Summary Small Business Management
LECTURE 0: INTRODUCTION TO THE COURSE SMALL BUSINESS MANAGEMENT
What is management?
Management = ‘the ability to accomplish objectives through the efficient use of people,
capital and equipment’ (Corman & Lussier, 1996)
Study ‘management’ = study this ability = managers + management activities + management
performance
Management activities (based on Fayol, 1916): planning, organizing, leading, controlling
Management roles (i.e. managers’ roles, Mintzberg, 1975);
- Interpersonal roles (figurehead, leader, liaison)
- Informational roles (monitor, disseminator, spokesperson)
- Decisional roles (entrepreneur, disturbance handler, resource allocator, negotiator)
Why is management relevant?
Management practices are a major determinant of firm financial performance,
owner/manager and firm characteristics have only indirect effects
Bad entrepreneurship and lack of management skills are important factors for bankruptcies.
For example: 93% of bankrupt firms did no competitor analysis at all, 49% never send any
payment reminders
The nature of managerial work in small firms
What do these managers actually do?
Characterized by: Fragmentation, brevity, variety, interpersonal, verbal (O’Gorman ea.,
2005)
1.1 The Nature of Managerial Work in Small Growth-Orientated Business (O’Gorman, C.
Bourke S., Murray J.A., 2005)
The study explores the daily managerial behaviour of managers of small growth orientated
business in contrast to managers in large organizations. Also the background characteristics,
experience, related to daily managerial activity. The research provides evidence that
organizational size is an important determinant of the nature of managerial work
Introduction
In former research is assumed that the consequences of the owner-manager’s background
characteristics are poor managerial skills, and this impedes the organizational and strategic
development of the small business. Researchers suggest to adopt managerial styles and
techniques of larger businesses. The researchers believe that the study of daily managerial
behaviour is missing within the small business literature. The research has two important
contributions, first, shows policy makers how managerial skills of small business managers
and large business managers differ. Second, daily managerial behaviour may represent a key
process by which the owner-manager’s experiences, vision and beliefs, personality traits,
and strategic preferences are translated into actual organizational performance. The focus
on small business is important for two reasons. First, the impact of organization size on the
nature of organizational work is not fully understood. Empirical work has suggested that the
nature of managerial work in small organizations does not differ from large organizations.
Second, small growth-orientated businesses are an important context because of the
contribution these business reportedly make to the process of “creative destruction”.
The study of managerial work
In the study of managerial work a definition in terms of what managers actually do instead
of the classic view which are in terms of the functions performed like “coordination,
planning”. Studies of managerial work have categorized managerial behaviour based upon
the roles, functions and work patterns of managers. Which are Mintzberg’s interpersonal
roles (figurehead, leader, liaison), informational roles (monitor, disseminator and
spokesman) and decisional roles (entrepreneur, resource allocator, disturbance handler and
negotiation). There is criticism around three main issues around studies of managerial work:
the emphasis on description, the lack of consistent systematic research and validity of
research findings.
1. Emphasis on description: In studies the emphasis has been on describing rather than
explaining managerial work.
2. Lack of consistent systematic research: Researchers have used different categories and
concepts for describing managerial work and have not connected them to those of other
researchers in the field.
3. Managerial work and efficiency and effectiveness: Another limitation of studies of
managerial work is the lack of attention to effectiveness, that is the relation between
what managers do and what they achieve.
Hypothesis 1: SUPPORTED
Managerial work in small growth-orientated business exhibits many of the characteristics of
managerial work in large organizations. Specifically managerial work in small growthorientated businesses is characterised by brevity, fragmentation, and variety; by the
predominance of verbal communication; and is unrelenting in pace.
Hypothesis 2.1: SUPPORTED
The communication patterns of owner-managers in small growth-orientated businesses will
be less formal than those of managers in larger organizations.
Hypothesis 2.2: SUPPORTED
Owner-managers of small growth-orientated businesses engage in more operating work of
the organization than do managers in large organizations.
Hypothesis 3: NOT SUPPORTED
Owner-managers of small growth-orientated businesses will spend the greatest portion of
their time performing functions that reflect their functional background.
Conclusion
To understand SB behaviors you need to understand their owners’ motivations!
Discussion
Interesting about Hypothesis 2.1 and 2.2 is if these hypothesis reflect to a lack of capabilities
of the managers or do they reflect to increased organizational performance.
Three empirical studies
# Activities per day
Avg. # minutes per activity
Unscheduled calls & meetings (% meetings)
Number of telephone calls (per day)
Number of desk work sessions (per day)
SF**
LF*
35/110
13/5
90/96
10/27
-/41
22
22
50
5
7
Small firms CEO’s:
80% time: leader, monitor, entrepreneur, liaison, resource allocator
31% time: general mgt, 55% sales/marketing, production & finance ….
personnel 0.9%, legal 0.1%.
Source: Mintzberg 1975, **O’Gorman et al. 2005 (data are older)/Robbert Bouw 2012
Why is small business management different?
- Manager is often also owner; there is family involvement
- Scale is small (organization, communication, work environment
- SBs have a different resource base
- SBs compete differently
Managers in small firms
3 types of individuals:
- Entrepreneurs: Focused on opportunities and external relations
- Managers: Focused on consolidation
- Leaders: Focused on transformational and internal, human relations
A real-life manager is a mix of these 3 types (and balance can change).
LECTURE 1: SMALL BUSINESS STRATEGY AND PLANNING
Defining SMEs
- Note: We often use the terms SMEs and SBs interchangeably in this program
- There are qualitative and quantitative definitions
- The quantitative European definition:
The unique characteristics of SBs
Three qualitative core characteristics according to Nooteboom (1994):
- Small scale
- Personality
- Independence
 They lead to several ‘derived characteristics’ and specific strengths and weaknesses of SBs
Below the question mark:
- Customization
- Innovation
- Cooperation
Storey and Greene (2010) distinguish 17 dimensions on which SBs differ from large ones:
The diversity of SBs: owner motivations
To understand SB behaviors you need to understand their owners’ motivation
Different classifications in literature:
- Push versus pull motivations (many studies)
- Intrinsic rewards, extrinsic rewards, autonomy and family security (Kuratko et al.
1997)
- Lifestyle, comfort-zone, growth/Schumpetarian hero (Bridge et al., 2003)
1.2 Distinguishing Types of Entrepreneurial Ventures; an Identity-Based
Perspective, Morris, M.H., Neumeyer, X., Jang, Y. and D.F. Kuratko (2018),
Research Article that makes the differences between Small and Medium sized enterprises
visible by splitting it up into a four-part conceptualization. The distinguish between the four
types which each there unique features:
-
Survival ventures  family business. Struggling
Lifestyle ventures  (large part in first 2) flowers shop example coordinator. No major
changes.
Managed growth ventures  growth incremental
Aggressive growth ventures  growth exponentially
Types of (Entrepreneurial ventures: General ‘’demographics’’
Types of (entrepreneurial) ventures: Strategic and managerial issues
Types of (entrepreneurial) ventures economic issues
Morris et al (2018) look form an identity perspective to the 4 types by doing a survey among
120 ventures, that is 30 surveys for each venture type:
Overall results of the survey individual identities
- Owners of survival ventures have lower scores on overall entrepreneurial identity*
and individual identities than owners of the other forms.
o An exception: no differences for identity centrality between survival and
lifestyle entrepreneurs.
-
Owners of lifestyle ventures have lower scores for identity centrality than the managed
growth and aggressive growth ventures. No differences on the other identity factors.
-
No differences at all between managed growth and aggressive growth ventures
Overall results of the survey: organizational identities
- You can use this for (re)developing strategies for short and long term, or some
consultants can use this and give a better understanding of the firm culture/strategy.
-
The diversity of SBs: strategic orientations
- Aragon and Sánchez (2005) use the typology of Miles and Snow (1978) for SB
strategies: prospector, analyzer, defender and reactor
- Jager et al. (2012) find four types of SBs regarding their internationalization strategies
 Important links to SB performance
What is strategy?
- Glueck (1980): A unified, comprehensive and integrated plan designed to ensure that
the basic objectives of the enterprise are achieved
-
Porter (1980): A. broad formula for how a business is going to compete, what its
goals should be and what policies are needed to carry out those goals
-
Widely used definition (e.g. in RBV): The creation of a sustainable competitive
advantage
Defining and measuring SB performance
Two types of measures:
- Objective, e.g. ROI (Aragón and Sánchez, 2005), labor productivity, (growth) in sales
and profitability
- Subjective, e.g. self-rated performance compared to competitors (Aragón and
Sanchez, 2005) or satisfaction with outcomes (Hagen et al., 2012)
Pitfalls in objective performance measures:
- They do not take into account owner motivations
- Differences in calculations between business profits and entrepreneurial income
- Interpretation of costs is unclear (e.g. different systems of depreciation)
Pitfalls in subjective performance measures:
- Potential biases of respondents (Brinkmann et al., 2010)
- Data may be more difficult to gather
- Comparison may be more difficult
1.3 Strategic Orientation, Management Characteristics, and Performance: A Study
of Spanish SMEs (Aragon-Sanches A., Sanchez-Marin G., 2005)
Main assumption = The paper analyses from a resource-based view the management
characteristics of Spanish small and medium enterprises according to their strategic
orientation and the consequences in terms of firm performance and business efficiency. The
typology of Miles and Snow Adopted, Defender, Prospector and Analyzer can emphasize to a
great extent aspect of management. These aspects van determine firm performance and
business efficiency.
Main assumption lecture slides = from an RBV perspective, different strategic orientations
result in differences in management and ultimately in performance differences
Data sample = 1351 Spanish SMEs.
Objective way
Objective, e.g. ROI (Aragón and Sánchez, 2005), labor productivity, (growth) in sales and
profitability.
Pitfalls in objective performance measures:
 They do not take into account owner motivations.
 Differences in calculations between business profits and entrepreneurial income.
 Interpretation of costs is unclear (e.g. different systems of depreciation).
Subjective way
Subjective, e.g. self-rated performance compared to competitors (Aragón and Sanchez,
2005) or satisfaction with outcomes (Hagen et al., 2012).
Pitfalls in subjective performance measures:
 Potential biases of respondents (Brinckmann et al., 2010).
 Data may be more difficult to gather.
 Comparison may be more difficult.
Introduction
Difficulties exist at SMEs because their economies of scale and resources are less than those
of large firms. However, what compensates for these weaknesses is the fact they enjoy
flexibility. There are a number of studies focusing on the main competitive factors of SMEs.
There literature shows that intangible factors such as structure, organizational change, HRM,
innovation and technical resources are elements that contribute to SMEs competitiveness
and success. However there are still doubts. Depending the strategic orientation may
determine the firms performance and business efficiency. The study aims to (1) the extent to
which resource-based theory proves true when applied to SMEs, analysing whether internal
factors have significant negative effects on the SMEs competitiveness and identifying the
main competitive factors; (2) SMEs factors of success and how they vary in relation to the
strategic orientation (3) whether the factors in question are different from those of large
firms, consequently contributing to the knowledge of the SME’s peculiar strategic behaviour
and (4) in the light of the development of future research, this paper opens an important
and innovative field: identifying the factors relevant for the competitiveness of SMEs, which
give them advantages over large firms.
Research Theory and Hypotheses
Intangible Resources, Capabilities, and Competitive Advantage of SMEs
The resource based theory of Porter focus on the internal resources and capabilities of a firm
in order to gain competitive advantage. Taking this into account, the strategic literature has
stressed intangible resources and capabilities as determents of business competiveness.
