Growth Strategy in Small Entreprises

8/13/2019 Growth Strategy in Small Entreprises

1/79

STRATEGIC MANAGEMENT-History and Development

Until the 1940s, strategy was seen as primarily a matter for the military. Military history

is filled with stories about strategy. Almost from the beginning of recorded time, leaderscontemplating battle have devised offensive and counter-offensive moves for the

purpose of defeating an enemy. The word strategy derives from the Greek for

generalship, strategia, and entered the English vocabulary in 1688 asstrategie.

According to James 1810 Military Dictionary, it differs from tactics, which are immediate

measures in face of an enemy. Strategy concerns something done out of sight of an

enemy. Its origins can be traced back to Sun Tzus The Art of Warfrom 500 BC.

Over the years, the practice of strategy has evolved through five phases (each phase

generally involved the perceived failure of the previous phase):

Basic Financial Planning (Budgeting)

Long-range Planning (Extrapolation)

Strategic (Externally Oriented) Planning

Strategic Management

Complex Systems Strategy:

Complex Static Systems or Emergence

Complex Dynamic Systems or Strategic Balance

Basic Financial Planning (Budgeting)


2/79

James McKinsey (1889-1937), founder of the global management consultancy that

bears his name, was a professor of cost accounting at the school of business at the

University of Chicago. His most important publication, Budgetary Control (1922), is

quoted as the start of the era of modern budgetary accounting.

Early efforts in corporate strategy were generally limited to the development of a

budget, with managers realizing that there was a need to plan the allocation of funds.

Later, in the first half of the 1900s, business managers expanded the budgeting process

into the future. Budgeting and strategic changes (such as entering a new market) were

synthesized into the extended budgeting process, so that the budget supported the

strategic objectives of the firm. With the exception of the Great Depression, the

competitive environment at this time was fairly stable and predictable.

Long-range Planning (Extrapolation)

Long-range Planning was simply an extension of one year financial planning into five-

year budgets and detailed operating plans. It involved little or no consideration of social

or political factors, assuming that markets would be relatively stable. Gradually, itdeveloped to encompass issues of growth and diversification.

In the 1960s, George Steiner did much to focus business managers attention on

strategic planning, bringing the issue of long-range planning to the forefront.Managerial

Long-Range Planning, edited by Steiner focused upon the issue of corporate long-range

planning. He gathered information about how different companies were using long-

range plans in order to allocate resources and to plan for growth and diversification.

A number of other linear approaches also developed in the same time period, including

game theory. Another development was operations research, an approach that

focused upon the manipulation of models containing multiple variables. Both have made

a contribution to the field of strategy.


3/79

Strategic (Externally Oriented) Planning

Strategic (Externally Oriented) Planning aimed to ensure that managers engaged in

debate about strategic options before the budget was drawn up. Here the focus of

strategy was in the business units (business strategy) rather than in the organization

centre. The concept of business strategy started out as business policy, a term still in

widespread use at business schools today. The word policy implies a hands -off,

administrative, even intellectual approach rather than the implementation-focused

approach that characterizes much of modern thinking on strategy. In the mid-1900s,business managers realized that external events were playing an increasingly important

role in determining corporate performance. As a result, they began to look externally for

significant drivers, such as economic forces, so that they could try to plan for

discontinuities. This approach continued to find favor well into the 1970s.

While the theorists were arguing, one large US Company was quietly innovating.

General Electric Co. (GE) had begun to develop the concept of strategic business units

(SBUs) in the 1950s. The basic idea-now largely accepted as the normal and obvious

way of going about things-was that strategy should be set within the context of

individual businesses which had clearly defined products and markets. Each of these

businesses would be responsible for its own profits and development, under general

guidance from headquarters.

The evolution of strategy began in the early 1960s, when a flurry of authoritative texts

suddenly turned strategic planning from an issue of vague academic interest into an

important concern for practicing managers. Prior to this strategy wasnt part of the

normal executive vocabulary.

Alfred Chandler (1918-) Influential figure in both strategy and business structure-

Strauss Professor of Business History at Harvard since 1971.


4/79

Chandler talks about the development of the management of a large company from

history; in particular from the mid nineteenth century to the end of the First World War

(what he calls the formative years of modern capitalism). During this period, the typical

entrepreneurial or family firm gave way to larger organizations containing multiple units.

A new form of management was needed because the owner-manager could not be

everywhere at once. In addition, a new breed of manager was needed to operate in this

environmentthe salaried professional.

He advised splitting the functions of strategic thinking and line management. In

Chandlers analysis, the effective organization now separates strategy and day-to-day

operations. Strategy becomes the responsibility of managers at headquarters, leaving

the unit managers to concentrate on the here and now in decentralized units. In effect,

he was advising creating a line management who would carry out plans developed by a

more serious staff function elsewhere.

His influential book Strategy and Structure was published in 1962, appealing to many

large companies that were having difficulty in coping with their size. In recent years it

has come under heavy attack from critics, who maintain that strategy must be a line

responsibility, decided as close as possible

John Gardners Self-Renewal, published in 1964, which pointed out that organizationsconstantly need to reassess themselves, had the earliest real impact on managers. Like

people, they need to keep renewing their skills and abilities something they can only

do effectively through careful planning.

Kirby Warren at Harvard looked in depth at what happened in a small number of

companies to see what worked well and what didnt. In several companies for example,

he found that the managers confused the strategic plan with its components in

particular, the marketing plan was often assumed to be the same thing as the overall

corporate plan.

Wickham Skinner (1924-) who was based at Harvard since 1960, pointed out that an

excessive focus on marketing Planning frequently led companies to forget about

manufacturing needs until late in the day, when there was little room for manoeuvre.


5/79

Skinner argued for a clear manufacturing strategy to proceed in parallel with the

marketing strategy. In many ways he was ahead of his time, for the concept of

technology strategy or manufacturing strategy had only begun to take root in the 1980s

and many manufacturing companies still have no one in charge of this aspect of their

business.

One particularly influential idea from skinner was the focused factory. He demonstrated

that it was not normally possible for a production unit to focus on more than one style of

manufacturing. Even if the same machines were used to produce basically similar

products, if those products had very different customer demands that required a

different manner of working, the factory would not be successful. For example, trying to

produce equipment for the consumer market, where a certain error rate in production

was compensated for by higher volume sales at a lower price, was incompatible with

producing 100 per cent perfect product for the military. The most likely outcome was acompromise that satisfies no one.

Paul Lawrence and Jay Lorsch, also from Harvard, put forth their contingency theory of

organizations. They argued that every organization is composed of multiple paradoxes.

On the one hand, each department or unit has its own objectives and environment. It

responds to those in its own way, both in terms of how it is structured, the time horizons

people assume, the formality or informality of how it goes about its tasks and so on. All

these factors contribute towards what they call differentiation. At the same time eachunit needs to work with others in pursuit of common goals. That requires a certain

amount of integration, to ensure that they are all working with rather than against each

other. In their studies of US firms in a variety of manufacturing industries, they found

that companies with a high level of differentiation could also have a high level of

integration. The reason was simple; the greater the differentiation, the more potential for

conflict between departments and therefore the greater the need for mechanisms to

help them work together. Their work forced many managers to understand that

organizations were not fixed; that strategy and planning had to be adapted to each

segment of the environment with which they dealt.

Igor Ansoff (1918-) through his unstintingly serious, analytical and complex,Corporate

Strategy, published in 1965, had a highly significant impact on the business world. It

propelled consideration of strategy into a new dimension. It was Ansoff who introduced

the term strategic management into the business vocabulary.


