The Influence of Business Environmental Dynamism, Complexity and Munificence on Performance of Small and Medium Enterprises in Kenya

Authors

  • Washington Oduor Okeyo University of Nairobi, Kenya

DOI:

https://doi.org/10.18533/ijbsr.v4i8.587

Keywords:

Key words, Business Environment, Dynamism, Complexity, Munificence, Small and Medium Enterprises, Financial and Non-Financial Performance

Abstract

The main purpose of this article is to examine how business environment affects small and medium enterprises. The paper is motivated by the important contributions small and medium enterprises have in many countries, especially Kenya towards job creation, poverty reduction and economic development. Literature however argues that effectiveness of the contributions is conditioned by the state of business environmental factors such as politics, economy, socio-culture, technology, ecology and laws/regulations. Dynamism, complexity and munificence of these factors are therefore vital to achievement of organizational objectives and overall performance. Even so, a review of literature reveals contradictory views regarding the effect of these factors on performance of organizations. Furthermore, studies focusing on these factors in the Kenyan context, particularly with regard to their effect on performance of small and medium firms, are scarce. This article bridges this gap based on a study focusing on 800 manufacturing organizations in Nairobi – Kenya. A sample of 150 enterprises was selected through stratification by business sector followed by simple random sampling. The research design was cross sectional survey where data was collected using a structured questionnaire over a period of one month at the end of which 95 organizations responded giving a response rate of 64%. Reliability and validity of the instrument were determined through Cronbach’s alpha tests and expert reviews. Statistical Package for Social Sciences was used to determine normality through descriptive statistics and study hypotheses tested using inferential statistics. The study established that business environment had an overall impact on organizational performance. Specifically, dynamism, complexity and munificence each had a direct influence on the enterprises in the study. Furthermore the combined effect on performance was found to be greater than that of dynamism and complexity but less than munificence. The study also established that there is a difference in the way business environment affects performance such that it impacts on financial performance more than on non-financial performance of these enterprises. These results imply that small and medium enterprises in the study are likely to perform better in business environments that are dynamic, complex and munificent.

 

Author Biography

  • Washington Oduor Okeyo, University of Nairobi, Kenya
    Consultant at Southlink Consultants Limited and Lecturer, Department of Business Administration, School of BUsiness.

References

Adeniran T. V., and Johnston, K.A. (2011). Investigating the Levels of Internet Capabilities in South African Small and Medium Enterprises in Changing Environments. 13th Annual Conference on WWW Applications. Johannesburg 14-16 September 2011-ISBN 978-0-620-519182

Aldrich, H. E. (1979). Organizations and Environments. Prentice-Hall, Englewood Cliffs, NJ.

Aosa, E. (1992). An Empirical Investigation of Aspects of Strategy Formulation and Implementation within Large Private Manufacturing Firms in Kenya. (Unpublished Doctoral Dissertation) University of Strathclade, Scotland - Great Britain.

Atieno, R. (2012). Gender, Institutions, Access to Finance and Development of Small and Medium Enterprises in Kenya. A Draft Paper submitted to the 2012 CSAE conference on economic development, Oxford, March 18-20.

Awang, A., Ahmad, Z.A., Asghar, A.R.S., and Subari, K.A. (2010). Entrepreneurial orientation among Bumiputera Small and Medium Agro-Based Enterprises (BSMAEs) in West Malaysia: Policy implication in Malaysia. International Journal of Business and Management, 5(5): 13-143.

Awino, B. Z. (2011). Strategic Management: An Empirical Investigation of Selected Strategy Variables on Firms Performance: A Study of Supply Chain Management in Large Private Manufacturing Firms In Kenya. Prime Journals. Vol. 1(1), pp. 09-18.

Bartlett, J.E., Kotrlick, J.W., and Higgins, C.C. (2001). Organizational Research: Determining Appropriate Sample Size in Survey Research. Information Technology, Learning, and Performance Journal, Vol. 19(1)

Beck, T., Demirguc-Kunt, A. and Levine, R. (2005). SMEs, Growth, and Poverty: Cross-Country Evidence. Journal of Economic Growth. 10, 199-229.

Bisbe, J. and Oakley, D. (2004). The Effects of the Interactive use of Management Control Systems on Product Innovation. Accounting, Organizations & Society Journal 29, 709-737.

Bhamani, M. A., Kaim, M.S., and Khan, M. M. (2013). Depression in the Elderly in Karachi, Pakistan: A cross sectional study. BMC Pyschiatry. Vol. 13 181.

