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Scenario: A small independent hospital in rural Georgia is seeking to attain Magnet Status. This designation demonstrates to stakeholders that the organization is committed to delivering high-quality patient care. With this designation, the organization can easily attract and retain a highly-engaged clinical staff. Moreover, it provides the organization an opportunity to market itself to potential patients as the place to receive top-quality care. This means that the organization could realize a greater market share of insured and private pay patients traveling as far as 100 miles just to receive the quality services. It also positions the organization to enter into joint ventures with physician groups eager to provide new services, which would lead to increased revenue streams. Although the designation sounds like a great opportunity for the organization, the board of directors is split on their support of this designation. The board members in support of the designation understand the great value that this program will bring to the facility; however, those in opposition learned from a research study that non-magnet hospitals had better infection control and less post-operative sepsis. They also learned from another study that working conditions in a magnet facility are not better than those in non-magnet facilities. Therefore, the dissenting directors have concluded that the organization should not invest its time and resources to seek this credential. The CEO must get support from an overwhelming majority of the board to move forward with pursuing this designation.Review the provided scenario and consider external environmental factors that may impact the organization’s strategic planning (e.g., policy and economics, laws and ethics, health care quality, and population health).IDENTIFY THE FOLLOWING IN THE EXECUTIVE SUMMARY:1.) Impact of external environmental factors on strategic planning2.) Recommendations of strategies to address external factors and limit their influence on organizational operations
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International Journal of Business and Society, Vol. 15 No. 3, 2014, 437 – 446
THE STRATEGIC PLANNING OF SMES IN MALAYSIA:
A VIEW OF EXTERNAL ENVIRONMENTAL SCANNING
Wei-Hin Cheng♣
Universiti Utara Malaysia
Kadzrina Abdul Kadir
Universiti Utara Malaysia
Abdul Manaf Bohari
Universiti Utara Malaysia
ABSTRACT
The business world today is getting more competitive and many companies are looking for
ways to survive in the market competition especially Small Medium Enterprises (SMEs).
This research was aimed at investigating whether formal strategic planning is relevant to
SMEs and whether the strategic planning model suggested by Wheelen and Hunger (2008)
is applicable to SMEs in the Asian context and in particular the Malaysian context. The
main focus was to determine how important external environment scanning was to SMEs
in the Northern states of Malaysia and do SMEs perform the external environment scanning
which resemble the Wheelen and Hunger (2008) strategic planning model. The sample of the
research comprised of SMEs in the Northern states of Malaysia which covered Perlis, Kedah
and Penang. The population of the samples was derived from the directory of SMEs from the
website. A purposive sampling was used and a cross sectional study was conducted where data
was collected over a period of weeks through mail questionnaire and individual administrated
questionnaires. The result of the research suggested that most SMEs do have some form of
formal strategic planning. Further to this, it also indicated that environment scanning is getting
more attention from the SME in today’s competitive market. The findings suggested that most
of the SMEs do have strategic planning which resembles the Wheelen and Hunger Strategic
Planning Model. There is a strong indication that the model of Wheelen and Hunger Strategic
Planning is applicable to the practice of SMEs in the Northern region in Malaysia.
Keywords: Small Medium Enterprise; Strategic Planning; Environment Scanning.
1. INTRODUCTION
Small and Medium Enterprise (SMEs) are vital to determine the growth of economy in all
countries. In the heat of today’s competition, most of the SMEs are struggling to survive in the
market. In order to be successful, SMEs need to possess various types of resources including
financial, technological, human and knowledge resources (Brush et al., 2001). According to
♣ Corresponding author: Wei-Hin Cheng. School of Business Management. College of Business, COB Main Building. Universiti
Utara Malaysia 06100 UUM Sintok, Kedah, Phone+ 604- 928 7438. E-mail: [email protected]
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The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning
Hashim (2011), SMEs in Malaysia represent majority of the business enterprises and they
make up more than 90% of the total number of businesses as they can be found in various
industries. As reported in the SME Annual report 2009/2010, SMEs accounted for about 99%
of total business establishments, 56% of total employment and 19% of the total exports of the
country.
Despite their importance in the national economy, studies have revealed that SMEs in Malaysia
encounter various problems in their operations that affect not only their sustainability but also
their business activities. This study intended to help managers to understand how strategic
planning can be done with the model suggested by Wheelen and Hunger (2008).
