The role of accounting information on business strategy formulation

The role of accounting nurture on business strategy cookingAbstractAlthough strategy development in larger-than-life corporations has been well documented, the come ongrowth of strategy deployment in Small and Medium Enterprises (SMEs) has not been extensively investigated by schoolman enquiryers. This study tries to provide new empirical evidence and the practical realities on the nature and practice of strategicalalalal proviso in Grecian companies. Its primary design is to examine the formulation of strategic be after in Greek SMEs and also the role of accounting training on the business strategy of SMEs in Greece.The results of the look indicate a positive blood between strategic homework death penalty and accounting information received by accountants and pulmonary tuberculosisd by SMEs and no relationship with other sources of advice such(prenominal) as government agencies or bank advisors. The importance that is given to sales, equals and additions signif ies a business mean alternatively than a strategic plan orientation of Greek SMEsKeywords strategic planning, strategic activities, external advisors, accounting informationIntroductionAcademic literature in strategic management of small and medium enterprises (SMEs) has been very limited. Although the nature of strategic planning processes has been shown to have an important effect on the performance of firms 1, the field of strategic planning in SMEs is still in the early stages of its development. Its adolescence, relative to other more than established aras of business and management theory, is evidenced by inconsistent and conflicting viewpoints 2 and except a few researchers have totressed the strategy-making processes of SMEs 3.Limited research can also be observed on the usage of information from SMEs when strategically planning. Drury and Tayles 4 suggested that there is a need for more research that explores in much greater depth how managers use financial and non financial information. Recent research has shown that most SMEs are unable to utilize accounting and financial information. Owner-managers of SMEs may be expected to be fully aware of the product/service markets that their business are constitute in, but they may not be trained or proficient in accounting or financial management 5.The aim of this study is to add to the developing literature on strategic planning carrying into action in SMEs in Greece. Specifically the objectives of the study are to explore the extent of strategic planning of SMEs, to investigate the activities that proprietor/managers plan in advance and to identify internal and external advisors that help SMEs to strategically plan.strategic Management and Strategic Planning system is a term that is widely used by senior and middle managers. But the term seems to have multiple of meanings. There is no frequently accepted and universal meaning of strategy 6. Due to this fact the rendering of strategy has been the subject of extensive research since the 1960s. It has been described as the process of determining the long goals and objectives of an formation, by adopting a specific course of action and by allocating sufficient resources 7.This traditional and rational definition was later challenged by Mintzberg contention that strategy was more a pattern of action resulting from intended or unintended strategies. Mintzberg claimed that strategy could be something more than an explicit plan of action. His five strategy dimensions that he know were strategy as plan, strategy as pattern,strategy as ploy, strategy as perspective and strategy as position. These have been the basis for opening up the definition of strategy to a wider context of use 8.Strategic planning concentrates on the setting of long-term organizational objectives, and the implementation of plans designed to achieve them. A able definition of strategic planning can be the devising and formulation of organizational level plans which set the broad and flexible objectives, strategies and policies of a business, driving the organization towards its vision of the future 2. Porter 9 noted that further work was needed to enable business to understand strategic planning by arguing that man there has been considerable progress in developing frameworks that explain differing competitive success, at some(prenominal) given point in time, our understanding of the dynamic process by which firms perceive and ultimately attain superior market positions is far less developed.The SMEs literatureSmall and medium size enterprises (SMEs) play a all important(p) bringer for the economic growth of a country. SMEs contribute to outputs and employment and also affect the competitive ability of the large organizations 10. SMEs can influence the competitiveness of large organizations by providing high graphic symbol inputs 11. The importance of small and medium size businesses for future economic development has been reflected in a number of policy papers which have focused attention on the role of entrepreneurship, owner-managers and the small firm sector 12.3.1 The SMEs sector in GreeceThe contribution of the SMEs in the development, the employment and social ropiness in Greece is substantial. In Greece, enterprises that have fewer than 50 employees form about 99.5 per cent of the total number of enterprises and employ the 74 per cent of the work line of the private sector. It should also be noted that Greek SMEs provide 70% of the new employment, reinforce the regional development and financial balance of the regions and make part of a cohesive financial and social link in Greek society. The role of SMEs in the national economy and employment is vital, since the main business archetype in Greece is and it will remain the micro enterprise which employs less than 10 persons.According to the criteria set by the European Commission, Greece has more than 733.000 qualified SMEs, from which more than half, 394.000 or the 53.7 per cent does not employ any salaried workers and they employ 11 people on average. 