Relationship between strategic planning and organizational performance of medium sized enterprises in Nakuru Town, Kenya

Abstract

The business environment is increasingly becoming uncertain and unpredictable because of globalization, technological changes and trade liberalization. As a result, like large enterprises, SMEs are facing many new and unexpected challenges that threaten their performance and competitiveness. Strategic planning is a management tool that helps organizations focus their energy and resources to ensure that goals and objectives are achieved. The SME sector plays an important role in economic development in terms of poverty reduction and employment creation in Kenya. Previous studies in this area, focused on Strategic planning in large firms and very few studies have been done on the impact of strategic planning on small and medium sized firms. This study determined the relationship between strategic planning and performance of medium sized enterprises in Kenya. The objectives of the study were to determine the relationship between strategic environmental analysis, organizational direction and strategy formulation on firm performance. The study used structured questionnaires to gather primary data from Medium sized enterprises. The structured questionnaire was used on 47 medium sized enterprises. Multiple regression and Pearson’s correlation were used to test the study hypotheses. The results show that environmental analysis, organizational direction and strategy formulation had a positive influence on performance of medium sized enterprises. R2 was 0.424 indicating that strategic planning explains 42.4% variation of organizational performance of medium sized enterprises. The study indicates that strategic planning significantly influences organizational performance, therefore, organizations need embrace strategic planning to enhance performance in their organizations. However, there are other factors besides strategic planning which also influence organizational performance. Therefore, the study recommends further research to identify the other factors which influence organizational performance.