The main objective of the journal was to examine whether SME did strategic planning and
whether the strategic planning model suggested by Wheelen and Hunger (2008) applies to
the SME in the Asian context, in particular the Malaysian context. The research attempted to
examine whether external environment scanning was done in SMEs in Malaysia as proposed
by the model and how the environmental factors fared in terms of their importance to these
SMEs. This study contributed to knowledge on how relevant the model is to SME in Northern
States in Malaysia and how the Wheelen and Hunger (2008) model can help SMEs to do their
strategic planning and especially the environmental scanning.
2. LITERATURE REVIEW
According to Normah (2006), the Chief Statistician from Department of Statistics Malaysia,
SMEs has been the backbone of the Malaysian economic growth in driving industrial
development. This is due to their sheer numbers, size and nature of operations, in promoting
endogenous sources of growth and strengthening the infrastructure for accelerated economic
expansion and development in Malaysia. For such reasons, the success of SMEs is very
important to ensure the consistent growth of the country’s economy. The main focus of this
study was to examine whether SME do their strategic planning and whether their strategic
planning resembles the Strategic Planning Model suggested by Wheelen and Hunger (2008)
specifically in the first stage of the planning where the external environment scanning was
proposed by the model.
Previous researches had consistently showed that most SMEs do not engage in strategic
planning (e.g., Robinson & Pearce 1984; Sexton & Auken 1985; Berman, Gordon & Sussman
1997; Orser, Hogarth-Scott & Riding 2000; Robinson& Pearce 2001 and Beaver 2003).
According to Gable and Topol, 1987), environmental scanning is a necessary process which
prelude to strategy formulation to enable the firm to understand its external environment
in terms of factors that can influence its resources. This should be done so that SMEs can
develop responses to secure or improve its future position to the changes of the environment.
Scanning the environment is the first stage in the process of understanding and therefore in
the process of linking strategy and the firm’s external environment (Hambrick, 1982; Daft
et. al., 1988). Based on the findings from previous study done by Haase and Franco (2011),
SMEs suffer from resource constraints, they have lack of infrastructure to obtain and analyze
external information, unlike larger companies which are able to obtain external information
from specialized sources. Previous research also indicated that SMEs faced with challenges in
obtaining specialized external information and in environment of uncertainty. SMEs should,
Wei-Hin Cheng, Kadzrina Abdul Kadir and Abdul Manaf Bohari
439
therefore develop effective strategic planning where they must obtain relevant information of
the external environment.
Since SMEs faced the problem in obtaining external information, are they able to benefit
from the strategic planning model suggested by Wheelen and Hunger (2008)? Boyd and Fulk
(1996) showed that systematic scanning should be used by smaller organizations to help them
understand and cope with complex environmental uncertainties.
Wheelen and Hunger (2008) argued that Strategic Management is a rapidly developing field
of study that has emerged in response to increasing environmental turbulence. According to
the authors, this area of study looks at managing the organization as a whole and attempts to
explain why some organizations performed well while others did not.
The Strategic Planning Model developed by Wheelen and Hunger (2008) involved four major
steps which are: environmental scanning, strategy formulation, strategy implementation and
strategy control and evaluation. The scope of the strategic planning process (Figure 1) covers
organization –wide issues in the context of a whole range of environmental influences. The
Strategic Management process involves organization, management and environment as a
whole. Thus in understanding the Strategic Management process and how it works, a general
knowledge of the organization, its internal and external environments and management is
required (Wheelen & Hunger, 2008).
Environment scanning is aimed at gathering and analyzing data from outside the organization
(Daft and Weick, 1984). Aguilar (1967) defined environmental scanning as the acquisition
and the use of information about events, trends and relationships in an organization’s external
environment. This knowledge is vital for the organization and would assist the management
in planning the future course of action. Environment scanning helps managers to better
understand the development of the market and assists the strategic planning efforts (Hambrick,
1982; Lester & Parnell, 2008).
Figure 1: The Wheelen and Hunger Model of Strategic Planning
Notes: Legend: 1a to 4a are element for each level of strategy planning 1a: external environment
(PEST); 1b: industry environment; 1c: Internal environment 2a: vision and mission; 2b: objectives;
2c: strategy; 2d : policies 3a: program, 3b: budget; 3c: procedures 4a: evaluation and control.
Source: Wheelen and Hunger (2008).
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The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning
Stoffels (1994) suggested that studying the external environment should be the first thing to
do in strategic thinking. May (2000) argued that environmental scanning used the external
information for strategic decision making and these information will be used by organization
to react quickly, adapting its strategy at the right moment and to guard against threats and
future constraints (Strandholm & Kumar, 2003).
