LITERATURE REVIEW
INTRODUCTION
Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.
Precisely, the chapter will be considered in two sub-headings:
Conceptual Framework
Chapter Summary
2.1 CONCEPTUAL FRAMEWORK
Management in General Perspectives
Management is not exactly a science; in fact, it is as much as a science as well as an art. It uses scientific tools such as statistics, Mathematical processes, and logic in fulfilling its functions. Quite often, management faces problems that cannot be resolved by application of scientific techniques. At such times, the Manager may need to use intuition, experience, and other personal judgments which are more of art than science. Above all, management is a practical matter which has to deal with people, physical goods, buildings, cash and intellect. The successful manager is one who is able to combine all, or some of these elements to make a success of his mission which in most cases are profitability and or the social welfare of the society
Management and Management Elements
Chaudau (1987) posits that management is a problem solving process of effectively achieving organization’s objectives through efficient use of scarce resources in changing environment. Agwu (1990) also see management as a process of combining and utilizing or allocating organizational inputs (men, material, money and machines) by planning, directing, controlling and organizing for the purpose of producing output desired by customers so that the organization’s objectives are accomplished.
Management is certainly one subject that can be defined in many ways but the key elements which are the use of resources and attainment of corporate objects must be incorporated in any of such definition for it to be acceptable. E.L. Brech, cited in Pilbeam (2010) defined management as "a social process entailing responsibility for the effective economic9 Planning and regulation of the operations of an enterprise, in the fulfillment of given purposes or tasks; such responsibility include but not limited to:
a. Judgment and decision in determining plans and in using data to control performance and progress against operations.
b. The guidance, integration, motivation and supervision of the personnel composing the enterprise and carrying out its operations."
The key elements of management are: Planning, control, co-ordination, motivation, authority and responsibility, decision taking, accountability, and communication, (Handy 2000). Planning and Control: Some planning functions could even be more complicated and more taxing than the other. It is therefore important for managers to lay out detailed plans of work to be done and the desired results to be achieved before the commencement of the work. While planning is the starting point of the Management process, control is also essential. It provides the watchfulness and the feedback process which are essential for monitoring, and plan achievement. Some of the usual elements in a typical bank setting requiring monitoring and control are:
1. Cash control
2. Stationery Control
3. Credit Control
4. Budgetary Control
5. Control of overall planning process to ensure that implementation of policy objectives do not derail.
Coordination: Kanji, (1998) stressed that the act of dovetailing, and harmonizing all the activities of the organization is coordination. This entails that all the segments of the organization work in harmony, where necessary one arm complements the other to make maximum efficiency possible. The process of synergy where many units departments or divisions of a conglomerate are coordinated to effect the desired overall performance in business illustrates the concept best.
Motivation: A key issue in management is achieving results. Results are best achieved when the cooperation of all employees are enlisted. Modern Management shows that cooperation is not achieved through coercion as of old; people must be motivated to stay on the job, and put in their best for corporate goal, (Handy, 2000).
Decision Making: The operation of all types of business requires decision taking, either instantly or as a result of careful and (systematic planning. In spite of all the advancement in information systems and the use of computers, the ultimate decisions still have to be made by Managers through the exercise of their intellect and judgment intuition.
Management Practices
Thompson and Strickland (2003) argue that management practices are ways used by leaders to set long-term direction, prepare particular performance goals and come up with ways to attain them considering internal and external circumstances. According to Adeleke et al. (2008), management practice is the process of looking at now and later condition, developing objectives for an organization, implementing and controlling decisions and ensuring that the objectives are achieved in present and future environments. management is the development, execution, regulation and analysis of ways to achieve further business goals Pearce and Robinson (1997). Management is a result of the desire for firms to leverage on available and upcoming chances and deal with deterrents in the market. Management practice entails selecting a plan of action and organizing how it can be implemented. There are three components within it: strategic choice that is concerned with coming up with probable action options, evaluation which entails examining the choices and choosing the most viable one and finally strategic implementation, this entails planning how to put the chosen strategy into effect (Kazmi, 2008). Organizations invest their resources to prepare and develop strategies that are coherent. Despite all that, studies have shown that only a few are really put into action resulting to desired outcome. Interrogation of factors that influence strategic management practices is of utmost importance because it has been demonstrated that strategic management practices gives an organization some advantages over its competitors.