However investments on intangible resources and the creation of capabilities are quite
problematic because of their lack economics of scale/scope and related to the internal and
external growth through fusions or acquisitions. It’s interesting how these resources and
capabilities determine the strategic process of the firm, or whether the way in which
resources and capabilities are managed is influenced by the strategic orientation of the firm.
Strategic Orientation and Management Characteristics
The theory of Miles and Snow is based on three premises.
1. First, Successful firms develop a systematic method of alignment with their environment,
responding to the adaptive cycle.
2. Second, four strategic orientations can be identified in every industry:
o defenders (firms focusing on narrow and limited product-market domain, trying
to protect market share),
o prospectors, (organizations that continuously search for new market
opportunities through processes of innovation and development in products)
o analysers (organizations that act defensively or prospectively depending on their
environmental changes)
o reactors (characterized by perpetual instability and inconsistency because of their
incapacity to respond effectively to environmental changes).
3. Third, defender, prospector or analyser may lead to satisfactory performance; reactor
cannot because of its lack of internal consistency. Studies about strategic orientation
differ with regard to managerial factors and basic competences; have been limited to
large firms. This makes it interesting to research it in SMEs.
Technological Resources and Innovation
Technological development and innovation level constitute the basic elements to achieve
competitiveness. Prospector firms are expected to place a major emphasis on innovation,
where defender firms focus more on efficiency.
H1: SMEs with a prospector orientation are more innovative and have a more consolidated
technological position than SMEs with an analyser orientation and SMEs with a defender
orientation.
Flexibility and Organizational Design
Flexibility may be one of the most remarkable features that distinguish SMEs from large
firms, such as speed of response, ability to innovate, and capacity to adapt. Firms with a
prospector strategy implement a large number of practices, leading to great flexibility.
Defender firms use fewer flexible practices because they might obstruct maximum efficiency
and cost minimization. It’s clear that more innovative firms will have more developed
organizational structures in order to be able to innovate, which leads to the following
hypothesis:
H2a: SMes with a prospector orientation implement a greater number of flexible practices
than SMEs with an analyser orientation and SMEs with defender orientation. SUPPORTED
H2b: SMEs with a prospector orientation have a more developed organization structure than
SMEs with an analyser orientation and SMEs with a defender orientation. SUPPORTED
Cooperation
SMEs in high competitive markets are associated with a greater number of alliances because
of the greater need for technological resources.
H3: SMEs with a prospector orientation sign a larger number of cooperation agreements
than SMEs with an analyser orientation and SMEs with a defender orientation. NOT
SUPPORTED
Human Resources
Various studies have found a relationship between HR management systems and business
performance. Defender firms usually have less developed HR management. In contrast
prospector firms make use of more developed HR management systems but attach less
importance to training.
H4a: SMEs with prospector orientation put greater emphasis on developing systems of
human resource management than SMEs with an analyser orientation and SMEs with a
defender orientation. SUPPORTED
H4b: SMEs with a defender orientation confer greater importance to training than SMEs
with an analyser orientation and SMEs with a prospector orientation. NOT SUPPORTED
Strategic Orientation and Firm Performance
Miles and Snow propose that defenders, prospectors, and analysers have the chance to be
equally successful in developing their activities, and will perform better than reactors.
H5: SMEs with a prospector orientation outperform SMEs with an analyser orientation and
SMEs with a defender orientation.
Results
Most hypotheses are confirmed. Some comments:
- Most hypotheses confirmed for manufacturing industries; fewer significant results for
services and construction.
- Prospector firms put more emphasis on training compared to defenders.
- No differences between firms regarding cooperation with other firms.
- ROI as performance measure does not yield significant results, but the subjective
measure (‘overall performance’) does.
Strategic Orientation and Management Characteristics
The most noticeable differences occurred, as expected, between prospector SMEs (better
technological position, more innovative, more use of information technologies, greater
implementation of flexible practices, more developed organizationally, and more concerned
about HRM) and defender SME’s. Analysers were between, although closer to prospectors.
Strategic Orientation and Firm Performance
The regression results indicate that, when ROI is used as performance variable, the expected
relationships are not satisfied. On the contrary, when overall indicator is used, the
relationships proposed are generally satisfied. The prospector orientation provides SMEs
with better performance than the analyser orientation.
Conclusion
The results show the validity of the resource-based theory when applied to SMEs with the
factors of management: technology and innovation, organizational design, and HR, based on
intangible resources and capabilities as key element to achieve sustainable competitive
advantage. Only exception has been found in relation to cooperation. Firms with a more
prospector orientation usually outperform the rest because of their greater proactivity and
capacity. The strategic orientation does not differ that much at SME’s than at large firms,
this may exists by:
(1) lack of formal structure and professionalism,
(2) less information about environment and
(3) characteristics of the country (e.g. many Spain SME’s have a reactive management).
1.4 International strategy and performance, Clustering strategic types of SMEs
(Hagen, Zucchella A., Cerchiello P. & Giovanni N.m, 2012)
This paper identifies different strategic types of internationalised SMEs, in so doing providing
managers and entrepreneurs with a much better understanding of the main strategic
options and their relationship with the international performance of firms.  Linkable to
with Aragón and Sánchez, 2005
Data sample = Survey on 148 Italian manufacturing firms and their exporting strategies
Main assumption lectures: from an RBV perspective, a specific strategic orientation leads to
certain organizational characteristics, which ultimately affect performance.
Strategic orientation constructs
One of the main contributions about differentiated Strategic Orientations (SOs) is provided
by Miles and Snow (1978), who outline four strategic typologies: reactors, defenders,
analysers, and prospectors. Entrepreneurial Orientation (EO) can be described as a
combination of three dimensions, namely innovativeness, proactiveness, and risk-taking.
Innovation management studies identify an Innovation orientation (IO) which is present in
organizations implement new ideas, products or processes. Production orientation (PO) is
based on the pursuit of production and other operating efficiencies and will produce widely
available and relatively inexpensive products and services in order to establish competitive
advantage. A Selling orientation (SEO) characterized by aggressive sales and marketing to
achieve fast returns and maximize market share
The link between strategic orientation, strategic behaviour and (international)
performance
Strategic orientations and strategic types do influence performance. No single strategic
orientation leads to superior performance in all situations. However, there is a lack of
studies that link SO/strategic types and performance in an international context and this
holds particularly for finds related to SMEs.
Empirical findings
Four consistent and statistically significant groups are identified by evaluating the
agglomeration schedule shown in Table 2. The agglomeration coefficient shows a sharp rise
between the 4-cluster and the 3-cluster solution, hence the former is judged to be the “best”
solution.
Cluster 1: “Shelter from the storm” (customer-orientated)
 Defender
The first cluster is the customer-orientated group of firms, that follows a niche strategy and
could be seen as naturally international. Customer orientation is reflect in the highest values
in terms of customer satisfaction, and customer and competitor knowledge.
Cluster 2: “Should I stay or should I go” (lack of strategic orientation and strategy)
 Reactor
The second strategic cluster could be described as being “stuck in the middle”. In this group
no definite strategic profile emerges and there is no definition of distinctive competences
and assets. This might be a group opportunistic exporters with no clear orientation and
consequently no clear strategy formulation or resource allocation.
Cluster 3: “Born to run” (Entrepreneurial-growth orientated)
 Prospector /Analyzer
The cluster 3 firms may be described as the entrepreneurial-growth orientated group of
SME’s. Highest performance- and growth-oriented items across all investigated areas. The
cluster scores also show high satisfaction with competitive advantage/positioning. This
advantage lies in innovation and quality-orientation
Cluster 4: “Strawberry fields forever (product-inward-oriented)
 Defender (with attention towards manufacturing and quality)
Cluster 4 companies are characterized by a strong product-orientation. They show generally
the lowest values along the dimensions investigated. Focus on efficient production towards
a limited number of customers or a narrow line of specialty.
Subjective measures
-
Performance: combination of subjective and objective measures. Cluster analysis
results:
-
Results from regression between SO and performance: ‘A clear So has a positive
impact on international performance’
Conclusions
Main conclusion is that the results from the regression analysis between strategic
orientation and performance shows that  A clear strategic orientation a positive impact
has on international performance!
You need to know what kind of strategic orientation you have for your company so that it
can have a positive impact on international performance, on the other hand it doesn't
matter what type you are in the form of prospector, analyser, defender or reactor.
1.5 Should entrepreneurs plan or just storm the castle? A metanalysis on contextual
factors impacting the business planning– performance relationship in small firms
(Brinckmann J., Grichnik D & Kapsa D., 2008)
Entrepreneurship research engages in an intense debate about the value of business
planning. This meta-analysis on the business planning-performance relationship and
specifically focus on contextual factors such as newness of the firms and the cultural
environment of firms significantly impact the relationship. Based on this evidence, we
propose a concomitant and dynamic approach that combines planning and learning.
Introduction
An intense debate emerged recently in entrepreneurship research on the value of business
planning for established small and especially new firms. It concerns the crucial quandary
entrepreneurs face whether to plan before embarking on the perilous quest for venture
success or if they should just storm the castle. Some researchers belonging to the planning
school propose that business planning is crucial for the survival and development of both
new and established small firms. The planning school argues that a systematic, predictionoriented, and formal approach leads to superior venture performance. An opposing group of
researchers challenges the value of prediction-oriented strategic approaches for an
organization's performance. These researchers propose instead to focus on learning,
strategic flexibility, and controlling resources, especially when facing high degrees of
uncertainty.
Theory
With this study, we address this controversy by synthesizing prior empirical findings.
Especially we aim to explain divergent findings by introducing context variables that
moderate the planning–performance relationship such as the newness of the sampled firms,
the nature of business planning, and cultural variables. In so doing, we intend to foster a
contextual and dynamic understanding of the business planning–performance relationship.
In other words, beyond the question whether a general planning-based approach is
beneficial for small firms, we aim to uncover empirical evidence relating to contexts when
business planning shows increased effectiveness.
H1: Business planning in small firms increases performance. SUPPORTED
H2: Business planning increases performance more in established firms than it does in new
firms. SUPPORTED
H3: The outcome of business planning has a greater effect on firm performance than the
business planning process. NOT SUPPORTED
H4: Business planning has a greater effect on firm performance in cultures with low
uncertainty avoidance than it does in cultures with high uncertainty avoidance. SUPPORTED
Method
Meta-analysis on 47 studies on relationship between business planning and performance.
Results/Findings
- Positive relationship between planning and performance. Indeed:
o The relationship is much stronger for established firms than for new firms.
o The relationship is much stronger in cultures with low uncertainty avoidance.
- Both the planning outcome and the process strengthen the positive effects of business
planning on performance.
Practical implications on business planning
- With lack of information and high uncertainty: some basic planning may be sufficient.
When quality of information increases; the benefit of business planning increases.
- Small business owners/entrepreneurs have to be mentally prepared to adjust plans
when necessary.
- Small business owners /entrepreneurs should focus on both the outcome and the
process of planning.
Furthermore, our findings show with respect to different cultural settings that business
planning is less beneficial for the performance in cultures characterized by higher
uncertainty avoidance than firms in cultures with lower uncertainty avoidance. An
interpretation of this finding is that founders or small business leaders might stick more
closely to their predetermined plans in countries where uncertainty avoidance is high. This
post-planning behavior could limit their strategic flexibility and openness to necessary
changes to their business plans which in consequence limits performance.
This interpretation of our study findings introduces post-planning behaviour as a new
dimension to the discussion of the business planning–performance relationship.