Bluedorn, A.C., Johnson, R.A., Cartwright, D.K., and Barringer, B.R. (1994). The Interface of Convergence of Strategic Management and Organizational Environment Domains. Journal of Management. Vol 20 (2) pp 201-262

Bowen, M., Morara, M., & Mureithi, M. (2009). Management of business challenges among small and micro enterprises in Nairobi-Kenya. KCA Journal of Business Management, 2(1). Retrieved from http://www.ajol.info/ index.php/kjbm/article/viewFile/44408/27917 on 27th July 2014

Clapham, S. and C. Schwenk. (1991). ‘Self-serving attributions, managerial cognition, and Company performance’, Strategic Management Journal, 12(3), pp. 219–229.

Chakravarthy, B. S. (1986). “Measuring Strategic Performance”. Strategic Management Journal 7(5): 437-458.

Chittithaworn, C., Islam, A., Keawchana, T., and Yusuf, D.H. (2010). Factors affecting Business

Success of Small and Medium Enterprises in Thailand. Journal of Asian Social Science, Vol. 7 (5) 180-190.

Davis, G., F. and Powell, W.W. (1992). In Dunnette, M, D., and Hough, L.M (eds.), Handbook of Industrial and Organizational Psychological (2nd ed.) Vol. 3 Palo Alto CA: Consulting Psychologists Press.

Eisenhardt, K. M., and Schoonhoven, C. B. (1996). Resource-based view of strategic alliance formation: strategic and social effects in entrepreneurial firms. Organization Science, 7 (2), 136–150.

Eisenhardt, K. M., and Schoonhoven, C. B. (1990). ‘Organizational Growth: Linking Founding Team, Strategy, Environment, and Growth among U.S. Semiconductor Ventures, 1978–1988’, Administrative Science Quarterly 35, 504–529.

Fatoki, O. (2012). Entrepreneurial Orientation, Debt Finance and Performance of Small and Medium Enterprises in South Africa. Journal of Social Science. 32(2) 121-131.

Dess, G. G., and D. W. Beard: 1984, ‘Dimensions of Organizational Task Environments’, Administrative Science Quarterly 29, 52–73.

Goll, I., and Rasheed, A. A. (2004). The Moderating Effect of Business Environmental Munificence and Dynamism on the Relationship between Discretionary Social Responsibility and Firm Performance. Journal of Business Ethics. 49: 41- 54.

Goll, I., and A. Rasheed: 1997, ‘Rational Decision- Making and Firm Performance: The Moderating Role of Environment’, Strategic Management Journal 18(7), 583–591.

Government of Kenya (2011). Kenya Economic Survey 2011 Highlights. Kenya National Bureau of Statistics. Retrieved from http://www.knbs.or.ke/ on September 2, 2012.

Hannan, M. T. and Freeman, J. (1977). The Population Ecology of Organizations. American Journal of Sociology, 82(5): 929-964.

Hopkins, E. E., and Hopkins, S.A (1997). Strategic Planning-Financial Performance Relationships in Banks: A Causal Examination. Strategic Management Journal, Vol. 18(8), 635-652.

Hornby, A.S. (2005). Oxford Advanced Learner’s Dictionary of Current English. International Students. 7th Edition. India: Oxford University Press.

Huggins, R. (2000). The success and failure of policy-implanted inter-firm network initiatives: motivations, processes and structure. Journal of Entrepreneurship and Regional Development, 12(2), p.211-236.

Johnson, G. and Scholes, K. (2002). Exploring Corporate Strategy – Sixth Edition. New Delhi: Prentice Hall of India Private Ltd.

Kennerly, M. and Neely, A. (2003). Measuring Performance in a Changing Business Environment. International Journal of Management and Production Management Vol. 23 (2) pp 213 -229.

Kenya Association of Manufaturers (2012). Kenya Manufacturers and Exporters Directory. Nairobi: Kenya Association of Manufacturers.

Lawrence, P., and Lorsch, J. (1967). Organization and Business Environment. Boston: MA.: Harvard Business Press.

Lenz, T.R (1980). “Environment, Strategy, Organization Structure and Performance: Patterns in One Industry”. Strategic Management Journal, 1(3): 209-226.

Li, H. (2001). How does New Venture Strategy matter in the Environment –Performance Relationship? Journal of High Technology Management Research Vol. 12 (2001) 183-204.

Machuki, V. N. (2011). External Business Environment Strategy Co Alignment, Firm Level Institutions and Performance of Publicly Quoted Companies in Kenya. (Unpublished Doctoral Dissertation) University of Nairobi, Kenya.

Machuki, V.N. & Aosa, E. (2011). The Influence of the External Business Environment on the Performance of Publicly Quoted Companies in Kenya. Prime Journals, 7, pp 205-218.

