The role of accounting information on business strategy formulation

The position of report study on trade dodging formulationAbstr puzzle outAlthough out bend development in large corporations has been well documented, the affect of dodge deployment in Small and Medium Enterprises (SMEs) has not been extensively investigated by donnish lookers. This airfield tries to provide new falsifiable secernate and the practical realities on the personality and practice of strategicalalal stick outning in classical companies. Its primary charge is to examine the formulation of strategic proviso in Greek SMEs and excessively the role of score info on the melody outline of SMEs in Greece.The results of the research indicate a positive race mingled with strategic supplying executing and history information received by accountants and utilise by SMEs and no relationship with other sources of advice such(prenominal) as political relation agencies or bank advisors. The importance that is given to sales, costs and profits signifies a business line cooking rather than a strategic think predilection of Greek SMEsKeywords strategic mean, strategic activities, orthogonal advisors, accounting information demonstrationAcademic literature in strategic guidance of wee and average enterprises (SMEs) has been very limited. Although the nature of strategic be after serve welles has been shown to encounter an of the essence(p) magnetic core on the performance of firms 1, the field of strategic final ca practice sessionning in SMEs is lull in the early stages of its development. Its adolescence, relative to other much established beas of business and management theory, is evidenced by inconsistent and conflicting viewpoints 2 and only a few researchers drive home addressed the system-making processes of SMEs 3.Limited research can too be observed on the usage of information from SMEs when strategically planning. Drury and Tayles 4 suggested that thither is a need for more research that explores in much greater depth how managers utilise fiscal and non financial information. Recent research has shown that nigh 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 based in, but they may not be proficient or proficient in accounting or financial management 5.The aim of this study is to add to the developing literature on strategic planning writ of execution 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 native and remote advisors that help SMEs to strategically plan.strategic Management and Strategic PlanningStrategy is a margin that is enormously customd by senior and middle managers. But the status seems to have multiple of meanings. There is no commonly accepted and planetary meaning of dodgin g 6. Due to this fact the definition of strategy has been the field of battle of extensive research since the 1960s. It has been described as the process of determining the semipermanent goals and objectives of an organization, by adopting a specific course of action and by allocating competent 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 ca wasting diseaseless strategies. Mintzberg claimed that strategy could be something more than an explicit plan of action. His five strategy dimensions that he recognized were strategy as plan, strategy as pattern,strategy as ploy, strategy as perspective and strategy as position. These have been the rear end for opening up the definition of strategy to a wider context of implement of goods and services 8.Strategic planning concentrates on the chastiseting of long-term organizational objectives, and the carrying out o f plans externalizeed to achieve them. A suitable 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 succeeding(a) 2. Porter 9 far-famed that further work was needed to enable business to understand strategic planning by arguing that musical composition in that respect has been considerable progress in developing frameworks that explain differing competitive success, at each given point in time, our understanding of the dynamic process by which firms perceive and ultimately attain superior market positions is out-of-the-way(prenominal) less developed.The SMEs literatureSmall and medium size of it enterprises (SMEs) dissolution a crucial part for the economic growth of a country. SMEs contribute to outputs and function and too affect the competitive ability of the large organizations 10. SMEs can curve the fight of large organizations by providing high quality inputs 11. The importance of small and medium size businesses for future economic development has been reflected in a bout of policy papers which have focused wariness on the role of entrepreneurship, owner-managers and the small firm sector 12.3.1 The SMEs sector in GreeceThe plowshare of the SMEs in the development, the callment and social coherence in Greece is substantial. In Greece, enterprises that have fewer than 50 employees form about 99.5 per cent of the total modus operandi of enterprises and employ the 74 per cent of the work force of the private sector. It should also be noted that Greek SMEs provide 70% of the new employment, fortify the regional development and financial equilibrium 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 primary(prenominal) business sticker in Greece is and it will remain the micro enterprise which employs less than 10 persons.According to the criteria set by the European Com guardianship, 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 broad fronts in identify 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 advisory services providing information on strategic choice. Perry et al 14 argued that strategy should be examined in the everyday operating milieu of the small firm. The formulation of strategy in SMEs has been the theme of many academic researchers. Some studies 15 examined the link mingled with planning and performance in SMEs, while others 16 explored the difficulty of defining planning and strategic planning, and its dimen sions, such as planning formality and performance in the small firm context.The definition of strategy in SMEs is often perceived as person centred rather than process driven. The performance of small firms is linked with the leadership elbow room 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 afterward 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 death penalty barriers. ORegan and Ghobadian 3 indicated a number of general barriers relating to the constraint of strategic planning executing such as communication was inadequate, instruction execution took longer than expected, a shortfall in employee skills, objectives of strategy were not clearly understood by the lag, ineffective co-ordination of implementation, crises distracted attention f rom implementation, unexpected external problems arose and external factors impacted on implementation.Research introductionThis research applies the quantitative method 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 purview questionnaire, all questions used a five-point Likert type scale with a reply of 1 indicating that an relic received not agree and 5 indicating an item received agree.The sample consists of small and medium enterprises that are located in the Greek neat Athens and belong to the service and manufacturing sector. top dognaires were distributed to a consentient 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, re expressing a 32 per cent response rate. Out of these 19 were nominate to have missing 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, cover version 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 airplane 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 Questions of the studyQuestion 1 Is there a of import relationship between Strategic Planning execution of instrument a nd 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 undertake strategic planning, there is limited evidence of practical strategic planning in the sense of setting long-term business objectives. Research by Stonehouse 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 integrated or of a general nature. They have found that around of these organizations were laborious 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 relationship 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 epitome split the strategic planning activities (objectives) into three categories. In the first sept were sales, costs, profits, yield/service procedure and customer service. In the second category were staff 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 tha t strong relationship between strategic planning implementation and strategic activities exists only for sale targets, cost targets, profit targets, production sequel targets and for the improvement of quality service. 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 passing in perception between managers and academics on the nature of strategic planning. Furthermore, around 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 assistanceQuestion 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 correlation 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. nigh 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 some important cause for the failure of these companies were shortages in functional 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 va luable external advise in order to plan strategically mainly from accountants. Government agencies and bank advisors are not lend as beneficial advisors for the owner managers and only a minority of the respondents put in that they receive efficacious 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 identi fied that accountants made a significant childbed 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 accounting 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 SM Es using Pearson Correlation and Spearman Correlation.This research has shown that owner managers of Greek SMEs take under serious consideration 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 bills flow information and bank statements. They have found that most SMEs use accounting information such as profit and blemish account, balance sheet, cash flow statement and forecast and ratio analysis in order to monitor the profitability and for plannin g and controlling. Hall and Youngs research 20 showed that lamentable 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 violate 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. proofThis 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 activities 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. some other business objectives, that are closer 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, concord to the owner managers, the most significant factors that facilitated them during the design and implementation of their strategic plans. In the contrar y, 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.