performance. Contribution: This study provided evidence on whether the strategic planning process influence business performance in SMMEs and further evidence on the significance of the relationship between strategy formalisation and the performance of SMMEs.