STRATEGIC MANAGEMENT AND PLANNING

Strategic Management and Planning



Strategic Management and Planning

Introduction

This paper discuss the use of strategic planning in new ventures and young small-and medium-sized enterprises (SMEs) as I want to establish a business in cotton industry on small level. It provides interesting insights into the topics of small business management and entrepreneurship and it particularly investigates characteristics of SMEs, the nature of strategic planning, the role of the entrepreneur in strategic processes, the elements of strategic planning in new ventures and young SMEs, and the benefits of and reasons against the application of strategic planning.

The Need for Strategic Planning

Gibson and Cassar (2002) mention SMEs continue to play an increasingly important role in major economies around the globe. They employ more than half of all private-sector employees in the United States, are responsible for half of the gross domestic product (GDP), and generate between 60% and 80% of net new jobs per year (Gibson and Cassar, 2002). According to most definitions, small enterprises are firms that employ fewer than 100 employees, whereas medium-sized enterprises may employ up to 500 employees. Especially new business ventures, which are virtually always a subgroup of SMEs, have been a popular topic of academic research since Birch (1979) found that small firms create more new jobs than large firms.

Because SMEs are increasingly regarded as an important source of innovation, employment, and competition within industries, the search for factors that might facilitate the success of these businesses is growing (Gibson and Cassar, 2002).

Such factors are of high importance not only to scientists, but also to politicians, entrepreneurs, and managers, because SMEs and particularly new ventures are threatened with high failure rates and low profit margins. Besides popular research topics and already proven influence factors such as human capital (e.g., level of education, experience, etc.), strategic planning can be considered one of these factors. Indeed, several empirical research studies reveal a link between strategic planning and corporate performance.

Due to an extensive application of strategic management techniques in large companies and a widely accepted notion that rational economic decision making should prevail in enterprises regardless of their size, practitioners and academics alike have recently called for a more substantial use of strategic planning in SMEs. Kraus, Harms and Schwarz (2006) even argue that strategic planning is one of the key issues for SMEs. Most strategic concepts and techniques are considered to be irrespective of company size. Nonetheless, SMEs normally dispose of a lower level of resources, have limited access to target markets, and possess an insufficiently developed administration. Thus, the application of formal strategic planning mechanisms is often missing, especially up to a certain “critical size” of the company (Kraus, Harms and Schwarz, 2006).

Ineffective deployment of strategic planning can even be considered the main reason for failure to achieve expected or projected performance in many firms. However, in real business, a major weakness that is often inherent in SME management is the absence of top management's economic knowledge or its overorientation toward technical problem solving (Kraus, Harms and ...