Strategic Planning, Implementing Strategic Planning in Small Business

“The vast majority of small business owners do not plan”, reviewing studies that conducted in the strategic planning field leads to the conclusion, that we can regard this statement as a ruling. But why is it so? And is there something that can be done? The fifth article in the series tries to answer these questions.

The status in which the vast majority of small business owners do not engage in any sort of strategic planning can be attribute to two different factors: First, the lack of time that every small business owner face, which exists mainly because of the centrality of the small business owner in the day-to-day management tasks that are crucial for the maintenance of the small business. Second, the skills, or lack of skills, to establish a profound strategic planning process that will evolve into strategic plan that will lay out the small business goals and objectives and the necessary resources needed to achieve those objectives. Such skills are not as common even for large business top managers, but contrary to small business owners large business top managers do have the access to professionals in the field of strategic planning and the necessary resources to hire them.

In light of this it needs to be asked; do all small business owners sentenced to lag behind their corporate colleagues regarding strategic planning? Is there something that the small business owner can do in order to narrow the gap?
Small business owners will never have the necessary resources needed to close the gap with large businesses regarding strategic planning process and implementation. But frankly I don’t think that they should put neither their time nor their money in the elusive quest to narrow this gap. Small business owners should understand that small businesses are not large businesses as for their abilities and resources and adopt different approach toward strategic planning that can be implemented not only in a rigid form which dictate an exact formula that delineate for the small business what to do and how to act at every possible situation, such approach opens a whole new set of alternatives to engage in some sort of strategic planning, from which the owner and its small business will be the main beneficiaries.

My suggestion for a different approach toward planning based on differential sophistication and time length of planning.
A five stages ordinal scale defines planning sophistication: 1. Defining objectives and goals. 2. Selection of strategies required for achieving objectives. 3. Assessment of resources required for implementation of strategies. 4. Procedures for identifying and preventing failure of the plan implementation on a continuing basis. 5. Attempt to account for factors outside the immediate environment of the firm.When a decision is made by the small business owner to set the planning bar on one of the five stages, the commitment than is for the chosen stage and all stages beneath it. Now that the decision about planning sophistication is behind us, it’s the time to define the time length that will be covered by the planning process. Three possible time lengths – one year, two years, and three years – define an increasing level of commitment to the scope of planning. It’s important to understand that no matter which combination of planning – sophistication, time length – is been chosen, the plans must be written in order to acquire the needed commitment for achieving the full impact.

Strategic Planning, Do Strategic Planning Implementation in Small Businesses Affect the Level of Performance

The fourth article in the series deals with the assumption, that strategic planning implementation in small businesses raises the level of performance. A presentation of empirical studies from the past five decades will be used to clarify that issue.

Mayer and Goldstein (1961) studied the survival rate at the first two years of operation of eighty-one firms from service and retail industries. Underlie firms’ failure were lack of planning and coherent decision-making. Chigha and Julien (1979) conducted a longitudinal study on ninety industrial firms throughout the years 1968-1978 in which they examined the correlation between strategic planning and performance. Firms that implemented strategic planning at the highest level available showed significant increase in number of employees, sales and assets. Robinson (1979) examined the effect of strategic planning implementation on business performance in forty-two small businesses from the service industry. Results showed that strategic planning enhanced decision-making that led to significant increase in sales and profits, and significant decrease in debt to capital ratio. Robinson (1982) studied two groups of small firms; a first group that includes small businesses that implemented strategic planning using outside assistance (counselors, lowers, accountants, bankers) and a second benchmark group of small businesses that did not implemented strategic planning. The first group showed a significantly higher level of profitability, sales, return on sales (ROS) and number of full-time employees.