6/79

Ansoffs sub-title was An Analytical Approach to Business Policy for Growth and

Expansion. The end product of strategic decisions is deceptively simple; a combination

of products and markets is selected for the firm. This combination is arrived at by

addition of new product-markets, divestment from some old ones, and expansion of thepresent position, writes Ansoff. While the end product was simple, the processes and

decisions which led to the result produced a labyrinth followed only by the most

dedicated of managers. Analysis and in particular gap analysis (the gap between

where you are now and where you want to be)was the key to unlocking strategy.

The book also brought the concept of synergy to a wide audience for the first time. In

Ansoffs original creation it was simply summed up as the 2+2=5 effect. In his later

books, Ansoff refined his definition of synergy to any effect which can produce acombined return on the firms resources greater than the sum of its parts.

While Corporate Strategy was a notable book for its time, it produced what Ansoff

himself labeled paralysis by analysis; repeatedly making strategic plans which

remained unimplemented.

Reinforced by his conviction that strategy was a valid, if incomplete, concept, Ansoff

followed up Corporate Strategy with Strategic Management (1979) and Implanting

Strategic Management (1984). His other books include Business Strategy

(1969),Acquisition Behavior in the US Manufacturing Industry, 1948-1965 (1971), From

Strategic Planning to Strategic Management (1974), and The New Corporate Strategy

(1988).

Implanting Strategic Management, co-written with Edward McDonnell, records much of

the research conducted by Ansoff and his associates and reveals a number of

ingenious aspects of the Ansoff model. These include his approach to using incrementalimplementation for managing resistance to change, product portfolio analysis, and issue

management systems.

The Problem with Strategic Planning (Analysis): The fuel for the modern growth in

interest in all things strategic has been analysis. While analysis has been the


7/79

watchword, data has been the password. Managers have assumed that anything which

could not be analyzed could not be managed. The belief in analysis is part of a search

for a logical commercial regime, a system of management which will, under any

circumstances, produce a successful result. Indeed, all the analysis in the world can

lead to decisions which are plainly wrong. IBM had all the data about its markets, yet

reached the wrong conclusions.

There are two basic problems with the reliance on analysis. First, it is all technique. The

second problem is more fundamental. Analysis produces a self-increasing loop. The

belief is that more and more analysis will bring safer and safer decisions. The traditional

view is that strategy is concerned with making predictions based on analysis.

Predictions, and the analysis which forms them, lead to security. The bottom line is not

expansion, future growth or increased profitability-it is survival. The assumption is that

growth and increased profits will naturally follow. If, by using strategy, we can increaseour chances of predicting successful methods, then our successful methods will lead us

to survival and perhaps even improvement. So, strategy is to do with getting it right or,

as the more competitive would say, winning. Of course it is possible to win battles and

lose wars and so strategy has also grown up in the context of linking together a series

of actions with some longer-term goals or aims.

This was all very well in the 1960s and for much of the 1970s. Predictions and

strategies were formed with confidence and optimism (though they were not necessarilyimplemented with such sureness). Security could be found. The business environment

appeared to be reassuringly stable. Objectives could be set and strategies developed to

meet them in the knowledge that the overriding objective would not change.

Such an approach, identifying a target and developing strategies to achieve it, became

known as Management by Objectives (MBO).

Under MBO, strategy formulation was seen as a conscious, rational process. MBO

ensured that the plan was carried out. The overall process was heavily logical and,

indeed, any other approach (such as an emotional one) was regarded as distinctly

inappropriate. The thought process was backed with hard data. There was a belief that

effective analysis produced a single, right answer; a clear plan was possible and, once it

was made explicit, would need to be followed through exactly and precisely.


8/79

In practice, the MBO approach demanded too much data. It became overly complex

and also relied too heavily on the past to predict the future. The entire system was

ineffective at handling, encouraging, or adapting to change. MBO simplified

management to a question of reaching A from B using as direct a route as possible.Under MBO, the ends justified the means. The managerial equivalent of highways were

developed in order to reach objectives quickly with the minimum hindrance from outside

forces.

Henry Mintzbergs book The Rise and Fall of Strategic Planning was first published in

1994. The confusion of means and ends characterizes our age, Henry Mintzberg

observes and, today, the highways are likely to be gridlocked. When the highways are

blocked managers are left to negotiate minor country roads to reach their objectives.And then comes the final confusion: the destination is likely to have changed during the

journey. Equally, while MBO sought to narrow objectives and ignore all other forces,

success (the objective) is now less easy to identify. Todays measurements of success

can include everything from environmental performance to meeting equal opportunities

targets. Success has expanded beyond the bottomline.

Strategic Planning to Strategic Management

Strategic Planning to Strategic Management: Strategic planning was a plausible

invention and received an enthusiastic reception from the business community. But

subsequent experience with strategic planning led to mixed results. In a minority of

firms, strategic planning restored their profitability and became an established part of

the management process. However, a substantial majority encountered a phenomenon,

which was named paralysis by analysis: strategic plans were made but remained

unimplemented, and profits/growth continued to stagnate. Claims were increasingly

made by practitioners and some academics that strategic planning did not contribute to

the profitability of firms. In the face of these claims, Ansoff and several of his colleaguesat Vanderbilt University undertook a four-year research study to determine whether,

when paralysis by analysis is overcome, strategic planning increased profitability of

firms.


9/79

Ansoff looked again at his entire theory. His logic was impressively simple either

strategic planning was a bad idea, or it was part of a broader concept which was not

fully developed and needed to be enhanced in order to make strategic planning

effective. An early fundamental answer perceived by Ansoff was that strategic planning

is an incomplete instrument for managing change, not unlike an automobile with an

engine but no steering wheel to convert the engines energy into movement.

Characteristically, he sought the answer in extensive research. He examined

acquisitions by American companies between 1948 and 1968 and concluded that

acquisitions which were based upon an articulated strategy fared considerably better

than those which were opportunistic decisions. The result of the research was a book

titled Acquisition Behavior of US Manufacturing Firms, 1945-1963.

In 1972 Ansoff published the concept under the name of Strategic Managementthrough

a pioneering paper titled The Concept of Strategic Management, which was ultimately to

earn him the title of the father of strategic management. The paper asserted the

importance of strategic planning as a major pillar of strategic management but added a

second pillar the capability of a firm to convert written plans into market reality. The

third pillar- the skill in managing resistance to changewas to be added in the 1980s.

Ansoff obtained sponsorship from IBM and General Electric for the first InternationalConference on Strategic Management, which was held in Vanderbilt in 1973 and

resulted in his third book, From Strategic Planning to Strategic Management.

The complete concept of strategic management embraces a combination of strategic

planning, planning of organizational capability and effective management of resistance

to change, typically caused by strategic planning. Ansoff says that strategic

management is a comprehensive procedure which starts with strategic diagnosis and

guides a firm through a series of additional steps which culminate in new products,

markets, and technologies, as well as new capabilities. Strategic Management aimed to

give people at all levels the tools and support they needed to manage strategic change.

Its focus was no longer primarily external, but equally internal how can the

organization seize and maintain strategic advantage by using the combined efforts of

the people that work in it?


10/79

Between 1974 and 1979 Ansoff developed a theory which embraces not only business

firms but other environment-serving organizations. The resulting book titled Strategic

Management, was published in 1979.

Self-confirming Theories: In the 1980s, there was a renewed interest in discovering

ways of dealing with an increasingly complex and changing environment. It was during

this time that the practice of strategy began to move toward a metaphorical application

of an old idea. For many years, management theorists had borrowed the ideas of an

economic theory commonly referred to as equilibrium theory, or equilibrium systems

theory, as a basis for developing management theory. Basically, the concept was

developed around the idea of linearity (and, to some extent, simplicity). Self-confirming

theories of strategy require the strategist to assume that what the firm has done in the

past will be done in the future. In effect, executives confirm that past strategy has been

appropriate by adopting it repeatedly over time.