Matyusz, Z. (2012). The Effect of Contingency Factors on the use of Manufacturing Practices and Operations Performance. (Unpublished Doctoral Dissertation), Corvinus University of Budapest, Budapest.

Mintzberg, H. (1979): The structuring of organizations. Prentice-Hall Inc., New Jersey, USA

Nyangori, R. (2010). Factors Influencing Performance of Micro and Small Enterprises: A Case of Kisumu City Bus Park-Kenya. Retrieved from www.academia.edu on 27 June 2014.

Nunnally, J.C. and Bernstein, I.H. 1994. Psychometric Theory, 3rd edition, McGraw-Hill, NewYork, New York.

Olsen, C. and George, M. M. M. (2004). Cross-Sectional Study Design and Data Analysis: The Young Epidemiology Scholars Program, Walden University- Chicago, Illinois

Pasanen, M. (2003). In Search of Factors Affecting SME Performance: The Case of Eastern Finland. (Unpublished Doctoral Dissertation). University of Kuopio, ISBN 951-781-980-3.

Pearce, A. J. II and Robinson, B. R. (2007), Strategic Management: Formulation, Implementation and Control, 10th Edition, Boston: Irwin McGraw-Hill.

Pfeffer, J. and Salancik, G. R. (1978). The External Control of Organizations. New York: Happer and Row.

Priem, R. L., Rasheed, A., and Kotulic, A.G. (1995). ‘Rationality in Strategic Decision Processes, Environmental Dynamism, and Firm Performance’, Journal of Management 21, 913–929.

Rogerson, C.M. (2008). Tracking SMME development in South Africa: Issues of finance, training and regulatory environment. Urban Forum, 19(1): 61-81.

Salem, H. (2003). Organizational Performance Management and Measurement: The Lebanese Experience. Paper Presented to Economic and Social Commission for Western Asia at UNDESA Conference in Beirut, Lebanon in July 2003.

Shane, P. B. and Spicer B. H. (1983). ‘Market Response to Environmental Information Produced Outside the Firm’, Accounting Review 58 (3), 521–536.23.

Suh, J.D. (2010) Risks and Opportunities facing SMEs in the post-crisis Era. Poster presented at the APEC SMEs Training Workshop, Taipei, Korea May 24th – 28th, May.

Sum, C., Jukow, L., and Chen, S. (2004).Taxonomy of operations strategies of high performing small and medium enterprises in Singapore. International Journal of Operations and Production Management, 24(3), 321-345.

Staw, B. M. and Swajkowski, E. (1975). ‘The Scarcity- Munificence Component of Organizational Environments and the Commission of Illegal Acts’, Administrative Science Quarterly 20, 34–354.

Stinchcombe, A.L. (1965). Social structure and organizations. In J. March (ed.), Handbook of Organizations , 142–193. Chicago: Rand McNally.

Thompson, J. D. (1967). Organizations in Action. New York: McGraw-Hill.

Thurik, A.R. and Caree, M.A. (2010). The Impact of Entrepreneurship on Economic Growth. In Z.J. Acs and D.B. Audretsch (eds.), Handbook in Entrepreneurship and Research International Handbook Series on Entrepreneurship 5, DOI 10.1007/978-1-4419-1191-9_20

Tung, R. (1979). “Dimensions of organizational environments: An exploratory study of their impact in Organizational structure.” Academy of Management Journal, 672-693.

Tushman, M. L. and Anderson, P. (1986). Technological Discontinuities and Organizational Environments’, Administrative Science Quarterly 31, 439–465.

Ullman, A. A. (1985). ‘Data in Search of a Theory: A Critical Examination of the Relationships among Social Performance, Social Disclosure, and Economic Performance of U.S. Firms’, Academy of Management Review 10(3), 540–557.

Venkatraman, N. and Ramanujam, V. (1986). “Measurement of Business Performance in Strategy Research: A Comparison of Approaches”. Academy of Management Review. 1(4): 801-814.

Walter, A., Auer, M., and Ritter, T. (2006). “The impact of network capabilities and Entrepreneurial Orientation on university spin-off performance.” Journal of Business Venturing 21(4):541–567.

Wiklund, J. and Shepherd, D. (2003). Knowledge-Based Resources, Entrepreneurial Orientation, and the Performance of Small and Medium-Sized Businesses. Strategic Management Journal. 24, 1307- 1314.

Williamson, O. E. (1979). Transaction Costs Economics: The Governance of Contractual Relations. Journal of Law and Economics .Vol. 22(2) pp. 233-261.

Yusuf, T.O., and Dansu, F. S. (2013). SMEs, Business Risks and Sustainability in Nigeria. European Journal of Business and Social Sciences, Vol. 2 (9) pp76-94.

Downloads

Published

2014-08-22

Issue

Section

Article