STRATEGIC MANAGEMENT PRACTICES AND CHALLENGES

AMONG SMALL AND MEDIUM ENTERPRISES IN WESTLANDS

DIVISION, NAIROBI

Redempta Nthuka Ndambuki

A Management Research Project Submitted in Partial Fulfillment of the

Requirements for the Award of the Degree of Master of Business
Administration (MBA), School of Business, University of Nairobi.

October, 2010
 DECLARATION

I declare that this Research Project is my original work and has not been presented to any

other university for academic credit.

__________________________ _______________

Signed (Date)

Redempta Nthuka Ndambuki

D61/8744/2006

The Research Project has been submitted for examination with my approval as University

Supervisor.

_____________________________ ___________________

Signed (Date)

Dr. Martin Ogutu

Senior Lecturer, Department of Business Administration

ii
 ACKNOWLEDGEMENTS

I gratefully acknowledge the help that I have received from the Almighty God all my life.

He has always sustained me in all my ways and without Him there is nothing that I would

ever achieve. I thank Him for giving me the opportunity to study for this degree

programme and for providing all that I needed to complete these studies.

I extend my gratitude to the University of Nairobi for providing me the opportunity and

all necessary academic resources to undertake these studies. Special thanks go to the

selfless lecturers who facilitated the various course units I undertook during the course of

my studies. I must thank my classmates for enriching the study experience through their

incisive insights and interrogation of the course content. My interaction with them made

my study experience fuller and richer. Thank you all!

My sincere gratitude and appreciation goes to my project supervisor Dr. Martin Ogutu

whose expert counsel, constructive criticism, and guidance enabled me complete the

project in time while expanding my understanding of this particular subject matter.

I thank my loving husband Amos and my two wonderful children Victor and Prince for

their patience with me during the long hours I put in this research and generally

throughout the entire course. I acknowledge their understanding and thankfully

recognize that their encouragement sustained me during hours when discouragement

threatened to overwhelm me. To my friends, house helps and relatives who put up with

my extended busy hours I say, “Thank you”.

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My special thanks and gratitude also go to the managers of the Small and Medium

Enterprises (SMEs) who spared their valuable time to complete the research instruments.

Your willingness to go beyond your call of duty has made this study possible. I wish you

success in your work and gratefully acknowledge the good work you are doing in making

Kenya go forward.

Finally, I thank my employer, the Government of Kenya for generously extending to me

study leave to undertake this degree programme while retaining me on a salary. To my

colleagues who had to do extra work during the time I was away, I appreciate your moral

support.

.
To all who have contributed to my success in any way, I say thank you and pray that the

Almighty God will bless you.

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 DEDICATION

To Jesus Christ my Lord and Saviour, loving and true to me through this programme

To my loving husband Amos for his immense support accorded to me during the time I

undertook this programme and for all his generosity to me always.

To my wonderful children Victor and Prince, for their perseverance and personal

sacrifices while I spent many hours studying. At times, you accompanied me to Main

Campus and cheerfully kept yourself busy with play while I studied.

To my mother Joyce Syombua who gave me peace of mind and put up with my busy

study schedule.

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 ABSTRACT

The main objective of this study was to determine the strategic management practices adopted by

small and medium enterprises (SMEs) in Westlands Division, Nairobi. The study also sought to

establish the strategic management challenges such enterprises face in their operations.

The research employed a descriptive survey design to obtain a sample of SMEs from the listing

of the sampling frame containing 84 SMEs in Westlands Division. A sample of seventy four

SMEs was identified and selected for this study. Out of this, fifty (50) enterprises responded,

representing a response rate of 67.6%. Respondents were either owners or managers who had

the responsibility of shaping the strategic direction of the enterprise.

A structured questionnaire was designed and used to capture data to address the objectives of this

study. Both qualitative and quantitative primary data were collected. The questionnaire

instrument was divided into three sections. Section one focused on the demographic profile of

the respondents, Section two dealt with data on strategic management practices, while Section

three addressed itself to the strategic management challenges that SMEs face.

The data collected was checked for consistency and then analysed to arrive at various

conclusions. Descriptive statistics such as frequencies, percentages, and mean scores were used

to analyze and describe the data. The standard deviation measure of dispersion was used to show

the spread of the data where appropriate. Bar graphs, pie charts, and tables were used to present

the data.

The study found that surveyed SMEs have adopted strategic management practices in order to

facilitate efficient management and achieve better performance. SMEs reported that they adopted

major strategic management practices proposed in strategic management theory and also

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reported in the literature review from studies conducted in other industries. The study found that

SMEs have benefited from instituting strategic management practices as such practices have

helped these organizations better respond to the turbulent environment resulting in organizational

survival and profitability.

This researcher proposes that future studies explore the relationship between education levels of

managers and the extent to which they employ strategic management practices. Further research

may also be done to establish the relationship between ownership of business enterprises, that is,

whether local or foreign, and how such ownership is related to employment of strategic

management practices.

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 TABLE OF CONTENTS

Declaration ................................................................................................................................................................... ii
Acknowledgements ..................................................................................................................................................... iii
Dedication......................................................................................................................................................................v
Abstract.........................................................................................................................................................................vi
List of Tables .................................................................................................................................................................x
List of Figures............................................................................................................................................................. XI
Abbreviations ............................................................................................................................................................. xii
CHAPTER ONE: INTRODUCTION ........................................................................................................................1
1.0 Background of the Study..............................................................................................................................1
1.1.1 Strategic Management Practices ............................................................................................................2
1.1.2 Challenges of Strategic Management......................................................................................................3
1.1.3 Small and Medium Enterprises (Smes) ...................................................................................................4
1.1.4 Small and Medium Enterprises (Smes) In Nairobi ................................................................................6
1.2 Research Gap ...............................................................................................................................................7
1.3 Statement of the Problem .............................................................................................................................8
1.4 Objectives of the Study ................................................................................................................................9
1.5 Significance of the Study .............................................................................................................................9
CHAPTER TWO: LITERATURE REVIEW.........................................................................................................11
2.0 The Concept of Strategic Management ......................................................................................................11
2.1.0 Strategic Management Practices ............................................................................................................12
2.2.1 Environmental Analysis...........................................................................................................................12
2.2.2 Strategy Formulation ...............................................................................................................................15
2.2. 3 Implementation .....................................................................................................................................17
2.2.4 Evaluation ................................................................................................................................................19
2.3 Benefits of Strategic Management .............................................................................................................21
2.4 Strategic Management Challenges .............................................................................................................23
2.5 Small And Medium Enterprises (Smes) .....................................................................................................25
CHAPTER THREE: METHODOLOGY................................................................................................................27
3.0 Research Design.........................................................................................................................................27
3.1 Population ..................................................................................................................................................27
3.2 Sample Design ...........................................................................................................................................27
3.3 Data Collection ..........................................................................................................................................28
3.4 Data Analysis .............................................................................................................................................28
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATIONS..................................................................29
4.0 Introduction................................................................................................................................................29
4.1 Demographic Profile of Enterprises Surveyed ...........................................................................................29
4.1.2 Industry Category ................................................................................................................................30
4.1.3 Number of Persons Employed .............................................................................................................31
4.2.0 Strategic Management Practices Adopted ...........................................................................................31

