Strategic Planning and Performance in Small and Medium Enterprises: A Multiple Case Study in the German Manufacturing Industry

University essay from Lunds universitet/Företagsekonomiska institutionen

Abstract: This research aims to improve the understanding of the relationships between formal and informal strategic planning in reference to performance among SMEs. A qualitative case study was chosen as the approach for this thesis. The data was collected by conducting ten interviews with ten different manufacturing SMEs in Baden-Württemberg, Germany. A purposive sampling was conducted to ensure relevance of the primary data in this research. The interview outlines were based on the preliminary thesis framework (i.e. competitive environment, entrepreneurs and management, strategic planning, and firm’s performance). The competitive environment and entrepreneurs and management were confirmed to have influence to SMEs’ strategic planning. One unexpected and significant factor to SMEs’ strategic planning was found to be the business model of each firm (i.e. own products – mass marketed, contract manufactured products, and unique projects). Firms with the same business model type show very similar levels of strategic planning sophistication. Despite significant differences in strategic planning sophistication, firms showed very similar satisfaction towards performance. Entrepreneurs with mixed technology-business background are more likely to pursue more structured and formalized strategic planning. Only the firms with the highest level of strategic planning conducted environmental analysis and closely tied their plan to it, others managed to address their external environmental challenges in their own, unstructured approaches. Prior research showed inconclusive results on the implications of strategic planning to SMEs’ performance and the causal link between the two was not well-established. This research explains the conflict with the suggestion of a relationship of diminishing returns wherein certain SMEs can benefit much more from strategic planning than others. The significant differences in the degree of strategic planning are opposed by strong similarity of satisfaction with performance. This can be explained by the suitable strategic planning approaches chosen by each firm, rather than with a simple positive correlation. The relationship and interplay between the three factors, particularly the business model, have substantial influence on firms’ approaches to strategic planning and to the resulting performance. A diminishing returns relationship between the benefit of strategic planning and the type of product can best explain the degree of strategic planning that should be pursued by a firm.

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