LECTURE 2: INNOVATION AND ENTREPRNEURSHIP IN THE SMALL BUSINESS
The importance of innovation and entrepreneurship (in SBs)
Shortening product and business life cycles: firms constantly have to seek new opportunities
to remain competitive (Wiklund and Shepherd, 2005; De Jong and Vermeulen, 2006)
Innovation a core strategy for SBs (Nooteboom, 1994), but it also poses challenges
Challenges of innovation and entrepreneurship in SBs
- Lack of financial resources
- Lack of time
- Lack of external financial resources
- Difficulties in finding suitable staff
- Lack of opportunities for subsidies
Defining entrepreneurship
Shane and Venkataraman (2000): entrepreneurship is the discovery and exploitation of
entrepreneurial opportunities
Two types of ‘profit opportunities’:
- Entrepreneurial opportunities: to engage in new ‘activities’
- Non-entrepreneurial opportunities: to enhance efficiency of existing ‘activities’
Defining innovation
Degree of newness:
- Incremental or radical innovations
- Marco (i.e. new to industry/world) or micro (i.e. new to the firm)
What is new?
- Product of process innovations
- Goods, services, markets/customers, sources of supply, production/organization methods
- Technological and/or non-technological aspects
The exploration-exploitation trade-off
March (1991): firms must balance exploration and exploitation to be successful
CEO’s regulatory focus and exploration and exploitation
Kammerlander et al. (2015):
2.1 Kammerlander, N., Burger, D., Fust, A. and U. Fueglistaller (2015), Exploration
and Exploitation in Established Small- and Medium-Sized Enterprises: the Effect of
the CEO’s Regulatory Focus, Journal of Business Venturing, 30(4), 582-602.
The importance of innovation and entrepreneurship in SBs
-
-
Shortening product and business life cycles: firms constantly have to seek new
opportunities to remain competitive (Wiklund and Shepherd, 2005; De Jong and
Vermeulen, 2006).
Innovation is a core strategy for SBs but it also poses challenges!
Among the dutch companies most challenges of innovation
1. Lack of financial resources
27%
2. Lack of time
27%
3. Lack of external financial resources
24%
4. Difficulties in finding suitable staff
20%
5. Lack of opportunities for subsidies
18%
Definition Entrepreneurship = entrepreneurship is the discovery and exploitation of
entrepreneurial opportunities (Shane and Venkataraman, 2000)
-
 Two types of ‘’profit opportunities’’’
entrepreneurial opportunities  to engage new activities
non-entrepreneurial opportunities  to enhance efficiency of existing activities
Definition Activities = goods, services, markets/customers, sources of supply,
methods of production and or organization
Definition innovation = different viewpoints
Degree of “newness”
o Incremental or radical innovations
o Macro (new to industry/word) or Micro (new to firm)
- What is new?
o Product of process innovations
o Goods, services, market/customers, sources of supply, production/organization
methods.
o Technological and/or non-technological aspects
-
March (1991) says: Firms must balance exploration and exploitation to be successful
in their industry. This means find the ambidexterity between those limits.
Exploration 
Ambidexterity
- Searching for new opportunities
- Experimentation
- Long-term focus
 Exploitation
- Reinforcement of existing opportunities
- Efficiency
- Short-term focus
In the article of Kammerlander et al (2015) they have looked at the exploration-exploitation
trade off in small business firms. They give an explanation why balancing exploration and
exploitation such as difficult challenge is for those firms.
CEOs’ regulatory focus and exploration and exploitation (Kammerlander et al, 2015)
- The impact of a CEO’s personality on firm behavior (e.g. exploration and exploitation
activities) in SMEs is very high.
- A CEO’s ‘regulatory focus’ affects the CEO’s attention to specific issues, preferred
strategies for achieving goals and his/her resource allocation patterns.
 See the link in those statement with the earlier article of Morris et al (2018)
CEOs’ regulatory focus = can be distinct in two mutually independent ways of regulatory
focus
1. Promotion focus = motivated by a drive to maximize achievements (e.g. growth and
advancements); focus on potential gains and ‘hits’.
2. Prevention focus = motivated by a drive to avoid failures, need for security and
safety.
Research model of Kammerlander et al (2015)
- Survey among 153 Swiss SMEs ( <500 employees!)
H1a and H1b. SUPPORTED
A CEO's level of promotion focus is positively associated with: (a) the firm's level of
exploration and (b) the firm's level of exploitation.
H2a and H2b. NOT SUPPORTED
A CEO's level of prevention focus is: (a) negatively associated with the firm's level of
exploration and (b) positively associated with the firm's level of exploitation.
H3a and H3b. SUPPORTED
Competitive intensity: (a) enhances the positive effect of a CEO's level of promotion focus on
the firm's exploration and (b) enhances the positive effect of a CEO's level of promotion
focus on the firm's exploitation.
Hypothesis 3A
Hypothesis 3B
Types of CEOs regarding regulatory focus
-
Conclusions and implications of the article:
CEO characteristics do affect firms’ entrepreneurial activities: attracting CEOs with a high
promotion focus is likely to stimulate exploration and exploitation.
Future research should investigate the links with firm performance.
More research on the ‘indifferent’ is needed: why do they become CEOs of SMEs?
Determinants of product innovation in SBs
A lot of research available, but there is a major problem: studies do not explicitly take into
account industrial differences. Therefore: De Jong and Vermeulen (2006) on determinants of
product innovation in 1250 Dutch SBs across 7 industries.
2.2 Determinants of Product Innovation in Small Firms: A Comparison Across
Industries (de Jong J.P.J. & Vermeulen P.A..M., 2006)
Many studies have investigated the determinants of product innovation in small firms,
suggesting product, firm, market and innovation process factors are its key drivers of success.
We investigate if any differences are found in the presence and impact of various firm-level
determinants. Controlling for size and age differences, the analysis reveals some major
differences to the extent small firms use innovation practices.
Introduction
The rate at which firms are capable of developing new products has been linked to
performance and long-term survival. This article explores if major differences arise when the
determinants of product innovation are compared across industries.
Overview of the Relevant Literature
In our literature review we have used those studies that concentrate on a wider set of
variables as determinants of product innovation. We excluded studies that focus on other
types of innovation, the adoption of innovation and consequences of innovation like export
performance. The studies can be grouped in three groups:
1. First, there is little evidence on sector-specific differences in innovation output.
2. Second, some studies restrict themselves to studying determinants within a single
industry.
3. Third, some previous work make comparisons, but then the focus is limited to broad
categories such as manufacturing vs nonmanufacturing.
Data
Data have been collected in 7 different sectors containing information on the innovative
practices of 1250 small firms within the Netherlands.
1.
2.
3.
4.
Manufacturing (M)
Wholesale / Transport (WT)
Retail (R)
Knowledge Intensive Services (KS)
5. Construction (C)
6. Hotel and Catering (HC)
7. Financial Services (FS)
Different innovation practices as determinants of product innovation: research model
The control variables are “age” and “size”.
Findings Study
-
Overall, manufacturing, knowledge intensive and financial services had more product
innovations and more innovative practices.
There are indeed differences between innovative practices in different industries and in
which practices determine innovation.
Older firms have fewer product innovations; firm size seems unrelated to product
innovations.
Conclusion
Firms from manufacturing, knowledge-intensive services and financial service industries
scored better on most innovative practices and realized new product introductions more
often compared to firms from construction, wholesale and transport, retail services and
hotel and catering services.
Second, different indicators for product innovation demonstrated similar significant
determinants as in previous research, but breakdown across industries demonstrated some
noteworthy differences. Since large variations were present across the various services
sectors in our sample, it would make no sense to treat the service industry as being uniform
when studying product innovation.
The main conclusion is that future research should investigate variations across industries in
much more detail. You have to understand the context of the industry to understand SB
behaviours and their effects!
Limitations
Limitations were future work should include product, market and innovation process
characteristics. A second limitation was that our available measures were rather simple.
Explanations for industry differences
Industries may differ in:
- Whether formal plans/procedures are needed to convince external stakeholders (e.g.
banks, labour unions)
- Resources that are required, which may result in close cooperation with others
- Whether these is a lot of contact between the SB (cf. frontline employees) and its
customers
- Whether firms are dependent on other parties in the value chain (e.g. retailers on
suppliers)
Practical implication: You have to understand the context of the industry to understand SB
behaviors and their effects
2.3 Open innovation in SMEs: Trends, motives and management challenges (Vrande
V., de Jong J., Vanhaverbeke W. & Rochemont M., 2009)
This paper investigates if open innovation practices are also applied by small- and mediumsized enterprises (SMEs). We furthermore find that SMEs pursue open innovation primarily
for market-related motives such as meeting customer demands, or keeping up with
competitors.
Introduction
Open innovation is defined as ‘the use of purposive inflows and outflows of knowledge to
accelerate internal innovation, and to expand the markets for external use of innovation,
respectively’. Few studies have demonstrated that open innovation also exists in smaller
organizations.
Open Innovation
The process in which large firms discover, develop and commercialize technologies internally
has been labelled the closed innovation model. Most studies distinguish between purposive
outflows and inflows of knowledge to accelerate internal innovation process and to better
benefit from innovation efforts. Purpose outflows of knowledge, or technology exploitation,
implies innovation activities to leverage existing technological capabilities outside the
boundaries of the organization. Purposive inflows, which we will refer to as technology
exploration, relates to innovation activities to capture and benefit from external sources of
knowledge to enhance current technological development.
IP = intellectual property
Innovation in SMEs
Incidence and trends
Empirical studies concludes that innovation in SMEs is hampered by lack of financial
resources, scant opportunities to recruit specialized workers, and small innovation portfolios
so that risks associated with innovation cannot be spread. SMEs need to heavily draw on
their networks to find missing innovation resources, and due to their smallness, they will be
confronted with the boundaries of their organizations rather sooner than later. Expected is
that open innovation practices are not exclusively applied by MNEs, but will also be present
in SMEs, and will be increasingly adopted.
The ‘’expected’’ impact of industry and firm size on open innovation
Industries and size classes
Manufacturing firms demonstrate that they are on average more technology intensive,
invest more in R&D, and operate in larger regions. Therefore we anticipate that the
incidence and adoption of open innovation will be stronger in manufacturing industries.
Proposed is that open innovation is more commonly applied by medium-sized enterprises
and that any trend towards open innovation is stronger in this group.
 Firm size: Medium-sized firms (100-499 empl !!) have more OI than small firms (10-99
empl)
 Industry: Manufacturing firms have more OI than service firms.
Motives and challenges
Many firms started to implement open innovation as a necessary organizational adaptation
to changes in the environment. It is anticipated that basic entrepreneurial values such as
growth and revenues will be among the key motives of enterprises to practice open
innovation. Motives are missing knowledge, complementary resources or finance, to spread
risks, to enlarge its social network, or to reduce costs. Potential barriers are the notinvented-here syndrome, lack of internal commitment, lacking resources, free-riding
behaviour and problem with contracts.
Overall results
Results: Sectorial differences
Results: Size differences
Van de Vrande et al. (2009) have furthermore investigated the medium-sized firm in a
cluster analysis. The results of those cluses are shown below:
Overall results: motives and barriers regarding ‘’Open Innovation”
Most important motives for open innovation practices are:
- Keeping up with market developments and meeting customer demand.
Main Barriers for open innovation are:
- Organization and corporate culture issues (e.g. in networking and extern participation )
- Administration (e.g. in venturing and outsourcing R&D)
- Quality of partners (external networking, outsourcing R&D)
 These results indicates the relevance of networking
Discussion
Conclusions
For technology exploitation, our data suggests that many SMEs attempt to benefit from the
initiatives and knowledge of their workers. For technology exploration, by far most SMEs
somehow try to involve their customers in innovation processes by tracking their
modifications in products, proactively involving them in market research, etc.
This results confirm the importance of user innovations for many SMEs: reducing the focus of
open innovation in SMEs to science-driven innovations would seriously bias our
understanding of open innovation or this category of firms.
