STRATEGIC MANAGEMENT PRACTICES AND PERFORMANCE OF SMES IN RIVERS STATE

STRATEGIC MANAGEMENT PRACTICES AND PERFORMANCE OF SMES IN RIVERS STATE

The study examines the strategic management practices and performance of SMEs in Rivers State. The target population for this study is the entire workforce of the (34) registered SMEs in Rivers State. However, the accessible population for the study comprised of a convenient selection of (12) renowned and accessible SMEs firms operating in Rivers State. No sample was drawn due to the manageable nature of the population size, hence a census study approach was adopted.  Four( 4) testable null hypotheses were formulated and analyzed. Spearman’s Rank order correlation coefficient was used to analyze the null hypothesis, with the help of a satisfaction package for social science at 5 levels of significance, the null hypothesis was rejected and the alternator was accepted. Indicating a significant positive relationship between the dimensions of strategic management practices (strategy implementation and strategy evaluation) and the measures of performance of SMEs as (profitability and growth). Consequently, it was recommended that organization should understand that strategy implementation enhance the profitability of the firm, the organization should understand that strategy implementation is a major factor when considering growth, the organization should understand that strategy evaluation enhance profitability and growth of a firm, and lastly, the organization should understand that strategic management practices have a significant influence on performance and associate it should be well applied in other to survive and remain profitable.

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Strategic management practices is an effective tool for strengthening the performance of small and medium enterprises (SMEs). SMEs have become a subject of interest. Strategic management practices have been touted as one of the effective management tools in strengthening organization performance through the effective decision making and systematic strategic formulation and implementation. Although, strategic management was more prevalent in the private sector since the concept was first developed., The interest in using strategic management in the public sector has increased over the last decades, (Smith 1994). Since the 1980s there has been a series of reforms taking shape in the public sector resulting from increased awareness of the importance of quality in the public sector. Barnely & Hesterly (2008) suggested that a good strategy is one that actually generates a competitive advantage that differentiates an organization with its competitors by giving him a sustainable edge that is valuable, rare, and not easy to imitate. The strategy should therefore be unique in order to create a competitive advantage of nation’s aptly states that at the heart of positioning its a competitive advantage.

Thompson Strickland (2003) defined as consisting of moves and approaches devised by management to produce a successful organizational performance while Wheele and Hunger2008) stated that a strategy is a plan that provides direction on how the organization will achieve its mission and objectives. Proper strategic management practices enable SMEs to avoid a mismatch with the environment, it provides a link between an organization and its environment and must be consistent with the goals, values, and the external environment, resources, organizational Structures, and system (Ansoff & Mc Donnell, 1990). According to Hussey(1991), Strategy is the heart of strategic management because it helps an organization to formulate and implement various tasks to remain competitive in a turbulent environment.  An organizational strategy defines its unique image, provides it’s purpose and direction to its activities and to the people within and outside the organization (Grant, 1998).

Mintzberg (1998) distinguishes between intended, realized, and emergent strategy by defining intended strategy as a deliberate strategy that is planned and conceived by the management, emergent strategy is the strategy that becomes apparent through the passage of time while realized strategy is that observed and is influenced by both the intended and emergent strategy.

In Rivers State SME plays an important role in employment, poverty reduction, driving economic growth, rural industrialization, equitable distribution of income, and infrastructure development and overall development of the country. There are about 69,902 SME enterprises employing approximately 1737,709 workforces in the SME clusters of Rivers State. The contribution of SMEs to GDP of Rivers State estimated 25% and mostly 80% of all jobs in the industries are offered by the SMEs so the performance of these SMEs is very crucial for Rivers State. Initially, strategic management was mostly adopted by large firms but increasing risk, mistakes, and economic fluctuation forced today’s professional managers in all kinds of organizations to take strategic management seriously in order to stay competitive in volatile environments.

(Hanger & J Wheelen,  Hoffman & Bamford, 2017). Superior strategic management practices can provide all small firm’s tools for survival, growth, and help them to maintain a sustainable competitive advantage over their competitors. SMEs can use strategic planning tools to protect them from a very unpredictable business environment and ensure survival and growth (Dansoh, 2005, Pistrui Huany, Welsch, & Jing,2006). Amongst the SMEs which engage in strategic planning, are most likely to have higher sales growth, higher profit margin, higher return of assets, higher employee growth, higher international growth, and less likely to fail (Wang,  walker, & Redmond,2007). Strategic planning provides an operational network to SMEs which allows and organization to gain competitive advantage and to improve business performance (Pillania, 2008).

1.2 statement of the problem

Much has been written about small businesses and in particular about small business failure rates (Watson and Everett, 1996). Richard (2001) stated that there are many reasons for the failure rate of start-up businesses, including lack of adequate working capital-poor market selection, and rapidly changing external market conditions. And many researchers have even gone ahead to argue that strategic management procedures in SMEs are particularly inappropriate since such enterprises have neither management nor financial resources to commit in elaborate. Strategic management practices and techniques (Cragg and King, 1998). However, the most significant reason for the high failure rate in the inability of SMEs to make adequate use of essential business and management practices as many of them fail to develop an initial plan and those that do establish a plan to continually adjust and you see it as benchmarking tool. Zaei, et Al (2013) demonstrates that the use of strategic planning and management in business organizations whether a public or non-profit organization can help organizations to clarify the future direction; think strategically and develop effective strategies, establish priorities, deal effectively with rapid Changing circumstances, build teamwork and expertise, and solve major organizational problems and improve performance.