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 4.2.1 Strategy Formulation ...........................................................................................................................31
4.2.2 Strategy Development Tools................................................................................................................32
4.2.3 Strategic Plans .....................................................................................................................................33
4.3.4 Strategy Implementation......................................................................................................................34
4.3.5 Evaluation Process................................................................................................................................34
4.4.0 Strategic Management Challenges........................................................................................................35
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ...........................................37
5.1 Introduction................................................................................................................................................37
5.2 Summary ...................................................................................................................................................37
5.3 Conclusions................................................................................................................................................37
5.4 Limitations of the Research........................................................................................................................38
5.5 Recommendation for Further Research.....................................................................................................39
5.6 Recommendation for Policy and Practice .................................................................................................39
References ..................................................................................................................................................................41
Appendices .................................................................................................................................................................44
Appendix 1: Introduction Letter..............................................................................................................................44
Appendix 2: Questionnaire......................................................................................................................................45

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 LIST OF TABLES

Table 4.1: Stakeholder involvement ............................................................................................. 32

Table 4.2: Strategy development tools.......................................................................................... 33

Table 4.3: Extent to which enterprise uses strategic plans ........................................................... 33

Table 4.4: Extent of strategy implementation............................................................................... 34

Table 4.5 Evaluation process scores ............................................................................................. 35

Table 4.6: Extent to which strategic challenges are important to surveyed enterprises ............... 35

x
 LIST OF FIGURES

Figure 4.1: Age distribution in operation...................................................................................... 29

Figure 4.2 Industry categories of surveyed enterprises ................................................................ 30

Figure 4.3: Number of employees ................................................................................................ 31

XI
 ABBREVIATIONS

CEO - Chief Executive Officer

EU - European Union

MBA - Master of Business Administration

SMEs - Small and Medium Enterprises

SWOT - Strengths, Weakness, Opportunities and Threats

UNDP - United Nations Development Programme

UoN- University of Nairobi

USAID - Unites States Agency for International Development

xii
 CHAPTER ONE: INTRODUCTION

1.0 Background of the Study

Strategic management as a discipline originated in the 1950s and 60s (Ansoff et al ,1990) .

Although there were numerous early contributors to the literature, some influential pioneers

were Igor Ansoff and Porter (Ansoff et al, 1990) and (Porter, 1980). According to Ansoff (1990)

strategic management is a deliberate process in which top executives periodically would

formulate the firm's strategies, then communicate it down the organization for implementation

and eventually to control them. Strategic management in organizations is necessitated by the

increasingly rapid nature of change as well as a greater openness in the eternal environment

which requires a different set of perspectives from the past seemingly stable times. When a

certain degree of equilibrium existed in the 1950s and 70s, with constant positive economic

growth, less competition, low technological innovativeness, manageable budgets, predictable

customer preferences and relative political stability, managers could concentrate almost

exclusively on the internal dimensions of their organizations and assume a constancy in the

external environment (King et al, 2002).

Contemporary, systems are much more open, firms are characterized by increasingly unstable

politics and negative economic growth, stiff competition, customer tastes and preferences are

constantly changing, enhanced technological innovativeness and planning in the traditional sense

is no longer possible (Porter, 1980). Therefore, the strategic management approach recognizes

that for an organization to maintain or exceed performance, it must continuously re-assess and

modify its plans as the environment evolves (Rosen, 1995). This turbulent external environment

necessitates the need to practice strategic management in organizations (Ansoff et al, 1990).

1
1.1.1 Strategic Management Practices

Strategic management practices is a process of steps applied to holistically manage the firm

competitively (Coulter, 2005). The practices are situation analysis of organization, formulating

winning strategies, implementing and evaluating them. Internal situation analysis of the firm’s is

the first step and should be carried out to determine the strengths and weakness of the internal

environment of the firm (Rosen, 1999). External environment of the firm need to be analyzed

to establish the firms opportunities and threats. This environmental analysis determines the

formulation of the strategies that propel the firm to achieve its goals and objectives (Grant,

2005). Implementation of the formulated strategies must be carried out so as to achieve the

firm’s intended results. Finally, the whole process must be reviewed or evaluated within a

relative given span of time to ensure adherence and correction (Coulter, 2005).

Pfeffer (1998) affirms that Strategists are individuals who are most responsible for the success or

failure of an organization. Strategists are individuals who form strategies. Strategists have

various job titles, such as chief executive officer, president, and owner, chair of the board,

executive director, chancellor, dean, or entrepreneur. Strategists help an organization gather,

analyze, and organize information (Thompson, 1999). They track industry and competitive

trends, develop forecasting models and scenario analyses, evaluate corporate and divisional

performance, spot emerging market opportunities, identify business threats, and develop creative

action plans. Strategic planners usually serve in a support or staff role. Usually found in higher

levels of management, they typically have considerable authority for decision making in the

firm. The Chief Executive Officer is the most visible and critical strategic manager. Any

manager who has responsibility for a unit or division, responsibility for profit and loss outcomes,

or direct authority over a major piece of the business is a strategic manager or strategist.

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1.1.2 Challenges of Strategic Management

Challenges are the impediments that make it difficult to apply strategic management practices.

The following are some of the challenges. Change is inevitable in the modern times due to

dynamic environment, yet some workers and even managers especially from old school of

thought are slow to adapt to it (Ansoff et al, 1990). Some decision makers hold onto the

previously held theory of stable external environment and slow in comprehension of paradigm

shift in turbulent environment (Slack et al, 2002). Also finding data in some developing

countries is a real challenge because the available statistics are far below those available in

developing countries. Data is key to analyzing competitors and their products. Most companies

try to keep any financial information and consider them secrets. It is not possible to know the

demand in last year of a certain product or service. People are not used to market research and

they do not want to talk to the marketing people (Coulter, 2005).

Some employees and some managers are not aware of the value of strategic planning and they

may consider it a waste of time and something that is applicable only in big firms (Johnson and

Scholes, 2002). In addition many owners of successful companies believe they do not need to do

strategic planning. They forget that their success will go one day when there are more

competitors or there are changes in the market (Mintzberg, 1999). Most company’s managers in

some firms are experts in the technical process of the organization but they are not well educated

in management and thus they want to focus on what they know and neglect what they do not

know. Accordingly, strategic management does not fall in their area of interest. Strategic

planning needs a lot of forecasting and qualitative analysis besides the quantitative analysis

(Coulter, 2005). Many technical managers are not used to neither the qualitative analysis nor

the forecasting.

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It is hard for employees to correct the managers who are heavily involved in formulating

strategies (Rosen, 1995). Thus the managers will keep an attitude of know it all, just to keep his

freedom at the expense of the firm. This may result to inadequate participation by necessary

stakeholders may cocoon some managers in ineffective strategic management practices. In many

cases formulation and implementation may not go as scheduled. In addition, managing Strategic

plan is costly in terms of time and other resources like people and funds (Bowman et al, 1997).

To get every manager follow the same strategy is not an easy task. Some workers claim that

some managers keep the document of strategic plan secret, thus hoarding it from the

implementers. Having a clear strategic plan and clear goals for the future (other than increasing

sales of the current products) does not affect the stock price because most of the investors do not

care about long terms development of the firm ( Mintzberg, 1991).

1.1.3 Small and Medium Enterprises (SMEs)

While a broad generic definition can be taken for SMEs, different authors have a very specific

definition. For example, the European Commission defines an SME as an enterprise which

employs less than 250 people has an annual turnover of less than €50m and balance sheet assets

of less than €43m; and has no more than 25% of its capital or voting rights owned by a larger

firm or public body (European Commission, 2003). SMEs are defined by three keywords small,

single and local. Small SMEs are small in nature, either in terms of number of employees e.g. 10

persons for small to 200 persons for medium depending on the country's law. Secondly capital

and assets are and finally the overall turnover of the enterprise is small, compared to larger

businesses (European Commission, 2003).