Haase and Franco (2011) analyzed the increased importance for environmental scanning
and reported that scholars have published a number of studies of environmental scanning
in different industries namely the manufacturing (Jennings & Jones, 1999), services and
retail (Folsom, 1991), tourism and hospitality and health care (Davis et. al. 2008), traffic
management (Jennings and Jones, 1999) and biotechnology (Antunes and Canongia, 2006,
Berard & Delerue, 2010)
Haase and Franco (2011) also found that the discussion of the external environment information
sources used in the environmental scanning is somewhat scanty and centered on large
organizations and for small and medium sized enterprises, timely and relevant information
sources from the socio economic surroundings is equally important. They found in their
research that size of an organization do in fact have an impact on environmental scanning.
Smaller firms do not scan as broadly as frequently as larger companies. Smaller firm under
utilised certain external information for their competitiveness (Haase & Franco, 2011).
3. METHODOLOGY
The primary goals of this study were to examine whether SMEs in the northern states of
Malaysia do strategic planning and how the strategic planning process is done. The sample
of the research comprised of SMEs in the Northern Region of Malaysia which covered the
states of Perlis, Kedah and Penang. The researcher obtained the population of SMEs from the
directory of Small Medium Enterprise which is accessible through the website. A purposive
sampling was chosen as the sampling design for the reason that companies which were chosen
have to qualify certain requirements before they can be used as respondents or before they
are considered as SMEs. As this was a cross sectional study, the data was collected over a
period of weeks and data was gathered from September 2011 to December 2011. The data
came from two sources: mail questionnaire and individual administrated questionnaire. For
mail questionnaire, two hundred and fifty questionnaires were mailed to the respective SMEs
with the help of a research assistant. The respondents were asked on whether they do strategic
planning and whether they utilized each steps suggested by Wheelen and Hunger (2008)
model in their strategic plans (The strategic plan of Wheelen and Hunger (2008) consists
of environment scanning, strategy formulation, strategy implementation, strategy evaluation
and control). The strategic planning questionnaire was operationalzed using the Wheelen and
Hunger Model (2008).
As for individual administrated questionnaire, one hundred questionnaires were distributed
through self-administered method with the help of research assistants. Statistical Package for
the Social Sciences (SPSS) version 19.0 was used to analyze the data collected. In terms of
data processing, five statistical techniques were used for different purposes. These included
descriptive statistics, mean, median, standard deviation. For inferential statistics, crosstab
results were obtained and chi square results were conducted. The respondents’ demographic
441
Wei-Hin Cheng, Kadzrina Abdul Kadir and Abdul Manaf Bohari
variables were analyzed using descriptive statistics such as frequencies and percentages. While
other items were measured based on the five point Likert scale and ordinal scale. Due to this
reason, only non parametric tests such as chi squares were performed to analyze the results.
4. FINDINGS
A total of 300 questionnaires were mailed to SMEs in the Northern states (Perlis, Kedah and
Penang). Out of the 118 returned questionnaires, 10 questionnaires were discarded due to
incomplete data. Hence, 108 questionnaires were used in the statistical analysis representing
a response rate of 36%. From, the 108 companies which responded, 52(55%) companies
were from Kedah, 33 (35%) companies were from Perlis and only 9 (9.5%) from Penang.
In terms of industry, 73 (77%) companies were from other industries, 5(4.8%) in furniture,
7 (6.7%) in cosmetics, 3 (4%) motor vehicle, 7 (7,7%) in .hotel and 1 (1%) in education
industry. Most of the companies which responded have one owner (42%), two owners (36.1%),
three owners (14.8%), while 6 (7.4%) companies have four and more owners. The highest
percentages were recorded for companies with 10-50 staff (58%), 51-100 staff (31%), 101150 staff (5.6%) and above 151 staff (4.1%) respectively. In terms of start-up capital 34
companies (32%) have a start-up capital of less than RM50,000, 28 companies (26%) have a
start-up capital of RM50,001-RM100,000, while 26 companies (27%) have a start-up capital
of RM101,000 – RM500,000 There were only 17 companies(16%) with start-up capital of
more than RM500,000. Most companies which responded were established companies with
4-6 years of establishment (24%), 10-12 years (17.5%), 1-3 years (16. %), 16-18 years (10%)
and more than 21 years (9.3%) respectively. Most respondents who were interviewed were 1)
Managing Director (26%), 2) CEO (16.3%), 3) Sole Proprietor (16.3%), 4) Manager (16.3%)
and 5) Senior Manager (8.7%).
4.1. How do SMEs do their Strategic Planning?
Respondents were asked if they do formal strategic planning which resembles the elements
and the four stages of Wheelen and Hunger (2008) model.
4.2. Does your company do strategic planning (conduct external environment scanning)
and how important it is?