Strategic Management
One of the recent conceptual studies in Nigeria (Ujunwa and Modebe, 2012) advocated for the adoption of strategic management approach in ensuring capital market efficiency following the perceived pivotal role of the capital market in economic development. The strategic management measure they reviewed ranged from effective regulation to achieving favourable macroeconomic environment. They posit that these strategies will promote economic performance. Despite this, insufficient empirical work exists to measure the level of association between the adoption of these techniques and organizational performance (Askarany and Yazdifar, 2012). A strategy can be defined as the determination of the basic long term goals and objectives of a firm and the adoption of the courses of action and the allocation of resources necessary for executing the goals (Steven son, 2012). Pearce and Robinson (2013) define a strategy as a managers large scale, future oriented plan for interacting with the competitive environment to optimize the achievement of organizational objectives.
Businesses, according to Eniola and Ektebang (2014) that fail to drive good planning practices and tools forward, will not only stay bound by slow, stovepipe planning processes, but also find it difficult to compete in good conditions. The survival-base theory also calls for every business manager to keep in mind the need to be strategic if they do not want their organizations to be crushed by competitors. Strategy is about achieving competitive advantage through being uniquely different in your industry (Porter, 2016; Adeyemi, Isaac & Olufemi, 2017). It is no longer competing for product leadership, rather competing in core competence leadership Agha, Alrubaiee & Jamhour, 2011). Agha et al. (2011) further argues that defining core competence amid the formulation of strategies is intentionally to attain sustainable competitive advantages. Strategic management is thus a veritable tool in improving firms’ competitiveness, performance level and structural development (Makanga & Paul, 2017). Branislav (2014) stated that the application of strategic management practices helps firms in exploiting and creating new and different opportunities for tomorrow. Therefore to straighten up operations and enable firms have vision and direction, strategic management is a route that is highly demanded (Ahmed & Mukhongo, 2017). This is because it provides an overall direction to an enterprise in the setting of objectives, in developing of long-term policies and plans designed to achieve these objectives and then in allocating resources to implement the plans (Abosede et al., 2016). Muogbo, (2013) asserts that strategic management is an on- going process that evaluates and controls the business and the industries in which the firms is involved, assesses its competitors, set goals and strategies to meet all existing and potential competitors and then reassesses each strategy to meet charged circumstances, new technology, new competitors, new economic environment or a new social, financial or political environment. Branislav (2014) further puts it as “the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives”. As detailed in Adeyemi et al. (2017), this process is an iterative, continuous one and involves important interactions and feedback among five key facets: goal- setting, analysis, strategy formation, strategy implementation and strategy monitoring. These activities, as argued in Koech & Were (2016), should be geared towards ensuring the achievement of the long and short term goals and objectives of the organizations concerned. Therefore, it is necessary for managers to first understand the strategic management practices that best suit their firms and the way such practices affects their operations in a given industry; given that every organization, at any phase of its life-cycle, can be affected by some external environmental conditions and internal factors and as such finding ways to have competitive advantage is indispensable (Agwu, 2014).
