Małgorzata Smolarek
Wyższa Szkoła Humanitas w Sosnowcu
PLANNING IN A SMALL FIRM AND MARKET
CHARACTERISTICS
Abstract: On the basis of the author’s own research, the article characterizes
planning in small companies in terms of the specificity of the market on which
a given company operates and the characteristic of company’s line of business.
Key words: planning,
small firm.
Introduction
Planning may be
essential for a mall company to achieve success, but at the same time it is the
most underestimated function. Many people (owners of small companies) think
that planning is a domain of large companies and only they should employ it.
However this way of thinking may bring about the situation when neglecting
planning may endanger a potential success of a company even before it starts to
operate. [1]. According to an old
saying “if you neglect planning you plan a failure”, planning is a key to
achieving a success, both of an individual and a business[2].
Planning in a small
company significantly differs from planning in a large company, where plans are
often very detailed, bureaucratic, repeatedly controlled and computer aided.
Such plans require time, resources and experience, which small companies do not
have. Planning in small companies differs from planning in large ones also due
to the fact that small companies have different needs – the owners are more
involved in daily operation of the company, and the only “purchaser” of the
plan is a bank (thus other functions of a plan, such as coordination,
communication and controlling functions, are less important); the main
objective of the plan is increasing the owner’s understanding of his/her
company and improving the quality of decisions. In such companies there is a
smaller margin of error. The same error may cause the bankruptcy of a small
company and have minor consequences for a large one (therefore planning in a
small company must be very precise). Companies of this type usually have less
resources – as there is no staff to coordinate the activities and question or
correct the owner’s decisions, planning in small companies means making
well-thought-of decisions about which of the many things should be done in the
first place, and must be effective. They also have less experience – as
planning usually takes place once a year, small companies have little
experience in this area. Apart from that, a small company usually operates a
few years and cannot base its activity on previous experience; these factors
cause that planning is often the weakest point of a small company. Another
reason is the fact that these companies function in a less stable environment.
Often they are situated on a very steep section of growth curve and each year
of their activity involves new environment. Therefore, such companies must be
flexible, react quickly to the changes in the environment through seizing new
opportunities, which makes the process of planning much more difficult.[3]
Small companies that employ planning and companies that do not employ it show differences in the attitude to taking decisions. Companies where planning is applied usually use consultants or involve the employers in the process of taking decisions. Whereas in companies not applying planning employers do not participate in this process at all or to a small degree. Therefore companies that apply planning, due to better knowledge and understanding of the environment, have advantage over companies that instead of planning rely more on the knowledge of individual persons. Companies employing planning use specific planning techniques more extensively. These two types of companies also differ in terms of using the procedures for searching and evaluating occasions for investment. Companies that employ planning are more active in searching and evaluating new investments and also more active in predicting changes on the market (they use marketing research more often) to achieve a competitive edge.[4]
1. Planning in the companies analyzed
The survey „Planning in a small company” was
conducted in the period January-April in 2005 and concerned among others
planning in a small company (with employment of 0-49 people). The research tool
used was a questionnaire consisting mainly of closed questions, which made
choosing the answer easier. The result
of the research was 256 questionnaires returned, of which 209 were accepted for
further analysis.
Among the companies
analyzed, the largest number (23%) represented furniture industry. 19% of the
companies operated in medical instrument industry, 16% of them represented
clothes industry, and 13% - other industries. The latter group included: toy
companies, pushchair companies, producers of candles, producers of car parts,
producers of mining industry goods, and a silicone gasket producer. 11% of the
companies were producers of building goods, 10% - producers of electrical
goods, and 8% represented food industry.
The largest group (30%)
of the companies analyzed included companies set up in the years 1990-1993. 21%
of the companies were established in the period 1994-1997, whereas 20% of them
were formed in the period 1998-2001. 15% of the companies surveyed were created
in the year 1989 and earlier, and 14% of them - in the years 2002-2005. Among
the companies analyzed those with employment from 1 to 9 people (including the
owner) prevailed (68%). The remaining 32% of the companies employed from 10 to
49 people. The largest group included companies whose owners belonged to the
age range of 40 to 49 years (38%), and only 2% of the owners of the companies
surveyed were over 60 years old.