Self-confirming theories may be recognized by their historic-simple frame and mental

models. Such theories use terms such as mission, core competencies, competitive

advantage, and sustainable competitive advantage. They are founded in the theory of

comparative advantage developed by economists David Ricardo and Adam Smith. The

theory of comparative advantage, which suggests that some countries have unique

assets, has become the basis for contemporary strategy. Strategists modified the idea

and called it competitive advantage. If it chooses to use that approach, a firm needs toidentify its core competencies, competitive advantage, and then convert that

identification to a mission. In principle, the purpose of the mission statement is to keep

the firm focused upon its unique area of competitive advantage. Further, the mission is

supposed to set boundaries and to keep it in the box. Generally, self-confirming

theories force the assumption of a linear mental model, since it is historic (including

present) competencies or resources that provide the constructs for future strategy.

Thousands of articles and books have been written on the development of equilibrium-

based strategy. The equilibrium-based strategic model involves a succession of steps

that are designed to keep the firm focused upon its historic competencies. Out of that

concept ideas such as SWOT analysis (strengths, weaknesses, opportunities, and

threats) and five forces analysis were developed. The latter is dealt with in Michael

Porters 1985 book Competitive Strategy. In most cases, the difference between one

key thinker and another is minor at best, but


11/79

Michael Porter of Harvard Business School is perhaps the best known of all the strategy

theorists. He has generally been more prolific than the rest. Porter has been responsible

for the writing of numerous books and articles that have been widely accepted in the

field. He has been especially involved in the creation or popularization of a number oftools that have been widely used in the discipline.

Porters first book for practicing managers, Competitive Strategy: Techniques for

Analyzing Industries and Competitors, was first published in 1980. Drawing heavily on

industrial economics (a field of study that tries to explain industrial performance through

economics), he was trying to take these basic notions and create a much richer, more

complex theory, much closer to the reality of competition. The book defines five

competitive forces that determine industry profitability potential entrants, buyers(customers), suppliers, substitutes, and competitors within the industry. Each of these

can exert power to drive margins down. The attractiveness of an industry depends on

how strong each of these influences is. Competitive Strategy brought together in a

rational and readily understandable manner both existing and new concepts to form a

coherent framework for analyzing the competitive environment.

The realization that he had not been focusing on choice of competitive positioning, this

work led Porter in turn to his interests in the concept of competitive advantage, the

theme of his next major book, Competitive Advantage: Creating and Sustaining

Superior Performance (1985). He sought a middle ground between the two polarized

approaches then accepted-on the one hand, that competitive advantage was achieved

by organizations adapting to their particular circumstances; and, on the other, that

competitive advantage was based on the simple principle that the more in-tune and

aware of a market a company is, the more competitive it can be (through lower prices

and increased market share). From analysis of a number of companies, he developed

generic strategies: Porter contends that there are three ways by which companies can

gain competitive advantage:

By becoming the lowest cost producer in a given market

By being a differentiated producer (offering something extra or special to charge a

premium price)

Or by being a focused producer (achieving dominance in a niche market)


12/79

Porter insisted that though the generic strategies existed, it was up to each

organization to carefully select which were most appropriate to them and at which

particular time. The generic strategies are backed by five competitive forces which are

then applied to five different kinds of industries (fragmented, emerging, mature,

declining, and global.

To examine an organizations internal competitive ness, Porter advocates the use of a

value chain analysis of a companys internal processes and the interactions between

different elements of the organization to determine how and where value is added. A

systematic way of examining all the activities a firm performs and how they interact is

essential for analyzing the sources of competitive advantage. The value chain

disaggregates a firm into its strategically relevant activities in order to understand the

behavior of costs and the existing and potential sources of differentiation. A firm gains

competitive advantage by performing these strategically important activities morecheaply or better than its competitors. Each of these activities can be used to gain

competitive advantage on its own or together with other strategically important activities.

Here, the concept of linkages (relationships between the way one value activity is

performed and the cost or performance of another) becomes relevant. These linkages

need not be internal they can equally well be with suppliers and customers. Viewing

every thing a company does in terms of its overall competitiveness, argues Porter, is a

crucial step to becoming more competitive.

This has led to the myth of sustainable competitive advantage. In reality, any

competitive advantage is short-lived. If a company raises its quality standards and

increases profits as a result, its competitors will follow. If a company says that it is

reengineering, its competitors will claim to be reengineering more successfully.

Businesses are quick to copy, mimic, pretend and, even, steal. The logical and

distressing conclusion is that an organization has to be continuously developing new

forms of competitive advantage. It must move on all the time. If it stands still,

competitive advantage will evaporate before its very eyes and competitors will pass.

The dangers of developing continuously are that it generates, and relies on, a climate of

uncertainty. The company also runs the risk of fighting on too many fronts. This is often

manifested in a huge number of improvement programs in various parts of the

organization which give the impression of moving forward, but are often simply

cosmetic.


13/79

Constantly evolving and developing strategy is labeled strategic innovation. The

mistake is to assume that strategic innovation calls for radical and continual major

surgery on all corporate arteries. Continuous small changes across an organization

make a difference. We did not seek to be 100 percent better at anything. We seek tobe one percent better at 100 things, says SASs Jan Carlzon.

Porter would suggest that his five forces model and SWOT allow for nonlinear

analysis, but most would agree that the overlaying of a linear mental model (self-

confirming theory) on top of any nonlinear analysis would render any such argument

questionable.

Jay Barney is often credited with popularizing an adaptation of the equilibrium-based

model, called the resource view of the firm. This particular view that a firms

resources must also be analyzed and understood in developing corporate strategy

might simply be viewed as an addition to the traditional self-confirming theories.

The equilibrium-based strategic model involves a succession of steps that are designed

to keep the firm in the box or focused upon its historic competencies. Some might

argue that the use of SWOT analysis avoids this problem, since it analyzes the firms

strengths and weaknesses. That generally does not hold true, however, because the

assumption that the firms current/historic strengths will serve the company well in the

future tends to override any attempts to engage in discontinuous change.

From the early 1980s to the mid-1900s, approaches based on the equilibrium theory

repeatedly failed, and the level of dissatisfaction with this particular approach grew. The

new global competitive environment that emerged in the late 1980s demanded a

solution. TQM gained a great deal of popularity through the early 1990s, but it soon fell

far short of being a holistic solution. The generally accepted failure rate for TQMinitiatives during this period was over 80%. Failure to understand the critical role that

quality plays in corporate success can be disastrous, but TQM cannot replace strategy,

and it is wrong to believe that quality is all a company needs to be competitive. Quality

is simply the price of admission to play the game. Once in the game, it is strategy that

must drive organizational activities.


14/79

In the early 1990s, major consulting firms were overwhelmed with clients who wanted to

use process re-engineering as a solutionfor everything from sagging profits to product

development cycles. Like TQM, process re-engineering failed to deliver, with a failure

rate of around 70%. As a result of these failures, many people began to suggest that thereal issue was change and the usual preponderance of books soon hit the market.

However, once again, the general view was that the majority of change initiatives added

little value to the bottom line.

Discussions with a number of senior executives reveal that most people have given up

on the traditional strategic approach, which is based on mission statements and core

competencies. Interestingly, though, most of their companies still use that traditional

approach. It is important to understand that self-confirming theories of strategy remainthe most frequently used at this time, with well over 90% of all companies making use of

the approach, or of some hybrid that is based upon it. Why do people continue to use

the approach if they no longer trust it? There are a number of answers to that question.

First, most undergraduate and graduate schools still teach that approach, almost

exclusively. Second, the approach is easy to learn and understand. Third, it is

comforting, because it focuses upon what some have called self-confirming theory it

confirms that what we have done in the past is good, since we are going to continue to

do in the future what we have done in the past (i.e. our future strategy will be based

upon our historic competencies).

