How Firm Level Factors And External Environment Dynamics Affect Strategic Planning And Performance Of Manufacturing Firms In Kenya

Abstract

The past empirical studies on strategic planning and firm performance have produced contradictory findings, which mean the findings are still inconclusive. Some researchers have argued that strategic planning influences performance positively while others contend that the influence was negative. Scholars have posited that the central tenet in strategic management is that a match between environmental conditions and firm resources and capabilities are critical to performance, and that a strategist’s job is to find or create this match. Hence, there was need for further studies to fix this empirical conundrum. This study investigated the influence of firm-level factors and external environment dynamics on the relationship between strategic planning and firm performance. These variables were contextualized in the manufacturing firms in Kenya. The broad objective of this study was to determine the influence of firm-level factors and external environment dynamics on the relationship between strategic planning and performance of manufacturing firms in Kenya. Out of this objective, four specific objectives were formulated with corresponding four hypotheses which were stated and tested at 95 percent confidence level. Through a cross-sectional descriptive survey, data were obtained using a structured questionnaire from 72 manufacturing firms representing 52.17 percent response rate. Data obtained were analyzed using both descriptive and inferential statistics. Hypotheses were tested using both simple and multiple regression analysis as well as interacting terms for moderating influences. Statistical Package for Social Sciences (SPSS) was used to analyze the data. The findings established that strategic planning had a strong positive relationship with performance of manufacturing firms in Kenya and the influence was statistically significant. However, there were mixed results as regards the independent influence of various strategic planning indicators on performance. The study found that firm-level factors had a significant moderating influence on the relationship between strategic planning and firm performance. The independent influences of the firm-level indicators used were all significant. However, external environment dynamics did not have significant moderating influence on the relationship. But there were mixed results as regards the independent influence of various external environment dynamics indicators on firm performance. Firm Performance was measured using financial and non-financial performance indicators. The study found that the joint effect of the three variables were greater than the sum of the individual effects of the same variables. The study had implications on theory, policy, managerial practice and methodology. On theory, the study supported resource-based view, contingency and industrial organization theories. On policy, the government should come up with good policies and laws which are favorable for manufacturing firms to thrive and expand in operations. For managerial practice, the managers of the manufacturing firms in Kenya need to synchronize the strategic planning, firm-level factors and external environment dynamics for superior performance. Managers should scan the environment frequently so that they can be at abreast of the happenings in the external environment for swift interventions. On methodology, regression analysis made it easy to test hypotheses and was very clear on how they related to manufacturing firms in Kenya. Among the study limitations is that some of the targeted respondents mainly CEOs and senior managers complained of time constraints and delegated this to their representatives. Although they asked their representatives to contact them for any clarification in areas they needed their help, this could not be confirmed. Also, there was possibility of common method bias since the data collection targeted one respondent per firm. For further research, different variables to be used as moderating and intervening as well as joint influence to be analyzed to see whether different results can be arrived at. Firm sizes and manufacturing sectors can be used as contexts to see whether results will differ.