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Most SMEs have a single owner who could also be the sole employee. While this may

predominantly be the case, definitions set 250 to 500 employees as the limit for enterprises to be

called an SME. The 'single' also refers to single products produced or service provided. Local

SMEs are essentially local in nature and their market is usually localized to the area where they

are located (same city, district or state); or may be local in the sense that they operate from a

place of residence and also called Small Office Home Office (Hill, 1987).There are of course,

exceptions to the above. For example, SMEs while having a small output can have a global

market for its product/service or SMEs may produce more than one product or provide service

(Hill, 1987).

SMEs are not limited to any particular type of industry or service, and can include small

manufacturing facilities, small processing units, trading companies, export-import companies,

distribution, retailing, rental, service company (King, 2002). A key factor that distinguishes an

SME from enterprises in the informal Sector is the fact that they are legally registered

companies/businesses. Another related term that is sometimes used interchangeably with SME is

that of a microenterprise (Hill, 1987). Variations of the definition of a microenterprise is quite

similar to an SME. SMEs are socially and economically important. They represent 99% of an

estimated 23 million enterprises in the EU and provide around 75 million jobs representing two-

thirds of all employment. SMEs contribute up to 80% of employment in some industrial sectors,

such as textiles, Agriculture, Information Technology and Manufacturing European Commission

(2003).

5
1.1.4 Small and Medium Enterprises (SMEs) in Nairobi

The strategic importance of SMEs to economic development is widely recognized. According to

Mueni (2008) most of the local investment businesses in Kenya fall under the Small and Medium

Enterprise (SME) business sector. The report states that the sector employs over 75% of the

Kenyan workforce and contributes to about 18.4% of the country’s GDP. Basically SMEs have

provided employment in Kenya therefore alleviating poverty. SMEs have also provided

breeding ground for entrepreneurs, caused driving force for interrelated flow of trade,

investment, technological innovations and development of cheaper quality products (USAID,

1991). These Small and Medium enterprises have adapted quickly to changing market demands

and increase competitiveness of the market place. Given the importance of SMEs’ in Kenya,

strategic management plan should be developed in order to meet demanding standards and

requirements of today's highly competitive global market place (Ngahu, 2002).

At this time, competition has increased on the domestic market of Kenya due to the elevated

interest of foreign firms as well as due to development of domestic firms supported by increasing

market demand. The fact that Kenya has a liberal trade policy increases the competitiveness of

enterprises and their readiness to expand exports (Orwa, 2007).This fuels stronger competition

and growing pressure on prices that aggravate economic situation of SMEs. To counter the

threats and make successful use of the new opportunities, SMEs need long-term strategies and

purposeful work. In particular, the role of strategic management should be emphasized in order

to drive the firm into a competitive edge (David, 1989).

The rapid growth of SME sector in Nairobi is attributed to the adjustment programmes that have

resulted in widespread retrenchments both in the public and private sector. Many retrenched

6
workers have sought alternative employment in the informal sector. In addition, the recent

growth in Kenyan economy has really improved the growth of SME sector in Kenya. As

globalization intensifies and with global competition in labour intensive manufacturing large

enterprises have sought and will continue to seek to evade mandated protection to lour by

subcontracting to unprotected labour in the informal sector therefore leading to the growth of the

informal sector (Melony, 1999). The informal sector has been described variously by a number

of reports and scholars (Government of Kenya, 1999). Generally it comprises of semi organized

registered and unregistered activities undertaken by self employed persons. In the open air

markets, market stalls, undeveloped plots, street pavements within the urban centres with or

without licenses from local authorities. The reason why the informal sector flourishes in Kenya

is the operations of businesses without much restriction or regulation, the entrepreneur’s

flexibility in meeting customer needs and the goods and services provided depend on demand as

perceived by entrepreneur. The informal sector will continue growing thereby providing income

generating opportunities for those willing and able to take advantage Government of Kenya

(1999).

1.2 Research gap

Mueni (2008) researched on factors influencing profitability in SMEs while Wanjohi and Murure

(2008) carried out a study on factors affecting the growth of SMEs. Orwa (2007) had researched

on force for development and Reform in Jua Kali, while Ngahu (1992) studied choice of

Technology in SMEs. The researcher of this study has not found a study on the strategic

management practices and challenges amongst SMEs in Westlands, Nairobi. This qualifies a

gap for this study.

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1.3 Statement of the problem

It is generally accepted that SMEs are becoming increasingly important in terms of employment,

wealth creation, and the development of innovation (Ngahu, 1992). However, there are

considerable doubts about the quality of management in this sector with policy-makers

suggesting that there are particular weaknesses in innovation, a lack of financial acumen,

marketing, entrepreneurial flair, practical knowledge, and human resource management (Ngahu,

1992). As a result, many firms do not reach their full potential and fail to grow (King &

McGrath, 2002). Wanjohi and Mugure (2008) reaffirms that in Kenya it is recognized that

SMEs face unique challenges, which have limited their ability to strategically position

themselves in the market. Mueni (2008) states that SMEs are subjected to cut throat competition

that favours the larger scale enterprises. This subsequently affects their growth and profitability

and hence, diminishes their ability to contribute effectively to sustainable development.

The SMEs are potentially dynamic sector of the economy and their growth is considered to be

key for the overall economic well-being (Ngahu, 1992). When strategically managed they have

the potential to provide their owner-manager with substantial economic rewards and a controlled

and balanced lifestyle. However, many are not strategically managed as they could be and

consequently the potential rewards are not always achieved (Orwa, 2007). The failure of SMEs

to take strategic approach to management makes them to be outperformed by the formal planners

in large scale enterprises in terms of financial criteria that measure sales, assets, sales price,

profits and earnings growth (Hill, 1987). Moreover, the SMEs lag behind in prompt recognition

and response to winds of change as to and when it occur (Teder, n.d). Given the strategic

importance of SMEs to economic development, the issues affecting their growth needs to be

fully unearthed and addressed. It is expected that if SMEs are empowered in taking strategic

8
approach to management, they would adopt a more proactive rather than reactive posture to

opportunities and threats. This study therefore seeks to answer the following questions:

(i) What strategic management practices are used by SMEs in Westlands Division, Nairobi?

(ii) What are the strategic Management challenges facing SMEs in Westlands Division,

Nairobi?

1.4 Objectives of the study

The study seeks to address the following objectives:

(i) To determine the strategic management practices adopted by SMEs in Westlands

Division, Nairobi.

(ii) To establish the strategic management challenges encountered by SMEs in Westlands

Division, Nairobi.

1.5 Significance of the Study

To the entrepreneurs in the SME sector, the study is important in understanding areas where they

are advantaged and disadvantaged. In strengths, the firm will capitalize on them to build its

competitiveness and gain competitive edge, while it minimizes its weaknesses. After

understanding the enterprise’s strengths, it will allocate sufficient resources to enhance

performance, grow the firm, increase sales, growth and profits. After discovering its weaknesses

through internal analysis, the enterprise will do all within its ability to reduce its weaknesses.