As early as 1989, Rosabeth Moss Kanter was pointing out, in When Giants Learn to

Dance, the problems with another historic-linear approach, which she refers to as

excellence. People tend to love the idea of excellence. It makes for a great book title,

whether it involves searching for excellence or building something to last. Alongside

these books were the 7 things that companies do titles, which again focused upon

excellence in practice.

Benchmarking is a variant of the excellence practice. The underlying mental model

suggests that something someone did somewhere at some point in time will work for

your firm where it is today (and tomorrow). The reality is that it might work but it might

not. Therein lies the problem with linear (simple) historic mental models.


15/79

Almost without exception, the companies featured in the excellence books encountered

problems within a few years of the books publication. This is true even for James C.

Collins and Jerry I Porras Built To Last.

As a result of the apparent failure of the self-confirming theories, strategy theorists

have searched for alternatives.

The Reality of Competitive Environments:The new competitive world has moved from a

linear (or highly predictable, somewhat simple) state to a non-linear (or highly uncertain,

complex) state. That does not mean that nothing will continue to be predictable. It

means that in the future historic relationships will most likely not be the same as theywere in the past.

In 1980, Ansoff published a paper which represented another step in the development

of practical strategic management which concerned the development of practical tools

for managing adaptation of firms to turbulent environments. The paper, called Strategic

Issue Management, presented a way of adapting a firm to the environment, when

environmental change develops so fast that strategic planning becomes too slow to

produce timely responses to surprising threats and opportunities.

From 1991 to 2001, rapid change and high levels of complexity have characterized the

global competitive environment. As the rate of environmental change accelerates, and

the level of complexity rises, the rules of the game change. Such changes mean that

the firm must change in harmony with the environment. If it does not, ultimately the

environment will eliminate it. For the company that does not change in harmony with the

environment, the result is deterioration and, perhaps, demise.

Companies are complex systems operating within complex dynamic systems. In every

case, the complexity as well as the rate of system change will be different at different

points of time. There are a number of implications for this reality.


16/79

Simple-historic or simple-linear strategy is insufficient to prepare a firm for

environments that involve varying levels of complexity and rates of change.

As a complex system, every aspect off the firm (not just its strategies) must bebalanced with the future environment if the firm is to maximize performance.

Imbalances between the firm and the environment result in diminished

performance, or in some cases, the demise of the firm.

Put simply, complex environmental systems (the competitive environment) require

complex mental models of strategy if the firm is to succeed. The use of linear mental

models in environments of varying complexity and rate of change is a prescription for

failure.

Henry Mintzberg has famously coined the term crafting strategy, whereby strategy is

created as deliberately, delicately, and dangerously as a potter making a pot. To

Mintzberg strategy is more likely to emerge, through a kind of organizational osmosis,

than be produced by a group of strategists sitting round a table believeing they can

predict the future.

Mintzberg argues that intuition is the soft underbelly of management and that strategy

has set out to provide uniformity and formality when none can be created.

Another fatal flaw in the conventional view of strategy is that it tended to separate the

skills required to develop the strategy in the first place (analytical) from those needed to

achieve its objectives in reality (practical).

Mintzberg argues the case for what he labels strategic programming. His view is that

strategy has for too long been housed in ivory towers built from corporate data and

analysis. It has become distant from reality, when to have any viable commercial life

strategy needs to become completely immersed in reality.


17/79

In an era of constant and unpredictable change, the practical usefulness of strategy is

increasingly questioned. The skeptics argue that it is all well and good to come up with

a brilliantly formulated strategy, but quite another to implement it. By the time

implementation begins, the business environment is liable to have changed and be inthe process of changing even further.

Mintzbergs most recent work is probably his most controversial. Strategy is not the

consequence of planning but the opposite: its starting point, he says countering the

carefully wrought arguments of strategists, from Igor Ansoff in the 1960s to the Boston

Consulting Group in the 1970s and Michael Porter in the 1980s.The Rise and Fall of

Strategic Planning is a Masterly and painstaking deconstruction of central pillars of

management theory.

The divide between analysis and practice is patently artificial. Strategy does not stop

and start, it is a continuous process of redefinition and implementation. In his book, The

Mind of the Strategist, the Japanese strategic thinker Kenichi Ohmaesays: In strategic

thinking, one first seeks a clear understanding of the particular character of each

element of a situation and then makes the fullest possible use of human brain power to

restructure the elements in the most advantageous way. Phenomena and events in the

real world do not always fit a linear model. Hence the most reliable means of dissecting

a situation into its constituent parts and reassembling them in the desired pattern is not

a step-by-step methodology such as systems analysis. Rather, it is that ultimate

nonlinear thinking tool, the human brain. True strategic thinking thus contrasts sharply

with the conventional mechanical systems approach based on linear thinking. But it also

contrasts with the approach that stakes everything on intuition, reaching conclusions

without any real breakdown or analysis.

When future could be expected to follow neat linear patterns, strategy had a clear place

in the order of things. Organizations are increasingly aware that, as they move forward,they are not going to do so in a straight unswerving line. The important ability now is to

be able to hold on to a general direction rather than to slavishly follow a predetermined

path. Now, the neatness is being upset, new perspectives are necessary. The new

emphasis is on the process of strategy as well as the output. Such flexibility demands a

broader perspective of the organizations activities and direction. This requires a

stronger awareness of the links between strategy, change, team-working, and learning.


18/79

Strategy is as essential today as it ever was. But, equally, understanding its full richness

and complexity remains a formidable task.

Kenichi Ohmae argues that an effective strategic plan takes account of three mainplayers the company, the customer, and the competition each exerting their own

influence. The strategy that ignores competitive reaction is flawed; so is the strategy

that does not take into account sufficiently how the customer will react; and so, of

course, is the strategic plan that does not explore fully the organizations capacity to

implement it.

Kenichi Ohmae says that a good business strategy is one, by which a company can

gain significant ground on its competitors at an acceptable cost to itself. He believes

there are four principal ways of doing this:

Focus on the key factors for success (KFSs). Ohmae argues that certain functional or

operating areas within every business are more critical for success in that particular

business environment than others. If you concentrate effort into these areas and your

competitors do not, this is a source of competitive advantage. The problem, of course, is

identifying what these key factors for success are.

Build on relative superiority. When all competitors are seeking to compete on the KFSs,

a company can exploit any differences in competitive conditions. For example, it can

make use of technology or sales networks not in direct competition with its rivals.

Pursue aggressive initiatives. Frequently, the only way to win against a much larger,

entrenched competitor is to upset the competitive environment, by undermining the

value of its KFSschanging the rules of the game by introducing new KFSs.

Utilizing strategic degrees of freedom. By this tautological phrase, Ohmae means that

the company can focus on innovation in areas which are untouched by competitors.

In each of these four methods, the principal concern is to avoid doing the same thing,on the same battle-ground, as the competition, Ohmae explains.

Kathryn Rudie Harrigans first book, Strategies for Declining Businesses focused on

declining businesses. Harrigan believes there is a life-cycle for businesses and they

need to revitalize themselves constantly to prevent decline. From declining businesses,


19/79

Harrigan moved on to the subject of vertical integration and the development of

strategies to deal with it. A central premise of the framework she developed was that, as

firms strived to increase their control over supply and distribution activities, they also

increased their ultimate strategic inflexibility (by increasing their exit barriers). In search

of more flexible approaches she carried out lengthy research into joint ventures. Despite

their boom, Harrigans research showed that between 1924 and 1985 the average

success rate for joint ventures was only 46 per cent and the average life span a meager

three and a half years. In her two books on joint ventures, Harrison argued they will

become a key element in competitive strategy. The reasons she gave for this were:

economic deregulation, technological change, increasing capital requirements in

connection with development of new products, increasing globalization of markets.

She predicted:

One-on-one competition will be replaced by competition among constellations of firms

that routinely venture together.

