THE IMPACT OF STRATEGIC MANAGEMENT ON PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES (A STUDY OF KADUNA METROPOLIS)

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The Nigeria economic environment is changing rapidly and this change is characterized by such phenomena as the globalization, changing customer and investor demands, ever-increasing product-market competition. To complete successfully in this environment,
organizations continually need to improve their performance by reducing cost,
innovating products and processes and improving quality, productivity and speed
to market. “Strategic management is an ongoing process that evaluates and
controls the business and the industries in which the company is involved,
assesses its competitors and set goals and strategies to meet all existing and
potential competitors, and then reassess each strategy annually or quarterly to
determine how it has been implemented and whether it has succeeded or needs
replacement by a new strategy to meet charged circumstances, new technology,
new competitors, a new economic environment, or a new social, financial or political
environment”(Adidu&Olanye2016).

The small and medium scale enterprises (SMEs) are the driving force in economic
growth and job creation in both developed and developing countries due to their
ability to experiment new approach at minimum cost and create a standardized
product/ services that can meet the needs of a large target market. However,
more than half of newly established businesses survive beyond five years.
Hence, the identification of those factors which empirically lead to
entrepreneurial success and failure which would assist in equipping small
business owners with the necessary managerial skills to survive in today’s
competitive environment as well as exploits several strategies that will
improve their operational efficiencies (Simsek and Yüzbasioglu2009).

The performance of organization is the focus of intensive research efforts on how well an organization performs its mission and accomplishes is its goals of programs delivery is to paramount concern. The success of failure of a strategy is significantly determined by
the quality of leadership displayed by the strategy leader normally the CEO,
during the strategy implementation process. In today’s increasingly chaotic
world and an ever changing environment, it is not enough to just keep the
organization afloat it is far more essential to make steady progress toward
some well- defined objectives. Strategic management provides overall direction to the enterprise and involves specifying the organization’s objectives, developing long-term policies and plans designed to achieve these objectives, and then allocating resources to implement the plans. The implementation of strategic management increases competitiveness, reduce costs, improve decision-making, facilitate implementation of the
employee motivation system, shorten delivery times, higher quality of customer
satisfaction, etc It is felt that strategic management, is a key pillar for
corporate survival, it must be adopt and applied to ensure better SMEs
performance, on a more consistent basis (Thompson, 2007).

As business competition is tighter and market conditions is more dynamic, many Small and Medium enterprises (SME) in Kaduna State develop their efforts to understand how SME can maintain or improve their marketing and financial performances. In order to be able to compete, some strategic and policy management experts have encouraged companies to
implement strategic management practices.The contribution of Small and Medium
Enterprises SME to economic growth and sustainable development is globally
acknowledged (CBN, 2004). There is an increasing recognition of its pivotal
role in employment generation, income redistribution and wealth creation
(NISER, 2004). The small and medium enterprises SME represent about 87 per cent
of all firms operating in Nigeria (USAID, 2005).

Despite Small and medium scale enterprises important contributions to economic growth, small enterprises are plagued by many problems including stagnation and failure in most sub-Saharan African countries (Bekele, 2008). In Nigeria, the problem is not limited to lack of
long-term financing and inadequate management skills and entrepreneurial
capacity alone, but also, includes the combined effect of low market access,
poor information flow, discriminatory legislation, poor access to land, weak
linkage among different segments of the operations in the sector, weak
operating capacities in terms of skills, knowledge and attitudes, as well as
lack of infrastructure and an unfavourable economic climate(Bekele, 2008).

The CBN found the reasons for the slow pace in utilization of the SMIEIS fund to
include: the desire of the Banks to acquire controlling shares in the funded
enterprises and the entrepreneurs’ resistance to submit control; inability of
the banks to adapt equity investment which is quite different from what the
banks are familiar with in credit appraisal andmanagement, and lack of proper
structure for effective administration of the scheme when it took off among
other factors. Responding to the findings, the Bankers’ Committee took a policy
decision to extend funding under the scheme to all business activities
including even non-industrial enterprises, except for general commerce and
financial services. The name of the scheme was changed from SMIEIS to Small and
Medium Enterprises Equity Investment Scheme (SMEEIS) to reflect the expanded
focus. Also, the limit of banks’ equity investment in a single enterprise was
increased from N200 million to N500 million, making room for medium size
industries (Bekele, 2008).

Small and Medium Business organization in Kaduna State has been viewed from the point
of importing various kinds of inputs (resources), such as human resources,
capital, managerial and technical inputs. These inputs are then transformed to
provoke output which takes the form of goods and services. Also the
relationship between the organization and the Kaduna society which focuses on
the demands and legitimate rights of different claimants such as employees,
consumers, suppliers, stakeholders, government and the community, the small and
medium business operates in an external environment of opportunities and
constraints. Thus no single approach is sufficient for all times and in all
circumstances with external environmental factors affecting the organization
performance as well as those factors within the organizations (Adeoye, 2012).

 Kaduna
State SMEs business organizations do not operate in vacuum of an ineffective
management of complex and dynamic society which requires the assessment of
strengths and weaknesses of the organization and the opportunities and threats
provided by the challenges of the external environment, hence for survival and
growth, organizations must cope and adopt to these challenges posed by the ever
changing environment (internal & external) in which managers operate.
Mangers must not only be aware of what constitutes the elements of their
business environment but also should be able to respond to the forces of the
environment which inevitably impinges on the operations of the business organization(Adeoye, 2012).