The results of this study act as a radar to SME owner-managers in adopting a more proactive

posture to new opportunities and threats. After it identifies the opportunities through external

9
environment analysis, the enterprise will plan to attack the opportunities for its benefit. The firm

will invest only in areas that will advance the growth and performance of the firm. The firm

will equally be able to assess the threat in the external environment and avoid it. This will save

the firm from making detrimental decisions to the firm.

To policy makers this research would be helpful in highlighting areas of policy gaps that require

policy improvement within SME sector in Nairobi. It will result to improved policies that will

encourage growth of SMEs hence increased employment, economic growth, market

competitiveness and technological innovativeness. The study will help policy makers avoid

highlighted impediments by policy makers to the growth of SMEs.

To future researchers and academicians this study shall contribute immensely to existing

literature on strategic management in SMEs. The researchers will refer to this study to confirm

the facts indicated on strategic management practice in Nairobi’s SMEs. They can also use this

study to identify gaps for further research. The scholars will gain insights on challenges in

strategic management practice in SMEs.

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 CHAPTER TWO: LITERATURE REVIEW

2.0 The Concept of Strategic Management

David (1989) and Coulter (2005) define strategic management as the art and science of

analyzing the firms’ surrounding, formulating, implementing and evaluating cross-functional

decisions that enable any organisation to attain its objectives. However, according to Grant

(2005) strategic management is the formal process, or set of processes, used to determine the

strategies or actions for the organization. According to Wikipedia, the online encyclopedia,

strategic management is the process of specifying the organization's mission, vision and

objectives, developing policies and plans, often in terms of projects and programs, which are

designed to achieve these objectives and then allocating resources to implement the policies and

plans, projects and programs

Strategic management focuses on many areas, including the integration of: management; entire

human resource, marketing; finance/accounting; production/operations; research and

development; and computer information systems (Wilson, 2003). Its main objective is to help the

organization achieve success through the formulation of different strategies, their

implementation, and evaluation (Wilson, 2003). Strategic management, even though there are

several definitions provided, is still not adequately defined because of the process and concepts

that involves within it. Mintzberg (1991) argued that strategic management cannot be defined by

brief sentences or paragraphs, because for him, it involves “plan, ploy, pattern, position and

perspective”. Coulter (2005) explains that strategic management process is dynamic and

continuous. Furthermore, one major change in one or more of the process can affect the other

11
processes as well. Wilson (2003) explained that strategy formulation, implementation and

evaluation should be performed on a continual basis.

2.1.0 Strategic Management Practices

According to Coulter (2005) the strategic management is a process made up of four elements:

situation analysis, strategy formulation, strategy implementation, and strategy evaluation. These

elements are steps that are performed, in order to practice strategic management. Existing

businesses that have already developed a strategic management plan will revisit these steps as the

need arises, in order to make necessary changes and improvements. The strategic management

elements are discussed hereunder.

2.2.1 Environmental Analysis

Organizational environment consists of both external and internal factors (Coulter, 2005).

Environment must be scanned so as to determine development and forecasts of factors that will

influence organizational success. Environmental scanning refers to possession and utilization of

information about occasions, patterns, trends, and relationships within an organization’s internal

and external environment (Coulter, 2005). It helps the managers to decide the future path of the

organization. Scanning must identify the threats and opportunities existing in the environment,

while in strategy formulation, an organization must take advantage of the opportunities and

minimize the threats (Wilson, 2003). A threat for one organization may be an opportunity for

another. Also, discussions, interviews, and surveys can be used to assess the internal

environment. Analysis of internal environment helps in identifying strengths and weaknesses of

an organization (Rosen, 1995).

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Internal analysis of the environment is the first step of environment scanning. Organizations

should observe the internal organizational environment (Coulter, 2005). This includes employee

interaction with other employees, employee interaction with management, manager interaction

with other managers, and management interaction with shareholders, access to natural resources,

brand awareness, organizational structure, main staff, operational potential, etc.

Wilson (2003) states that the social environment includes general forces that do not directly

touch on the short-run activities of the organization but those can, and often do, influence its

long-run decisions. These forces are; Economic forces, technological forces, political-legal

forces and socio-cultural forces. The social environment contains many possible strategic factors.

The number of factors becomes enormous when one realize that each country in the world can be

represented by its own unique set of societal forces, some of which are very similar to

neighboring countries and some of which are very different.

Large corporations categorized the social environment in any one geographic region into four

areas and focus their scanning in each area on trends with corporate-wide relevance (Coulter,

2005). Trends in any area may be very important to the firms in other industries. Trends in

economic part of societal environment can have an obvious impact on business activity. Changes

in the technological part of the societal environment have a significant impact on business firms.

Demographic trends are part of socio-cultural aspects of the societal environment (Rosen, 1995).

International society consideration: For each countries or group of countries in which a company

operates, management must face a whole new societal environment having different economic,

technological, political-legal, and Socio-cultural variables (Johnson and Scoles, 2002). This is

especially an issue for a multinational corporation, a company having significant manufacturing

13
and marketing operations in multiple countries. International society environments vary so

widely that a corporation’s internal environment and strategic management process must be very

flexible. Differences in social environments strongly affect the ways in which a multinational

company. Strategic managers must not only recognize the present state of the environment and

their industry but also be able to predict its future positions (Bowman et al, (1997).

Michael Porte (1980) an authority on competitive strategy, contends that a corporation is most

concerned with the intensity of competition within its industry. Basic competitive forces

determine the intensity level. The stronger each of these forces is, the more companies are

limited in their ability to raise prices and earned greater profits.

Threat of new entrants: New entrants are newcomers to an existing industry. They typically bring

new capacity, a desire to gain market share and substantial resources. Therefore they are threats

to an established corporation. Some of the possible barriers to entry are the following:;

Economies of scale, product differentiation, capital requirements, switching costs’ access to

distribution channels, cost disadvantages independent of size and government policy

Rivalry among existing firms: Rivalry is the amount of direct competition in an industry. In most

industries corporations are mutually dependent. A competitive move by one firm can be expected

to have a noticeable effect on its competitors and thus make us retaliation or counter efforts.

According to Porter, intense rivalry is related to the presence of the following factors; number of

competitors, rate of industry growth, product or service characteristics, amount of fixed costs,

capacity, height of exit barriers, diversity of rivals and treatment of substitute product or

services. Substitute products are those products that appear to be different but can satisfy the

same need as another product. According to Porter, “Substitute limit the potential returns of an

14
industry by placing a ceiling on the prices firms in the industry can profitably charge.” To the

extent that switching costs are low, substitutes may have a strong effect on the industry.

Bargaining power of buyers: Buyers affect the industry through their ability to force down

prices, bargain for higher quality or more services, and play competitors against each other.

Bargaining power of suppliers: Suppliers can affect the industry through their ability to raise

prices or reduce the quality of purchased goods and services.

2.2.2 Strategy Formulation

Strategy formulation is the development of long-range plans for they effective management of

environmental opportunities and threats, taking into consideration corporate strengths and

weakness (Johnson and Scholes, 2002). It includes defining the corporate Vision, mission,

specifying achievable objectives, developing strategies and setting policy guidelines (Mintzberg,

1991). Vision is a short, succinct and inspiring statement of what the organization intends to

become and to achieve at some point in the future. Its often state in competitive terms (Rosen,

1995).

Mission: An organization’s mission is its purpose, or the reason for its existence. It states what it

is providing to society (Johnson and Scholes, 2002). A well conceived mission statement defines

the fundamental, unique purpose that sets a company apart from other firms of its types and

identifies the scope of the company‘s operation in terms of products offered and markets served

(Thomson et al, 1999). Objectives are the end results of planned activity; they state what is to be

accomplished by when and should be quantified if possible (Grant, 2005). The achievement of

corporate objectives should result in fulfillment of the corporation’s mission (David, 1989).

