INNOVATION AND STRATEGIC PLANNING AS KEY ELEMENTS TO ENTREPRENEURIAL SUCCESS

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1 INNOVATION AND STRATEGIC PLANNING AS KEY ELEMENTS TO ENTREPRENEURIAL SUCCESS JOY JOLLY MUTAGA IENMJOURNAL DEPARTMENT OF BUSINESS MANAGEMENT UNIVERSITY OF PRETORIA Abstract: This study investigates the importance of innovation and strategic planning as key elements for the success of medium entrepreneurial ventures. According to Niemen, Hough and Nieuwenhuizen (2006:235) innovation is a way of doing things differently and strategic planning involves setting specific action steps to achieve future goals. An entrepreneurial venture is one whose main objectives are making profit and growth, which are all associated with success.according to various definitions founded in the literature, the key variables that distinguish the entrepreneurial venture from a small business are innovation, potential growth and strategic objectives. Most entrepreneurial businesses, which have grown over the years, are characterized by doing things differently than their competitors on a continuous basis and the setting of goals as guidelines and actions plans to incorporate the change to ensure business growth and success over the long term. The purpose of this study is to determine whether Innovation and Strategic Planning influence the level of success experienced by these Medium Entrepreneurial Ventures.The study is conducted in the form of a formal study by means of collecting secondary data in the form of journal articles, books and reports. Qualitative data is obtained from the different sources. Keywords: Innovation. Strategic Planning, Potential for Growth, Entrepreneurial Venture 1.Introduction Governments worldwide have acknowledged the impact of Small, Micro and Medium (SMME) firms on job creation, improvement of people s standards of living and hence an overall impact on the economy. However, note all SMMEs are experiencing positive impact, because not all small businesses started have been successful. According to Jocumsen (2004:659), small businesses are generally plagued by high failure rates and poor performance levels. In South Africa up to 50% of new small business fail, while in the USA, 75-80% failed within the first 3-5 1

2 2 International Entrepreneurship Management (March,2015) years (Ladzani and Van Vuuren 2002). For the purpose of this study focus will be on medium firms since small business do not engage in innovative or marketing practices but only grow at the rate of inflation (Nieman et al 2003:10).influence their economies. Successful entrepreneurial ventures strive on innovation in products, processes or practices. Strategic planning is also part of success of any entrepreneurial venture because it involves putting in place systematic procedures that will be adopted by all stakeholders involved in the entrepreneurial venture to achieve set goals. According to Hisrich (2000), success is measured in terms of sales growth, income growth, employment trends and satisfaction. 2. Problem statement The paper determines whether innovation and strategic planning influence the success of medium firms. However, a question arises as to whether innovation and strategic planning are the only basic elements for entrepreneurial success among medium firms. 3. Importance of the paper In order for SMMEs to have a big impact on unemployment and poverty reduction since they contribute a bigger percentage of South African business sector, definite steps need to be taken to stimulate their performance and success. Small businesses due to their size and financial constraints do not plan and are not innovative. The aim of this paper is to establish whether entrepreneurial success in medium firms is based on innovation and strategic planning as key elements and the advantages or importance of innovation and strategic planning. The study will also be an addition to the already existing literature on innovation and strategic planning. 4.Hypothesis Ho1: Innovation and strategic planning are not key elements to entrepreneurial success. Ho2: Innovation and strategic planning are key elements to entrepreneurial success. 5.Methodology For the purpose of this study a formal study is undertaken by of collecting secondary data in the form of journal articles, books and reports. Qualitative data is obtained from the different sources mentioned, as it allows for document analysis. 6. Findings Defining entrepreneurial success Entrepreneurial success according to Nieman et al. (2003:14) is attributed to personal characteristics and managerial skills. The personal success factors of entrepreneurs are creativity

