CHAPTER ONE

INTRODUCTION

1.1      Background of the study

Small and medium scaled enterprises (SMEs) are no longer exempt from environmental conditions that until recently were often the drivers of strategic decisions in large organizations. They now find themselves subject to the same rapid, novel and discontinuous changes that have become amplified due to the exceptional advancement in technology and globalization. The SMEs managers are now subject to real threat and/or possibility that their firm/industry will be the one that is affected by these environmentaldiscontinuities and as such, are agents of change to the traditional methods in which SMEs formulate and implement their strategic plans in order to prepare for and to deal with the rapidly changing environments that most of them face (Wheelen& Hunger, 1995 and David, 1999). Gibb & Scott (1985) argued that as small business managers adopt a more formal planning process, the breadth of strategic planning can most certainly influence the growth development pathway for the company and provide a framework for enhancing the existing size and capability of the firm. Although many of these studies have not really established a direct relationship between strategic management, organizational development and SMEs; they have rather provided frustrating results in the relationship between strategic planning and performance of small business (Watts &Ormsby, 1990). Prior studies have consistently claimed that SMEs in general do not engage in formal strategic planning (Stoner, 1983; Shrader, 1989; Sexton &Auken, 1985; Robinson et al. 1984; Hidde&Masurel, 2000) and even those SMEs that attempt to plan strategically tend to only do so sporadically and inconsistently (Sexton &Auken, 1985). However, an instance where strategic management is in practice in SMEs, research indicated that it is informal, unstructured, and irregular, supported by insufficient and ineffective information, usually obtained through informal sources, and reactive rather than proactive (Gibb and Scott, 1985; Flavel, 1991). Moreover, when managers of small businesses engage in strategic thinking, such deliberation is seldom formal due to lack of time, cost, expertise, information, training, education and skills of owner-mangers (Robinson and Pearce, 1984; Shrader, et al., 1989).

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