Teams of co-operating firms seeking each other out like favorite dancing partners will

soon replace many current industry structures where firms stand alone.

To cope with these changes, managers must learn how to co-operate, as well as

compete, effectively.

Harrigans later work focused on mature businesses. Managing Maturing Businesses

(1988) examined the second half of a businesss life or, as it is more dramatically put,

the endgame. She has coined the phrase The last iceman always makes money,

which she explains as The last surviving player makes money serving the last bit of

demand, when the competitors drop away. The importance of her work in this area was

given credence by the fact that over two-thirds of the industries within mature

economies were experiencing slow growth or negative growth in demand for their

products.

Ameliorating the pain and avoiding premature death have been the motivating factors of

Harrigans work. Harrigans argument is that endgame can be highly profitable if

companies adopt a coherent strategy sufficiently early. The strategic options are:


20/79

Divest nowthe first company out usually gets the highest price; later leavers may not

get anything.

Last iceman focusing on customer niches which will continue long-term and will be

prepared to pay a premium.

Selective shrinking taking the profitable high ground and leaving the less profitable

low ground to the competitors.

Milking the businessthe last option, but none the less a practical alternative in many

situations.

Complex Systems Strategy

Complexity-based approaches or complex adaptive systems, were developed in

response to the apparent failure of equilibrium-based approaches. Complexity-based

thinkers will fall into a number of different camps. The majority believe that the

environment must be understood in terms of its complexity, chaos, and ecological

constructs. This group subscribes to the Darwinian hypotheses (upward evolution of a

system) as a metaphor for the business environment. This kind of thinking has resulted

in the idea of self-organizing companies.

The complexity group falls into two categories. One might be called a pure complexity -

based group, the other a hybrid. In the case of the former, theorists generally apply theconcept of emergence to every situation. According to this group predictive modeling is

rendered useless by the chaotic nature of the environment. They would suggest that

any attempt to plan for the future is pointless.

The hybrid group also assumes that the Darwinian hypotheses may be used as a

metaphor for business systems. This particular group of thought is based upon the idea

that the firm may compete on the edge of chaos, that is in a state in which the system is

complex adaptive, but at the same time with a minimal level of predictability in thesystem (Brown and Eisenhardts Competing on the Edge). This group of thinkers have

combined the emergent (complex-historic) approach with the extrapolation (simple-

future)approach.

Emergence


21/79

The emergence camp is divided into at least two or three distinctive groups.

Emergence-based theorists begin with the idea of complex systems and chaos theory.

Some suggest that the ability to deal with complexity on a futuristic basis is impossible.

Others suggest that it is possible to understand some aspects of futuristic systems. Athird group imposes naturalistic ecological presuppositions in its theory.

Ralph Stacey and Henry Mintzberg tend to hold to the view that it is simply not possible

to consider future complex environments. As a result they suggest that the strategist

must wait for events to occur, or emerge, then develop strategy. This approach of

incrementalism involves the after the fact development of strategy for discontinuous

events. Mintzberg suggests that, as discontinuous events occur, the firm should

dynamically craft strategy.Stacey generally agrees with Mintzberg, but in his bookManaging The Unknowable, he additionally suggests that it is possible to create

organizations that are designed to deal with ambiguity and complexity.

Others involve themselves in apparently self-defeating arguments. In The Fifth

Discipline, Peter Senge advances the idea of systems thinking and suggests that it is

possible to observe complex systems and make reliable inferences about such

systems. On the other hand, in the multi-author work The Dance of Change, he tends to

take a purely Darwinian emergence view.

The emergent or complex-historic group of strategists is by far the fastest-growing

group in the field. As those who see the failure of self-confirming theories seek

alternatives, the focus on complexity by the emergent group seems to make a lot of

sense.

Chaos and Complexity:Around the mid-1950s, there had been a certain amount ofinvestigation into the idea of cybernetics, or the study of processes. That led some

people to think about the competitive environment in a very different way. Chaos and

complexity theory were introduced. By the early 1990s, complexity theory had taken on

a life of its own. At about the same time, the idea of systems thinking was popularized,

particularly, in Peter Senges 1990 book The Fifth Discipline.


22/79

The period was characterized by a blending of disciplines, including natural science,

social sciences, and business. A number of business theorists moved on from the

metaphor of chaos theory in business to complexity theory. Chaos theory had dealt with

the unpredictable processes that were observable in science. Those who moved on tocomplexity theory added an interesting twist to the basic idea of complexity. Complex

systems thinking has to do with the fact that the global system or environment is made

up of a limitless number of other systems. Theorists hypothesize that complex systems

may behave in much the same way as the molecules in a glass of water, which interact

randomly.

Systems Thinking:Another approach for dealing with complex environments is called

systems thinking. Proponents of systems thinking believe that it is possible to considercomplex issues and to make reasonable inferences about the outcomes of such

complex systems. Systems thinking has been widely discussed in corporate circles, but

few companies actually utilize the approach, especially at the senior executive level

where it could be most beneficial. Those few leaders who have the intuitive ability to

think in terms of complex systems, are and will continue to be, highly successful.

Darwinian Theory:Alongside this hypothesis relating to complex systems, the idea of

using Darwins theory of evolution as a metaphor for complexity was developed.

Charles Darwins concept focused upon two ideas: first, the idea of natural selection, or

the survival of the fittest; second, the idea of evolution. His concept of evolution was

based upon the hypothesis that matter was constantly in a state of moving from a lower

level of complexity to a higher level of complexity. In his view, this accounted for the

similarities between monkeys, apes, and the different races of humans.

Scientific evidence generally refutes these particular views (along with others held by

Darwin), but Darwins hypothesis has none the less been adapted metaphorically to

complexity theory as it is applied in business. Those who subscribe to the theory saythat the evolution (from lower complexity to higher complexity) that occurs naturally in

nature must apply equally to businesses. Complexity management theorists go on to

suggest that one of the goals of every manager should be to allow the business to

emulate nature by self-organizing.


23/79

This theme is clearly revealed in Peter Senges 1999 book The Dance of Change. In

one article in the book, entitled The leadership of profound change-toward an ecology

of leadership, Senge suggests that leaders need to understand more about nature and

to manage with that in mind. The CEO, according to Senge, is not the solution to driving

meaningful change in the organization.

In most cases, the complexity-based theorists assume the Darwinian hypotheses

(upward mutation or evolution of complex natural systems) as a metaphor for

management and strategy theory. This idea is developed in what is called self-

organization. It is also an integral part of the complexity theorists response to the linear

economic model referred to as equilibrium theory, which is called complex adaptive

systems theory.

The evidence clearly invalidates the Darwinian hypotheses. Complex dynamic

systems as an idea is finding support not only as a way of describing the natural

environment, but also as a reasonable metaphor for developing management and

strategy theory. This approach deals with complex systems without the prepositional

fallacies related to complex adaptive systems theory.

Shona L. Brown and Kathleen M. EisenhardtBrown and Eisenhardts bookCompeting on

the Edge (1998) displays their work as somewhat of a hybrid of the complex adaptivesystems approach (including the Darwinian hypotheses) and the self-confirming schools

of thought. In essence, Brown and Eisenhardt suggest that the firm is competing in

complex environments, and thus must deal with high levels of uncertainty. Their view is

that the firm is constantly in a process of changing its competencies. There is some

dissonance between their adoption of competencies and their prescriptions for dynamic

corporate strategy.

Henry Mintzberg The work of Canadian, Henry Mintzberg counters much of the detailed

rationalism of other major thinkers. He falls in the complex-historic (emergence)

category of strategists, although, unlike most in that camp, he does not appear to have

adopted the Darwinian metaphor. Mintzberg believes in incremental responses to

changes as they emerge in the environment. It is clear that he holds to the idea of a

complex environment, yet he also seems to believe that it is not possible to anticipate or

prepare proactively for discontinuous events. His views are the antitheses of Ansoffs.


