Business Planning and Firms' Performance Moderating Effect of Cultural Context

1. TITLE

Business planning and firm performance: moderating effect of cultural context.

2. BACKGROUND OF THE PROBLEM

The controversy regarding the effect of business planning on firm performance is a never ending story. The planning school of taught advocates the positive impact of business planning while the opposing school saying otherwise. Universities all around the world that offers entrepreneurship education emphasise the importance of preparing business plan and teach the student how to write them (Brinckmann, Grichnik and Kapsa, 2010). Of the top 100 universities in US News and World Report's 2004 ranking, 78 had at least one course dealing with business plan education and 10 out of top 12 conducted business plan competitions (Honig and Karlsson, 2004). Karlsson and Honig (2007) noted that the writing of business plan is supported by a large variety of different actors emphasizing its importance. External capital provider such as bankers, venture capitalists and angel investors demand business plan.

On the other hand, many new ventures demonstrate their capability to starting up and successful in their businesses without a business plan such as Bill Gates, Steve Jobs and Michael Dell (Karlsson and Honig, 2009). They also found that the pressures exerted by external capital providers were much weaker and although the capital provider encouraged the written business plan the usage is not as per literature predicted. Honig and Karlsson (2004) study indicated that performance is not necessarily an outcome of firm business planning behaviour. They found no evidence to support positive outcomes in term of profitability for nascent organizations that produce business plan. Lange, Mollov, Pearlmutter, Singh and Bygrave (2007) study revealed that there was no difference between the performance of new businesses launched with or without written business plans.

3. PROBLEM STATEMENT

Numerous empirical research has been conducted to examine the planning-performance relationship but the result have been inconclusive (Honig and Karlsson, 2004; Karlsson and Honig, 2009; Nunn and McGuire, 2010; Chwolka and Raith, 2012; Zimmerman, 2012). While empirical studies in entrepreneurship oftentimes ignoring contextual differences that might exist (Brinckmann et. al., 2010). Schneider and De Meyer (1991) highlighted that the underlying cultural reason for these differences remain elusive. Hoffman (2007) and Brinckmann et. al. (2010) proposed a future research to determine which aspects of culture are particularly germane in explaining the planning-performance relationship. Thus, this study believe that there has been limited research conducted to look into cultural differences that might affect the relationship between business planning and firm performance.

4. RESEARCH QUESTION

Based on the identified problem, this study wishes to answer the following questions:

1. What is the relationship between business planning and firm performance?

2. How does cultural dimensions affecting the relationship between business planning and firm performance?

5. RESEARCH OBJECTIVES

The purpose of this study is to develop an improved understanding of the relationship between business planning and firm performance and the role of cultural dimensions in this relationship. Specifically, the objectives of this study is:

1. To examine the relationship between business planning and firm performance.

2. To examine how does cultural dimensions affecting the relationship between business planning and firm performance.

6. LITERATURE REVIEW

6.1 BUSINESS PLANNING AND FIRM PERFORMANCE

Educational literature and research in entrepreneurship suggested that business plan enhance firms' performance. Numerous research (e.g. Delmar and Shane, 2003; Gruber, 2007) support the notion that business planning has positive impact on firm performance. Nunn and McGuire (2010) stated that business plan allows firms to leverage the knowledge and competence of its management team, staff and advisors to develop a strategic direction for the firm that will lead to its best chance for success. Brinckmann et. al. study using evidence-based approach to entrepreneurship research by applying meta-analysis confirmed that business planning increase the performance of both new and established small firms. They also found indication that contingencies such as uncertainty, limited prior information and an absence of business planning structures and procedures can limit the return on business planning.

Delmar and Shane (2003) argue that business planning is an important precursor to action in new ventures by assisting firms to make decisions, to balance resource supply and demand and to turn abstract goals into concrete operational steps, reduce the likelihood of venture disbanding and accelerates product development and venture organizing activity. Their results show that business planning is a valuable activity, even in uncertain and ambiguous situations like firm formation. Gruber (2007) highlighted that planning is beneficial but need to be governed by different planning regimes depending on the type of founding environment. In highly dynamic environments, entrepreneurs will get most value from planning when they focus on select planning activities and speed up planning task. Whereas, in less dynamic environments, they are better pursuing a munificent approach to planning.

Based on the literature review, this study hypothesize that business planning helps firms to reflect and specify their goals and to pursue these goals in an effective manner while using their limited resources.

H1: Business planning will have positive effect on firm performance

6.2 CULTURAL CONTEXT

Hofstede (1994) define culture as the collective programming of the mind which distinguishes the member of one category of people from another. The category of people can be a nation, region, ethnic group, gender, generation, social class, profession, type of business, organization or even family. From several researches, Hofstede had identified five national culture dimensions which explain the differences in cultural values of societies.

1. Power distance

This is the extent to which the less powerful members of organization or institutions accept and expect that power is distributed unequally.