The importance ofsmall and medium businesses, (SMB's), and specifically the important role that they perform in a country's national economy, have long been realized. In South Africa, the emphasis being placed on promoting small businesses in the government's GEAR strategy is an indication of how important small and medium businesses are regarded, even at national government level. Statistical evidence underlining the valuable contribution ofSME's is frequently quoted in the literature.The following statistics are an indication of the contribution of SME's to the South African economy: • in 1991 there were approximately 800 000 formal businesses in South Africa of which approximately 700 000 or 85% could be classified as 5MB's; • their estimated contribution to the GDP at that stage was in the region of30%; • in 1991 SME's employed more than 2.4 million people (2.7 million people in 1994) which represented about 17% ofthe economically active population of 14.3 million at that stage; • "informal" Small Enterprises in 1991 was thought to be employing about 4.4 million additional people.If the high rate of insolvency's amongst SME's, relative to larger businesses in the economy are to be taken as a guideline, it is clear that the financial risks involved in managing, owning and/or investing in a small to medium sized business are relatively high. With the above being a stated filct, the question was asked as to what can be done to make this important sector ofthe economy more effective.A great deal ofresearch was done in the past as to what actually causes 5MB's to go bankrupt. Problem factors ranging from a lack of funding, high interest rates, hostile labour relations and inflation to unsupportive governments were named in various studies as primary reasons for the failure of these businesses. Previous research has also found that the use ofstrategic management as a management tool in smaller businesses, such as 5MB's, is being neglected by the managers/owners ofSME's.What is the effect of this apparent lack of strategic planning, how absent is it really, are there any prescriptions for small business planning practices and how will all this influence the financial performance of SME's? These are just some of the broad issues that this research tried to shed more light on. Strategic Management as a management tool has long been used, with great success, in large multi-national organisations to help them in managing uncertainties, exploiting opportunities and to better position these organisations for long-term growth and profitability. The main purpose, thus, of this study was to investigate to what extent SME's in South Africa make use of formal long-range planning or strategic management in bettering their chances ofsuccess and financial survival."~As background to the research, a comprehensive literature review was conducted. This included a discussion of research work previously done on the subject field of strategic management and its relationship with improved performance, specifically with regard to SME's. A comprehensive discussion of the subject field of strategic management itself, with specific reference to the importance of the mct that strategic management is a dynamic process with well defined phases, was also done. This discussion of the subject field of strategic management specifically also focussed on the application of strategic management techniques and principles on SME's. A clear distinction was made between the application ofstrategic management in large corporations and the application thereof inSME's.The research concentrated on SME's in the greater Cape Town area. A total of 300 questionnaires were mailed to small and medium businesses in the Cape Town area. The results ofthe. completed questionnaires were then used in conjunction with the findings of other relevant research projects to substantiate or disprove the assumption that there would be a positive correlation between the application of strategic management techniques/principles and improved performance for SME's.The investigation established that: • A large section ofthe respondents, namely 83.3%, confirmed that they defmitely have experienced a positive relationship between strategic management and increased performance. However, no concrete evidence could be found substantiating the assumption that strategic management orientated SME's will significantly outperform non-formal planning SME's. • The managers and owners of SME's value strategic management as a management too~ but for various reasons, such as a lack oftime, they cannot devote as much time as they would like towards managing strategically. • No support could be found for the assumption that size would be an important fuctor distinguishing SME's that do make use ofstrategic management from those SME's that do not use strategic management. • It was found that for SME's the process of strategic management itself was more important than the actual formal plans and documentation that are normally associated with strategic management in large organisations.