Factors that Influence Strategic Management Practices
Both outside and inside factors influence strategic management practices. outward environment factors include the general environment (political and legal, demography, socio-cultural, economic, technological, and global), industry environment: (threat of entry, the threat of substitutes, customers’ bargaining power, suppliers’ bargaining power and competition among players in the industry) Inward environmental factors are organizational structure, organizational ownership, organizational size, organizational culture, management style, stakeholder expectations, and resources (Edirisinghe, 2008).According to Heyder and Theuvsen (2008) traits of a firm like size, output, sales growth and profitability may influence strategic management practices. They portend that variation of each influence the option of Strategic management practices and general performance of the firm. Fajnzylber et al. (2006) looked at variation in firm age and managers’ experience. It was concluded that strategic performance tends to decline as a firm ages since younger organizations tend to easily pick up new practices unlike older firms as they may find it exorbitant to drop old strategies and work procedures. Hitt et al (2009) argue that older firms comfortably adjust to practices that emerge due to staff’s exceptional experience. According to Gary et al (2012) experienced staff can intensify transfer of knowledge from various strategic encounters and consequently take part in relevant strategic management practices. Bloom and Van Reenen (2007) argue that an organization potential to attain its objectives is influenced by the resources it has and management of the resources. Firm resources enable prosperous execution of strategies. Penrose (1959); Mugera(2012). Possession and well controlled use of resource that is of value enable better strategic practices.
Organization Structure
The arrangement between parts and elements in each organization is special and it mirrors its present image, internal politics and reporting correspondence. Organization structure is the allocation of roles and responsibilities, power distribution, supervision and coordination in order to attain organization aims Okumus (2003). It is important for leaders to ensure that organization structure enables easy flow of information, allows co-ordination and cooperation between various functional areas. Structure defines who is to do what and the level of responsibility. Organization structure is of utmost importance when focusing on how strategic planning can be put into action in a firm.
If an organization does not have a proper structure, it is difficult to implement strategic management practices. Organizations have different structures that have a direct influence on their performance. In a centralized organization structure top management controls all the decisions made and has powers over all functional areas whereas in a decentralized organization structure, heads of various functional areas have powers to make decisions in their areas and have a level of independence to carry out procedures and implement activities in their functional areas. Thus organization structure has direct influence on the outcome of putting strategic management practices in place.
Organization Culture
As people work in an organization, they tend to behave in a particular way that is in line with the activities they carry out resulting into an organization culture. It consists of vision, symbols belief, values, habits and norms of an organization. Organization culture is developed overtime and is passed to new members who join the organization thus a particular way of doing things, thinking and feeling is implanted in all the employees in an organization. Organizations have unlike cultures Schein (2009); Deal and Kennedy (2000); Kotler , Armstrong , Saunders and Wong (2002). Organization culture determines what is allowed and not allowed in an organization it is a determinant of day to day activities and kind of strategies that are pursued in an organization. According to Deal and Kennedy (1982) culture significantly affects a firm performance. Organization culture has major aspects which are; culture network, heroes, values, rites and rituals.
Organization Leadership
Leadership is a task done by an individual that influences others to act in a certain desired way, creates cohesiveness and coherence in an organization. Characteristics like values, knowledge, beliefs, ethics, character and skills are necessary for leaders to direct and steer an organization. Leaders are expected to be experienced and trusted advisors that can be relied upon by the people that they lead. Leadership is not just ordering people around, it is showing followers what they can copy and giving followers urge to attain high goals Kiptoo &Mwirigi (2014).Leaders are likely to use different skills and styles of leadership which have different effect on organization. Leaders need to be in a position to provide leadership that enables an organization to perform well, thus organization leadership is a key factor in putting strategic management practices in place.
Human Resources
According to Huselid, Jackson, & Schuler, (1997) Human resource management refers to the layout and action plan of certain practices that result in attainment of business objectives by use of human capital. Human resource is of utmost importance and when it is properly utilized it results successful strategy implementation and performance of an organization. Therefore it is necessary for human resource to have a good administration foundation and participate in strategic planning. However, limitations of human resource can be dealt with allowing the unit to be help in monitoring and evaluation of strategies that are put in place. According to Huselid and Becker (1997) it is noticeable that operational excellence and good performance is attained by organizations that have their human resource management system matched with strategic business goals.