Also, the findings suggest that open innovation in SMEs is becoming more open.
Manufacturing firms are on average more active in outsourcing of R&D and the out-licensing
of IP, a result that is not surprising given the technological commitment of these firms, but
they do not differ from service firms on other open innovation activities. Medium-sized
enterprises engage in and adopt open innovation more often than small enterprises.
Cluster analysis revealed three groups of SMEs, customer involvement, employee
involvement and external networking, and advanced practices like IP licensing. The results
indicate that open innovation is SMEs is mainly motivated by market-related targets: SMEs
make use of several open innovation practices at the same time to serve customers
effectively or to open up new markets, with higher-order objectives to secure revenues and
to maintain growth. The managerial and organizational barriers to open innovation are very
diverse, but the main barrier to open innovation in SMEs in related to the organizational and
cultural issues which arise when SMEs start to interact and collaborate with external
partners. These issues encountered in a range of innovation activities including venturing,
customer involvement, external networking, R&D outsourcing and external participations.
2.4 Entrepreneurial orientation and small business performance: a configurational
approach (Wiklund J. & Shepherd D., 2004)
The strategy and entrepreneurship literatures suggest that an entrepreneurial orientation
(EO) improved firm performance, but the empirical results are mixed. This article investigates
the EO towards firm performance.
The notion that the relationship between an EO and performance is different for different
types of business is not new; for example in their conceptual model suggest that factors
internal and external to the firm may moderate the relationship between EO and
performance. The nature of the configurations suggests that businesses that face
performance constraints, in terms of a stable environment and limited access to capital, can
be superior performers if they have a high EO.
Introduction
Empirical studies reflect the fact that EO may sometimes, but not always, contribute to
improved performance. Lumpkin note that complexity of the relationship are context
specific. Also, the internal environment contributes to the performance, which can be the
internal capital.
Literature review and hypotheses
EO and performance
EO refers to a firm’s strategic orientation, capturing specific entrepreneurial aspects of
decision-making styles, methods and practices.
The dimension of Entrepreneurial Orientation are, some researcher use two additional
dimensions (autonomy and competitiveness aggressiveness).
1. innovativeness
2. risk-taking
3. proactiveness
*Some researchers use two additional dimensions: autonomy and competitive
aggressiveness
There is also reason that EO is an overarching contrast can have universal performance
implications. Consequently, the future profit streams from existing operations are uncertain
and businesses need to constantly seek out new opportunities
H1: EO has a universal positive effect on small business performance.
Approaches to understanding the EO-performance link
- Direct effects; EO is always beneficial
- Contingency: interaction between EO and organizational or environmental
characteristics affects performance
- Configurational: elements of strategy, structure, process and environment cluster
together
The configurational approach to the EO-performance relationship
Configurations can be represented by the simultaneous interaction of three variables; EO,
elements of resources and the environment.
The interaction of EO and the environment
Empirical observations found that there was a strong relationship between entrepreneurship
and performance among firms in dynamic growth environments, whereas these
relationships largely negative among the firms present in static and impoverished
environments.
H2: The relationship between EO and small business performance is moderated by
environmental dynamism. Small business performance increases with EO but at a faster rate
for those in dynamic environments.
The interaction of EO and financial resources
EO is a resource-consuming strategic orientation. Financial capital should stimulate a firm’s
innovativeness. Risk taking involved making large and risky resource commitments, investing
in untried technologies or bringing new products to the market, in the interest of potentially
obtaining high returns by seizing opportunities in the market place. In summary, the
successful implementation of an EO as an strategic orientation appears to require access to
considerable resources.
H3: The relationship between EO and small business performance is moderated by access to
financial capital. Small business performance increases with EO but at a faster rate for those
that have greater access to financial capital.
The configuration of EO, resources, and the environment
A configurational approach argues that small firms can benefit the most from an EO when it
is active in a dynamic environment and has substantial access to financial resources. That is,
EO has the strongest positive effect on performance among firms in dynamic environments
with substantial access to financial capital and the strongest negative effect on performance
among firms in stable environments with little access to capital.
H4: (a) Small business performance is explained by configurations of EO, access to capital,
and environmental dynamism. (b) Small business performance is highest among firms with a
high degree of EO, greater access to financial capital, and in dynamic environments than for
other configurations. (c) Small business performance is lowest among firms with a high EO,
little access to financial capital, and in a stable environment than for other configurations.
Results research
Discussion
The findings of the article suggest that an EO influences positively influences small business
performance, especially in stable environments with limited access to financial capital  in
this area SBs can differentiate themselves.
Configurations
Three relevant variables according to Wiklund and Shepherd (2005) are:
1. Entrepreneurial Orientation
2. Environmental Dynamism
3. Access to resources (financial)
Practical implications
- EO generally increases firm performance
- Especially in stable environments with limited access to financial capital, EO is a way
in which SBs can differentiate themselves
LECTURE 3: ORGANIZATIONAL DESIGN & RESOURCES
Organizational structure: managerial
= What you usually try to capture in an organizational chart
3.1 Strategy, Structure and Performance in Dutch SMEs (Meijaard J., Brand M.J. &
Mosselman M., 2002)
Organizational Mangerial Structure:
What you usually try to capture in an organizational chart.
 this study is building on a masters thesis of SB&E student doing a project at the EIM.
- Literature study on dimensions of organizational structure
- Quantititave study through EIM policy panel
Introduction
Transaction cost economics points at diseconomies caused by unbalances between firm size,
organisational form and external relationships. Likewise, organizational structure is
highlighted as a relevant factor in the regulation of a firm’s information processing demands
and capabilities. Obviously, intuitively we agree with Donaldson (1987) when states that a
good fit means better performance. In this study we search for insight in the role of
organisational structure in SMEs. This study presents a quantitative study into the
occurrence of various structure variables in small firms. We aim to gain insight in the
occurrence of typical organisational structures, the role of contingency factors, and the
impact of small and medium-sized firm’ structures on performance.
Dimensions of Organizational Structure
Organizational structure consists two main dimensions
1. Labor division, distributing tasks and activities containing the
o Specialization/differentiation (who does what?)
o Centralization (who is allowed to decide on what?)
2. Coordination mechanisms,
o Direct control, mutual adjustments and standardization
o formalization
Developing a questionnaire and analyzing the data
Questionnaire:
- Completeness vs complexity (type of respondent)
- EIM policy panel: 5 minutes max
Analysis:
- Factor analysis (groups of variables/items)
- Cluster analysis (groups of respondents)
-
Good/poor fit for performance
Contingencies
-
Environment; The uncertainty and complexity of a firm’s environment determines the
right structure.
Technology; Technology can be defined as the information, equipment, techniques, and
processes required to transform inputs to outputs.
Size; As organizations grow, both the opportunity need for work division and
coordination rise.
Strategy; the opinion that structure and strategy are interrelated, and causality is hard to
show.
Owner/manager objectives; Many studies show a relationship between structure and
managerial variables such as entrepreneurship, leaderships style, and type of control.
This can be divided into high/low management preference for micro-involvement.
Configurations
Burn and Stalker (1961) distinguish configurations in organic and mechanistic structures,
Mintzerg (1979) introduced five structural configurations ranging from a simple structure to
a divisionalised form.
Conclusions
Based on the contributions of the components, we construct scales for nine dimensions of
organizational structure The study above nonetheless has provided a significant step
towards a better understanding of SMEs and their operational performance.
1. The myth “SMEs are informal, unstructured and centralised” (and therefore lean and
mean) appears to be untrue
2. Combinations of context variables lead to good fit or bad fit with performance;
structure should fit e.g. strategy & sector (tables 6 and 7)
Factor analysis: the 9 factors
Formal structure: legal
Any organization has to choose a legal structure, consisting of zero, one or more legal
entities which may or may not be physically separated
Relevant considerations:
- Fiscal
- Commercial (synergy for confusion)
- Risk (liability, bankruptcy, reputation; e.g. holding)
- Control
- Need for financial resources (opportunities for external funding)
Formal structure: governance
All Dutch firms (most common: sole proprietorship, corporation (BV, NV)”
- Inside board (of directors) (NL: directie, RvB)
- Workers council (NL: Ondernemingsraad (OR) or personeelsvertegenwoordiging
(PV)):
o 10 to 50 employees PV (40% of firms have none)
o >50 employees OR (12% of firms fails to comply)
Only corporations:
- Annual meeting of shareholders (NL: AVA)
- Outside board (of directors) (NL: Raad van Commissarissen/UK: Supervisory board)
o Obligatory for ‘sctuctuurvennootschap’: >100 employees, > 16 million
‘geplaatst kapitaal’ (shares issued) for 3 years.
o US: obligatory for corporations
o Smaller firms also voluntarily or required by outside investor
Supervisory board: One-tier and two-tier systems
- One-tier system (1 board; CEO-duality, Anglo-Saxon model. Contains both executive
and supervisory (non-executive directors. CEO can chair the board.
- Two-tier system (separate Management Board and Supervisory Board; German
model)
Board’s duty according to Dutch law: to represent the shareholders and to protect the firm’s
interest
Supervisory board
Important:
- Only ‘corporations’ have shareholders. So only in those a supervisory board
- But what do these supervisory boards do? And is it valuable to the firm? Especially in
small firms (combined ownership/management)?  Van den Heuvel, Van Gils &
Voordeckers (2006)
3.2 Board Roles in Small and Medium-Sized Family Businesses: performance and
importance (Heuvel J., Van Gils A. & Voordeckers W., 2006)
The board of directors in regarded as one of the most important governance mechanisms in
SMEs. The importance of these board roles and differences between the board’s
performance and perceived importance are assessed.
Introduction
Crobetta and Tomaselli (1996) claim that “a well-functioning board of directors can be a
critical resource for both family and business”. Therefore, our study aims to contribute to
the existing literature by empirically investigating board role performance and importance in
a small and medium-sized context. Existing research almost solely focuses on board role
performance. The goal of this paper is threefold: (1) to empirically investigate which roles
boars in SMEs do perform, (2) to study which of the roles identified is (are) perceived as
being most important by CEOs of these family businesses and (3) to formulate advice for
improvements in board performance.
Board Role Literature
The analysis confirms earlier research findings of Lipton and Lorsch (1992), indicating that
board roles and their definitions are surrounded by ambiguity. Apparently, the general
literature has not brought clarity to this issue in the past decade.
SME and family businesses literature
Board roles are given different names; agency theory authors refer to the control or the
monitoring role. Resource dependence and resource-based perspectives result in the
board’s service, advice and strategy role.
Empirical results
-
286 Flemish medium sized family firms (>4 employed
Part of larger study
The results of this papers lead to an extraction of two components for which all variables are
load significant. The first component is labelled the “control” role, the second role is labelled
as the “service” role.
The service role is perceived as more important than the control role.
Different theories can be used to explain the importance of the service role within SMEs. The
family firm CEOs seem to perceive their boards as an intellectual and reputational resource,
networking and maintaining relation as well as providing advice when needed. Since CEOs of
small firms make 3 out of 5 decisions, service is important with all uncertainties and
complexities. A well-functioning board of directors, including outsiders, could add value by
advising the CEO and making the decision-making process less intuitive. in the market. The
fact that the control function is perceived as less important is that family managers own 86
per cent of the shares and their family 12 per cent. As such, the CEO do not want too much
interference from the board on control tasks such as determining management
responsibilities or salaries.
Conclusion and discussion
Boards in Belgian SMEs family businesses perform two aggregated board roles:
- control
- service.
The control role is mainly based on agency theory, whereas the service role embraces several
theoretical perspectives.
All performance measures score lower than 5 so there is some room for improvement.