24/79

Ralph Stacey His book Managing the Unknowable (1992) was really ahead of the curve

among the work of the proponents of complex adaptive systems. Staceys work differs

from that of many of the others in that particular school, since he suggests that

companies need to prepare proactively for complexity.

Complex Dynamic Systems

The application of a Darwinian-based theory of complexity has resulted in an alternative

to the equilibrium theory of economics complex adaptive systems which again,

proposes that the economic system is characterized by progressive upward evolution.

The positive aspect of the theory is that it turns managers toward thinking about

complex systems. There is no doubt that linear thinking (equilibrium-based

management theory) can damage a company, but the absence of scientific support for

adaptive systems (in either nature or in business) may also be problematic when trying

to build corporate strategy.

A number of people are now using the idea of complex dynamic systems as a way to

think about the competitive environment. Moving from the Darwinian presupposition of

evolution to a recognition of the complex nature of the environment may present a

better opportunity for the corporate strategist.

There is currently a clear trend toward complexity-based corporate strategy. Emerging

research supports the fact that moving from a linear to a non-linear complex mental

model of the environment will help managers to lead a more profitable organization.

C. K. Prahalad and Gary Hamel Their book Competing for the Future was first published

in 1994. Their work has gone through a number of cycles, or changes. Early on, it

seemed to focus on self-confirming theories. However, they were quick to comprehend

the apparent failure of that model, and began to move more toward a complexity-based


25/79

model. In their later works they have focused on anticipating the complex nature of the

future environment. At the same time they are not proponents of strategy based on

complex adaptive systems (the Darwinian hypotheses). A very positive aspect of their

work is their emphasis on proactive strategies for dealing with future uncertainty.

The phrase core competencies has now entered the language of management. In

laymans terms, core competencies are what a company excels at. Gary Hamel and C K

Prahalad define core competencies as the skills that enable a firm to develop a

fundamental customer benefit. They argue that strategic planning is neither radical

enough nor sufficiently long-term in perspective. Instead its aim remains incremental

improvement. In contrast, they advocate crafting strategic architecture. The phraseology

is unwieldy, but means basically that organizations should concentrate on rewriting the

rules of their industry and creating a new competitive industry.

Richard DAveni The best-known work of Richard DAveni of Dartmouth College

isHypercompetition (1994), in which he overtly takes on the traditional self-confirming

strategic approaches. Based upon his observations of the real world, the book

concludes that the world is no longer linear, and does not reward those who use linear

approaches to create corporate strategy. In its place, he suggests, the planner needs to

consider a new approach. In assessing the new corporate world, he makes a number of

insightful observations in Hypercompetition:

Firms must destroy their competitive advantage to gain advantage..

Entry barriers work only if others respect them.

A logical approach is to be unpredictable and irrational.

Traditional long-term planning does not prepare for the short term.

Attacking competitors weaknesses can be a mistake. Traditional approaches such

as SWOT analysis may not work in a hypercompetitive environment.


26/79

Companies have to compete to win, but competing makes winning more difficult.

DAveni builds the case for a complex environment and the need to change the

organization continually in response to the environment, then proposes an answer to his

argument about the need for a dynamic theory: the 7 -S approach.

Superior stakeholder satisfaction.

Strategic soothsaying.

Positioning for speed.

Shifting the rules of the game.

Signaling strategic intent.

Simultaneous and sequential strategic thrusts

At the heart DAvenis ideas is his conclusion that companies need to be focused upon

disrupting the market. He suggests that there are three critical factors that enable a firm

to deliver sustainable disruption in the market:

A vision for disruption.

Capabilities for disruption (the organization).

Product/market tactics used to deliver disruptions.


27/79

There are a number of similarities between the work of Ansoff and tha t of DAveni. Both

suggest that the environment involves some level of complexity and rate of change.

Both propose a contingency theory approach that is, the organization must be

designed to respond to the present and future environment. Both believe that the

environment of the 1990s began a new period of highly turbulent, unpredictable,

changing environments.

Hybrid Systems:One of the more questionable adaptations of the various theories

comes from those who attempt to combine complex adaptive systems and equilibrium-

based theory. These theorists suggest that strategists should apply complex adaptive

systems approaches to their strategy, while at the same time developing historic (or

even new) competencies. Clearly there are problems with this combination.

Observing the global environment, and accepting the fact that there are two

environmental issues that strategists must addresscomplexity and rate of changeit

is clear that an organization must be continually changing in nonlinear terms both in

speed and in complexity. Rosabeth Moss Kanters useful idea of contingency theory

(presented in When Giants Learn to Dance) rightly suggests that the organization must

be able to respond contingently to future changes in the environment. Her approach is

similar to W. R. Ashbys requisite variety theorem explained in his Introduction to

Cybernetics.

The modified Ansoff Model is also a hybrid. On one hand, a complex dynamic systems

approach is taken. On the other, an emergence approach is viewed as part of the firms

ability to respond to discontinuous events. Then, the firm is assessed using a complex

model to determine its ability aggressively to create the future strategy the firm needs

and the responsiveness capabilities of the firm to address discontinuous events as they

emerge.

Rosabeth Moss Kanter Also from Harvard Business School, the fact that Kanter rejects

the self-confirming approach to the development of strategy in favor of contingency

design is an important underpinning of her work. She believes that the strategist must

begin with an understanding of the future environment, then contingently design the firm

around that understanding. In her book When Giants Learn to Dance (1990), she offers


28/79

seven ideas that describe managers who will be successful in the new corporate

environment:

They operate without the power of the might of the hierarchy behind them (leadershipvs. positional power).

They can compete (internally) without undercutting competition).

They must have the highest ethical standards.

They possess humility.

They must have a process focus.

They must be multifaceted and ambidextrous (work across business units/flexible).

They must be willing to tie their rewards to their own performance.

Evan Dudik Strategic Renaissance (2000) by Evan Dudik takes a complex systems

approach to strategy by suggesting that the planner must understand the level of

uncertainty of the future environment (very similar to Ansoffs turbulence) and, at the

same time, that the firm must create a complex adaptive system (the firm itself) if it is to

deal with that uncertainty. It is clearly an excellent application of contingency theory.

Dudiks book covers all of the positives related to developing complex mental models

and is excellent in presenting contingency approaches to the development of corporate

strategy.

Predictive Modeling:Predictive modeling involves a complex mental model and a

futuristic (as opposed to historic) strategic frame. Since complex-futuristic approaches

involve complexity, there are a number of types of those approaches, including some

hybrids. Even though some of the approaches are especially concerned with

complexity, some tend to be less holistic or whole-system than others.

AIS: The first approach might be called artificial intelligence simulation or AIS, which

involves the creation of a computer-based model in which key variables can be

manipulated. The researcher might identify 10 independent variables that appear to

drive certain outcomes (dependent variables). In some cases it is possible to base the

behaviors of the variables on statistically based relationships. That adds power to the

model. Regardless, the AIS process allows the researcher to manipulate variables in


29/79


30/79

One of the keys to anticipating future turbulence environments is to ensure that the firm

has the level of adaptiveness required for the level of future turbulence. In turbulence

levels above 3.0, there is a growing expectation of discontinuous or surprise events. As

the turbulence level rises, the ability of the firm to reactively transform is clearly a profitissue. The higher the level of environmental speed and complexity, the higher the

negative profit impact if the organization has low levels of adaptive capabilities. As

research by Dawn Kelly and Terry Amburgey reveals, internal resistance to change

slows the organizational response to discontinuous events.