Firm’s Resources and Capabilities
According to (Bloom and Van Reenen (2007), potential for organizations to attain their goals is influenced by resources in the firm and how they are managed. Firm resources ease desired execution of strategies provided they are valuable, uncommon, cannot be substituted or imitated Penrose (1959); Mugera (2012). Ferrier (2001) argues that an organization may put in place aggressive strategic practices in order to compete and acquire resources that they require. However there are few studies that support this view. Strategic actions by small firms are hindered as their capacity to invest is inadequate Dinh et al (2013). Therefore, low investment makes it challenging to put in place strategic management practices. According to Boehlje et al, (2011) for large organizations level of expertise of managers is necessary, expertise is related to better application of strategic management practices. According to (Ambrosini and Bowman, 2009; Mugera, 2012) managers who have limited business ability are unable to improve their organization strategic position.
Technology and Globalization
Technology is the use of scientific knowledge on real human life activities, to alter or influence human environment Britannica encyclopedia (2018). According to Mintzberg et al, (2003) strategy processes are majorly influenced by technology. Organizations need to be aware of the brisk changes in technology and adopt quickly in order to maintain competitive edge. According to Porter (1985) one of the major divers of change is technology. In strategic management practices technology need to be considered as a key factor as it makes possible identified strategies to be put into action, it affects business operations and competitiveness. The environment in which organizations conduct business is dynamic with organizations expanding business across borders and continents, firms have the opportunity to compete in global business market. In order to attain the benefits of globalization, worldwide business managers are expected to recognize when the world market offers opportunities for their global strategies (Mintzberg et al, 2003).
According to Pearce and Robinson (2007), in strategic management practice, managers need to look at the global environment and take into account key factors like economic, legal, social, political, competition and cultural environment. Therefore globalization is a key factor when putting strategic management practices in place.
Economic and Political Factors
Organization business strategy is influenced by business market and border economy. Economic environment entails business conditions of a firm which directs decisions in the business, all the players in the economy and the entire economic situation. According to Pearce and Robinson (2007) it is necessary for managers to find out readiness of customers to spend, supreme interest rate, availability of credit, performance of gross national production and inflation rate since they affect choice of strategy and implementation. Therefore economic situation is a factor that influence strategic management practices. Political environment is set by government decisions that affect organizations activities. These actions can manifest at various levels which include local level, national level or international level. According to Pearce and Robinson (2007) legal and regulatory framework for organizations to operate is guided by political factors. Governments influence business by putting in place tax policies, trade restrictions and tariffs. The state of political environment may influence strategic management practices.
Environmental and Legal factors
Robideaux, Miles and White, 1993 argue that many groups of people, some do not even have direct relationship with organizations are affected by organizations, strategic business decision. Therefore organizations need not to only focus on maximizing profits but also be cognizant of the environment they work in and check regularly if their actions are in line with the laid down rules of engagement. As an extension of corporate ethics, organizations are required to incorporate external stakeholders in their strategic decision. Ducker (1987) ascertains that business leaders need to be aware that the public perceives them as society leaders and they are expected to act as such. Therefore the environment in which an organization operates influences on strategic management practices. Organizations operations are influenced by laws and legal system in which it operates. Organizations that do business across borders are affected by the law and legal system in each country they operate in. This has a direct effect on market effect and strategic option of an organization. According to Bush (2016) legal environment is brisk and dynamic; laws may change according to political and international conditions. Therefore legal environment may influence strategic management practices.