Strategic management must be employed for a more structured strategic management model, due to its size, scope of operations, and need to encompass stakeholder views
and requirement. The private firm can exercise strategic choice, even in the
face of external constraints. The way and manner they face strategic issues can
affect the overall growth and development of the organization. It goes without
saying that the strategic framework must also address fundamental issues such
as resource base, infrastructure constrains, appropriate level of technology
and raw materials input. The relationship between the strategic management
practices and corporate performances was inconsistent. Some argue that there is
a strong relationship between the two variables, but no less believe that the
two variables do not have a strong relationship. As a result, until now, there
is still a research gap in regard to the effect of strategic management
practices on business performance. It is against this backing that this
research examinesthe impact of strategic management
on performance of small and medium scale enterprises in Kaduna metropolis.

1.2  Statement of the Research Problem

Small and Medium enterprises in Nigeria are faced with numerous problems that hamper
the growth and development of these enterprises. This support the saying that,
the successes of any business whether small, big or mega depends largely on the
performance of people in management of its finance, although, all business
organization irrespective of their objectives have philosophy of growth,
survival and adaptivesness.
Small and Medium Enterprises (SMEs) in Nigeria have not performed creditably
well and hence have not played the expected vital and vibrant role in the
economic growth and development of Nigeria. This situation has been of great
concern to the government, citizenry, operators, practitioners and the
organised private sector groups, in spite of the numerous opportunities made available to assist small
scale businesses many small scale businesses in the State are still either not
doing well or have failed resulting to further unemployment and poverty with
their attendant consequences on the state Kuye, (2004).

Some Nigerian Business Organizations are without formal
plans or where there are formal plans they do operate without adhering to them.
Some argued that the market place changes so fast for a plan to be useful. All
business organizations are heading somewhere but unfortunately some do not know
where they are going, then any road will lead them there. This therefore
emphasizes the need for organizations to utilize strategic planning
concepts.Strategic management implementation has been challenging to many organizations.
They crunch vast amounts of consumer data, hold planning sessions frequently,
and use various techniques to develop strategy. Still, they miss the mark a lot
of the times. Some strategic management problems faced by organizations
include;Companies tend to ignore one complication along the way: They can’t
develop models of the increasingly complex environment in which they operate.
As a result, contemporary strategic-planning processes don’t help enterprises
cope with the big problems they face.

Several Chief Executive Officers (CEOs) admit that they are
confronted with issues that cannot be resolved merely by gathering additional
data, defining issues more clearly, or breaking them down into small problems.
Their planning techniques don’t generate fresh ideas, and implementing the
solutions those processes come up with is fraught with political peril.

Most Organizations do not progress at all walloping in
serious planning problems.Therefore, there is need for the research to
investigate why the above problems persist and examine ways by which strategic
planning could assistfor better performance of small and medium scale enterprises in
Kaduna.

1.3  Research Questions

The study is set to answer some research questions derived from general and
specific objectives and also from the statement of the problem.

       
i.           To what extend does strategic management affect the performance of Small and Medium Scale enterprises?

 ii.    Is there any significant relationship between organization strategic management
and organizational performance?

1.4  Objectives of the Study

The purpose of the study is to assess the extent to which strategic management factors affects the turnover of small business enterprises the specific objectives are to:   
i.     Determine the extent to which strategic management is practice by Small and Medium Scale enterprises.

ii.      Determine the relationship between the level of competition and adoption of strategic management by theSmall and Medium Scale enterprises in Kaduna State of Nigeria

1.5  Statement of Hypotheses

The following formulated null hypotheses would be tested in order to help provide
answers to the research questions;

H01:There is no significant effect between Strategic management and organizational performance

H02:There is significant effect between Strategic management and organizational performance.

1.6 Significance of the Study

This study tries to portray the need for effective Competitive Strategies in SMEs as
they contribute to the economy of every nation. The need for this study is
further emphasized in Nigeria, where small and medium scale enterprises over
the years have been battling with cases of failure. This study will therefore
be of tremendous value to the entrepreneur operating in the SMEs as it will
help them in facilitating their Competitive Strategic decision that will help
them stand the test of time. The study will also serve as an invaluable
contribution to literature on Competitive Strategic management that students,
academician, researchers and the general public can gained from especially as
it may concern the increase and benefit of applying Competitive Strategies for
Small and Medium Scale Enterprise in Nigeria to enhance their productivity.

1.7 Scope of the Study

The scope of this study covers the role of strategic management in Small and Medium
Scale Enterprises in Kaduna state with particular interest on some randomly
selected SMEs operating in the southern and northern parts of Kaduna
metropolis. By choosing different SMEs, which engage in different businesses,
the researcher will be able to assess the role of Competitive Strategic
management process which will enable him to ascertain its contributions and
impact on their existence, which will also provide the researcher with a basis
for making objective conclusion.

1.8 Definition of Key Terms

Definitions of terms used in this study are as follows:

Small Business Enterprises: these are small business that mostly use power and
small machines and employ a small number of workers Elegido (1996).

Performance Management: This referred to a strategic and integrated
approach to increasing the effectiveness of organization by improving the
performance of the people who work in them and by developing the capabilities
of teams and individual contributors Ciano, (2011).

Performance: This is task, accomplishment, execution,
carrying out, working out of anything order or undertaken in other words it is
an outcome of work that provided the strongest linkage to the strategic goals
of the organization, customer satisfaction and economic contributions Elegido
(1996).

Management: The act of running and controlling a business or similar organization.

Organizational Performance: This means that an organization is able to establish and disseminate a clear sense of purpose and direction, establish an appropriate structure with effective legislative and administrative frameworks, Organizational strengthening and capacity building means building an effective organization capable of identifying, choosing and implementing activities that will enhance its long-term performance.

Strategic Management: it is an act of enhances productivity and the effectiveness of organizations.

Strategy: is a process of manage a game plan for strengthening the organization’s position, pleasing customers and achieving performance targets