Empirical investigation of strategic planning of small businesses in the City of Tshwane: a framework for profitability and growth

Abstract

This study sought to investigate the impact of strategic planning on profitability and growth in the context of small businesses in the City of Tshwane. The rationale for the research was motivated by the literature that suggests that there is a low success rate of small businesses globally. Quantitative data were collected from 144 small business owners/managers using self-administered questionnaires. Descriptive statistics were performed, and the results show that participants were male-dominated. Most participants have at least a matriculation certificate, have several years of experience, and are actively involved in strategic planning processes formal or informally. Cronbach’s alpha was used to test the reliability and the scale was found to be highly reliable with loading of .908 for all 115 items. KMO was performed to determine the sampling adequacy and it yielded a loading of .768 and Bartlett’s test of Sphericity showed a strong correlation between the items confirming the factorability of the data. Factor analysis yielded five factors that were used to investigate strategic planning activities. The first factor relates to three stages in the strategic management process namely strategy formulation, strategy execution and strategy evaluation and control. The activities relating to each of the stages are executed in consultation with stakeholders whose previous experience and exceptional skills make meaningful contributions to the business. The second factor shows the importance of strategic planning to financial performance. The financial health of any form and size of the business depends on the quality of its strategic plans and this is critical for small businesses. Whatever strategic activity which small business owners/managers engage in; it must translate into financial performance. The third factor accentuates the fact that small businesses must understand the importance of engaging in strategic planning. Fourthly, the factor describes the strategic planning activities small businesses must engage in. It emphasizes the importance of being clear about the strategic planning activities and their prioritisation. The final factor states the importance of small businesses and itemizes the dangers of not engaging in strategic planning. The five factors were subjected to logistical regression modelling. Logistical regression modelling shows that there is a significant relationship between strategic planning and growth and profitability. A framework was developed to show xiv the impact of strategic planning on profitability and growth. This is an important contribution of the study that examines the impact of strategic planning and growth and profitability in the context of small businesses. The study concludes that strategic planning is key in all business activities and determines the performance, profitability and sustainability of small businesses. Small business owners/managers may pay special attention to strategic planning. The findings raise important insights that small businesses and other stakeholders such as government and policymakers need to pay attention to and therefore makes recommendations that benefit different stakeholders. Directions for further research have also been provided.