Short-term planning Ssphistication in SMEs: The relationship with strategy and perceived environmental uncertainty

Despite the many contingency studies that investigated how perceived environmental uncertainty (PEU) and strategy relate to the level of planning sophistication, this relationship remains unclear. To gain a better insight into this relationship in SMEs, we investigate the interactive effect of PEU and strategy on short-term planning sophistication, simultaneously controlling for multiple firm and CEO characteristics. The regression results reveal that PEU and strategy are interactively related to short-term planning sophistication and not in isolation. The data provide evidence that the relationship between PEU and short-term planning sophistication is negative and statistically significant among prospectors, whereas this relationship is positive, though not statistically significant, among analyzers and defenders. Further, our results indicate that prospectors plan more sophisticatedly than defenders and analyzers at low to average PEU levels, but that they plan less sophisticatedly than analyzers and defenders at high PEU levels. Given that our results are based on a sample of firms that exist for at least 13 years, the revealed relationships can be considered as “good” fits of long-term survivors, and as such are of interest to practitioners. From an academic perspective, we believe that many conflicting findings in the prior contingency literature can be explained by taking into account this interaction effect.