CEOs of SMEs perceive the service role as more important than the control one. Besides
resource-based and resource dependence arguments, we indicate the potential explanatory
value of the theory of cognition. A stipulated by Jain and Gumpert (1980), board members
might have to provide expertise to compensate for small companies’ managerial
deficiencies. Further research explicitly studying the influence of the CEOs’ cognitive
decision-making style on board role performance could advance theory on governance in
SMEs as well as family businesses. The control role was perceived as less important by the
CEO, however, family firm succession and the possibility of altruistic behaviour demand a
focus on both roles from all boards’ members. According to the family firm CEOs, board
performance can be improved for both the control and service role. More specifically,
directing succession, evaluating management, building organisational reputation and
providing strategic advice are board tasks that need improvement.
3.3 Environment-Flexibility Coalignment and Performance: An Analysis in Large
Versus Small Firms (Verdu-Jover A.J., LlorensMontes F.J. & Garcia-Morales V.J.,
2006)
Introduction
This paper takes a wide-ranging transnational look, within the frame of the European Union,
at differences between large and small firms based on practices of flexibility. The results
reveal that (1) good coalignments between actual and required flexibility (flexibility fit) have
a greater influence on business performance in the case of small firms; (2) there are
significant differences between small and large firms as regards operative flexibility,
strategic flexibility, financial flexibility, and performance. The large firms analysed coalign
their flexibility fit better in their various dimensions (structural, operative, and strategic); (3)
the degree of metaflexibility can be greater among small firms, which represents a greater
information processing capacity, thus enabling the flexibility fit to be constantly coaligned to
changes in the environment.
Definition Flexibility = the organization’s ability to adapt to substantial and uncertain
changes in the environment and that have significant impact on performance.
 Often celebrated as major and positive characteristic of SMEs, but scarce scientific
research has not provided evidence yet.  So that Flexibility can be used as a structural
characteristic
-
-
-
Fit and Flexibility
Fit = is understood to be the internal consistency between a set of fundamental
variables that are theoretically related.
o temporary, state
Flexibility = has been defined as an entity’s ability to quickly and easily change its
policies, practices or procedures in order to adapt to the diverse and changing demands
of the environment.
o will be a permanent characteristic of the firm
Potential flexibility = having much flexibility does not mean that you want to use this
flexibility, or that you are able to use it effectively.
Desired flexibility
Attained flexibility
Flexibility is a complex concept
- Difficult concept to use in theory and practice (and in much literature not
distinguished at all):
o Difference between potential/desired/attained flexibility (‘potentially having
much flexibility does not mean that you want to use this flexibility, or that you
are able to use it effectively’)
Fit is determined by the interconnection of two variables, one of them internal and the other
external. The flexibility fit defined as the coalignment of actual and potential flexibility to
required flexibility can be operatively defined by measuring a gap that shows the differences
between what management perceives as necessary for its sector, in terms of the demands of
the environment, and that which management actually perceives within its firm. Volberda
(1997) defends that the learning system represents the capacity to be flexible, calling it
metaflexiblity. Both financial flexibility and metaflexiblity are organizational capabilities that
determine a firm’s level of flexibility.
Hypotheses + Methodology
- Look at small firms applying flexible practices (‘attained’/’actual’), and at
- Co-alignment with the environment (required externally): flexibility fit! Being too flexible
is expensive!
H1: SUPPORTED
Large firms adapt their flexibility mix better than small firms to the requirements perceived
from the environment because of their greater financial flexibility.
H2: SUPPORTED
Small firms have a greater level of metaflexiblity, but their relationship with the flexibility
mix is constrained by their lower financial flexibility.
H3: SUPPORTED
Flexibility-mix differences in the administrative capabilities between large and small firms
generate performance differences.
Results and Discussion
The small firms have have higher metaflexiblity levels, although this does not hold for the
coalignment between their actual flexibility and that required by the environment in their
different dimensions (structural, operative, and strategic).
Thus, small firms do not coalign their flexibility mix as well to the environment demands,
which is related to a lower performance level.
Financial flexibility is significant higher for large firms.
A higher level of metaflexiblity has no direct repercussion on the coalignment on the
flexibility mix with the requirements of the environment. Small firms could be more flexible,
but are not always so because they are under greater financial restrictions. H3 is also
supported, as the differences in the flexibility mix between large and small firms are related
to performance differences.
Conclusions
When analysing the results we could observe that there are significant differences between
the samples as regards operative flexibility, strategic flexibility, financial flexibility, and
performance. The large firms analysed achieve a better coalignment of their actual flexibility
with that required by the environment in their different dimensions. On contrary, the small
firms have higher levels of metaflexiblity but coalign their flexibility mix to a lesser extent,
which is, in turn, linked to a lower performance level. The results reveal that the most
important coalignments between actual and required flexibility bear a greater relation to
business performance in the case of the small firms, especially in terms of operative,
strategic, and financial flexibility. In the large-firms group, only financial flexibility has
predictive power. Large firms can be more flexible in their response to environment
restrictions, because they are more capable of creating expectations regarding better future
performance, which can facilitate their obtaining mid- and long-term financing.
-
Yes, small firms have higher levels of metaflexibility (‘potential flexibility’).
But:
-
Large firms achieve better coalignment of their actual and required flexibility than
small firms.
Managing resources
Managerial competencies in the field of HRM and Finance are most relevant for SMEs
because:
- Good predictors of SME survival
o Explanation: SMEs are relatively labor intensive, Large firms have scale
advantages in people, capital and equipment, but also important scale
disadvantages in people)
- Good predictors of SME bankruptcy
o CF. Graydon studies; explanation: profit, solvency and liquidity are
prerequisites for survival
Working in a small business
Differences between SF & LF:
- Pay, training, health & safety, job satisfaction
Most common causes:
- Scale effects, lack of resources/knowledge
All separate aspects:
- SF score worse, but job satisfaction: SF score better!
Context specific: Dutch collective labor agreements (‘CAO’)
Table 4.1: The static and dynamic approaoches to job generation
(Strategic) HRM in SMEs
Focus on relationship between business strategy and HRM: how to make best use of labor in
your company
Nota bene: no universalistic paradigm: what is good for LFs is not necessarily good for SFs
Strategic HRM: Brand & Bax 2001
- SHRM: stresses relation between business strategy and HR practices
- SMEs often compete with their human resources (relative advantage of small scale)
- Article already 15 years old, but hiring the right people is a strategic issue
- Hiring people can also be, hiring self employed
3.4 Small Firms and Strategic HRM: An Application of the Strategic Labour
Allocation Process – Model (Brand M.J. & Bax E.H., 2001)
This paper is on the growing importance of Strategic Human Resource Management (SHRM)
for SMEs. Many small firms encounter serious HR- problems, while at the same time these
human resources are vital for developing and sustaining their competitive advantage. We
propose the Strategic Labour Allocation Process (model SLAP) as a tool to analyse HRproblems in SMEs. This model focuses on the balance between supply of and the demand for
labour on a firm level.
Introduction
This paper will take the Dutch situation as a case to demonstrate the relationship between
on the one hand major economic, technological and social changes in the SMEs’
environments and, on the other, the urge of more strategic thinking on the management of
the HR of this type of firms. This study is relevant for two reasons:
1. SMEs consider their HRM problems to have top priority,
2. HRM is of special interest to SMEs because for these firms HR play a vital role in
developing and sustaining competitive advantage.
We observe a shift from HRM to SHRM. This definition may vary from: the management of
organizational changes, co-ordination mechanisms of the organization, and HR policies as a
tool for business strategy.
Distinctive characteristics of SMEs
what is good for Large firms is not necessarily good for Small Firms;
-
General: Small firms use of HR practices (=low intensity)
Fairly ad hoc and informal
Lack of time and resources, absence of HR experts
But… during recent years differences with Large firms are diminishing.
Human resource management in SMEs
The relation between HRM, business strategy and firm performance are argued for three
reasons:
1. Small firms use HRM as the core of their competitive advantage,
2. Implementation of modern management (like JIT and TQM) heavily depends on HRM
factors,
3. Smaller firms strategy development is often an emergent process in contract with a
deliberate and planned process in which supporting functions such as HRM only
come into the picture after the strategic decisions have been made. Thus,
considerable support exists for the argument that HRM is a strategic factor in many
small firms, and that therefore we should speak of and focus on SHRM.
Application of the SLAP-model
Around 2000, hiring personnel important problem in Dutch SMEs (ING, 1999):
- Adequate personnel (75%)
- Level of education and quality (23%)
- Labour shortage (14%)
- Retaining employees (9%)
- High employee demands (5%)
The strategic labour allocation process model (SLAP-model)
Introduction of the SLAP-model
The underlying assumption for the model is that core business of HR managers is to engineer
a balance or fit between the supply of and the demand for labour. HR managers are not free
in choosing their ways to bring about the desired balance in the labour allocation process. A
diversity of external forces determines the degrees of freedom to manipulate the variables
that shape the supply and demand side of the process.
In terms of the SLAP-model, the firms meaning of HR strategy the set of ideas concerning
both the direction of redesigning the organisation and the application of instruments like
recruitment, selection, training, assessment and rewarding. The second meaning of HR
strategy related to the business strategy. Competences in which a small firm could obtain
sustainable competitive advantage are needed, these competences which are not easy to
copy are for e.g. company know-how, knowledge of customer values, shared assumptions
and values, leadership style and commitment, staff identification and commitment, culture
and internal communications. There are two important remarks left, the distinctive
competences may by affected by the external environment.
Second, an essential trait of the SLAP-model is that it has an output in terms of the quality of
working life and conditions of employment. This may not only have individual effects but
also interrelated elements in an internally consistent HR bundle or system.
Business strategy, type of organization and type of contract
-
-
Mechanical organizations = stand for standardisation and hierarchy,
Organic organizations means the absence of standardisation and is characterised by
mutual dependencies of participants, a diffusion of power and commitment to the goals
of the organization.
As with market modes of contracting, there are two general options, “hard” and “soft”
contracting.
Hard contracting = the parties remain relatively autonomous each is expected to press
his or her interest rigorously, and contracting is relatively complete.
Soft contracting= presumes much closer identify of interest between the parties, and
formal contracts are much less complete. This is the clan-type management style.
The Dutch situation
Four major trends have contributed to the successful development of SMEs:
1. world-wide trends as internationalization, competition and shifting consumer demands
have led to a general need for flexible specialization strategies,
2. Technological changes led to improved availability of automation is SMEs,
3. The composition of the labour force in the Netherlands (relatively cheap and flexible
employees, modest mages),
4. “spirit of the times”, Individualisation, privatisation, and entrepreneurship led to a rising
status of small firms.
The last few years things are changing, mainly as a result of changes in the labour supply:
shift in the age distribution of the total population is diminishing the quantity of labour, (2)
unemployment levels go down, (3) labour demand rises both in large and smaller firms.
Actual reactions of Dutch SMEs and possible solutions
1. SMEs could use their known strengths such as internal flexibility, direct communications
and integrated tasks to design jobs which fit available personnel.
2. the small firm could profit form its small scale, and look in the external environment for
other strategic niches,
3. Small firms could use their experience in networks strategies to develop a joint power
and resource base on the labour market,
4. by developing and spreading knowledge on “serendipitous” job-design, government
could help small firms to exploit their natural advantages instead of mainly compensate
for natural disadvantages.
Conclusions, limitation and further research
From a confrontation between the SLAP-model and the SME-characteristics as described in
the literature on small firms and the present Dutch labour market, two scenarios become
clear.
1. Small firm chooses for labour supply oriented policies, which lead to mechanical
organizations with hard contracting, and thus a corrosion of the firms distinctive
competencies.