3 and innovation, risk taking orientation, leadership, good human relations, positive attitude, perseverance and commitment. Managerial success factors on the other hand include planning, knowledge of competitors, mainly market oriented, client service, high quality as priority, financial insight and management, knowledge and skills with regard to the business and the use of experts (Nieman et al. 2003:15). Innovation Schumpeter (1951) mentions that innovation and investment that enable business to be blazing new trails are crucial for business success. He further says that without innovation, automatic decline is inevitable. According to Rogers as quoted by Lee and Runge (2001:44) innovation is defines as an idea, practice or object that is perceived as new by an individual or other unit of adoption. Lee and Runge further suggested that innovation does not have to be necessarily the newly invented artefacts, but rather something new to the adopting unit. A firm s ability to devise new organisation forms and processes enhances its ability to exploit new opportunities internally, such as technological advancement, and external such as new or expanding markets (Lee and Runge, 2001:44). This will lead to entrepreneurial success. Georgellis, Joyce and Woods (2000:7) argue that entrepreneurial businesses characterised by their capacity to plan ahead, their capacity to innovate and their willingness to take risk allow them to innovate and thus develop and grow successfully. Innovation is the key characteristic of an entrepreneurial business that will ultimately affect business performance (Georgellis et al, 2000:8). High performance will also lead to entrepreneurial success. 3

4 Figure1 Entrepreneurial action, innovation and business performance Business performance (sales/revenue, employment Innovation (product/service) Capacity to innovate Capacity To plan ahead Willing to take risk Entrepreneurial Action Desire to grow (sales/revenue, employment) Source: Georgellis, Joyce and Woods (2000:9) Stark (2000) believes that innovation is becoming more important due to the following reasons: Technology is changing very fast with new products, new processes and services, from competitors, for any entrepreneurial venture to compete and succeed; he or she will have to adjust to new technological innovations; Effect of changing environment with product lifecycles becoming increasingly shorter, means that old products or services will have to be replaced with new ones soon enough and this can be possible trough creative thinking that eventually leads to innovation; Customers these days are more sophisticated, segmented and demanding; they expect more in terms of quality, newness, and price. Innovate skills are therefore necessary to satisfy customers needs while retaining them; With markets and technology, changing very fast, good ideas are becoming very easy to copy and this therefore calls for continuous methods of devising new and better products, processes and services faster; and Innovation leads to faster growth, increased market share and better corporate positioning. 4

5 Western Economic Diversification 2006 report, has mentioned that the government of Canada and the provincial governments in Western Canada have all recognised that innovation has become the major driving force in economic growth and social development. Strategic planning Strategic planning refers to the setting of long-term business goals, and the developing and implementing of formal plans to achieve the goals (O Regan & Ghobadian, 2004; Stonehouse & Pemberton, 2002). According to Skrt and Antoncic (2004:108) a number of entrepreneurship authors such as Wickham (2001), Hisrich and Peters (2001), and Timmons and Spinneli (2003), propagate the importance of strategic planning for the success of an entrepreneurial venture. Brown (2005:213) found out that business performance was highest when levels of both commitment to the strategic planning process and the frequency of strategic planning training were high. Businesses that use a formalised strategic planning system were more likely to survive than those, which operated without such a system (Bonn, 2002:39). Lewis, Goodman and Fandt (2001:149) mention that businesses that continuously focus on finding better solutions to maintain their competitive advantage, manage to do so through effective strategic planning. Maintaining a competitive advantage leads to entrepreneurial success. Strategic planning sets out decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the business and its environment in order to achieve business goals (Datt, 2002:139). Strategic planning assures that the following items are well developed, properly implemented and controlled to contribute to entrepreneurial success: A business plan for the venture; Short- term and long-term goals are clearly defined and set; Mission statement of business exists, according to Barnes (2002:131) the mission statement is a key feature of strategic planning; A strategy exists for achieving set goals and objectives; Procedures are in place for assessing the strengths and weaknesses of the business; Procedures are in place to assess the external business environment; Budget is developed for the business; Success measure are in place to assess the business progress; Financial planning forms part of the overall planning process and 5