These companies were most often run
by entrepreneurs with secondary education, who constituted 36%. 20% of the
owners of the companies analyzed had basic vocational education, 17% of them
had higher education (master’s degree), 15% were holders of the title of “licencjat”
or “inżynier”, and 11% of the owners acquired education in schools where
the requirement for gaining access is the maturity certificate. The smallest
group was formed by entrepreneurs with elementary education, who made up only
1%. Over half of the entrepreneurs (59%) admitted they had had no previous
experience in management when they were setting up their businesses. 26% of
those surveyed had had experience in managing a company in the same line of
business when they were establishing their own businesses, and 15% of them
previously had managed a company in other line of business.
65% of the 209
respondents think that planning is useful in running a company, but 35% of them
state that it is unnecessary. According to the entrepreneurs, planning is
useful in a company, because it helps to achieve the objectives set (19% of the
most often indicated reasons), forces them into far-reaching thinking (17.7%),
allows a better control over a company (16.9%), allows a company to achieve a
competitive advantage (14.2%). Respondents who considered planning as
unnecessary in a company gave the following arguments: planning is onerous, it
hinders a company’s operation (24.4%), excludes flexibility and enterprise
(restricts a company’s activity) (19%), it requites too specialist knowledge
and qualified staff (17.3%), it requires too high financial and material
outlays (16.1%).
The majority (86%) of
the 209 small company owners who participated in the research have experience
in planning a company’s activity. 44% of those surveyed have positive
experience, and 42% - negative. The remaining 14% of the respondents have no
experience in this area.
Only 9.6%
of small companies declared that they had a formal plan, 54,5% - had informal
plan, whereas almost 35.9% of them
admitted do not having one. A formal version is a written version, made in
accordance with the requirements of financial institutions. An informal version
of a plan is a simplified version made for a company’s own needs (often it is
understood only by the owner). In the group of companies employing 0-9 workers
only 5.6% declared having a formal plan, whereas in the group of companies with
10-49 workers – this percentage was 18.2%. On the basis of the analysis of the
results it has been found that a larger percentage of companies without a plan
(whose operation is based on the owner’s intuition) is in the group of
companies employing 0-9 workers. Informal plans are drawn by every second
micro-enterprise and an enterprise with over 9 employers. In can be said that
larger companies more often apply planning in their activity. Similar
conclusions are contained in the literature of the subject. The larger company,
the larger need and willingness to plan. With the increase of the size of a
small company (in which management is based on intuition, personal knowledge
and engagement) it becomes more complicated and it is necessary to introduce a
more professional management system.[5] As a company is developing, it becomes
necessary to manage it in a more professional way, which involves introducing
more and more systematic and effective control mechanisms.[6] The results of research conducted by B. Gibson and G. Cassar also show
that the scope and significance of planning in small companies increases with
the increase of the total number of employers and with the increase of the total
sales volume.[7] J.E Wasilczuk, on the
basis of his research, states that among the owners of increasing companies
there are more people who have a plan, both in a formal and informal form. On the
other hand, un-increasing companies operate in most cases without planning
their activity.[8] Similarly, N. Upton, E.J. Teal and J.T. Felan, on the basis of the research into small
fast growing family companies, found that the majority (71%) of fast growing
companies had formally written plans, and in over 50% of them the
horizon of the plans was longer than 3 years.[9]
Plans of companies which
declared having one (formal or informal one) usually covered the period of 2-3
years (38.8%). 29.1% of the companies had pans for the period of one year, and
20.1% - for the period shorter than one year. Only11.9% of those surveyed had
plans for over three years.
Of the 134 respondents
who declared having a plan, 70.4% think that their plans exceed current
production, procurement and sale needs, and the plans of the remaining 29.6% of
the respondents cover only current production, procurement and sale. Plans
exceeding the production, procurement and sale needs concern production (92%),
marketing and sale (68%), product development and technology (B+R) (22%),
investment policy (18%). Relatively small number of respondents declare that
their plans are concerned with finances and accountancy (7%) and management and
administration (3%). There was no case of a plan connected with personnel
policy. This may indicate that a development policy of a small company almost
does not include a personnel policy. Such situation is caused by the fact that
due to high percentage of the unemployed on the job market it is easy to find
new qualified workers.