War gaming: War gaming is a good way of preparing for complex futures. War gaming

is somewhat similar to using scenarios. There are a number of ways of doing it, but it

generally involves the gathering of competitor information prior to beginning theexercise. The information might cover the predisposition or probable behavior of

different competitors. Some might use a five forces analysis and a SWOT analysis (of

each competitor). A modified Ansoff strategic profile of each competitor can be a most

valuable tool.

War gaming involves the organization dividing its managers into teams, which take on

the role of competitors. The competitors simulate a battle. The game is played in terms

of successive strategies created by each team. The exercise facilitator creates ways

for the competitors to play out their strategy, based upon the research about the

competitor that they were given. In some cases, the senior executives of the client firm

will take on the role of strategists for their own firm, while their management team will

play the roles of their competitors. This can be an extremely revealing exercise,

especially when the third or fourth passes or battles are completed.

In many ways the value of war gaming, as with scenarios, is that of organizational

learning. War gaming can help internal managers to change their mental models of the

competitive environment as well as their perceptions of competitors most probablebehaviors. One word of caution: there is nothing more boring than a poorly conceived

war game, and the services of external facilitators are recommended; make sure that

the facilitators selected are at the cutting edge in their field. Those that revert to simple

(non complexity-based) approaches, such as SWOT alone, should be avoided.


31/79

Growth Strategy in Small Entrepreneurial Business Organisations: A

Conceptual Model

Satyajit MajumdarT. A. Pai Management Institute

Manipal 576 104

Karnataka

[email protected]

--------------------------------------------------------------------------------------------------------

-----------------------------------------------------------

Abstract

The research article focuses on two major considerations namely growth planning in

small organisation as entrepreneurial as well as strategic activity. Growth of small

organisations is influenced by the background/resource of the entrepreneur, the nature

of the firm, and the strategic decisions taken by the owner/manager. Entrepreneurs of

the small businesses are the sole strategic decision makers and their close control

supports easy translation of entrepreneurial vision into action. Their ability, need and

opportunity are the major determinants of growth. Small business entrepreneurs show

different motives and also have different attitude and behaviour towards growth. Also

a given set of entrepreneurial characteristics beneficial in one context may work

adversely in the other. A fit between strategy, structure and processes is more

favourable to the performance. In this article a conceptual model on growth strategy in

small entrepreneurial organisations is presented. Three propositions are based on the

theoretical framework are - (1) Personal ambition and vision of the entrepreneurs

drive the growth of small organisations, (2) The entrepreneurs of small organisation

search for strategic fit in the market and the environment, and (3) The entrepreneurs

of small organisation continue to search better fit in the market. The propositions need

to be validated with the help of empirical work. The article takes an integrated view

on all these aspects of small business management while explaining the growth

strategy. The propositions made in this article reflect strategic and entrepreneurial
mailto:[email protected]:[email protected]:[email protected]


32/79

dimensions of growth and takes a view that entrepreneurial motivation is different

from growth motivation.


33/79

Key words : Small business management, entrepreneurial growth strategy,

entrepreneurship, entrepreneurial ambition towards growth, growth theory

Background & Theoretical Orientation

Small entrepreneurial organisations have high influence of entrepreneurs personality

and style, less formal planning and control and loose organisation structure and

administrative system. These organisations are the outcomes of initiatives of

entrepreneurial talents.

Small businesses have some fundamental advantages. They need low investment as

compare to their large counterparts. However due to this reason they also face

resource limitationboth human and financial resources. They offer employment to

the local talents. Flexibility and closeness to the customers are the major advantages;

due to informal settings these organisations can strike the market fast. They also have

the advantage of economies of scale and lower overheads. In entrepreneurial small

organisations close control supports easy translation of entrepreneurial vision into

action. But due to limited exposure the small organisations have less information

about the market and suffer from lack of economies of scope. (Kirk and Noonan,

1982; Nooteboom, 2002)

Firms are the means for realising entrepreneurial ambitions of individual

entrepreneurs. Entrepreneurial ventures work on the principle motto of profitability

and growth with a long term desire of market dominance. This is based on innovationin products, processes or practices. There exists difference between strategic

orientations of entrepreneurial and small ventures. All small ventures do not work on

innovations or dominance motive. (Matthews and Scot, 1995)

In this paper I have attempted to develop a conceptual framework to establish linkages

with entrepreneurial vision towards growth and innovation in finding fit in the market

place as a strategic initiative. For this purpose I have reviewed conceptual and

empirical work carried out in various countries. The literature support was drawn

from survival of new firms and growth of existing firms. I have also taken literature

support to develop an explanation about growth in small and entrepreneurial context.

Research gap

In his book authored by Patel (1995) titled The Seven Business Crises addressed

business planning, management and growth issues of entrepreneurial organisations.

The author took a consultative approach and expressed that entrepreneurs attitude


34/79

and psychology is important for growth as most of the problems are rooted within the

venture rather than outside and recommended a carefully crafted strategic growth plan

with high degree of entrepreneurial intensity to create a niche. He also advocated that

taking outside help in the planning process may lead better results.

Organisational performance and effectiveness is a function of match betweenorganisational structure, processes, and the external environment (Hrebiniak and

Joyce, 1985). In the filed of strategic management pioneering works were carried out

by many experts. Porter emphasised that corporate strategy can not be planned and

implemented without considering the competitive environment whereas Mintzberg

explained that strategy is evolutionary, organic process and it is unpredictable (Hamel

and Prahalad, 2002). Although Chandler stressed on organisational structure design

around the needs of effective strategy execution, the structure also influence the

choice of strategy (Thompson and Strickland, 1999). Organisations attempt to change

the external conditions to make them favourable (Liao et al, 2003). Hamel and

Prahalad (2002) argued that core competence gives a company competitive capability

and remains central to its strategy planning thus helps the company to establish in the

market. Although competitive strategy proposed by Porter (1979) has been widely

referred in business management literature but there is limited focus on the specific

dimensions of small businesses. Strategic management literature and research focus

have a bias towards large corporations.

Growth of small organisations is influenced by three major factors the

background/resource of the entrepreneur, the nature of the firm, and the strategic

decisions taken by the owner/manager (Storey, 1994). The entrepreneur needs todevelop both strategic and tactical skills and abilities (Kuratko et al, 2001).

Entrepreneurial ventures being goal directed also need to plan to face the uncertainties

(Carland et al, 1984). Entrepreneurial strategy is the means through which small

organisations establish and re-establish the fundamental set of relationships with the

environment and the uncertainties (Murray, 1984).

OFarrel and Hitchins (2002) analysed the major problems in evaluation of growth of

small organisations. First, there is major inconsistency in defining the small firms.

Second, there are also inconsistencies in the dimensions of growth; employment,

profit, value added, turnover, total asset and market share are the parameterssuggested by theorists. High performing small manufacturing firms emphasise on new

product development, product improvement, product quality, and customer service

and the related performance indicators are adoption of new performance methods,

employee productivity and efficiency, and employee welfare (Kotey and Meredith,

1997). Growth also depends on the changing industry patterns and management; it is

also about sociological evolution of the business (Boswell, 1973). Prater and Ghosh


35/79

(2005) in an empirical study on U.S. based small and medium sized enterprises

operating in Europe reported new product development, expansion into new

international markets and expansion into new European markets are the major growth

strategies adopted by them. Contrary to common belief upgrading operation strategy

was not reported to be a major strategy. The study also concluded that the enterprises

did not take advantage of outsourcing of operation functions such as logistics.However growth carries different meanings by the different entrepreneurs. There is a

strong impact of entrepreneurs attitude and the decision on growth and there may not

be uniformity in growth agenda among the entrepreneurs even if they operate in the

same market (Matthews and Scot, 1995).