15
Policies: A policy is a broad guideline for decision making that links the formulation of strategy

with its implementation (Johnson and Scholes, 2002). Companies use policies to make sure that

the employees throughout the firm make decisions and take actions that support the corporation’s

mission, its objectives and its strategies.

According to Mintzberg (1999), the most typical approaches or modes of strategic decision

making are entrepreneurial, adaptive and planning. He proposes that in most situations the

planning mode, which includes the basic elements of strategic management process, is a more

rational and thus better way of making strategic decisions. He contends that corporate strategy is

primarily about the choice of direction for the firm as a whole. This is true whether the firm is a

small, one-product Company or a large multinational corporation. In a large multi-business

company, however, corporate strategy is also about managing various product lines and business

units for maximum value. In this instance, corporate headquarters must play the role of

organizational “parent” in that it must deal with various product and business unit “children”.

Even though each product line or business unit has its own competitive or cooperative strategy

that it uses to obtain its own competitive advantage in the marketplace, the corporation must

coordinate these different business strategies so that the corporation as a whole succeeds as a

“family”.

Corporate strategy, therefore, includes decisions regarding the flow of financial and other

resources to and from a company’s product lines and business units. Though a series of

coordinating devices, a company transfers skills and capabilities developed in a one unit to other

units that need such resources. In this way, it attempts to obtain synergies among numerous

product lines and business units so that the corporate whole is greater than the some of its

individual business unit parts. All corporations, from the smallest company offering one product

16
in only one industry to the largest conglomerate operating in many industries in many product

must, at one time or another, consider one or more of these issues.

Directional Strategy: Mintzberg (1999) state that just as every product or business unit must

follow a business strategy to improve its competitive position, every corporation must decide its

orientation towards growth by asking the following three questions: Should we expand, cut back,

or continue our operations unchanged? Should we concentrate our activities within our current

industry or should we diversify into other industries? If we want to grow and expand, should we

do so through internal development or through external acquisitions, mergers, or joint ventures?

A corporation’s directional strategy is composed of three general orientations towards growth

(sometimes called grant strategies):Growth strategy expands the company’s activities, Stability

strategies make no change to the company’s current activities and Retrenchment strategies

reduce the company’s level of activities.

2.2. 3 Implementation

Strategy implementation is the sum total of the activities and choices required for the execution

of strategic plan by which strategies and policies are put into action through the development of

programs , budgets and procedures (Coulter, 2005). Although implementation is usually

considered after strategy has been formulated, implementation is a key part of strategic

management. Thus strategy formulation and strategy implementation are the two sides of same

coin. Depending on how the corporation is organized those who implements strategy will

probably be a much more divorced group of people than those who formulate it ((Teder, n.d).

Most of the people in the organization who are crucial to successful strategy implementation

probably had little to do with the development of corporate and even business strategy. Therefore

17
they might be entirely ignorant of vast amount of data and work into formulation process. This is

one reason why involving middle managers in the formulation as well as in the implementation

of strategy tends to result in better organizational performance (Johnson and Scholes, 2002).

The managers of divisions and functional areas worked with their fellow managers to develop

programs, budgets and procedures for implementation of strategy(Johnson and Scholes, 2002).

They also work to achieve synergy among the divisions and functional areas in order to establish

and maintain a company’s distinctive competence.

Programs: A program is a statement of the activities or steps needed to accomplish a single use

plan. The purpose of program is to make a strategy action oriented.

Budgets: A budget is a statement of corporation’s program in monitory terms. After programs

are developed, the budget process begins. Planning a budget is the last real check a corporation

has on the feasibility of its selected strategy. An ideal strategy might found to be completely

impractical only after specific implementation programs are costed in detail. Procedures: These

are system of sequential steps or techniques that describe in detail how a particular task or job is

to be done.

Synergy achievement: One of the goals to be achieved in strategy implementation is synergy

between functions and business units, which is why corporations commonly reorganize after an

acquisition (King et al, 2002). The acquisition or development of additional product lines is often

justified on the basis of achieving some advantages of scale in one or more of company’s

functional areas. Implementation also involves leading, motivating people to use their abilities

and skills most effectively and efficiently to achieve organizational objectives (Slack et al,

18
2002). Leading may take the form of management leadership communicated norms of behavior

from the corporate culture or agreement among workers in autonomous work groups.

Company Manage Corporate Culture: Because an organization’s culture can exert a powerful

influence on the behavior of all employees, it can strongly affect a company’s ability to shift its

strategic direction (Cagliano, 2001). An optimal culture is one that best supports the mission and

strategy of the company of which it is a part. This means that, like structure and staffing,

corporate culture should follow strategy. A key job of management is therefore to evaluate; what

a particular strategy change will mean to the corporate culture, whether a change in culture will

be needed and whether an attempt to change the culture will be worth the likely costs (Pearce

and Robinson, 2000).

Communication may be used to manage Culture. Communication is crucial to effectively

managing change (Pfeffer, 1998). Companies in which major cultural changes have successfully

taken place had the following characteristics in common; the Chief executive officer and other

top managers had a strategic vision of what the company could become and communicated this

vision to employees at all levels and the vision was translated into the key elements necessary to

accomplish that vision. Deculturation involves the disintegration of one company’s culture

resulting from unwanted and extreme pressure from the other to impose its culture and practices

(Pearce and Robinson, 2000).

2.2.4 Evaluation

Evaluation involves examining how the strategy has been implemented as well as the outcomes

of the strategy (Coulter, 2005). This includes determining whether deadlines have been met, the

implementation steps and processes are working correctly and whether the expected results have

19
been achieved. If a shortcoming is discovered against the mentioned outlined expected results,

then the strategy can be modified or reformulated(Johnson and Scholes, 2002). The process of

Strategy Evaluation consists of following steps (Rosen, 1995): Fixing benchmark of

performance: While fixing the benchmark, strategists encounter questions such as; what

benchmarks to set, how to set them and how to express them. In order to determine the

benchmark performance to be set, it is essential to discover the special requirements for

performing the main task. The performance indicator that best identify and express the special

requirements might then be determined to be used for evaluation. The organization can use both

quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative

criteria include determination of net profit, ROI, earning per share, cost of production, rate of

employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as

- skills and competencies, risk taking potential, flexibility etc.

Measurement of performance - The standard performance is a bench mark with which the actual

performance is to be compared. The reporting and communication system help in measuring the

performance. If appropriate means are available for measuring the performance and if the

standards are set in the right manner, strategy evaluation becomes easier. But various factors

such as managers contribution are difficult to measure. Similarly divisional performance is

sometimes difficult to measure as compared to individual performance. Thus, variable objectives

must be created against which measurement of performance can be done. The measurement must

be done at right time else evaluation will not meet its purpose. For measuring the performance,

financial statements like - balance sheet, profit and loss account must be prepared on an annual

basis.

20
Analyzing Variance - While measuring the actual performance and comparing it with standard

performance there may be variances which must be analyzed. The strategists must mention the

degree of tolerance limits between which the variance between actual and standard performance

may be accepted. The positive deviation indicates a better performance but it is quite unusual

exceeding the target always. The negative deviation is an issue of concern because it indicates a

shortfall in performance. Thus in this case the strategists must discover the causes of deviation

and must take corrective action to overcome it.

