Strategy formulation and financial performance in selected small and medium enterprises in Zimbabwe.

Abstract

Despite the growing concern for the development and growth of the SME sector in Zimbabwe, it continues to face challenges that negatively affect its performance, in particular financial performance. Strategy formulation is a tool that is useful in enhancing SMEs’ financial performance and ultimately growth. Studies on strategy formulation in SMEs in the developing world are scanty, especially in Zimbabwe. The aim of the study was to establish the impact of strategy formulation on financial performance of manufacturing SMEs in Harare, Zimbabwe. The study adopted a case study strategy in which manufacturing SMEs in Harare, Zimbabwe were studied. Samples for the study were recruited from manufacturing SMEs in Harare. Stratified random sampling was employed to draw 368 questionnaire respondents while purposive sampling was used to draw 15 interview participants. Questionnaires were personally administered to the manufacturing SMEs, while in-depth interviews were conducted with the selected manufacturing SMEs at their workplaces. Quantitative data were analysed with the help of the IBM Statistical Package for Social Sciences (SPSS) version 23 while qualitative data were analysed by content analysis. The study established that strategy formulation was adopted by manufacturing SMEs in Harare to a certain extent and this had a positive and statistically significant relationship with both short term and long term financial performance. It was further revealed that most manufacturing SMEs in Zimbabwe employ emergent approach to strategy formulation and this style had had a positive influence on both short term and long term financial performance. It was also established that of all the three generic strategies, cost leadership was the most commonly adopted business strategy and, it had a strong and positive association with financial performance. It is recommended that SME owner/managers consider the influence of strategy formulation to ensure the growth of financial performance, and contribute meaningfully to the economic development of Zimbabwe. However, strategy development in SMEs should marry planned approach and emergent approach to balance professionalism and responsiveness. It is also hoped that future studies will develop strategy formulation models that are applicable to SMEs in the developing economies, Zimbabwe in particular.