The government of Rivers State has introduced various programs to promote SMEs development and these include modernization of agriculture, Rivers State micro finance  Agency (RIMA), Trade fair, the building of market structures e:g mile 1 market, Rumuokro market park, etc and with all these programs we continue to witness many SMEs collapsing and underperforming a sign that significant investment is required in research in order to come with proper management policies that will reverse the current trends.

Source: Researcher Review of Related Literature 2019.

1.4 Aims and objectives of the study

1. To explore the effect of firm structure on the performance of small and medium enterprises mediated by strategic management practices.
2. To establish whether a firm strategy affects SME’s performance.
3. To examine the relationship between strategic practices and performance of SMEs.
4. To assess the relationship between policies and growth of SMEs.
5. To determine whether strategic planning affects SME’s performance.

1.5 Research questions:

1. What is the effect of firm structure on the performance of SMEs in Rivers State?
2. To what extent does firm strategy affect the performance of SMEs in Rivers State?
3. What is the effect of strategic management practices on the performance of SMEs?
4. What is the relationship between strategic management practices and SME’s performance?
5. How does strategic planning affect the performance of SMEs?

1.6 Research hypothesis

The following null hypothesis has been formulated to help guide the study:

Ho₁: There is no significant relationship between strategy formulation and profitability in the performance of SMEs in Rivers State.

Ho₂: There is no significant relationship between strategy formulation and growth of SMEs in Rivers State

Ho₃: There is no significant relationship between strategy implementation and profitability of SMEs in Rivers State.

Ho₄: There is no significant relationship between strategy Implementation and profitability in the performance of SMEs in Rivers State.

Ho₅: There is no significant relationship between strategy evaluation and growth of SME’s performance in Rivers State.

Ho₆: There is no significant relationship between strategy evaluation and profitability in the performance of SMEs in Rivers State.

1.7 significance of the study

This study is designed to examine the relationship between strategic management practices and performance of SMEs in Rivers State. Thus this study will be significant to the following groups and personnel.

1. The research will be used for academic purposes and students will have a wider scope of literature on which to refer.
2. With respect to the practical contribution, the findings of this study will be used as a guideline to the budget and planning department of every organization both small and big companies/ enterprises, and also to other interested bodies to improve the design and administration of small and medium Enterprises.
3. The research will guide SMEs organizations and managers, owners on practical implement and adoption strategies, and key management practices for improved organizational performance.
4. Policymaker: the study will be of great benefit to policymakers as it will reemphasize the importance of strategic management practices and the need to make appropriate policies that will help improve the performance of SMEs in general.

1.8 scope of the study

The scoop considered in this study includes content scope, geographical scope, and unit of analysis.

Content scope: The elements covered in the independent variable (strategic management practices) having its dimensions as strategy formulation, strategy implementation,  and strategy evaluation. While that of the dependent variable (performance of SMEs) was measured as profitability and growth.

Geographical scope: The Study is centered on strategic management practices and performance of SMEs in Rivers State.

Study unit scope: The unit of analysis for this study is at the micro-level, due to the fact that type of primary data needed for the research, respondents will comprise of owners and managers of small and medium enterprises in Rivers State.

1.9 Limitations of the study

Every research work comes with a number of limitations for the purpose of achieving the stated objectives of the study, the following limitations are inevitable:

This study is limited to selected SMEs in Rivers State, this is because not all SMEs in Rivers State can be covered given the short duration of the study.

The study is also limited to primary data which involves the design and administration of questionnaires and lastly, the study is limited to SMEs. This excludes other sectors such as multinational companies, government-owned companies, insurance companies, and other service sectors.

However, these limitations will not in any way invalidate the results of the study.

1.10 Operation Definition Of Terms

Strategy formulation: This is the process of establishing a business mission, conducting research to determine critical internal factors, establishing long term objectives, and choosing among alternatives.

Strategy Implementation: It involves the activities and decisions that are made to install new strategies to support existing ones. Some person also refers to it as operational management, and it is also called the action stage of strategic management.

Strategy Evaluation: This involves the activities and decisions that keep the process on track and it also serves as a corrective measure in measuring organizational performance and taking corrective actions.

Profitability: This the ability of a business to earn a profit.

Growth: This is defined as a development from lower or simpler to a higher or more form of evolution.

1.11 Organization Of The Study

The study is structured into five chapters as follows;

Chapter one covers the overview of strategic management practices and how it influences the performance of SMEs, the statement of the problem, research questions and hypothesis, significance of the study, limitations of the work, and operational definition of terms.

Chapter two gives a review of related literature of some of the work of scholars, practitioners, and others who have contributed to the study. It, therefore, creates a link to this current study.

Chapter three describes the research methodology used in the description of the population, research design, methods of data collection, and sampling techniques.

Chapter four shows the presentation and analysis of data.

Chapter five provides the discussion conclusion and recommendation of research findings.