Taking Corrective Action - Once the deviation in performance is identified, it is essential to plan

for a corrective action. If the performance is consistently less than the desired performance, the

strategists must carry a detailed analysis of the factors responsible for such performance. If the

strategists discover that the organizational potential does not match with the performance

requirements, then the standards must be lowered. Another rare and drastic corrective action is

reformulating the strategy which requires going back to the process of strategic management,

reframing of plans according to new resource allocation trend and consequent means going to the

beginning point of strategic management process.

2.3 Benefits of Strategic Management

Research indicates that organizations using strategic-management concepts are more profitable

and successful than those that do not (Johnson and Scholes, 2002). This is attributed to the fact

that focus is placed on the important things. Resources like time, talent, money are properly

allocated to those activities that provide the most benefit. Businesses using strategic-management

concepts show significant improvement in sales, profitability, and productivity compared to

firms without systematic planning activities. High-performing firms tend to do systematic

21
planning to prepare for future fluctuations in their external and internal environments. Firms with

planning systems more closely resembling strategic management theory generally exhibit

superior long-term financial performance relative to their industry (Coulter, 2005) .

High-performing firms seem to make more informed decisions with good anticipation of both

short- and long-term consequences. On the other hand, firms that perform poorly often engage in

activities that are shortsighted and do not reflect good forecasting of future conditions (Grant,

2005). Strategists of low-performing organizations are often preoccupied with solving internal

problems and meeting paperwork deadlines. They typically underestimate their competitors'

strengths and overestimate their own firm's strengths. They often attribute weak performance to

uncontrollable factors such as poor economy, technological change, or foreign competition.

Besides helping firms avoid financial demise, strategic management offers other tangible

benefits, such as an enhanced awareness of external threats, an improved understanding of

competitors' strategies, increased employee productivity, reduced resistance to change, and a

clearer understanding of performance-reward relationships (David, 1989). Strategic management

enhances the problem-prevention capabilities of organizations because it promotes interaction

among manager’s at all divisional and functional levels. Interaction can enable firms to turn on

their managers and employees by nurturing them, sharing organizational objectives with them,

empowering them to help improve the product or service, and recognizing their contributions.

In addition to empowering managers and employees, strategic management often brings order

and discipline to an otherwise floundering firm (King et al, 2002). It can be the beginning of an

efficient and effective managerial system. Strategic management may renew confidence in the

current business strategy or point to the need for corrective actions. The strategic-management

22
process provides a basis for identifying and rationalizing the need for change to all managers and

employees of a firm; it helps them view change as an opportunity rather than a threat (Grant,

2005).

2.4 Strategic Management Challenges

The following set of conditions shaping the competitive environment for emergent industries in

the digital revolution and knowledge-intensive companies; the market place is evolving and

immature and its boundaries are unclear (Berley, 1994). The products in terms of goods and

services are getting more complex causing the future to be uncertain. The concept on market

place and globalization is so critical to the operation of traditional tools of business management.

The rapid rate of change and technological innovation mean that organizations have to be agile

and flexible in terms of strategic planning. The change is at sometimes too often and

unpredictable, therefore challenging the already set strategic plans in a given period (Grant,

2005).

Expertise intensive organizations depend on employees knowledge for success. The firms will

require structures to support the creative process of these individuals as well as the conversion of

ideas into marketable products or services (Berley, 2005). This is because their input is a key

component in the firm’s products and services. These products or services give the firm a

competitive advantage ahead of its competitors (Porter, 1985). The firm will therefore require

proactive measures in its strategic management processes and practices to sustain such expertise

in individuals to are part of superior products and services to the organization. The challenge is

how to sustainably and strategically manage such talents that add value to the customers. This is

23
because the competitors are grasping for the same talents. The firm has to balance fair

Compensation and survival.

Organizations have to look to their internal resources for the formulation, implementation and

control of strategic management practices. This requires knowledgeable employees in the area

of study. It also requires finances and time (Mintzberg et al, 1999). The challenge has been that

some small firms, lack the expertise in strategic management practices. The employees in place

could be few in a manner that they lack sufficient time to be involved in strategic management

issues. Some owners of small firms get involved in routine management, therefore lacking time

to look at the big picture and long term state of the firm. Some top managers see strategic

management as too much time consuming (Coulter, 2005). Financially, the firm too has to set

aside budgets for the activities involved in strategic planning and management

Insufficient involvement of employees at communication stage of the strategic plan. Thorough

interaction between management and workers during organization analysis enhances employees

involvement. If the workers perceive their contribution as ignored, the strategic plan may lead

to failure at implantation. Furthermore, strategic management is a top management affair

(Bennis Waren, 2000). Though the departmental heads are fully involved, more often the

workers are not fully aware of strategic management practices and how it affects them at work

place. At times, the employees at lower levels get suspicious of top management apparent

change of organizational structures. This makes staff resistant to necessary change that is aimed

to benefit the firm and all stakeholders including the workers.

24
2.5 Small and Medium Enterprises (SMEs)

SMEs are defined differently in different countries using different parameters. Some define

them based on their number of employees, annual sales turnover, annual balance sheet total, or

level of autonomy (Hill, 1987). In Kenya they are defined by Kibera and Kibera (1997) as

enterprises which employ fewer than 100 persons. According to Mueni (2008) an SME is a

business that is independently owned and operated, with a small number of employees and

relatively low volume of sales. The European Commission defines an SME as an enterprise

which employs less than 250 people has an annual turnover of less than €50m and balance sheet

assets of less than €43m; and has no more than 25% of its capital or voting rights owned by a

larger firm or public body European Commission (2003). SMEs are defined by three keywords

small, single and local. Small SMEs are small in nature, either in terms of number of employees

e.g. 10 persons for small to 200 persons for medium depending on the country's law. Secondly

capital and assets are and finally the overall turnover of the enterprise is small, compared to

larger businesses European Commission (2003).

Most SMEs have a single owner who could also be the sole employee. While this may

predominantly be the case, definitions set 250 to 500 employees as the limit for enterprises to be

called an SME. The 'single' also refers to single products produced or service provided. Local

SMEs are essentially local in nature and their market is usually localized to the area where they

are located (same city, district or state); or may be local in the sense that they operate from a

place of residence and also called SOHO (Small Office Home Office) (Hill, 1987). There are of

course, exceptions to the above. For example, SMEs while having a small output can have a

global market for its product/service or SMEs may produce more than one product or provide

25
service (Hill, 1987). SMEs are not limited to any particular type of industry or service, and can

include small manufacturing facilities, small processing units, trading companies, export-import

companies, distribution, retailing, rental, service company (King, 2002).

A key factor that distinguishes an SME from enterprises in the informal Sector is the fact that

they are legally registered companies/businesses. Another related term that is sometimes used

interchangeably with SME is that of a microenterprise (Hill, 1987). Variation in the definition of

a microenterprise is quite similar to an SME. SMEs are socially and economically important.

They represent 99% of an estimated 23 million enterprises in the EU and provide around 75

million jobs representing two-thirds of all employment. SMEs contribute up to 80% of

employment in some industrial sectors, such as textiles, Agriculture, Information Technology

and Manufacturing European Commission (2003).

UNDP (2006) provided some insights on why SMEs are desirable. One is that it promotes

competition and employment and because a few of them may innovate and grow into large firms

that potentially produce even more of what SMEs can offer. Also, for some individuals, it can be

a means to achieve independence and self-expression and even wealth .The presence of SMEs

also serves special social purposes and helps to avoid an over-concentration of political and

economic power.