2. Small firm creatively organises its labour demand, changes its strategic niche, and
improve co-operation with other small firms and institutions.
Limitations
(1) the study is descriptive and fragmented,
(2) the SLAP-model as applied in this paper was originally developed based on data on large
firms.
(3) there is no empirical verification yet for this model.
Conclusion lecture slide:
All recommendations that Brand & Bax found were aimed at influencing the labor supply
side for SMEs (more formal recruitment, higher wages et cetera).
But:
- SMEs have to compete with Large firms on the external labor market for scarce workers.
- Hiring temporary workers encourage a corrosion of SMEs distinctive competencies.
Instead:
- SMEs could use their own strengths such as internal flexibility, direct communications
and integrated tasks to design jobs which fit available personnel-> high satisfaction.
- Recent years: networks of SMEs and ZZP’s (long term orientation)
Financial Resources
Examples of financial issues:
- Where do we get money to invest? (FFF?)
- What is the monetary value of this firm?
- What are our profits? Per PMC?
- Are we able to pay our creditors on time? (and what about our debtors?)
Finance has linkages to all kinds of issues:
- Supplier relations (creditors)
- Customer relations (debtors)
- Succession (family business, continuity)
- Strategic decision making (investment)
- Organizational growth stages (need for money)
- HRM (ability to compete on wage benefits)
- Etc.
The financial problems of small business
Pecking order theory (‘order of preference’, Myers 1984):
1. 1 Internal financing (cf. bootstrapping)
2. Debt (from the bank or other parties)
3. Hybrid forms (e.g. convertible bonds (hardly in SMEs)
4. Equity (= aandelen) (in limited liability SMEs)
THIS PREFERENCE IS STRONGER IN SMEs, BECAUSE OF:
- Transaction costs
- Loss of control (family firms)
- Lack of knowledge
Providers of risk capital in different stages of the firm
Chapter 16, 17, 18 storey & Greene
- Focus on sources of finance
- Entrepreneurial finance <> corporate finance
- Main explanations through agency theory and information asymmetry (moral hazard
and adverse selection)
Chapter 16: good overview (so for studying)
Chapter 17 & 18: details only for reading, summaries and crucial tables for studying
LECTURE 4: SMALL BUSINESS NETWORKING
Defining networking relationships
Meiseberg and Ehrmann (2013): ‘Durable form of interfirm cooperation that is created and
maintained by joint history and ongoing collective action that is underpinned by a strategic
orientation, a sense of common interest, and the expectation of gains’
Different terms an concepts:
- Cooperation/co-operative arrangements
- (Inter-firm) alliances
- Networking relationships
- (Inter-firm) relationships
- Hybrid forms
Dimensions for classifying relationships
Examples of dimensions:
- Form: e.g. non-equity alliance, equity alliance, joint venture; or formal and informal
- Number of participants: e.g. bilateral or multilateral
- Types of partners: e.g. vertical, horizontal, diagonal
- Duration: e.g. single project or ongoing
- Types of activities: e.g. joint purchasing, joint marketing, joint production, joint R&D
Note: Always be precise about the type(s) of alliance you are studying!
4.1 Varamaki, E. and J. Vesalainen (2003), Modelling Different Types of Multilateral
Cooperation between SMEs, Entrepreneurship and Regional Development, 15(1), p.
27-47.
Networking can be described in differ ways. So different terms can be used for the same concept or
same terms can be used for other concepts. Take that in mind.
Networking = ‘Durable form of interfirm cooperation that is created and maintained by joint
history and ongoing collective action that is underpinned by a strategic orientation, a sense
of common interest, and the expectation of gains’. Meiseberg and Ehrmann (2013, p. 295):
------Methodology
Case studie on nine Finnish Small business networks:
“Network” as cooperative group of firms.. with common interest that together seek
means to achieve higher performance.
- # members in the network varies between 3-17 Small businesses
o Smallest network was 3
o Biggest network was 17
-
Aim of the study
To conceptualize different forms of multilateral cooperation.
They researchers suggest that there are five categories, from loosely to high structured
formalized groups network.
Development circle  just only to get interesting information or thinking
Loose cooperative circle  more or less the same knowledge
Project group  Group that jointly work to on a product/service etc. with synergy
Joint venture  a formal cooperation where companies together start a new
venture/firm
- Joint unit  firm share there investments and merge / or more look like a franchise
 To the right = challenges are higher, formal structure increase.
 To the left = it decrease.
-
Multilateral forms of SB networking
more in detail figure of the previous one  upstream.
4.2 Tendency to Network of Small and Medium-sized Enterprises: Combining
Organizational Economics and Resource-based Perspectives (Meiseberg B. &
Ehrmann T., 2013)
SMEs face critical challenges in implementing collaborative strategies, including the difficulty
of finding partners, the strain on managerial resources, and the risk of exploitation by larger
partner firms. However, little is known about the tendencies to network in SMEs.
Methodology
- Survey data collected at strategy executives of 348 German Small businesses (<500
employees) in differ industries
- Questions about their most important networking relationship in the past three years
- Different analysis with control variables:
slack capital, SB size, industry, relationship duration
Networking relationships =Durable form of interfirm cooperation that is created and
maintained by joint history and ongoing collective action that is underpinned by a strategic
orientation, a sense of common interest, and the expectation of gains.
SMEs face specific challenges in implementing collaborative strategies that large companies
usually do not. These challenges include the difficulty of finding suitable partners, a severe
strain placed on managerial resources when forming alliances, and an increased risk of
exploitation by larger partner firms. So far two widely cited theoretical approaches face the
SME tendencies to networks.
1. organizational economics view (OEV) that asserts that firms focus on minimizing the
costs of organizing.
2. Resource-based view (RBV) suggests that firms seek to capitalize on and increase their
capabilities and endowments.
Theoretical Background and Hypotheses
independent variables from an OE view
Williamson (1991) established that there are three generic forms of economic organization
distinguished by their different coordination and control mechanisms: market, hybrid, and
hierarchy. The scarce results in literature indicate that small firms’ reservations about
cooperation are triggered by various factors, including difficulties in finding partners, severe
strains on internal resources, or a lack of trust towards larger partner firms. Almost 80% of
the SME managers felt unfairly exploited by their partner firms.
The Organizational Economics View
On basis of agency theory and transaction costs, the OE perspective assumes that managers
are primarily concerned with organizing activities efficiently. In line with OE, tendencies to
network may be contingent on the costs SMEs associate with collaboration
H1: A firm’s strategic tendency to network is contingent on firm-specific costs associated with
interfirm relationships. SOME SUPPORT
H1a: A firm’s strategic tendency to network increases with relationship-specific assets.
SUPPORTED
H1b: A firm’s strategic tendency to network increases with geographic dispersion.
NOT SUPPORTED
The Resource-based View
independent variables form an RBV view
The RB approach focuses on costly-to-copy resources in individual firms as fundamental
drivers of economic rents and competitive advantage. Alliance research posits that
cooperation success depends on a firm’s abilities to manage interfirm relationships, so as
alliance capabilities. Previous research has stressed the significance of three distinct alliance
management capabilities: coordination, communication, and bonding in managing any
cooperation successfully. The bonding dimension includes providing reliable responses to
partners’ work related needs, being proactively responsive to their concerns, attending to
their views, ideas, and circumstances to signal respect and appreciation, and evoking norms
of reciprocity. Turning to additional resources central to firm performance, brand reputation
has been found to be significant to how the quality of a firm’s offering is perceived in the
market. Also an experienced management team (MT = management) can be a strategic
resource. Knowledge resources held by a firm can represent a prime source of competitive
advantage.
H2: A firm’s strategic tendency to network is contingent on its resources and capabilities to
manage coordination, communication, and bonding needs in interfirm relationships. ???
H2a: A firm’s strategic tendency to network increases with its organizational capabilities,
particularly, with coordination, communication, and bonding capabilities. SUPPORTED
H2b: A firm’s strategic tendency to network decreases when reputational resources increase,
particularly, brand reputation. SUPPORTED
H2c: A firm’s strategic tendency to network decreases when human resources increase,
particularly, management experience. SUPPORTED
H2d: A firm’s strategic tendency to network decreases when knowledge resources increase,
particularly, specific knowledge resources. SUPPORTED
Results
H1 receives some support; firms engage more intensely in networking when asset specificity
is high. H1b is not support. H2a is supported, however, bonding variable is not as highly
significant as are coordination and communication capabilities, and in fact, the influence of
bonding is directionally opposed in our hypothesis. H2b, H2c and H2d are all supported.
SMEs that have a strong brand reputation, management experience, and specific knowledge
resources score lower on tendencies to network, possibly, because there is little to gain from
cooperation for firms that are already well endowed with these strategic resources.
* % represents the % of respondents that is in a certain stage of involvement.
Discussion
We find that both cost/efficiency considerations as argued by the RBV play a role in a SME’s
tendency to network.
4.3 Modeling the relationship between networking and firm performance (Watson
J., 2007)
Network theory suggests that successful business ownership might depend on the ability of
owners to gain access to resources not under their control in a cost effective way through
networking. The results of this study, indicate a significant relationship between networking
and both firm survival and, to a lesser extent, growth, but not ROE.
Introduction
Although arguments in the favour of networking appear compelling, and most of the existing
literature is premised on the belief that networking is beneficial, there have been little
empirical evidence to data of an association between firm performance and the owner’s use
of networks, particularly for established businesses. This study focuses on the personal
networks of SME owner, rather than on the organizational networks of the business.
Hypotheses and results:
1. Relationship between SB performance and networking is an inverted U shape.
Supported (only not for ROE). There are ‘optimal levels’ in terms of network
range and intensity.
2. Formal networks are more important for SB performance than informal networks.
Supported. Most important:
- Accountants (both for growth and survival)
- Industry associations (for survival).
3. Network intensity is more important than network range in terms of firm survival.
4. Network range is more important than network intensity in terms of firm growth.
Both supported; most appropriate form of networking thus depends on SBOs’
goals.
5. Networking is more important for young SBs than for old SBs.
Not supported. Only network intensity is more important for survival of young
firms.
Results and Implications
The results provides evidence to support Hypothesis 1at the use of formal and informal
networks, and network range and intensity with respect to firm survival and growth, not
ROE. The results show that firm’s survival and growth are strongly associated with an
owner’s involvement in formal rather than informal networks. Hypothesis 3 and 4 are also
significant. Hypothesis 5 is not supported. Interesting is that network intensity was
significant associated with the survival of young but not old firms. Firm age was significant
negatively associated with firm survival, and significantly positively associated with firm
growth.
Summary and Conclusions
The results indicate that both formal and informal networks are associated with firm
survival, but that only formal networks are associated with growth.
Core ideas of Watson (2007)
-
Most research assumes that networks are beneficial for SBs.
Personal network research more or less which persons are he or she asking in
their network to general business advice
However, there is little empirical evidence on the link between SBOs’ networking
behaviors and SB performance, especially for established SBs (as opposed to new
SBs).
Therefore, study on database on 5014 Australian SBOs (their personal networks).
-
Core concepts in the study of Watson (2007)
Formal networks: 7 partner types, e.g. banks, accountant
Informal networks: 3 partner types, e.g. family
Network range: number of different partners (max. 7 plus 3 = 10)
Network intensity: frequency with which SBOs access those partners
Networking; product of range and intensity
Firm performance: firm survival, growth in income, ROE
-
4.4 Yang, H., Zheng, Y., and X. Zhao (2014), Exploration or Exploitation? Small Firms’
Alliance Strategies with Large Firms, Strategic Management Journal, 35(1), 146-157.