With the development of the research in that field, the classification of firms changed from dichotomous criterion to layers, when a layer of strategic planning was defined through the time length and sophistication in which the planning is conducted. Bracker and Pearson (1986) examined planning and financial performance of small firms, they sampled 188 small dry cleaning businesses, and defined four levels of strategic planning: 1. Unstructured plans – no measurable structured planning in the firm. 2. Intuitive plans – these informal plans are developed and implemented based on the experience and intuition of the owner of the firm. These plans are not written and are stored in the memory of the firm’s owner. They are of a short-term duration (no longer then one year) and based on the owner’s objectives and the firm’s present environment. 3. Structured operational plans – written short-range operation budgets and plans of action for current fiscal period. 4. Structured strategic plans – formalized, written, long-range (three to fifteen years) plans covering the process of determining major outside interests focused on the organization; expectations of dominant inside interests; information about past, current, and future performance; environmental analysis; and determination of strength and weaknesses of the firm feedback. Findings suggest for significant increase in revenue growth and in entrepreneurial compensation growth for firms that conducted structured strategic plans compare to the others. No significant differences found for the measure – labor expense/revenue growth. Rue and Ibrahim (1998) examined strategic planning and performance in 253 small businesses. Three levels of strategic planning were defined: 1. No written planning. 2. Basic written planning – consideration of external factors, quantitative objectives, budget. 3. Sophisticated written planning – in addition to paragraph 2, procedures for inspecting planning versus execution. Results suggested for significant difference between small businesses that implemented basic and sophisticate written planning compared to the others for the rate of increase in sales. No significant difference found for return on investment (ROI). Perry (2001) studied the effect of planning on firms’ failure using a sample of 152 pairs of small businesses, which resembled in age, size, location and industry. The distinction between the pairs of businesses was that one of each pair file for bankruptcy while the other was still in operation. Level of planning sophistication measured using five questions in ordinal scale; each question represents a single planning unit. Findings supported a significant difference at the level of planning between small businesses that file for bankruptcy and these that didn’t. Wijewardena et al. (2004) defined three levels of strategic planning – No written planning. Basic planning. Sophisticated planning. They found that the level of planning correlate positively with the level of sales growth. Yusuf and Saffu (2005) defined three levels of strategic planning – Low. Marginal. High. Unexpectedly, sales growth correlates to low level of strategic planning. No correlation was found between strategic planning and market share growth and growth in profitability.

The empirical studies’ review indicates for inconclusive findings regarding the correlation between strategic planning and small business performance. Moreover, including studies from several decades that examining different industries and using different measures both for strategic planning as well as performance; reinforce the conclusion that strategic planning implementation in small businesses does not guarantee higher level of performance. It’s not obvious that the more sophisticated and for long-term the strategic planning is the higher the level of performance is.

Strategic Planning, Analyzing the Differences between Small and Large Businesses

Through a discussion about why and how strategic planning in small businesses is different then in large businesses, this third article in the series is been used as a passage from an overall discussion regarding strategic planning to a targeted analysis focusing at strategic planning in small business.
Till the mid seventies a small business was considered as a large business regarding the managerial skills needed for its success. From the mid seventies we can note that scholars make the distinction between small and large businesses in terms of the level of sophistication and the scope of strategic planning.

Hofer (1975); Lindsy and Rue (1980) argue that the size of the firm is a significant indicator needed to take into consideration for designing an affective strategic planning. Furthermore, strategic planning as implemented in large firms doesn’t guarantee a similar results for small businesses and it may be inadequate for them. Welsh and White (1981) claimed that despite the common assumption among managers that small business can be regard as large business – except for smaller sales, assets, employees – here is that small businesses need a specific guidance for operating its managerial skills. Thurston (1983) wrote that managers in small businesses could adopt several approaches, starting from non-formal planning without written plans and ending with a fully formal planning that includes written plans.

Reviewing the way strategic planning is implemented in small businesses strengthen the notion about the need for unique approach toward strategic planning in small businesses. Hestings (1961) studied planning difficulties and implementation in 106 manufacturing firms. He found that in most firms planning was not formal. Moving forward the planning process caused major difficulties, likewise to allocate the necessary time for it. Still (1974) investigate the approach toward strategic planning in ninety-two firms from manufacturing and construction industries. His findings were: 1. Strategic planning was implemented in irregular and incomprehensive way. 2. The planning was not methodical. 3. Few people took part of the planning process. 4. Very occasionally the firm’s goals were taking into account. 5. The search for alternatives was with no inspiration and the tendency was to limit the search for more alternatives as soon as a good alternative was located. Cohn and Lindberg (1972) studied 106 small businesses and ninety-one large businesses in order to locate and define the differences concerning managerial aspects, findings reveled: 1. Planning was the hardest procedure for implementation. 2. Setting goals was the weakest procedure in small business planning. 3. Planning in small business consumed considerable amount of time. Shuman (1975) examine long-range planning in forty-one manufacturing firms, findings were: 1. Planning was informal, inconsistence and unstructured. 2. The planning based on insufficient and inadequate data. Robinson and Pearce (1984) ascribe the lack of strategic planning in small businesses to a limited knowledge in the planning process, lack of time, expertise and trust. Sexton and Van Auken (1985) reported that only a minority of the small businesses engaged in strategic planning, these that did plan showed instability and inconsistency with keeping the planning process over time.

To summarize the above, small businesses have a problem with the implementation of strategic planning due to lack of time, knowledge and expertise. When planning do carried out its output is insufficient and incomplete. Strategic planning in small businesses should take into consideration the strengths and weaknesses, competencies and disabilities of the small business.
The forthcoming articles in this series will enhance the discussion about strategic planning in small businesses in two aspects: 1. Do the implementation of strategic planning in small businesses affect the level of performance. 2. Tailor made step-by-step strategic planning for small businesses, an operative suggestion.