The table below shows the results whether the respondents conducted strategic planning
(external environment scanning) and how important it was to them. Out of 81 respondents
who answered this question, 65 of them said that they conducted strategic planning formally
and do environmental scanning. Only 16 of them said that they did not scan the environment.
Of those who said that they scanned the environment, 47 of them felt that it was important and
very important to do so.
Table 1: Result of Environmental Scanning
Conduct Environmental
Scanning
Count
Very not
Important
Not
Important
Neutral
Important
Very
Important
Yes
No
Total
65
16
81
5
5
6
6
7
7
25
25
22
22
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The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning
4.3. If your company do environmental scanning, which environmental factors would be
most important?
Table 2 depicts that if the respondents have done environmental scanning what are the factors
(political, economical, legal, social, and technological) they would consider important and
how these factors fared in terms of very important, not important, neutral, important and very
important.
Table 2: Importance of External Factors in Environmental Scanning For Those Who Do Environmental
Scanning
External Environment
Scanning Factors
Very not
Important
(Factors of External Environmental Scanning)
Not
Very
Important Neutral Important Important
Total
Political and legal factors.
6
9
24
27
15
81
Environmental Scanning Factors
Economic factors
1
2
8
27
43
81
Socio-cultural factors.
2
3
28
31
16
80
Technological factors.
0
4
15
34
27
80
Bargaining power of suppliers.
1
2
13
36
29
81
Bargaining power of buyers.
1
1
7
44
26
79
Threat of substitute products.
2
11
26
37
4
80
Intensity of rivalries.
1
2
18
29
30
80
Importance of trade block.
8
13
26
29
13
79
Importance of labor union
8
15
31
15
9
78
NGOs (non government
organization)
14
15
34
12
4
79
Government agencies
5
4
20
36
16
81
Community
0
6
16
36
23
59
Financial institution
2
4
12
36
27
80
Threat of new entrants
1
7
20
48
5
81
From the results above, the importance of external environment factors can be illustrated in
Figure 2 below.
Figure 2: Importance of Environmental Factors
443
Wei-Hin Cheng, Kadzrina Abdul Kadir and Abdul Manaf Bohari
The histogram shows that in terms of environment factors most SME responded that in the
external environment scanning the most important factor is the economic factor (B7b). This
is followed by B7f (bargaining power of buyers), B7e (bargaining power of suppliers), B7n
(financial institution), B7d (technological factors) and B7h (intensity of rivalries), B7m
(community) and B70 (threats of new entrants). External environmental factors that are less
important (in descending order -higher to lower order) are: B7b government agencies, B7c
socio-cultural factors, B7a political and legal, B7g threats of substitute products, B7i trade
block, B7j labor union and B7k non government organization.
4.4. Does the Wheelen & Hunger Model diagram resemble your company’s strategic
management planning?
There were 100 respondents who answered this question. Out of this hundred, 59 respondents
or (54.6%) answered yes, while 49 respondents or (45.4%) answered no. In other words more
than half respondents agreed that their strategic planning process do somewhat resembles
Wheel and Hunger Strategic Planning Model.
Of those who agreed that the model resembled their strategic planning process, 52% said that
the model exactly resembled their strategic planning,
A Chi Square test was further conducted to see if those who think that if their strategic planning
process resembled the Wheelen & Hunger model, will there be a tendency that it will exactly
follow the Strategic Planning Model suggested bu Wheelen & Hunger (2008). The Chi Square
Test result provided below is significant at 0.000 (“p” less than 0.001): which suggested that if
the SME do strategic planning, it will follow the Wheelen & Hunger (2008) model.
Table 2: Chi Square Test. (If strategic planning process resembles Wheelen and Hunger Model,
there will be tendency it will be exactly the same as their strategic planning process)
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear Association
N of Valid Cases
Value
df
Asymp. Sig. (2-sided)
101.084
137.309
77.347
108
8
8
1
.000
.000
.000
5. DISCUSSION OF FINDINGS
Major findings of the study indicated that SMEs do have some form of formal strategic
planning and further to this, most of their strategic planning resembles that western Strategic
Planning Model suggested by Wheelen and Hunger (2008). In terms of environment scanning,
most respondents indicated that environmental scanning is important to them. Among the
environmental factors, the most important factor that the respondent felt was the economic
factor, this was followed bargaining power of buyers, bargaining power of suppliers, financial
institution, technological factors, intensity of rivalries, community and threats of new entrants.
Economic factors which cover economic growth of the country, purchasing power, employment,
inflation, taxation etc were the most vital factors to the SMEs to determine their survival in
444
The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning
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