Exploration (Alliances)
Ambidexterity 
Motives
- to explore new opportunities
- To generate new knowledge and technologies
Exploitation (Alliances)
Motives
- To exploit existing opportunities
- To leverage complementary assets
between alliance partners
Small Business firms have to balance between exploration and exploitation in their alliance
formation decisions.
Exploration alliances  access to tacit, broad and deep knowledge (which is required for
scientific discovery)
Exploitation alliances  Efficient access to complementary resources (e.g. financial or
marketing resources).
Working with big partners can gain some external legitimacy/reputation!
Small Business’ Risks of exploration and exploitation alliances with Large Firms
1. Small Business’ risk being ‘outlearned’ by Large firms. Small Business’ tacit knowledge
spills over to the large firms
2. Asymmetrical power between Large Firms and Small business in sharing the value
created
Hypotheses on direct effects
*Remember this in the biotech industry / is relatively a large market/firm
Hypotheses on moderating effects of formal governance (H2a and B)
Regarding formal governance (i.e. equity vs. nonequity alliance types:
-
Equity alliance = occurs when one company purchases equity in another business (partial
acquisition), or each business purchases equity in each other (cross-equity transactions).
Non equity alliance = a relationship between two or more companies, aimed at achieving
a common objective by coordinating efforts, while each party retains its organizational
independence and no new equity entity or corporation is created.
H2A = Exploration alliances an equity alliance is more beneficial than a nonequity alliance.
H2B = Exploitation alliances a nonequity alliance is more beneficial than an equity alliance.
Hypotheses on moderating effects of relational governance (H3)
Regarding relational governance (i.e. trust and shared values:
H3 = Exploration alliances have a greater positive effect on Small Business market valuation
than exploitation alliances when there is a strong relation governance among the Small
Business and Large Firms.
Findings for direct effects
Secondary data on 753 firm-year observations for small biotech firms* from 1984 to 2006
-
Exploitation alliances indeed have a more positive effect on small business market
valuation than exploration alliances Hypotheses 1 = SUPPORTED
* Small = annual revenues lower than 100 million dollar.
Findings for moderating effects
-
Hypotheses 2A SUPPORTED
Small Business indeed benefit more from equity exploration alliances than from
nonequity exploration alliances
-
Hypotheses 2B SUPPORTED
Small Business indeed benefit more from nonequity exploitation alliances than from
equity exploitation
-
Hypotheses 3 NOT SUPPORTED
No moderating effects for relational governance  because the creay measuring of
governance trust
Conclusions and Discussion
-
SBs can enhance their benefits from exploration alliances by using equity governance
(rather than nonequity).
Overall, SBs benefit more from exploitation alliances with LFs.
Nonequity governance is better than equity in exploitation.
The number of stocks * stock price = market valuation measure
Big arrow in the picture is ore supported.
4.5 Success Factors of Strategic Alliances in Small and Mediumsized Enterprises – An
Empirical Survey (Hoffman W.H. & Schlosser R., 2001)
Strategic alliances are increasingly gaining favour over go-it-alone strategies for
organizations to achieve fast and economical growth. This study aims to identify critical
success factors in alliance-making with special consideration given to the specific situation of
small and medium-sized enterprises (SMEs). The results show that “soft” facts such as trust
are important for alliance success, but not on their own sufficient. Also “hard” fact such as
strategic compatibility and appropriate governance mechanisms have an important influence
on alliance success. Careful strategic planning and good partnership preparation are
essential for alliance success, but the full value of an alliance has to be developed as it
evolves.
Introduction
Alliances help to bridge the gap between the firm’s present resources and its expected
future requirements. SMEs are characterised by tight resources, which puts them in
particular jeopardy from increasing globalisation and rapid technological change. Recent
studies shown that SMEs propensity to co-operate is significantly less than that of large
companies. We assume that the reported reluctance of SMEs to collaborate is due not only
to emotional and cultural barriers but to a lack of knowledge about the specific success
factors of alliances.
Success Factors of Strategic Alliances
Five phases in alliances evolution:
1. Strategic analysis and decision to cooperate
2. Search for a partner
3. Designing the partnership
4. Implementation and management
5. Termination
 These stages provide different independent variables that influence the success of
alliances
State of the field
Current theories provide at least two main explanations for firm existence, the transaction
cost theory and the resource-based theory. Transaction-cost theory recommends choosing
the organizational mode that minimises the sum of fixed and continual transaction costs.
The resource-based theory of the firm explains firms as bundles of resources. According the
emerging knowledge-based theory of interfirm collaboration, alliances provide the best
context for creating value by exchanging or combining dispersed knowledge. Sociological
approaches describe and explain interfirm collaboration. Institutionalisation theory, views
alliances as instruments to enhance legitimacy.
Conceptual framework
We categorised the independent variables in five phases of alliance evolution: (1) strategic
analysis and decision to co-operate, (2) search for a partner, (3) designing the partnership,
(4) implementation and management of the partnership, (5) termination of the partnership.
The independent variables are subdivided into content-oriented variables which refers to
the alliance (“what”) and deal with measures that have to implemented in strategy,
structure or systems, concerning matters such as strategic orientation and structural
orientation. Process-orientated variables refer to the process of developing an
interorganizational relationship (“how’”) and deal with such matters as building trust and
mutual understanding. The contentorientated varaibles are influenced mainly by
transaction-cost economics and resource- and knowledge- based strategy concepts, while
process-oriented variables are influenced by interorganization theories and general
leadership and management theories.
Phase 1: Strategic analysis and decision to co-operate
 Collaborating in situations with high need for strategic flexibility and limited need for
control
 Contributing specific strengths and looking for complementary resources
 Deriving alliance objectives from business strategy
 Awareness of time requirements for alliance development
Phase 2: Search for a partner and partner selection
 Building on established trust-based relationships
 Partner is excellent in field of co-operation
 Complementary contributions
 Agreement of fundamental values and convictions
Phase 3: Designing the partnership
 Precise definition of rights and duties
 Equal contributions of all partners
 Emphasising the potential for join value creation
 Keeping and protecting core competencies
 Building trust by unilateral commitments and avoiding opportunistic behaviour
 Agreement on clear and realistic objectives
 Implementing plan with fixed milestones
Phase 4: Implementation and management of the partnership
 Establishing and information and co-ordination system
 Establishing required resources
 Top management support
 Avoiding unwanted transfer of knowledge
 Capacity to learn from partners
 Speedy implementation of measures and fast results
 Continual review of alliance performance
Phase 5: Termination of the partnership
 Termination only upon approval by all partners
 Preparing for termination already in the design phase
Methods and data
- Questionnaire among key executives in 70 cooperating Austrian Small Businesses
- Primary data
2 methods for defining success factors
- Perceived success factors of business owners/managers (Subjective way)
- Deriving success factors by means of statistical analysis (Objective way )
Empirical findings to gain success in Small Business Networking
The study identified the following variables as critical success factors as significant, the top
one first one is the most important effect on alliance effect! Last one is lesser important;
(1) Precise definition of rights and duties,
(2) Contributing specific strengths,
(3) Establishing required resources,
(4) Deriving alliance objectives from business strategy, and
(5) Speedy implementation and fast results.
-
-
78% of all analysed alliances were deemed successful
(much higher % than in other studies!)  because they were asked to think to 1 alliance
they were into related so maybe managers are choosing the best alliance.
Multi-partner and international alliances seem to have lower success rates.
Results: Success factors in SB networking
Critical success factors for alliances (Statistical analysis; in order of importance):
- Precise definition of rights and duties (Design)
- Contributing specific strengths/complementary resources (Strategic analysis)
- Establishing required resources (Implementation)
- Deriving alliance objectives from business strategy (Strategic analysis)
- Speedy implementation and fast results (Implementation)
Comparison with perceived success factors:
Owners/managers clearly underestimate how important certain alliance success factors
actually are!
1. Underestimation of precise definition of rights and duties!
2. Underestimation of the contribution of specific strengths/complementary resources!
Perceived Success factors
The variables assessed as very important by most of the companies are (1) Emphasising the
potential for join value creation, (2) Agreement on clear and realistic objectives, (3) Top
management support, and (4) Contributing specific strengths.
Conclusion
From the identified critical success factors, the analysed SMEs perceived only three variables
as very important. The importance of two additional critical success factors “Establishing
required resource” and “Deriving alliance objectives from business strategy” was clearly
underestimated.
LECTURE 5: INTEGRATION, DECLINE AND EXIT
Integration
Integration is about how to align strategy, innovation, networking, and structure to reach
the desired outcome.
Two relevant questions:
1. What choices to make about content?
2. How to implement them in the organisation?
Integration & implementation
Individual
Managerial process
Project**
System**
BSC
Integration of
content
Personal vision &
leadership
Professionalisation
Business model/
business plan
ISO 9000
BSC
ISO 9000
Implemen-tation Leadership*
Professionalisation
Change mgt
Six Sigma
*
**
Only in very small firms
Numerous other methods and systems (consultancy)
Professionalisation
- The implementation of formalized systems and structures (Dekket et al, 2015)
- Combined with a pro-active attitude aimed at learning and improvement
(‘professionalism’ literature)
- Which should fit with the firm’s internal and external context (Stewart & Hitt, 2012)
(NB: literature often on family firms, but very similar to SF with combined ownership/mgt)
Balanced scorecard: Kaplan and Norton (1996)
Six Sigma, ISO 9000
Six Sigma = Process improvement process based on eliminating process variation (statistical
base). Often starts with simpler project ‘Lean’.
- Research proves: successful in large firms (largely manufacturing) and possibly also in
small firms
- Used to ‘improve performance, enhance profitability and increase customer
satisfaction’
ISO 9000 = Quality management, i.e. control of the main organizational processes: Say what
you do, do as you say, and prove it. That’s all! No concrete tools, instruments, green belts,
black belts, … (as in six sigma)
5.1 Stewart, A. and M.A. Hitt (2012), Why Can’t a Family Business be more like a
Nonfamily Business? Modes of Professionalization in Family Firms, Family Business
Review, 25(I), 58-86.
5.2 Dekker, J., Lybaert, N., Steijvers, T., & Depaire, B. (2015), The effect of family
business professionalization as a multidimensional construct on firm performance,
Journal of Small Business Management, 53(2), 516-538.
Table 1
Overview of professionalization dimensions by Dekker et al. (2015) including aspects
Non-family involvement
in governance systems
Financial Control
Systems
Human Resource
Control Systems
Decentralization of
Authority
Top Level
Activeness
External board directors
Use of budgets
Formal recruitment
system
Centralization of
authority
Board
activeness
Family involvement in
management team
Budget evaluation
system
Formal training system
Delegation of
control
Management
activeness
Nonfamily CEO
Formalized financial
goals and objectives
Incentive payment
system
Centralization
individual decision
making
Firm performance
evaluation systems
Personnel performance
evaluation system
Change management
Vos & Brand (2012):
- Change management studies:
o Mainly focus on large firms
o Majority in case study (either qualitative, quantitative); fail to provide more
generic knowledge on change management
- Change management in SMEs caricatured image:
o Mainly emergent change
o Agents meekly follow trends and hypes
5.3 How do change agents in SMEs approach change? A cross-sectional study into
change projects within Dutch SMEs.- (Vos, J. and M.J. Brand 2012)
This study investigates the employment of four change strategies within SMEs (empiricalrational, normative re-educative, power-coercive, and emergent change strategy) and in
what way this determined by the impact of the change project an they firm’s orientation. We
found three groups of change agents adopting a certain combination of the four strategies:
the cautious, the pro-active and the directive change agents.
Introduction
The aim of this paper is to answer the following questions:
1. Which change strategies do change agents in SMEs apply when dealing with
organizational change, and
2. How do characteristics of the change project and of the firm influence the
employment of these strategies.
