ANALYSIS OF THE IMPACT OF STRATEGIC MANAGEMENT ON THE BUSINESS PERFORMANCE OF SMES IN NIGERIA.

Author:Agwu, M.E.
Position:Small and medium-sized enterprises - Report - Statistical data
 
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BACKGROUND TO THE STUDY

It is not only important for all businesses to understand why they are in business but also to put in place an attainable strategic plan to improve their business performances. This is because strategy is a source of sustainable competitive advantage and in recent years, large enterprises have adopted various strategic management practices to guarantee their fit within the constraints of their environment. Though this practice, as acknowledged in Kraja & Osmani (2013), is often seen to be important only to large corporations, most studies have shown that for every organization, either large or small, to succeed and attain a competitive advantage, it has to be strategic in their daily operations. However, the quality and strength of firms' competitive advantage, as proposed by the resource-based theory, relates to how effective internal resources of firms are utilized, instead of their position in the external environment (Makanga & Paul, 2017). In support of this, the contingency theory also drew attention of organizations to the need to develop managerial strategy based on the situations and conditions they are experiencing (Ahmed & Mukhongo, 2017), but literatures on Small and Medium-Sized Enterprises (SMEs) has paid little attention to the strategy-making processes of these firms and concentrated more on their low performance and high failure rate which is often blamed on lack of resources such as funds, land and skilled labor (Majama & Magang, 2017). Though lack of these resources can hinder these enterprises from exploiting relative strengths, business management specialists have argued that even on the availability of such resources, majority of these SMEs do fail due to lack of strategic planning resulting from poor management, lack of managerial education and lack of initiative (Eniola & Ektebang, 2014; Kraja & Osmani, 2013; Majama & Magang, 2017; Nwankwo, Ewuim & Asoya, 2012). It is obvious that SMEs can no longer be excluded from those factors that have driven larger organizations into using strategic decisions (Abosede, Obasan & Alese, 2016); therefore SMEs are now compelled to arrange their available resources and capabilities accordingly to gain competitive advantages in relation to their products, competitions and market. Therefore, to what extent will the adoption of strategic management practices influence the market shares, transaction volumes and consequently the business performances of SMEs in Nigeria?

LITERATURE REVIEW

Businesses, according to Eniola & Ektebang (2014) that fail to drive good planning practices and tools forward, will not only stay bound by slow, stovepipe planning processes, but also find it difficult to compete in good conditions. The survival-base theory also calls for every business manager to keep in mind the need to be strategic if they do not want their organizations to be crushed by competitors. Strategy is about achieving competitive advantage through being uniquely different in your industry (Porter, 1996; Adeyemi, Isaac & Olufemi, 2017). It is no longer competing for product leadership, rather competing in core competence leadership (Agha, Alrubaiee & Jamhour, 2011). Agha et al. (2011) further argues that defining core competences amid the formulation of strategies is intentionally to attain sustainable competitive advantages. Strategic management is thus a veritable tool in improving firms' competitiveness, performance level and structural development (Makanga & Paul, 2017). Branislav (2014) stated that the application of strategic management practices helps firms in exploiting and creating new and different opportunities for tomorrow. Therefore to straighten up operations and enable firms have vision and direction, strategic management is a route that is highly demanded (Ahmed & Mukhongo, 2017). This is because it provides an overall direction to an enterprise in the setting of objectives, in developing of long-term policies and plans designed to achieve these objectives and then in allocating resources to implement the plans (Abosede et al., 2016).

Strategic Management

All firms are involves in one form of strategy or the other but for the decision making process to be proactive rather than reactive, it should be approached logically, systematically and objectively (Branislav, 2014). Branislav (2014) further puts it as "the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives". As detailed in Adeyemi et al. (2017), this process is an iterative, continuous one and involves important interactions and feedback among five key facets: goal-setting, analysis, strategy formation, strategy implementation and strategy monitoring. These activities, as argued in Koech & Were (2016), should be geared towards ensuring the achievement of the long and short term goals and objectives of the organizations concerned. Therefore, it is necessary for managers to first understand the strategic management practices that best suit their firms and the way such practices affects their operations in a given industry; given that every organization, at any phase of its life-cycle, can be affected by some external environmental conditions and internal factors and as such finding ways to have competitive advantage is indispensable (Agwu, 2014).

Stages of Strategic Management

  1. Environmental Analysis: this is often the first step in strategy formulation and it involves analyzing the internal and external environment in which the organization operates. While the external analysis aids managers in identifying organizations' opportunities and threats, the internal analysis is for identifying the distinctive competencies (Kraja & Osmani, 2013). Explaining further, Muriuki, Cheruiyot & Komen (2017) state that environmental analysis includes the: remote external environment (political, economic, social, technological, legal and environmental landscape-PESTLE); industry environment (competitive behavior of rival organizations, the bargaining power of buyers/customers and suppliers, threats from new entrants to the industry and the ability of buyers to substitute products-the Porter's 5 forces); and internal environment (strengths and weaknesses of the organization's resources-its people, processes and IT systems).

  2. Strategy Formulation: This includes developing a vision and mission, identifying the organization's external opportunities and threats, determining its internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies and setting policy guidelines and rules (Branislav, 2014). As elucidated in Burugo & Owour (2017), a strong mission statement together with situational analysis tools facilitates the formulation of a competitive strategy.

  3. Strategy Implementation: Strategy implementation, according to Wheelen & Hunger (2011), is the sum total of the activities and choices required for the execution of a strategic plan to accomplish the objectives of the organization. Koech & Were (2016) explains that this process encompasses the functional, business and corporate levels of any organization.

  4. Strategy Evaluation and Control: Managers urgently need to understand when specific strategies are not functioning as required and strategy evaluation is the essential means for getting this information. This is because, as stated in Muriuki et al. (2017), the implementation and control initiatives undertaken are the significant aspects of an effective strategic management practices for corporations. It is vital to any organization's well-being, most especially if timely as it can alert management to likely situations before they become critical (Ahmed & Mukhongo, 2017). Explaining further, Ahmed & Mukhongo (2017) stated that none of strategy formulation or implementation is a once-and for-all-time task since even the best formulated and implemented strategies can become obsolete as circumstances could arise within a firm's external and internal environments that can necessitate corrective adjustments on strategies already planned.

    Therefore, a well-developed strategy coupled with proper execution is crucial for an organization to remain competitive in this environment and make growth of firms certain (Koech & Were, 2016; Mutemi, Maina & Wanyoike, 2014; Vitkauskaite, 2017). However, as Makanga & Paul (2017) put it, all strategic plans put in place should realize desired objectives and also encourage the efficient utilization of available resources. This is all that strategic management process represents.

    Review of the Impacts of Strategic Management

    Strategic management practices have been observed to significantly relate to the sustainability and growth of firms in the wake of modern corporate governance systems globally (Muriuki et al., 2017). In Kenya, a case study of the Chai trading company limited was carried out by Burugo & Owour (2017) to establish the influence of strategic management practices on business profitability. The overall organizational performance was found to have been positively affected by its strategic management practices. In another case study, Makanga & Paul (2017) also found strategic management practices to have influenced the performances. Though in this case study of the Kenya Power and Lighting Company Ltd, Nairobi County, Kenya, the regression analysis show a weak degree of correlation (r=0.273; p

    Business Performance

    Performance is the end result of activities carried out and for any business it is concerned with the general efficiency or productivity. Two ways to deal with performance has been recognized in literatures: the financial or "sales-based" and the non-financial or "firm-based". Whereas the financial is measured with dimensions such as profitability, growth, productivity, level of sales revenue, market share and product, return on investments, product added value; the non-financial is...

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