THE ROLE OF STRATEGIC PLANNING ON THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES INFORMATION COMMUNICATION AND TECHNOLOGY (ICT) SECTOR IN NAIROBI, KENYA

Abstract

The purpose of this study was to examine the relationship between strategic planning and performance of Information Communications and Technology (ICT) Small and Medium Enterprises (SMEs) in Kenya. While most countries acknowledge the critical role that ICT SMEs contribute to their economies, both as an engine of growth and sustainable development, ICT SMEs experience many challenges that affect both their performance and sustainability. Theoretical literature suggests that strategic planning is an essential activity that generates positive outcomes for firms of all sizes. However, the results of the previous studies examining the relationship between strategic planning and firm performance have been inconclusive and has had mixed results. Similarly, strategic planning measures have lacked precision and consistency and many studies have focused on financial measures and ignored non-financial measures. The specific objectives of the study therefore, included determining the influence of strategic planning combined processes and actions on learning and growth, internal business processes, competitive advantage, and financial profitability of ICT SMEs performance. In addition, the study investigated whether environmental factors and organisational characteristics have moderating effects on the strategic planning performance outcomes. A descriptive and correlation design were used. The study used primary data gathered from SMEs top, middle and lower management employees. A total sample of 146 ICT SMEs constituting 61% of the total population was selected. Stratified random sampling was used to select the SMEs according to age category. Two hundred and thirty nine (239) responses were received from 123 ICT firms hence achieving a response rate of 55% and 84.2 % respectively. Data analysis was done using SPSS software version 20.0 and analysis tools comprised descriptive analysis, factor analysis, t- test, ANOVA, correlation, correlation matrixes and regression analysis. The results of the regression analysis revealed that strategic planning processes and actions are significant predictors of ICT SMES business performance and explain 24.1% improvement in learning and growth, 17.1% increase in internal business processes performance, 17% performance improvement in firm competitive advantage. In addition, strategic planning was found to have low but positive influence on financial profitability and explain 1% of its increase. The moderating effect of environmental factors on the strategic planning performance outcomes was found to be positive but insignificant, while organisational characteristics was found to have positive and moderate influence on strategic planning performance outcomes. This study concludes that effective strategic planning processes and actions have significant influence on ICT SMEs performance, and is a learning tool and a strategic resource. The study recommends that ICT SMEs entrepreneurs’ and managers should focus their efforts on building their capabilities to develop and implement effective strategic planning activities. Policy makers and academicians may need to address the capacity needs of SMEs and develop strategic planning model that address the challenges that SMEs encounter in a dynamic environment. This study was limited by its sample size, industrial coverage and location. There is scope for further refining the instrument, criteria and operationalisation and assessing the scope of strategic planning in SMEs on large scale and providing comparatives between sectors, geographical areas or business in various stages of development.