Theoretical Framework: A Perceptual Model of Change
Planned and emergent change strategies
Planned strategies are classified into three types: (1) the empirical rational strategy, (2) the
normative re-educative strategy, and (3) the power coercive strategy. The empirical rational
strategy has to make sense for people involved. The normative re-educative strategy is
characterized by the collective participation of the change recipients is designing, developing
and implementing change effort. The power coercive strategy is that change is imposed on
change recipients by applying power, they are compelled to behave in a certain way. Burnes
(2004) characterize emergent change strategy as a process of continuous change through
which new organizational patterns are established without an explicit upfront intention. The
pace of emergent change can be described as complex and continuous, it has no clear
beginning or ending. In an actual change project, a change agent will likely use a
combination of change strategies.
Change impact
We distinguish the change impact as (1) the underlying motives for change, labelled as the
change drivers, and (2) the extent to which the intended state of organization differs from its
state before the change, called the scope of change. The change drivers can be distinguished
in reasons like; deregulation, technological innovations, growth objectives or trends. The
scope of change can be distinguished into the depth and breadth or change.
The firm’s orientation
Entrepreneurial Orientation can be described as the firm’s entrepreneurial attitude towards
dealing with the competition as well towards pursuing the firm’s strategy and vision. This
orientation is commonly classified into three dimensions: innovativeness, proactiveness, and
risk-taking. Small Business Orientation (SBO) have a business to pursue personal goals and
achievement or to solely produce an income. Runyan (2008) distinguish between two
dimensions: the small business owner’s emotional attachment to the business and the
owner’s purpose and goals. Market Orientation refers to the alignment of the firm with its
market. This definition contains three dimensions: market intelligence generation,
information dissemination and responsiveness.
Firm orientation and the employment of a change strategy
Expected is that SBO’s will use a normative re-educative strategy. And that EO firm will use a
power coercive change strategy or a empirical-rational change strategy.
Findings
There have been found three kind of clusters. First the Caution changers make use of all
planned strategies, but only to a limited extend. Pro-active changers score rather high on
each of the persuading strategies. And Directive changers are the only one that seems to
have a clear preference for one specific change strategy: these change agents make
particularly use of power-coercive strategy.
Growth/development models
Churchill & Lewis, 1983
Decline and exit
- Logical development stage: Decline and Exit (Churchill & Lewis)
o Exit <-> start-up
o Decline <-> Growth
- Phenomenon of exits, start-ups: turbulence, and in Dutch ‘bedrijvendynamiek’
- Overall: turbulence necessary for competitive market
Introducing the terms
- Decline: development stage following maturity, sales go downward
- Exit: The entrepreneur/owner leaves the company
- Closure: the firms creases to exist
- Decline can lead to exit or closure (but is also possible to survive or rejuvenate)
- Exit can be caused by decline (buy you can also exit during start, growth or maturity.
For example in case of succession, or to cash in)
Dutch situation
- Dutch ‘death rates’: start-ups 5 year 50%, stable
- Average length of succession process: 4,3 years
- Dutch Chambers of Commerce: ca 25% of firms with owner exiting end without
successor: loss of jobs and money
Succession (in family firms)
Cadieux (2007)
5.4 Succession in Small and Medium-Sized Family Businesses: Toward a Typology of
Predecessor Roles During and After Instatement of the Successor (Cadieux L., 2007)
The last two steps in the succession process – the joint management and withdrawal phases
– differ from preceding phases in that they mark the successor’s official entry into the family
business as future head and the gradual retirement of the predecessor. This article presents
a typology of predecessor roles during and after instatement of the successor of 5 SMEs that
have successfully completed their first generational transfer.
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Intergenerational transfer: not an easy process
Extant literature focuses on supervisory role (during joined reign) and consultant role
(during withdrawal); but it appears to be more complex
Case study among Canadian SMEs, list of 139 firms, only 5 remain due to criteria.
4 phases:
1. Initiation
2. Integration
3. Joint reign: supervisor, teacher, introducer, mobilizer, collaborator
4. Withdrawal:
- Towards the organization: administrator (e.g. BoD), safeguard, observer,
intermediary, technical support, consulting
- Towards the successor: facilitator, confidant
Introduction
Handler states that in the succession process, the key roles for the predecessor appear to be
the supervisory role during the joint-reign phase and the consultant role during the
withdrawal phase.
The Theoretical Context
In the literature on family business succession, three types of models stand out. Some
authors propose an approach that involves different groups of actors, while other describe
the steps in the organization’s life cycle, or the interactions that take place between the
predecessor and successor during the process. Handlers’ (1989) model stands out because of
its perspective concerning the roles of the players, during the transfer process, the
predecessor plays four successive roles; - sole operator, king, supervisor, and consultant –
and the successor three (assistant, manager, and leader). Some predecessors appear to
maintain contact with the organization either by accepting an honorary position as president
or by joining the board of directors, acting as the firm’s ombudsman or representative, or
accepting a new position within the firm.
Results
Although each firm had its own unique history, there were a number of similarities in the
paths they had taken toward the transfer process. In every case the predecessors suggested
that their children take over the helm. None of the predecessors made a move until at least
one of their children had expressed an interest in take over the firm.
The Predecessors’ Roles During the Joint-Reign Phase
As pointed out by Handler (1989), it would therefore be accurate to describe one of the
primary roles of the predecessor during the joint-reign phase as that of supervisor. One of
the firsts jobs, took the role of a teacher. Predecessors allowed their children to make
certain decisions and assume the consequences of those decisions. In underwriting the
actions and decisions of their successors, the predecessors assumed a new role, described by
Kram (1985) as the protector role. The predecessors, by acting as mediators between the
successors and other actors in the internal and external environments, played yet another
role, that of introducer. During the appointment of their successors, three predecessors
played a mobilizer role through the attitudes they adopted. Lastly, during the joint-reign
phase, we observed that although the predecessors played several of the roles described
above, the role of supervisor changed over time. As the successors developed their skills and
gained in confidence, the predecessors were called up on the become collaborators.
Successors we interviewed, the resistance expressed by predecessors had a significant
impact on their integration into the firm, and especially on their ability to manage
employees, for whom instructions from the predecessors continued to take priority.
Predecessors’ Roles During the Withdrawal Phase
One of the most important new roles assumed by the predecessors was that related to their
new position as chairman of the boar, their role as administrator. The predecessors
continued to hold a special place in the hearts of everyone in the firm. This role is called that
of symbol. All five predecessors played two new roles that allowed them to continue to
oversee the organization – the roles of safeguard and observer. Since the retiring from their
leadership positions, four of the five continued to work with customers and suppliers,
therefore used the predecessors as intermediaries. Lastly, predecessors played technical
support roles and consulting roles.
The Roles of Predecessors toward Successors
During the withdrawal phase, the facilitator and confidant roles were played with successors
only.
The Roles of Predecessors Throughout the Succession Process
The roles of advisor and model persisted throughout the process.
Discussion and Conclusion
Despite these findings some authors, it would appear that five parent predecessors in our
sample oversaw their successors’ career development by teaching, supervising, protecting,
providing visibility, and allowing them to deal with challenges, and also encouraged by
development of their psychosocial skills by enhancing their self-confidence, serving as
models, and supporting them throughout the succession process
Overall conclusions
- During all stages, predecessor is advisor and role model
- Withdrawal stage if often not definitive
Storey and Green Chapter 9
- Definitions of Business closure
- Different definitions for different purposes
- S&G: main criterion is whether the number of firms changes and so competition
changes (economic approach)
- Issues: firm name, main activities, ownership, location, merger, legal status…
Why closure is important
- Negative consequences
o Has economic and social consequences
o Loss of employment
o Losses to investors (fraudulent activity)
- Positive consequences
o Successful closures
o Learning experience
o Signals to others
The small and young are more likely to ‘die’
Figure 9.1: ‘Deaths’ by employee size category
No ideal measure of business closure
Storey and Green Chapter 10
1. Gambler’s ruin
2. Population ecology
3. Resource-based closure
4. Utility
5. Entrepreneurial learning
Summary of the five approaches
Table 10.2
Conclusions chapter 10 Storey and Green
- Chapter 10 examines five approaches to business closure
- Each offer a plausible but incomplete picture of business closure
- Offer different explanations why younger and smaller businesses close but few other
insights
- Study of business closure remains the ‘poor cousin’ compared to business entry and
growth
5.5 Flören, R.H., L. Uhlaner, M. Berent-Braun (2010), Family Business in the
Netherlands, Characteristics and Success Factors, A Report for the Ministry of
Economic Affairs, Nyenrode Business Universiteit, Breukelen, the Netherlands.
5.5 Defining the Family Business by behaviour (Chua, Chrisman & Sharma, 1999)
It is generally accepted that a family’s involvement in the business makes the family business
unique; but the literature continues to have difficulty defining the family business. We
propose a theoretical definition based on behaviour as the essence of a family business. Our
empirical results suggest, however, that the components of family involvement typically used
in operational definitions are weak predictors of intentions and, therefore, are not always
reliable for distinguishing family businesses from non-family ones.
The literature on definition of family business
Over 250 papers have been reviewed; from these they excluded those that did not define a
family business explicitly. The definition includes three qualifying combinations of ownership
and management.
1. Family owned and family managed
2. Family owned but not family managed; and
3. Family managed but not family owned
An definition list have been prepared defining the definition of Family Business. The list of
controlling owners did include:
1. An individual
2. Two persons, unrelated by blood or marriage
3. Two persons, related by blood or marriage
4. A nuclear family
5. More than one nuclear family
6. An extended family
7. More than one extended family and
8. The public
The problem of defining the family business
A definition of the family business must identify its uniqueness. What family businesses
makes unique is that the pattern of ownership, governance, management, and succession
materially influences the firm’s goals, strategies, structure, and the manner in which each is
formulated. Family firms, which are managed and not owned, or owned and not managed,
do behave differently.
In order to define the family businesses the research starts with making distinguish between
two types of definitions: theoretical and operational. A theoretical definition should
distinguish on a conceptual foundation why the difference matters (e.g. achievements of
internal resources and environmental opportunities which affect the organizational
performance). An operational definition may differentiate the observables and measurable
characteristics (difference in strategies which are defined in components as strategy,
strategic weapons and scope, investment intensity, growth vectors, segment differentiation
and functional policies).
Both ways will be used to identify family businesses, the broad definition can be used in
order to identify different types of family businesses and classify and compare them.
A theoretical definition of family business
The purpose is to propose and theoretical definition. “The family business is a business
governed and/or managed with the intention to shape and pursue the vision of the business
held by a dominant coalition controlled by members of the same family or a small number of
families in a manner that is potentially sustainable across generations of the family or
families”
Conclusion
Researchers in the field of family business may agree that family involvement in the business
makes it unique. This involvement has usually been categorized in terms of ownership and
management. The research says the definition does not capture the essence, which consists
of the vision held for the firm by a family or a small group of families and the intention of the
dominant condition to shape and pursue this vision, potentially across generations of the
same family or small group of families. They propose a definition that is based on two points.
The definition must capture essence of the family business and incorporated all of the
popular variations of family involvement as components that make the essence possible. Its
focus on the family firm’s intention to pursue a vision suggests a research direction that has
not been actively pursued in the literature.
The research shows that the components of family involvement are very weak predictors of
family firms’ concerns over succession and professionalization. The results strengthen our
contention that vision, intentions, and behaviour are what should be used to distinguish
family business from all others. After all, understanding, predicting, and modifying behaviour
to help family businesses achieve their goals and improve their performance are the object
of family business management research.