26
 CHAPTER THREE: METHODOLOGY

3.0 Research Design

This study used a survey design. This design was considered most appropriate because the study

needed information from various categories of SMEs for comparison purposes to determine how

the strategic management practices such organizations have adopted and the challenges they face

is dependent on their underlying demographics. Robson (1993) has observed that surveys are

useful for data intended for comparison.

3.1 Population

The population of interest was all SMEs in Westlands Division located within Westlands

Shopping Centre in the city of Nairobi. A sampling frame of 80 SMEs had been identified and

was used to obtain a sample for the study. The listing consisted of several categories of

enterprises, which included the following: trade, services, manufacturing, and construction.

3.2 Sample Design

Robson (1993) has stated that the minimum sample size in research is 30 randomly selected

cases. Going by this, a sample size of 74 SMEs was identified using the random sampling

procedure. This ensured that the categories of the population were proportionally represented in

the sample. The categories included in the sample were manufacturing, construction, trade and

services.

27
3.3 Data Collection

Primary data was used for this study. The data was collected by the use of a structured

questionnaire (Appendix 2). The questionnaire had three sections: Section A contained

structured general questions about the SME while section B contained structured questions

relating to strategic management practices. Section C consisted of the strategic management

challenges faced by the enterprises. Respondents were drawn from owners and managers of

these enterprises. The researcher undertook to self- administer the questionnaires to the targeted

respondents at their offices and picked them at agreed dates.

3.4 Data Analysis

Data analysis involves organizing, accounting for and explaining the data; that is, making sense

of the data in terms of respondents’ definition of the situation noting patterns, themes, categories

and regularities. The data was analyzed by use of percentages and descriptive statistics with the

mean scores used to obtain the average measure for each of the key variables for the strategic

management practices and also the challenges SMEs face. The standard deviation measure was

used to give an indication of the dispersion of the scores of these variables from from the means.

28
 CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATIONS

4.0 Introduction

In this chapter, data is presented using tables, pie charts, percentages and graphs. The total

number of distributed questionnaires was 74 but only 50 respondents returned their

questionnaires. This represents a response rate of 67.6%. The demographic information for each

organization was collected and related to the strategic management practices and challenges.

4.1 Demographic Profile of Enterprises Surveyed

The researcher sought to find out the age distribution of these enterprises. Half of the enterprises

surveyed (50 %) had been in operation for a period of between 1 and 5years, 17% of the

enterprises had been in operation for between 11 and 15 years, while the rest (33%) were older,

having operated for 6 and above. The fact that most of the enterprises were young might imply

that many enterprises survive for only a few years and then die. The pie chart below presents this

information:

Figure 4.1: Age distribution in operation

Source: Author 2010

29
4.1.2 Industry category

One third (or 33%) of the respondents reported that they were in the service category including:

cyber cafés, gasoline stations, saloons, among others. Slightly over one quarter (or 26%)

reported that they were in trade. Those in manufacturing were 19% of the total while 12% stated

that they were in construction. This information is shown in the next figure:

Figure 4.2 Industry categories of surveyed enterprises

35
30
25
20
15 %
10
5
0
1 2 3 4

Source: Author 2010

1 = Service, 2= Trade, 3= Manufacturing and 4= Construction.

30
4.1.3 Number of persons employed

The researcher also sought to investigate the number of employees in the surveyed enterprises.

The study found that half of the enterprises (or 50%) had about 10-49 employees, 33% between

50-100 employees, while the rest (17%) had 1-9 employees. This is shown in the next chart:

Figure 4.3: Number of employees

Source: Author 2010

4.2.0 Strategic Management Practices adopted

4.2.1 Strategy Formulation

The statistics below sought to investigate the level of involvement by different stake holders in

strategy formulation. The total number of respondents was 50.

31
Table 4.1: Stakeholder involvement

Stakeholder Mean score Std Deviation

CEO 2.0 1.13

Managers 2.0 1.20

Consultants 1.9 1.14

Employees 2.9 1.15

Customers 3.0 1.10

Suppliers 3.5 1.12

Source: Author 2010

All stakeholders were involved in strategy formulation. As evident on the table above,

Consultants, managers and CEOs were most involved in formulating strategy while employees

took moderate involvement. Suppliers were least involved.

4.2.2 Strategy development tools

In seeking to rate on use of strategy development tools such as key success factors, forecasting,

SWOT analysis, brainstorming and computer training models, the respondents stated general

application of most of the strategy development tools. Mostly applied tool was SWOT analysis

though all other tools were used except computer planning mode. Tools indicated by respondents

as used to develop strategies in their enterprises.

32
Table 4.2: Strategy development tools

Strategy Mean score Std deviation (s)

Key Success Factors 2.7 1.41

Forecasting 1.8 1.32

Computer Planning model 0.0 0.00

SWOT analysis 1.7 1.21

Brainstorming 1.9 1.32

Source: Author 2010

4.2.3 Strategic Plans

The extent to which enterprises had strategic plans in place.

Table 4.3: Extent to which enterprise has strategic plan in place

Responses Frequency Percentage (%)

To no extent 0 0

To a small extent 0 0

To a moderate extent 27 41

To a great extent 18 34

To a very great extent 15 25

Total 50 100

On seeking to establish the extent the enterprises had strategic plans in place among the

interviewed enterprises, it was established that most enterprises had strategic plans in place to

moderate extent. Generally all enterprises had strategic plans in place.

33
4.3.4 Strategy implementation

The respondents were asked to state to what extent the respondents felt that their firms embraced

strategy implementation in firm structure, in system procedures, reference to master plans and

monitoring. The findings are shown in table 3below.

Indicate the extent to which the following statements relate to strategy implementation in your

enterprise.

Table 4.4: Extent of strategy implementation

Implementation Mean score Std deviation (s)

Communication 3.05 1.32

Clear Systems, programs and 3.10 1.47

procedures

Reference to Master plan 2.85 1.45

Adequate budgets 3.1 1.35

Leadership and motivation 3.0 1.32

Source: Author 2010

The respondents indicated that the implementation process was fairly adhered to by most of the

enterprises. Reference to master plan was adhered to in a great extend. Communication, Clear

systems and budgets were adhered to in a moderate extend. All enterprises indicated an element

of leadership in strategic management implantation.

4.3.5 Evaluation Process

This section sought to investigate the extent to which the respondents utilized the following

evaluation process as stipulated below.

34
Table 4.5 Evaluation process scores

Evaluation process Mean score Std deviation (s)

Performance is measured 2.75 1.32

Comparison is undertaken 3.15 1.46

Corrective action is undertaken 3.05 1.28

Others 0.00 0.00

Source: Author 2010

The results in above indicate that the respondents considered most of evaluation process

parameters in practice in the evaluation process of strategic management practices in their

enterprises. The respondents indicated that performance measurement was utilized to a very

great extent, while recognition of outstanding performance was not moderate.

4.4.0 Strategic Management Challenges

This section sought to investigate the extent to which respondents considered strategic challenges

important to their enterprises. The results are summarized in the table below.