In the companies
analyzed, planning (setting main objectives, strategies) is the responsibility
of the owner. Such answer was indicated by 72.8% of those surveyed. 19.6% of
the respondents said that planning was performed by the owner in consultation
with the workers. 8.7% of those surveyed use internal consultants (specialized
workers) and only 4.3% hire external
consultants (advisers).
60%
of those surveyed intend to employ planning in the future, 3% of them will not
plan their activities, and 37% have not decided yet. The owners who want to
employ planning in their companies in the future usually gave the following
arguments: personal conviction that planning will allow them to better manage
and control their company (27.6%), planning will allow them to avoid mistakes
and their consequences (20.5%), company’s positive experiences (15.2%), gaining
experience and learning through planning, company’s positive experiences
(13.7%).
The companies analyzed do not
use much assistance in planning. Around 40% of the owners of the companies
surveyed state that they do not use any kind of assistance in planning. Almost
29% take advantage of the facilitations
in information gathering (however the information is not always used in planning).
Over 20% participate in trainings and courses in planning, and only 7% had the
costs of hiring specialists reimbursed.
The most frequent
reasons for which a company does not have a clearly formulated plan include:
the lack of time and pressure of current affairs (26.2%) and the lack of
financial means (24.2%). The least important reasons, according to the
respondents, are the lack of material means (2.2%) and the lack of qualified
staff (8.3%).
2. Planning and selected market characteristics
The section below
characterizes planning in terms of selected characteristics of market, that is
a type of the market on which small companies function and the pace of changes
in a line of business which they represent.
2.1. Planning and type of market
Small companies hale
been classified into groups, according to type of market on which they operate.
For this purpose, 5 groups have been distinguished: [10]
1.
Companies operating on the local market (sales limited to the local
market).
2.
Companies operating on the domestic market (over
25% of the sales outside the local market – on the regional or domestic
market).
3.
Companies operating on the domestic+foreign market – sales mainly on the
domestic market and up to 25% of the sales on the foreign market.
4.
Companies operating on the domestic/foreign market – apart from the
sales on the domestic market, 25% of their sales or more is on the foreign
market
5.
Companies operating on the foreign market – sales only on the foreign
market.
In the case of companies
operating only on the local market, planning is the least important. The
significance of planning increases if companies extend their area of activity
or operate beyond the local market. All companies operating only on the foreign
market have formal or informal plans. Formal planning is most appreciated by
the companies that start to increase the area of their activity and enter new
markets. Figure 1 shows the structure of a companies’ plans depending on the
character of the market on which they operate.
Source:
Personal elaboration based on research results
The largest number of the micro-enterprises (66.4%) operate on the
domestic market, that is they obtain over 25% of their income from the sales
outside the local market. Only 23.1% of the companies of this type are
connected with the local market. A relatively small number of the companies
(7.0%) obtain their income from the sales on the domestic+foreign market, whereas
2.8% of the companies – on the domestic/foreign market, and 0.7% - on the foreign market. It has been
noticed that companies
with employment of over 9 persons operate mainly outside the local market. The
largest number of such companies function on the domestic market (47.0%),
on the domestic/foreign
market (30.3%), and on
the domestic+foreign market (18.2%). Larger percentage of such companies, in
comparison with micro-enterprises, only operate on the foreign market.
For the companies operating only on
the local market, the most important objective of a plan was achieving a
competitive advantage and then increasing their effectiveness. Other
objectives, except for the facilitation of resource allocation and
communication means, were relatively of the same importance. The most important
reasons for planning indicated by the companies operating on the domestic
market were the possibility of achieving the objectives set and a better
control over a company. Companies of this type attach great importance to the
possibility of achieving a competitive advantage, far-reaching thinking and
preventing a crisis.
The companies which operate on the
domestic market and are entering the international market indicated the
possibility of achieving objectives set and then far-reaching thinking as the
most important reasons for developing a plan. The companies operating on the
domestic and foreign market as the most important reason for having a plan
indicated a chance to achieve a competitive advantage and a better control over
a company. On the other hand, the companies operating on the foreign market
paid special attention to a better control over a company and far-reaching
thinking.