Organizational Productivity
The concept of organizational performance has been based upon the idea that an organization is a voluntary association of productive assets, including human, physical, technological and capital resources, in order to achieve a common purpose (Barney 2002). According to Richard et al. (2008), organizational performance encompasses three specific areas of firm outcomes: financial performance (profits, return on assets, return on investment, etc.); market performance (sales, market share, etc.); and shareholder return (total shareholder return, economic value added, etc.). The successful performance of manufacturing firms does not only depend on good economic performance, but rather on the way the entrepreneurs and employees work together and fulfill their activities and objectives in a joint and coordinated basis. According to Roper (1998), the entrepreneur is the development lever that determines whether any business venture will succeed or fail. The term organizational performance is used in three time- senses - the past, present, and the future. In other words, performance can refer to something completed, or something happening now, or activities that prepares for new needs. Profitability, for example, is often regarded as the ultimate performance indicator, but it is not the actual performance. Firms’ performance is the measure of standard or prescribed indicators of effectiveness, efficiency, and environmental responsibility such as, cycle time, productivity, waste reduction, and regulatory compliance. Performance also refers to the metrics relating to how a particular request is handled, or the act of performing; of doing something successfully; using knowledge as distinguished from merely possessing it. It is the outcome of all of the organization’s operations and strategies (Venkatraman and Ramanujam, 1986). Performance measurement systems provide the foundation to develop strategic plans,assess an organizations’ completion of objectives and goals (Alderfer, 2003). Good performance influences the continuation of the firm and can be divided to financial or business performance (Gibcus and Kemp, 2003). Financial performance is at the core of the organizational effectiveness domain. Accounting-based standards such as return on assets (ROA), return on sales (ROS) and return on equity (ROE) measure financial success. Business performance measures market-related items such as market share, performance, diversification, and product development (Gibcus and Kemp, 2003).The organizational performance measures as indicated by Kaplan and Norton (2004) include excellence in internal business processes and effective timely and accurate data collection, quality workforce, quality work environment. Organizational performance is described as an organization’s ability to acquire and utilize its scarce resources and valuables or expeditiously as possible in the pursuit of its operational goals. Performance is the end result of activities carried out and for any business it is concerned with the general efficiency or productivity. Two ways to deal with performance has been recognized in literatures: the financial or “sales-based” and the non-financial or “firm-based”. Whereas the financial is measured with dimensions such as profitability, growth, productivity, level of sales revenue, market share and product, return on investments, product added value; the non-financial is measured in terms of employee development, customer satisfaction, job satisfaction and efficient organizational internal processes (Eniola & Ektebang, 2014). Therefore the practice of strategic management is justified in terms of its ability to improve organizations’ performance (Wheelen & Hunger, 2010; Agha et al., 2011). According to Nzuve & Nyaega (2011), measuring performance is needful since it is a means of determining whether or not an organization is achieving its objectives (Makanga & Paul, 2017) and it does evaluate the overall health of an organization, hence strategic.
2.2 THEORETICAL FRAMEWORK
Resource Based Theory
Resource based theory was initiated by Wernerfelt (1984). A central proposition of the theory is that organization’s resources and capabilities form the basis on which organizations compete. Barney (1991) proclaimed that a firm is deemed to achieve competitive edge over its rivals through the execution of strategies which exploit internal strengths in response to environmental opportunities. Concomitantly, inner weaknesses can be avoided and outside threats neutralized. According to Collis and Montgomery (1995) an organization can have competitive advantage when it has resources that enable it to perform better than its rivals. Barney (1991) added by saying that competitive edge can be maintained when an organization has resources that are difficult to imitate or substitute. Barney, (1991) developed a tool that is used to examine organization’s inner resources.
He identified traits that a firm’s resource needs to have for it to maintain a competitive edge. Resources must be precious, uncommon, cannot be imitated or substituted. Priem and Butler (2001) critic on resource based view theory is that theory may be self-verifying. Barney identified a strategy that would give an organization competitive edge by using its valuable resources. Non-identical array of resources can produce a similar output for firms; therefore there will not be competitive advantage. There is limited focus on capabilities and product market.
2.3 EMPIRICAL REVIEW
Frank (2010) did a study on contemporary strategic management practices of leading organizations. He found out that dominant organizations denote presumptions and thinking in line with organization’s mission, they have a culture that embraces challenge and innovation this has contributed to their understanding of success. Organizations need to work closely with the business community for it to understand and think highly of its strategic management practices. For strategy to be successful strategic management practices are of utmost importance so, it is prudent that organizations acknowledge their strategic management practices.
