Effect of Strategic Planning on the Financial Performance of Professional Service Small and Medium Size Enterprises in Kenya

Abstract

The main objective of the study was to investigate the strategic planning process on the financial performance of professional service SME’s in Kenya. Five specific objectives of the study are: to determine the effect of strategy formulation on the performance of professional service SME’s in Kenya; to investigate how strategy formulation affect financial performance of professional service SME’s in Kenya; to investigate how strategy implementation affect the financial performance of professional service SME’s in Kenya; to evaluate the effect of strategy evaluation on financial performance of professional service SME’s in Kenya and to identify the moderating effect of innovation on the relationship between strategic planning process and financial performance of SMEs. This study unit of measurement was senior, middle level managers and owners of professional service SME’s in Nairobi. The study used cross-sectional descriptive study design. From a target population of 51287 registered professional service SMEs in Nairobi, 381 respondents were chosen using proportionate and purposive sampling, with one respondent selected from each SME. Questionnaire was used as the data collection instrument, with both descriptive and inferential statistics performed. From the findings it was revealed that environmental scanning, strategy formulation, strategy implementation and strategy evaluation all had positive significant effects. The findings of factor analysis also indicated that only 8 dimension of strategic planning process are considered important to SMEs. Further, the findings showed that innovation have moderating effect on the relationship between strategic planning process and the financial performance of professional service SMEs. Thus it can be concluded that strategic planning process affects the performance of SMEs to a small extent. The study also concludes that innovation practices hold potential in affecting the relationship between strategic planning process and financial performance among professional service SMEs. The study recommends that professional service SMEs adopt strategic planning process as a way of improving their performance. It is also important for SMEs that have adopted strategic planning process to embrace innovative practices as a way of further enhancing professional service SMEs financial performance.