The least often indicated reasons
included communication means and resource allocation. With the increase of
customer market the interest in planning as the means to achieve objectives set
and a competitive advantage is growing. Operation on diverse markets forces the
use of planning facilitating far-reaching thinking.
Companies that enter new markets and
operate on several markets attach greater importance than others to marketing
and sales plans. Companies focusing only on one market more than others develop
management, administration and finance plans.
In the majority of companies planning is the
responsibility of the owner. With the increase of the scope of activity,
planning is made by the owner in consultation with the workers. Companies
operating on foreign markets or entering such markets more often use external
consultants to develop a plan, whereas companies operating on the local and
domestic markets more often hire specialists.
In planning, companies do not use the
macro-environment analysis to a great degree. Companies operating only on the
local or domestic market more than others do not carry out any analyses for
this purpose. When a company goes beyond the local market and increases the
scope of its activity on the foreign market, an analysis of the competitive
environment becomes more and more important. Such companies also more often
analyze their resources. It is probably dues to the fact that entering a new
market companies must have information about the environment in which they will
function and they must possess appropriate resources that will allow them to
compete on the foreign market. Competitive capacity is analyzed by companies
which operate on wider markets (operating on the domestic market or entering
foreign markets). Strengths and weaknesses are analyzed by companies which
operate on the domestic market and are entering the foreign markets. And
opportunities and threats are analyzed by companies which operate
simultaneously on the domestic and foreign market.
As part of planning, small companies assess
their competitive position, opportunities and threats and strengths and
weaknesses. Companies operating on the foreign markets focus on assessing their
competitive position, assessing the directions of company’s activity and
creating the vision of a company in the future. Opportunities and threats and
strengths and weaknesses are most often analyzed by companies operating on the
local and domestic market.
In
the case of companies operating on different markets, methods applied are
similar. These are usually methods created for their own needs, and on the
second place are learned methods. Formalized planning methods are applied in
companies to a small degree, usually by companies operating on the domestic
market and the domestic and foreign market. Learned methods are most often used
by companies operating only on the domestic or foreign market.
Formalized planning is usually applied by
companies operating on wider markets (beyond the local market) and in this case
it most resembles strategic planning. Planning employed by companies operating
on the local market resembles strategic planning to a small degree.
2.2. Planning and the charter of a
line of business
The companies surveyed represented
lines of business characterized by great stability (23.0%), lines of business
characterized by medium pace of changes (47.8%), and fast pace of changes
(27.3%).
The following regularities have been
noticed:
1. Companies operating in the
conditions of greater stability have a more positive attitude to planning and
experience in that area, whereas companies representing lines of business
characterized by fast or medium pace of changes have negative experience with
planning.
2. Companies representing stable lines
of business possess a plan – formal or informal one (68.8%), those operating on
changing markets often do not have any plan (61.4%), and if they have one, it
is usually informal plan (see Figure 2).
3. The greater stability of a line of
business, the longer periods plans cover.
4. Companies representing stable lines
of business state that their planning exceeds current production needs.
5. Planning of competitors is evaluated
„from my perspective” – the respondents give answer by putting themselves in
the shoes of the competition. As far as stable lines of business are concerned,
small company owners think that competitors rather employ planning in their
activity. In the case of companies representing
lines of business characterized by fast or medium pace of changes, their
owners think that competitors resign, like them, from planning their
activity.
6. Companies do not want to change
their attitude to planning – those which employ planning will continue to do
so, and companies which no not plan are not going to change their attitude in
the nearest future.
7. Companies representing stable lines of business most often use assistance in planning, such as participation in courses and trainings and possess planning programs, whereas companies representing lines of business characterized by fast or medium pace of changes take advantage of facilitations in information gathering.
Figure 2. Plans
possessed by companies and character of the line of business 
Source:
Personal elaboration based on research results.
Irrespective of the character of line of business, planning concerns
production. With the increase of the pace of changes, companies concentrate in
their plans on sales and marketing. Companies which operate in the conditions
of changing environment more often than others plan product development and
technology (research and development) and investment policy, but almost
completely neglect finances and accountancy. Plans of companies representing
stable lines of business take into account, more than others, administration,
management, finances and accountancy.