Dauda (2010) conducted a study on strategic management practices and corporate performance of selected business enterprises in Lagos metropolis in Nigeria. It was established that strategic management practices has an effect on market share of small business enterprises in Lagos metropolis. Implementation of strategic management practices has a positive relationship with organizational profitability. Njenga (2006) conducted a study strategic management practices at Mater hospital in Kenya. It was established that Mater hospital administrators had adopted a number of strategic management practices. The hospital has a well documented vision and mission statements which are communicated to employees and external stakeholders. The hospital has put in place mechanisms of environmental scanning. There is an annual business plan containing vision and mission statements, situation analysis and competition analysis. The hospital has instutionalized its strategies by aligning its organization structure, policies and training its staff.
Maguru (2011) did a study on the influence of strategic management practices on performance of Naivas Limited in Kenya. It was realized that Naivas limited managed to establish its market with the help of conducting environmental analysis and develop a well spelt out mission, vision, values, goals and objectives. This has promoted communication among employees and managers, inspired people to think more about the future of the company and maximized profits for the firm. Using strategic analysis Naivas limited has been able to better understand their competitors’ strategies, reduced resistance to change and exploited more opportunities. It had a strategy that has provided a frame work for the firm to coordinate, conduct business.
Kamau (2015) examined the influence of strategic management practices on performance of private construction firms in Kenya. The study adopted descriptive design and the population of the study was 62 building construction companies and consulting companies in Kenya. The researcher used simple random sampling technique for the study. The findings revealed that strategic management practice has effect on operational excellence of an organization. The researcher concluded that strategic management practices have great influence on the performance of private construction firms in Kenya. The research recommends that every construction firm should develop a business strategy considering the core strategic pillars of strategic planning, strategic choice and strategic implementation. Muturi, (2015) investigated the influence of strategic management practices on performance of floriculture firms in Kenya. The study used random sample technique to select respondents, self design open and end closed questionnaire was used to collect data for the study and was analyzed using chi square model. The findings showed that strategic management practices influences performance of floriculture firms. The researcher concluded that strategic management practice had led to a moderate growth of flower firms overall business performance. The researcher recommends that top-level managers should seek more input from the lower level managers and supervisors when formulating strategy so that the formulated plans can be effective. Olanipekun, Abioro (2015) examined the impact of strategic management on competitive advantage and organizational performance in Nigeria bottling company. Questionnaire was used to collect data, 200 respondents were purposively selected for the study while data obtained were analyzed using quilford and flusher formular. A random sampling technique was adopted for the study. The finding showed that the adoption of strategic management practice gives form competitive advantage. Olanipekun, Abioro, Akanni, Arulogun, and Rabiu, (2015) examined the impact of strategic management on competitive advantage and organization performance in Nigerian bottling company. The study used Primary data with the aid of a structured questionnaire was used to elicit information from respondents. The data collected were analyzed using both descriptive such as frequencies, percentages mean, standard deviation and inferential statistics of Chi-square and Analysis of Variance (ANOVA). The findings revealed that indeed the adoption and implementation of strategic management practices makes the organization not only to be proactive to changes but also initiate positive changes that consequently leads to competitive advantage and sustainable performance Garad, Abdullahi, and Somalia (2014) studied the relationship between strategic management and Organizational performance in Mogadishu-Somalia. The study employed the use of both descriptive and correlation research design to establish the nature of the relationships. To analyze the data, the Spearman correlation statistical tool was used with the aim of establishing the relationship between above variables. This formed the basis of the detailed analysis, conclusions and recommendations. The findings revealed the existence statistically significant had a positive relationship between strategic management and organizational performance. The study also indicated a statistically significant moderate positive relationship between strategic management and organizational performance on the basis of the findings, the researchers made the following conclusions. Organizations should provide good strategic management to their organizations that will improve performance of employees companies should employee performance appraisal to promote better satisfaction finally, organizations should factor into account or internal and external factors that can effects organizational performance.
2.4 CHAPTER SUMMARY
In this review the researcher has sampled the opinions and views of several authors and scholars on the concept of management, strategic management, factors affecting strategic management in an organization, organizational productivity etc. The works of scholars who conducted empirical studies have been reviewed also. The chapter has made clear the relevant literature.