O Farrell and Hitchins (2002) in their article Alternative Theories of Small Firm

GrowthA critical review made a comprehensive analysis of various approaches to

growth in small organisations. They concluded that the industrial economics literature

primarily focuses on large organisations. As the nature and scale of impediments to

growth of small organisations are different the authors emphasised to search for other

conceptual frameworks. They analysed the growth model theory (Churchill and

Lewis, 1983) which describes that the small entrepreneurial organisations progress in

stages from inception to maturity. Each stage can be explained with the help of typical

characteristics of entrepreneur, resources, and other variables. Major criticism of

theory is on account of the heuristic classification with least focus on the process. The

model implicitly assumes that small organisations either grow or fail. There can be

fast or slow growing organisations. The model does not explain the condition of the

early stages which might have significant influence on growth. It is also not clear

whether there is sequence attached to growth or some organisations can skip someintermediate stages. The other criticisms are about the parameters of growth and the

context of regional economies. The authors expressed that the model is based on the

wisdom based symptoms and have failed to explain the growth processes. However in

a study on semi-conductor ventures in USA Eisenhardt and Schoonhoven (2002)

found that competition at founding stage did not affect growth. This finding was

reported to be robust across several measures of competition. The research is evident

on this account.

Woods and Joyce (2003) in their article Owner-Managers and the Practice of

Strategic Management described Mintzbergs explanation on strategic planning smallorganisations as anti-planner. They wrote, As far as we can see he (Mintzberg) tend

to subscribe to the following theses about small entrepreneurial firms: (1) A written

strategic plan has no explanatory power in respect of their behaviour because personal

strategic vision rather than written strategic plans determine actual strategy; (2) The

small entrepreneurial firm develops a strategy that is deliberate and often an

extrapolation of the chief executives personality; (3) The decision making of a small


36/79

entrepreneurial firm is often intuitive and thus its success rests on reality confirming

its intuitions about the opportunities that exist (and that it seeks to exploit by virtue of

its flexibility); (4) There is a persisting need for strategy based on personal vision and

control and thus a persisting need for small entrepreneurial firms. Successful small

businesses take the benefit of narrow scope of market, product and customer

specialisation.

On strategic model of growth O Farrell and Hitchins (2002) analysed the strategic

management perspective. Referring research articles they explained that there are two

environments in which an organisation carries out business. External environment

deals with suppliers, customers, competition, taxation, market and government

policies. The internal environment consists of the personal and leadership factors of

the entrepreneur, resources, etc. High growth firms make use of external relations

(Lechner and Dowling, 2003) and growth is a combination of environmental and

leadership processes (Eisenhardt and Schoonhoven, 2002). Similar conclusions were

drawn by Chan and Foster (2001) after a study of small businesses in Hong Kong and

by Kelmar and Wingham (1995). The latter listed 47 growth strategies reported in

various research works and classified them into 12 categories. They reported that

55.5% were related to external variables of growth (market penetration, pricing,

product mix, product demand, promotion, market creation, market stability and

intermediary use as the greatest contributors) and the rest were the internal variables

(corporate strategy and staffing are the greatest contributors). They concluded that a

combination of external and internal variables supports growth of small

organisations. The organisations establish relationship with the external environment

to progress.

McMohan (2001) in a study on growth of small and medium manufacturing

organisations concluded that business growth and performance outcomes are

correlated. The financial control in the fast growing enterprises maximise profit and

target to increase turnover, these are interdependent. Cash flow, profitability and sales

are the key variables monitored. Strategic planning for growth in these organisations

is influenced significantly by investment planning, growth commitment, export

commitment, and enterprise size.

Many studies are available on personality, and motivational aspects of entrepreneurs.A systematic nation-wide study was conducted in UK to inquire about the

performance and problems of small manufacturing firms. A committee was formed

(Bolton Committee) for this purpose in June, 1969 which published its report in

November, 1971. Entrepreneurship as a process has also been explained by many

researchers. But the strategic management literature is biased towards the size and

does not address growth aspects of entrepreneurial ventures not necessarily growing


37/79

in size. Such literatures do not relate the strategic growth management capabilities of

the small entrepreneurs with growth. There is a gap in associating the critical factors

for success of small organisations such as ownership, management styles, etc with

growth. Although we have access to some literature based on the research work done

in USA and Europe but the factors affecting growth or success of small organisations

vary from country to country (Wijewardena and Cooray, 1995).

Conceptual Model on Small Business Growth Strategy

In order to build the theoretical base for discussion I am referring an article In Search

of a Comparative Framework: Small-scale Entrepreneurs in Asia andEurope authored

by Carol Upadhya and Mario Rutten (1997). The authors classified the

entrepreneurship related studies into two major categories cultural and structural.

The cultural perspective was inspired by Max Webers Protestant ethic thesis of 1976

and 1978 emphasising cultural embedding of capitalise development and the

ideological motivation for rational profit-seeking among early European capitalists.

While in structural approach largely based on Marxist theories of capitalist

transformation stress on macro-economic or political factors in explaining the

development of entrepreneurship or lack thereof. Since then a number of studies were

made in Asia. Referring Harveys work of 1989 the authors explained that the

significant growth of small and rural based entrepreneurial organisations in Asia and

Europe can be characterised by two seemingly contradictory tendencies increasing

centralisation and monopolisation of capital by huge translational corporations in one

end and on the other end growing large number of small scale organisations which are

largely family controlled. Many of these small scale organisations link with large onesthrough sub-contracting relations. These small organisations also develop various

kinds of linkages among themselves. Most studies conclude that social network is

central to the working of small organisations.

Entrepreneurial ambition and growth motives

Upadhya and Rutten (1997) referred Bourdieus theory to explain the entrepreneurial

behaviour - Bourdieu (1986, 1992) has shown how people, though constrained by

their cultural inheritance and structural factors, in pursuit of their goals employ

strategies which are based on conversion of one kind of capital (social, cultural,economic) to another. They also submitted a counter-argument of Baumol (1990)

Their (entrepreneurs) main objective is not the well-being of the society but their

own personal well-being, defined in terms of wealth, power and prestige. The third

approach presented was from Biggart (1991) advocating Webeian institutional

perspective When social actions are repeated over time and are assigned similar

meanings by self and others, they become institutionalised; institutionalised action is


38/79

economically efficient because making decisions and carrying them out becomes

simpler when the actor predict and understand the actions of other.

All entrepreneurial ventures are not conceived with equal potential for survival or

growth. The potential value of the knowledge imparted to the entrepreneur also varies

from one venture to the other (Chrisman and McMullan, 2004). Personality of theCEO, strategy and the firm structure directly influence the performance of small

organisations (Miller and Toulouse, 1986). Davidson (2002) in his article Continued

Entrepreneurship Ability, need and opportunity as determinants of small firm

growth developed a model and established three major determinants of growth

namely ability, need and opportunity. These factors also explain the variation in

growth motivation. The author concluded that need related factors are more important

than the ability and opportunity. But willingness of the entrepreneurs to take credit of

success or growth was also concluded as an important dimension of growth of small

entrepreneurial organisations an the cognitive bias such as desire to present oneself as

the best, ego protection and emotional needs influence this dimension (Rogoff et al,

2004). However the actions of the entrepreneurs can not be described by economic

interests alone as they are also driven by prestige, social status or political influence.

The entrepreneurs who are also businessmen are act consciously both collectively or

individually to further their political, social or economic goals. Their ambitions are

not restricted to their individual interests but also to the class or social group.

(Upadhya and Rutten, 1997).

Entrepreneurs of the small businesses are the sole strategic decision makers and

their close control supports easy translation of entrepreneurial vision into action (VanKirk and Noonan, 1982). The effects of founding team (the entrepreneurs) grow with

time and over the years the organisational growth become self-fulfilling prophesies

for many (Eisenhardt and Schoonhoven, 2002). Although the small organisations have

the advantage of economies of scale, lower o

Documents

Growth Strategy in Small Entreprises