133.2 Strategy in SMEsAcademic research has been conducted on several(prenominal) broad fronts in order to define strategy in SMEs, from planning processes, to the individual personality of the owner-manager and the growth of a wide range of available informative services providing information on strategic choice. Perry et al 14 argued that strategy should be examined in the everyday operating environment of the small firm. The formulation of strategy in SMEs has been the theme of many academic researchers. Some studies 15 examined the link between planning and performance in SMEs, while others 16 explored the difficulty of defining planning and strategic planning, and its dimensions, such as planning formality and performance in the small firm context.The definition of strategy in SMEs is often perceived as person centred instead than process driven. The performance of small firms is linked with the leadership style of the owner. Nahavandi and Malekzedah 17 in 1993 argued that the style and personality of the manager is central to the strategy definition process.Noble 18 after a series of exploratory interviews with the managing directors of SMEs, suggests that strategic deployment often fails as a result of SMEs inability to forecast and overcome implementation barriers. ORegan and Ghobadian 3 indicated a number of habitual barriers relating to the constraint of strategic planning implementation such as communication was inadequate, implementation took longer than expected, a shortfall in employee skills, objectives of strategy were not clear understood by the module, ineffective co-ordination of implementation, crises distracted attention from implementation, unexpected external problems arose and external factors impacted on implementation.Research DesignThis research applies the quantitative regularity to examine the implementation of strategic planning in SMEs in Greece. The central aim of the research is to provide empirical evidence on how SMEs use strategic planning and what kind of advice they use to aid them.Data were gathered by means of a survey questionnaire, all questions used a five-point Likert type surmount with a response of 1 indicating that an item received not agree and 5 indicating an item received agree.The sample consists of small and medium enterprises that are laid in the Greek capital Athens and belong to the service and manufacturing sector. call into questionnaires were distributed to a whole sample of 546 owner managers of small and medium sized enterprises. A postal questionnaire was used instead of sending e-mails, in order and to protect the participants anonymity and because some owner-managers were not familiar with the use of e-mails. From a total of 546 questionnaires mailed, 178 were returned, representing a 32 per cent response rate. Out of these 19 were found to have missin g data and were deemed void. Therefore, data was collected from a total of 159 sets, representing a satisfactory response rate of approximately 29 per cent.The questionnaire consisted of 4 sections, covering the following aspectsStrategic planning implementation in SMEsStrategic planning activitiesAdvisors that affect strategic planningAccounting information used for strategic planningPrior to distributing the questionnaire to the sample, a pilot study was conducted to discover any errors, ambiguities, inadequate answers, or highlight any confusing questions. Enterprises that participated in the pilot study were excluded from the main study.Research straitss of the studyQuestion 1 Is there a significant relationship between Strategic Planning performance and the Total Strategic Planning Activities?Question 2 Is there a significant relationship between Strategic Planning Implementation and the use of internal advisors?Question 3 Is there a significant relationship between Strategic Planning Implementation and the use of external advisors?Question 4 Is there a significant relationship between Strategic Planning Implementation and the use of accounting information?Findings and DiscussionThe findings of the present research are contradictory in certain respects. Despite a sizeable majority of respondents indicating that their companies tackle strategic planning, there is limited evidence of practical strategic planning in the sense of setting long-term business objectives. Research by St unrivaledhouse and Pemberton 2 that was conducted for British SMEs had the similar results. In their research the 92 per cent of the companies indicated that they undertake strategic planning, either highly structured or of a general nature. They have found that most of these organizations were concentrated on short-term sales, cost and profit targets rather than longer-term goals.6.1 Strategic planning implementation and strategic planning activitiesQuestion 1 examined the rel ationship between strategic planning implementation and strategic planning activities In order to answer the above question relating with the strategic planning implementation and the strategic planning objectives, correlation tests and T-tests were employed.First the researchers with the use of factor abstract divided the strategic planning activities (objectives) into three categories. In the first category were sales, costs, profits, intersection/service procedure and customer service. In the second category were rung training, staff appraisal, staff recruitment and advertising and in the third category were the market share, the expansion of the size of the enterprise and the mission of the company. With the use of Pearsons and Spearmans correlation it was found that strong relationship between strategic planning implementation and strategic activities exists only for sale targets, cost targets, profit targets, production outcome targets and for the improvement of case serv ice. Greek owner managers of SMEs in their great majority when strategically planning, neglect activities such as staff appraisal, training and recruitment, advertising, mission fulfillment and market share targets.The above results are in line with the findings reported by Stonehouse and Pemberton 2. They found that contradictions between strategic planning implementation and strategic planning activities could be explained in terms of a difference in perception between managers and academics on the nature of strategic planning. Furthermore, most Greek companies refer to strategic planning, but in practice they are more concerned with short-term objectives and what would be regarded by academic researchers as business planning.6.2 Strategic planning and internal advice and doanceQuestion 2 examined the relationship between strategic planning implementation and human resources capital and internal advisors employed for strategic planning in Greek SMEs. Pearson coefficient of corre lation and Spearman Correlation tests were used in order the research question to be answered.The study on Greek SMEs has not found a significant relationship between strategic planning and human resources capital employed. Most owner managers surveyed did not share the belief that