Influence of strategic planning on Performance of small and medium sized manufacturing firms in Kenya

Abstract

The current business world has experienced rapid changes due to the ever changing political, environmental, sociological and political changes that have resulted to provision of innovative products in the market and ever changing customers’ needs. This has led to increased competition in the different sectors that has resulted to the closure of many firms that have not been fast in adapting to the versatile environment. In order to survive, firms must constantly improve their performance by reducing costs, enhancing quality and differentiating their products and this can be achieved by laying long term strategies. The study aimed at determining the influence of strategic planning on both small and medium sized manufacturing enterprises in Kenya. Specifically, the study aimed at investigating the status of adoption of strategic planning by the small and medium enterprises in the manufacturing SMEs, compare the performance of the SMEs that had adopted strategic planning against those that had not adopted, compare the firms’ performance before and after the adoption as well as establish the factors that determine adoption of the strategic planning tool. The research design that was adopted incorporated both exploratory and descriptive designs. The target population was the 260 small and medium manufacturing firms that had in operation in Thika town for the last three years as at the time of data collection. Data was collected mainly by use of questionnaires and analyzed by SPSS Version 21 and Microsoft Excel software. Stratified random sampling method was the main sampling technique that was adopted for the study. The statistical analysis tools that were used in data processing and analysis included: Logit model, Correlation analysis, Independent samples t- test, Paired t- test and Chi square test. The research study found that the status of adoption of strategic planning in small and medium manufacturing firms in Kenya is low compared to the large firms in Kenya and the manufacturing SMEs in the developed countries. The firms that had adopted strategic planning had adopted it for only a few years and the adoption process was in most cases initiated by the firm owners. In regard to performance of the firms, Independent samples t- test results revealed that the performance of the firms that had adopted strategic planning was higher compared to the ones that had not adopted. Paired t- test results showed that the performance of the manufacturing SMEs was higher after adoption of strategic planning tool. The study found that among the factors that determine adoption of strategic planning include; availability of resources, leadership style adopted by the management, organization culture, globalization of markets, mode of communication and the degree of innovativeness existent in the firms. Multiple regression results showed that the mode of communication used in the manufacturing firms had the overall predictive role in the adoption of strategic planning. Based on the results of the study, it was concluded that the status of adoption of strategic planning in Kenyan manufacturing SMEs was low compared to the large firms in Kenya and the manufacturing SMEs in the developed countries. The manufacturing firms that had adopted strategic planning had better performances compared to the ones that had not adopted. The findings of this research also showed that the firms’ performance after adoption of strategic planning was higher compared to the period before adoption. The study recommends that owners and senior managers in the manufacturing SMEs ought to adopt strategic planning to improve the performance of their firms. Training on strategic planning to the senior management should also be prioritized and manufacturing SMEs should form strategic partnerships with the large and mature firms in the value chain to gain a better understanding of the current management tools such as strategic planning.