6 The business has established specific profit objectives in order to assure growth. Limitations The use of secondary data only for this research study is not adequate to provide all information on the significance of women entrepreneurs. Very little research has been done on women entrepreneurs start-up, survival and growth strategies and entrepreneurial career perceptions. I 9. Conclusion Small businesses that strategically plan are also more likely to be those that are innovative, those that achieve internal growth (Beaver & Prince, 2002; Gibbons & O Connor, 2005; Stewart, 2002; Upton, Teal, & Felan, 2001) and those less likely to fail (Perry, 2001). References 6 1. Barreira, J. C.D The influence of business knowledge and work experience as antecedents to entrepreneurial success. Unpublished PhD thesis. Pretoria: University of Pretoria. 2. Ladzani, W. M. & Van Vuuren, J. J Entrepreneurship training for emerging SMEs in South Africa. Journal of Small Business Management, 40(2): Hisrich, R. D Entrepreneurial dimensions: The relationship of individual, venture, and environmental factors to success. Entrepreneurship Theory and Practice, 24(4): Chetty, S. & Campbell-Hunt, C Explosive international growth and problems of success amongst small to medium sized firms. International Small Business Journal, 21(1): Cooper, D. R. & Schindler, P. S Business Research Methods. 9 th ed. Boston: McGraw-Hill/Irwin. 6. Nieman, G. H., Hough, J. & Nieuwenhuizen, C. (ed s) Entrepreneurship: A South African Perspective. Pretoria: Van Schaik Publishers. 7. Herrington, M. and Mass, G Global Entrepreneurship Monitor: South African Report Cape Town: University of Cape Town. 8. Wickham, P. A Strategic Entrepreneurship. 4 th ed. United Kingdom: Pearson Education. 9. Dhliwayo, S The Relationship between the Practice of Corporate Entrepreneurship in South African Public Companies. Unpublished PhD thesis. Pretoria: University of Pretoria. 10. Gemunden, H. G. and Ritter, T The impact of a company s business strategy on its technological competence, network competence and innovation success. Journal of Business Research, 57(5):

7 11. Hall, L. and Thacker, C Innovation, Competitive Position and Industry attractiveness: A Tool to Assist SMEs. Creativity and Innovation Management, 12(4): Lee, J. and Runge, J Adoption of Information Technology in Small Business: Testing Drives of Adoption for Entrepremeurs. Journal of Computer Information Systems, 42(1): Georgellis, Y., Joyce, P. and Woods, A Entrepreneurial action, innovation and business performance: The small independent business. Journal of Small Business and Enterprise Development, 7(1): Gibbons, P. T., & O Connor, T Influences on strategic planning processes among Irish SMEs. Journal of Small Business Management, 43(2): Beaver, G., & Prince, C Innovation, entrerpreneurship and competitive advantage in the entrepreneurial venture. Journal of Small Business and Enterprise Development, 9(1): Jocumsen, G How do small business managers make strategic marketing decisions? A model of process. European Journal of Marketing, 38(5/6): O Regan, N., & Ghobadian, A Re-visiting strategy-performance question: An empirical analysis. International Journal of Management and Decision Making, 5(2/3): Stonehouse, G., & Pemberton, J Strategic Planning in SMEs- some empirical findings. Management Decision, 40(9): Lewis, P. S., Goodman, S. H & Fandt, P. M Management: Challenges in the 21 st century. 3 rd ed. Ohio: South Western College Publishing. 20. Brown, P The evolving role of strategic management development. Journal of Management Development, 24(3): Bonn, I Staying on top: characteristics of long-term surivival. Journal of Organizational Change Mnagement, 13(1): Meyer, G. D. & Heppard, K. A Entrepreneurship as strategy: Competing on the entrepreneurial edge. California: Sage Publications. 7

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