the personnel have the skills or the experience to assist in the deployment of strategic plans. This result can be confirmed by the findings of research question 1, that owner managers do not have long-term plans for their staff recruitment, training and appraisalThe above results are in contradiction with a research on Spanish SMEs by Aragon-Sanchez and Sanchez-Marin 19 who revealed that owner managers focus their attention on human resources as a key element that allows them to achieve a sustainable advantage. They noted that the competitiveness of SMEs is based on internal elements supported by resources such as personnel and their skills.But other studies had similar results with what was found about the Greek SMEs. ORegan and Ghobadian 3 identified a number of general barriers relating to the constraint of strategic planning implementation. Their pilot study confirmed eight main barriers with the shortfall in employee skills being one of them. The research by Hall and Young 20 on 182 failed small enterprises indicated that the most important cause for the failure of these companies were shortages in working capital (51.4 per cent).6.3 The necessity of external adviceQuestion 3 examines the relationship between strategic planning implementation and the use of external advice by the owner managers. Pearson Correlation and Spearman Correlation tests were used for the analysis of this question.The results of this research suggest that SMEs in Greece receive rich external advise in order to plan strategically mainly from accountants. Government agencies and bank advisors are not contributing as beneficial advisors for the owner managers and only a minority of the respondents state that they receive useful advices for strategic planning. Pearsons correlation test has shown that there is a significant relationship between strategic planning implementation and the use of accountants, while there is not a significant relationship between other external advisors (government agencies and bank advisors) and strategic planning implementation.These results are in line with previous studies which have investigated the association of strategy formulation and external advice. Berry, Sweeting and Goto 21 conducted a research on SMEs located in Manchester and found that most of the business advisers had limited use by the owner managers. Only accountants had a key role in the processes of the SMEs but mostly on statutory work. They have also identified that accountants made a significant effort to shift into the value-adding areas of the SMEs at it was perceived by the owner managers in the sample.Alattar 22 found that the use of an accountant to be responsible for the acc ounting function in the enterprise resulted in a provision of more information which was useful for maintaining better planning and control. Deakins et al 12 study indicates that an important task for accountants is to act as a consultant to the owner managers and that this involves supplying advice on internal planning, decision-making and control. Gooderham et al 23 stated that in many countries, smaller business accountants play an important role as business advisers in addition to providing accounting services.6.4 Accounting Information used as tools for strategic planning implementationQuestion 4 examined the relationship between strategic planning implementation and accounting information used as a tool by owner managers for strategic planning in SMEs using Pearson Correlation and Spearman Correlation.This research has shown that owner managers of Greek SMEs take under serious reflection the accounting information they receive from external advice and they apply them as tools when they implement their strategic plans. This finding was consistent with what should have been expected as accounting information have been identified as crucial elements of strategic planningStonehouse and Pemberton 2 noted that there is little evidence of usage of the tools of strategic analysis with the most common tool relating to internal financial analysis. Collis and Jarvis 5 identified the three main resources of information used in the management of small companies management accounts cash flow information and bank narrations. They have found that most SMEs use accounting information such as profit and loss account, balance sheet, cash flow statement and forecast and ratio analysis in order to monitor the profitability and for planning and controlling. Hall and Youngs research 20 showed that poor use of accounting information was one of the main reasons that led into failure the 38 per cent of the 21 small enterprises surveyed. Randal and Horsman 24 found that the lack and misuse of accounting information contributed to small enterprise failure. Holmes and Nicholls 25 suggested that the quality of accounting information utilised within small enterprises had a positive relationship with their performance.ConclusionThis study has tried to examine from the respondents perspective the extent to which Greek SMEs use strategic planning and the influence of accounting information in the design and deployment of these plans. This paper has tried to identify relationships and differences, among the SMEs surveyed, between strategic planning implementation and (1) strategic planning activities of the firm (2) the human resource capital (3) external advice from, government agencies, banks and accountants (4) accounting information such as profit and loss accounts, cost accounts, sales accounts, accounting ratios from the balance sheet and sales forecasts.The results of the analysis have shown that owner managers when strategically plan emphasise on activitie s such as profits, sales, costs, production outcomes and costumer service. The importance that is given to short-term financial objectives (sales, costs, profits) confirms a predisposition towards business planning rather than strategic planning. Other business objectives, that are finisher related to strategic planning such as the companys mission, human resource training, market share targets and enterprise size targets are completely left out from strategic planning by the majority of the owner managers.The use of accounting information and advice received from accountants were, according to the owner managers, the most significant factors that facilitated them during the design and implementation of their strategic plans. In the contrary, it was found that the human resources of the SMEs and external advice from government agencies and banks did not have an important role in strategic planning implementation.