Irrespective of the character of line of business in terms of changes,
companies intend to plan because they subjectively think that planning allows a
better management and control of the company. The importance of this reason for
planning increases with the increase of the changeability of the environment in
which companies operate. Gaining experience and knowledge are important reasons
for companies that represent stable and medium lines of business, whereas for
companies operating on changing markets an important role is played by external
pressure and requirement to develop a business plan. Good practices in other
companies are of no importance as far as companies representing stable lines of
business are concerned. Avoiding mistakes and their consequences as a reason
for planning is more important for companies operating in a changing
environment. This reason was most often
indicated by companies operating in an environment characterized by fast and
medium pace of changes. The least often indicated reason, irrespective of
market character, was improvement of communication/information in a
company.
Irrespective of the character of a line of business, in most companies
planning is the responsibility of the owner. In companies representing lines of
business characterized by medium pace of changes, more than in others, planning
is made by the owner in consultation with company’s workers. Companies
representing very stable lines of business often hire specialists to develop
the plan. Companies representing lines of business characterized by fast pace
of changes more often than others use external consultants.
Companies operating in a stable environment attach greater importance to
planning compared to other companies, therefore they show more interest in carrying
out detailed analyses. The importance of these analyses increases with the
increase of the stability of an environment. Such companies focus on
competitive environment analysis and strengths and weaknesses analysis. On the
other hand, companies operating in a changing environment analyze opportunities
and threats and company’s resources. Such lines of business are characterized
by the occurrence of more opportunities therefore analyses are less important.
Irrespective of the character of line of business, companies very rarely include analysis of the
economy in their plans.
Irrespective
of the character of line of business, companies assess the position of their
competitors. Almost all stages of planning are most often taken into consideration
by companies representing very stable lines of business. Companies representing
lines of business characterized by fast and medium pace of changes most often
assess strengths and weaknesses, opportunities and threats as well as position
of the competitors as part of their planning.
With
the increase of the stability of a line of business in which a company operates
the importance of planning methods grows. In practice, the greatest role is
played by the methods created by a company for its own needs, and on the second
place are learned methods. Such methods are not very formalized.
Summary
Planning is nowadays one
of the most underestimated functions in a small enterprise. Planning in a small
company differs from planning in a large company due to the fact that small
companies lack time, resources and experience. Another reason is that small
enterprises have different needs, have to have smaller margin of error and
function in a less stable environment.
If we consider a type of
market on which a company operates, we can see that planning is the least
important for companies functioning only on the local market. The significance
of planning increases when companies extend their area of activity or operate
beyond local market. All companies operating only on the foreign market have
formal or informal plans. Formal
planning is most appreciated by companies that start to increase the area of
their activity and enter new markets
If we consider the character of a line of business which an
enterprise represents, it can be noticed that companies operating in stable
conditions have a more positive attitude to planning and experience in this
area. On the other hand, companies representing lines of business characterized
by fast or medium pace of changes have negative experience with planning.
Companies representing stable lines of business possess a plan – formal or
informal one, whereas those operating on changing markets often do not have any
plan of their activity, and if they have one, it is usually an informal
plan.
Summing up, it can be
said that planning is an underestimated process in small enterprises,
especially in the conditions of unstable environment. However, such environment
is the factor that should lead to the growing importance of future planning and
generating strategic options for activity as well as a broadly understood
strategic thinking. Planning as a process of learning and gaining experience
may bring significant benefits for a company. Although fast changes may cause
that the plan developed by a company quickly becomes useless, the knowledge
about the environment acquired during developing the plan allows a company to
better understand the environment, to take advantages connected with these
changes and to mitigate negative impact of these changes.
References
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Griffin R. W., Podstawy zarządzania
organizacjami, PWN, Warszawa
2002.
2.
Spillan J., Hough M., Crisis
Planning in Small Busisness: Importance, Impetus and Indifference,
European Management Journal 2003, vol. 21, no. 3.
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Dickey T.: Planowanie finansowe w małej
firmie, Signum, Kraków 1995.
4.
Jones D., Characteristics
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1982, vol. 19.
5.
Safin K.: Strategie małych i średnich
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