Table 4.6: Extent to which strategic challenges are important to surveyed enterprises

Nature of challenge Mean score Std deviation (s)

35
Changing technology 3.15 1.32

Increase in diversity 3.05 1.32

Resistance to change 3.1 1.31

Stiff competition 2.9 1.32

Resource constraint 2.8 1.26

Legal constraint 3.1 1.32

Turbulent political environment 2.9 1.23

Strategy redundancy 3.2 1.21

Source: Author 2010

This indicates that most of these challenges existed in the SMEs that were interviewed. Most

pronounced challenges were stiff competition, resource constraint and political turbulent.

36
 CHAPTER FIVE: SUMMARY, CONCLUSIONS AND

RECOMMENDATIONS

5.1 Introduction

The research objective was to establish strategic management practices and challenges amongst

SMEs in Westlands Division. There were eighty SMEs in Westlands Division and a sample of

seventy four were selected but fifty respondents were realized.

5.2 Summary

This chapter summarizes the major findings of this study and provides a direction for further

research and recommendations necessary action. It expresses the current strategic management

practices and challenges among SMEs in Westlands Division. Application of strategic

management practices is an integral management process for any organization that desires to

survive in modern environment. Organisations that fail to adapt to the changing realities in the

environment would become weak and finally fail. The role of strategic management in SMEs is

to inculcate a culture of being responsive to change taking place in the environment, so as enable

an enterprise achieve its goals.

5.3 Conclusions

The SMEs in Westlands have generally made efforts to appreciate and embrace strategic

management practices. The strategic management practices adopted by most of the SMEs are

similar to those proposed in strategic management theory and also as reported in the literature

review and also from studies conducted in other industries. A significant correlation exists

37
between the age of the SME and its use of strategic management practice. More established

SMEs in terms of age had strategic plans in place in great extent unlike in the younger SMEs.

Most enterprises in westlands were categorized in service industry. Most enterprises were rated

to have staff number of between ten and forty nine.

All stakeholders were generally involved in the strategic formulation with Consultants, CEO and

managers indicating higher involvement while the suppliers were found to be least involved in

formulation. The respondents indicated that enterprises were generally conversant with most of

strategy formulation tools. SWOT analysis was most frequently used tool while no enterprise

indicated use of computer planning model.

Most enterprises moderately applied implementation process as indicated in questionnaire.

Budgetary constraints and unclear systems were indicated as common of the challenges in

implementation process. Evaluation process was applied in all SMEs that were interviewed.

Performance was measured to a great extent while performance recognition was moderate. Stiff

competition, resources constrain and political uncertainty were concluded to be major challenges

facing SMEs in strategic management practice.

5.4 Limitations of the Research

Some respondents viewed some of the information sought as confidential and either or

deliberately declined to divulge or did not have access to information. In addition the time

allocated to data collection was not sufficient to enable respondents complete the questionnaire

as accurate as possible considering that they were at the same time carrying out their daily duties.

38
Though the researcher would have wished to administer the data collection tools to only

managers and owners of the enterprises, this was not possible due to busy schedules or away on

duty hence some of them had to be delegated to the supervisors.

5.5 Recommendation for further research

It is hoped that the findings of the study will contribute to the existing body knowledge and form

basis for future research. Whereas the current study focused on adoption of strategic

management practices and challenges in SMEs, future studies could focus on responses from

other firms like institutions of learning. This will shed light on the impression the managers

have on application of strategic management practices.

Study should also be carried out to establish the correlation between adoption of strategic

management practices and the level of education of managers. Its also important in future to

establish the source of capital in SMEs. To find out whether its local or foreign.

5.6 Recommendation for policy and practice

Based on the findings of the research, it is expected that the shareholders who include the

partners of the firm will gain a better understanding of strategic management practices and

challenges adopted by SMEs to remain competitive in the business environment. Understanding

of the challenges in strategic management would help practitioners in the field to ensure that

enterprises will develop rational strategies to effectively respond.

I recommend that employees and customers to be more involved in strategic management

practices. This is because the employees are heavily involved in implementation, while the

customer is the consumer of most of our products. Communication and feedback may be

39
increased in the formulation, implementation and evaluation to key stakeholders.

Communication enables the stakeholders to issue their input and helps save time in

implementation and evaluation process. The Chief executive and managers should employ good

leadership and motivation in strategic management application, so as to achieve efficiency in

goal realization.

Enterprises may have to go for bank loans to reduce the burdens of budgetary constrains.

Individual and team outstanding performance may be recognized by finding a way to reward the

outstanding achievers

40
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 APPENDICES

Appendix 1: Introduction Letter

My name is Redempta N. Ndambuki. An MBA student at University of Nairobi in partial

fulfillment of the requirement of the Master of Business Administration. I am required to present

a research project. In this regard, I will be conducting a survey study on strategic management

practice and challenges in several enterprises.

I will therefore be grateful if you could allow me ask you some questions. I wish to assure you

that the responses I will receive from you will be classified as strictly confidential. No instance

will your name be mentioned in this research or its findings. In addition the information will not

be used for any purpose other than for this academic research.

Your assistance in facilitating the same will be highly appreciated.

Thank you in advance.

Yours faithfully

Redempta N. Ndambuki
MBA Student
University of Nairobi
Reg. No. D61/8744/2006

44
 Appendix 2: Questionnaire

To aim of this questionnaire is to establish the strategic management practices your enterprise

pursues and the challenges you have faced. I am doing this study as part of my academic

requirements for the award of the degree of Master of Business Administration of the University

of Nairobi. Kindly complete this document as fully as possible. You should aim at completing

the entire questionnaire without omitting any section as all the parts are interrelated.

Section A: Background Information

1. Which category below represents the current age of your organization fall? (Please tick one.)

1-5 years

6-10 years

11-15 years

2. What is current number of employees in your organization? (tick one)

1-9 employees

10-49 employees

50-100 employees

3. What major economic activity are you engaged in?

Manufacturing

Construction

Trade

Services

45
Any other

Section B: Strategic Management Practices

Please tick the most appropriate number.
Use a 5 point scale where:
1= Not at all
2= Little extent
3= Moderate
4= Great extent
5= Very great extent

1. How would you rate the participation of the following stakeholders in developing your
organizational strategy?

Participants 1 2 3 4 5
Chief Executive officer
Managers
Consultant
Employees
Customers
Suppliers

2. What tools do you use in developing strategies in your enterprise?

Strategy development 1 2 3 4 5
Key success factors
Forecasting
Computer planning model
SWOT analysis
Brainstorming
Indicate and rate others

46
3. Indicate the extent to which your enterprise has strategic plans in place.

Use a 5 point scale where:

1= Not at all
2= Little extent
3= Moderate
4= Great extent
5= Very great extent

4. Please indicate the extent to which the following statements relate to strategy
implementation in your enterprise.

Implementation 1 2 3 4 5

Communication
Clear Systems, programs and procedures
Reference to Master plan
Adequate budgets
Indicate and rate others

5. Please indicate the extent to which your organization has developed the following set of key
performance indicators as a means of tracking the success of strategy initiatives.

Evaluation process 1 2 3 4 5

Performance is measured
Comparison is undertaken
Corrective action is undertaken
Performance is recognized

47
SECTION C: Strategic Management Challenges

Please tick the most appropriate number

Use a 5 point scale where:
1= Not at all
2= Little extent
3= Moderate
4= Great extent
5= Very great extent

Kindly indicate in the table below the extent to which the following challenges affect strategic
management practices in your enterprise.

Nature of challenge 1 2 3 4 5

Changing technology

Increase in diversity

Resistance to change

Stiff competition

Resource constraint

Legal constraint

Turbulent political environment

Strategy redundancy

48