STRATEGIC MANAGEMENT IN MALAYSIAN SMEs: AN EMPIRICAL ASSESSMENT
MOHAMED SULAIMAN - School of Management, Universiti Sains Malaysia SYED AZIZI WAFA - School of Business and Economics, Universiti Malaysia Sabah MOHD KHAIRUDDIN HASHIM - Faculty of Business Management, Universiti Utara Malaysia
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ABSTRACT
The notion that strategic management is an important management process that can help firms manage their resources, develop competitive advantage and create their future has resulted in extensive literature in this area. While a number of empirical studies have investigated strategic management practices in large firms, little research has focused on this area of management in small- and medium-size enterprises (SMEs), particularly in the Malaysian context. This study initiates an attempt to address this issue. This study, which is part of a larger study, reports findings that indicate owners and managers of SMEs used rational strategic management practices as well as adopted business strategies as espoused in the literature.
INTRODUCTION
Strategic management is a source of significant benefits for businesses operating in a competitive environment. Strategic management can assist firms make effective decisions and strategies by staying alert to the threats and opportunities in an uncertain and dynamic environment. In addition to assisting firms to make effective decisions as well as effective strategies, strategic management can help improve their performance.
In fact, the literature suggests that the increased practice of strategic management in organizations results from the growing evidence that indicates effective strategic management can help improve organizational performance.
The notion that strategic management is important for a firm's success or failure has produced an extensive stream of literature (Burn and Stalker, 1961; Chandler, 1962; Lawrence and Lorsch, 1967; Wood and Laforge, 1979; Rumelt, 1986; Rue and Holland, 1986 and 1989; Bracker et al. 1988; and Kotha and Nair; 1995). However, in the aggregate, empirical studies have concentrated on large firms in Western business society.
Surprisingly, this related issue of concern has received minimal attention in the small business literature in Malaysia. Despite the importance of SMEs and the increase in knowledge in strategic management, few empirical studies have examined SMEs from this perspective. This study is presented to address this issue. This study reports empirical findings of a larger study that suggest Malaysian SMEs do adopt rational strategic management process as advocated in the literature. More specifically, this study provides an insight into the nature of the strategic management process that took place in Malaysian SMEs and the types of business strategies they adopted.
Strategic management and Organization.
Strategic Management and Organizations are two components that work closely together in order to achieve long term goal.
Wheelen and Hunger (1999) noted 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 scope of the strategic management process covers organization-wide issues in the context of a whole range of environment influences. The strategic management process involves organization, management and the 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.
As an open system, a business organization will survive and succeed by acquiring and maintaining its resources. Businesses are embedded in an external environment which consists of other organizations. They depend on those other organizations for the many resources they themselves require. The business organizations are linked to the external environments by federations, associations, customer-supplier relationships, competitive relationships, and a social-legal apparatus defining and controlling the nature and limits of these relationships. Business organizations, therefore, must transact with these elements in order to acquire the needed resources, and this is true for public, private, small, large, bureaucratic or organic organizations (Burns and Stalker, 1961).
Pfeffer and Salanick (1978) stressed that problems arise not merely because organizations are dependent on their environment, but because the environment is not dependable. According to the authors, environments can change, new firms enter and exit, and the supply of resources becomes more or less scarce. When environments change, firms face the prospect either of not surviving or of changing their activities in response to these factors. Therefore, to survive and become effective, a firm must be capable of making adaptations to the changing situations. It is due to these continuous changes that business organizations need a more powerful management process like strategic management to cope successfully.
The Strategic Management Process
Strategic management is a systematic resource-based process for making major decisions in organizations. It attempts to organize meaningful assets and skills, information, and competitive arenas in a manner that allows effective decisions and strategies to be made under conditions of uncertainty (Aaker, 1989 and David, 1999).
Although there is no one universally accepted definition or way of practising strategic management, the review of the normative and empirical works suggests that the strategic management process involves the following basic dimensions:
1.
Strategy Formulation
In the strategic management process, the strategy formulation phase involves the development of long-term strategic plans for effective management of environmental opportunities and threats, in light of a firm's strengths and weaknesses. The formulation of strategy includes defining the firm's mission, targeted objectives, developing strategies, and establishing policy guidelines.
2.
Strategy Implementation
In the strategy implementation - often called the action phase -the firm is required to translate its strategies and policies into action through the development of specific budgets and procedures. In this phase, the necessary changes are also made within the organizational culture, structure divisions, departments, products), and the relationships between these
elements and the managerial levels among the top, middle and lower levels of the organization.
3.
Strategy Evaluation and Control
The strategic evaluation and control is the final phase of the strategic management process. The strategic evaluation involves obtaining information about the strategic plans and performance, and comparing the information with the targeted objectives. Finally, the strategic control involves taking the necessary corrective measures to bring activities into conformity with the
strategic plan.
In addition to the above dimensions, the strategic management process emphasizes the importance of gathering and the use of environmental information. The environmental information which is collected through situational analysis can assist an organization in identifying and understanding the factors that contribute to its ability to develop effective strategies as well as achieve its objectives efficiently and effectively.
Thompson and Strickland, (1999), Johnson and Scholes (1988), and Graig and Grant (1993) indicated that the strategic analysis process comprises the external analysis such as the industry situation analysis and competitive situation analysis, and internal analysis (company situation analysis).
Courtney, Kirkland and Viguerie (1997) stressed that situational analysis is still relevant to companies formulating and implementing strategies in an uncertain business environment. The authors noted that all strategy making begins with some form of situational analysis. The authors emphasized that to cope with different levels of uncertainty, organizations need different analytical approaches to determine the best possible
strategies.
Apart from the situational analysis, there are authors who suggested strategic thinking and strategic readiness as the other important conditions for strategic management to be carried out effectively. For instance, Ohmae (1982) stressed that strategic analysis is the starting point of strategic thinking. According to the author, the aim of strategy is to bring about the conditions most favourable to a business by way of realistic responses to changing situations.
Christensen (1997) also suggested that organizations need to develop competency in strategic thinking in order to conceive and implement creative and coherent strategies.
In addition to strategic thinking, Redding and Catalanello (1994) emphasized that strategic readiness or an organization's readiness for change will determine how well strategy will be formulated and implemented. The authors also stressed that firms need to consider the two additional conditions prior to formulating and implementing their strategies, that is, defining the organization's purpose (what an organization exists to do),and discovering insights (insights into how to create value).
While most of previous theoretical and empirical contributions to strategic management were developed for use by large firms, lately, the literature suggests that researchers are acknowledging the suitability and applicability of strategic management in SMEs.
Earlier work on strategic management in SMEs can be traced to the studies by Gilmore (1966 and 1971). More recently,Tourangeau (1981), Curtis (1983), Wheelen and Hunger (1995),Scarborough and Zimmerer (1996, and 1998) and David (1999) have stressed the need for strategic management in SMEs.
Although knowledge in the area of strategic management has expanded, researchers investigating SMEs have given limited attention to this area of management, particularly in the Malaysian context. In Malaysia, studies that examine SMEs from the strategic management perspective are still very rare (Sim, 1991, Sim and Yap 1997, and Hashim, 2000).
CONCLUSIONS
In conclusion, the findings of this paper provide us an insight into the nature of the strategic management process that occurs in Malaysian. As a whole, the findings of the paper suggest that organization sector have the ability to adopt some form of rational strategic management process as described in the strategic management literature. Hence, this paper has taken us a step closer to understanding strategic management in organization
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