The plans that businesses set up in order to position themselves to make maximum profit include their mission, vision, goals, objectives, strategy, implementation and execution (Sandberg, 1992).
Allen, Plunkett and Attner (2013) “defines the firm’s position, formulates strategies, and guides the execution of long term organizational functions and processes” (Allen, et al.
An analysis of extant academic literature on the topic indicates that strategic planning in SMEs is subject to unique characteristics and influences. Although a high relevance of strategic planning in the context of SME management does exist, its extent and design differ from larger (multiproduct, multidivisional) companies. Accordingly, research needs to devote more time to the analysis of the idiosyncrasies of this corporate sector to advance our understanding of strategic planning in SMEs and derive valuable recommendations for research and practice.
Despite the fact that small and large enterprises differ considerably in size and type of resources, we can assume that decision makers of SMEs do apply planning, although in many cases they do so rather intuitively and/or informally. Moreover, businesses, independently from their size, seem to be capable of executing some of the most important strategic techniques (such as the SWOT analysis). Since the link between the use of these strategic techniques and corporate performance should prevail in SMEs, it is essential to foster a respective awareness in the enterprise. Since SMEs are rarely “small-sized big enterprises,” the existing concepts and techniques have to be adapted accordingly. It does not appear to make sense to develop “standard” strategies and techniques that are equally effective in big companies and SMEs. As the use of strategic planning also seems to be worthwhile in SMEs, the respective techniques must be aligned with the personnel as well as the cultural, organizational, and financial conditions of the specific enterprise.
Nevertheless, strategic planning may be a substantial factor for small business performance. Even so, it is worth mentioning that the best business plan is only of limited use if it is not implemented. The importance of the business plan as a facilitating tool for future entrepreneurs must be emphasized. Additionally, the process of strategic planning should not be a one-off, but moreover a continuous action including the adaptation of former goals and strategies within a changing environment, which is valid especially for young and small businesses. Therefore, a business plan should not be limited to the start up of an enterprise, but instead also used as a continuous working document for ongoing strategic planning during all times of enterprise development and growth.
As conventional wisdom and empirical evidence seem to ascertain, strategic planning is a concept that marks out successful companies. Strategic planning may assist entrepreneurs in recognizing the breadth and complexity of their business. The level of uncertainty is reduced by providing a better understanding of the circumstances of its business, and hence to better prepare for the future. Accordingly, strategic planning helps to cope with the insecurities of businesses, and thus brings a beneficial value for the future, even above the sole acquisition of capital. It saves time and enhances management professionalism after start up.
In the recent years, governmental, nongovernmental, and educational institutions have dedicated a large effort toward the promotion and training of strategic thinking as well as actual strategic planning activities for entrepreneurship. The rationale behind this is that every business, regardless of its size, should have some form of strategic plan. Founders of new ventures always follow some sort of strategy to reach their goals, although these strategies are not always highly rational or explicit. In the case of SMEs, however, this strategy may be represented by the manager’s general thoughts. Only with increasing size, the strategic plan becomes more formal and elaborate. This formal document is called a business plan.
Writing a formal business plan is widely regarded as one of the most important aspects of strategic planning. The existence of a business plan is widely regarded as a valid indicator for the firm’s attitude toward strategic planning. The underlying assumption is that a written business plan represents good planning (Heriot & Campbell, 2004).
Nonetheless, especially in times of increasing dynamics and uncertainty, it is vital to stay informed about corporate goals and their attainment on a regular basis. The strategy-formulation process therefore should be regarded as a future investment. Although the majority of the well-known strategy concepts mostly originating in the 1980s have been developed for big companies, which generally display a higher awareness for existing problems and can hence allocate more resources to this issue, some of the strategic concepts and techniques also seem to be suitable for implementation in SMEs. One of the main benefits of strategic planning lies in the predictability of possible future scenarios and variations. Besides, no business is too small to require a sound strategy, and few strategies are so simple that they do not have to be developed into some form of a strategic plan.
Furthermore, it promotes long-term thinking, reduces the focus on operational details, and provides a structure for the identification and evaluation of strategic alternatives.
Academic research has derived several factors that inhibit the use of formal planning in SMEs. From the entrepreneur’s perspective, the major objections against the use of strategic processes in SMEs are that
For these reasons, several authors found a positive statistical relationship for corporate performance and ongoing strategic planning. Especially long-term formal strategic planning has been shown to have a positive relationship to performance (e.g., Kraus, Harms, & Schwarz, 2006). The pure process of (formal) planning itself already seems to have a positive effect in that it leads to a better understanding of the business and to a broader range of strategic alternatives. Formal strategic planning is elementary for long-term growth and development of small businesses.