The Strategic Competence of Small Businesses

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Last updated: April 17, 2019

The general investigative focus of our research paper is on the market. More specifically, we narrow our focus on the question as to whether there is something like a specific strategic competence of small firms. Our initial hypothesis is that small firms have a very different “strategic competence” as compared to large firms. An extensive literature review comes up with 35 potential variables for such a specific strategic competence of small businesses.

After a thorough analysis, this list is narrowed down to 15 variables. These 15 variables have powerful theoretical and practical implications and their validity should be tested through more in-depth literature reviews as well as empirical research on a global scale.1. Introduction1.1 The General Issue: The MarketIn this research paper, the general investigative focus will be on the market. The market is one of seven key concepts of a business plan.

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In Vozikis’s and Mescon’s book on Entrepreneurship: Venture Initiation, Management, and Development, the other six key concepts are the niche, the return, the need, the infrastructure, the people “FAKTS” (Financials, Attitude, Knowledge, Timing, and Skills, i.e. the ability to execute), and the deal (2002: 49).A market is usually defined as a means by which the exchange of goods and services takes place as a result of buyers and sellers being in contact with one another, either directly or through mediating agents or institutions (Encyclopedia Britannica1). In the context of this research paper, it is short for venture strategic market targeting, management and planning.

The concept of target market stands for the five questions of who buys, how many buy, when do they buy, how do they buy, and where do they buy (Vozikis & Mescon 2002: 83). In essence, no company can operate in every market and satisfy every need, nor can it even do a good job within one broad market. The target market is at the beginning of a chain of concepts in the marketing concept.

The target market is the starting point, the focus is on customer needs, the means is coordinated marketing, and the ends is profits through customer satisfaction (see Kotler et al. 1999: 21-22).1.2 Narrowing The Focus: Specific Strategic Competences Of Small BusinessesChapter 5 of Vozikis’s and Mescon’s work (2002) focuses on our topic at hand, the market. In our reading, the three key theses in this chapter are as follows:(1) Small firms have a very different “strategic competence” as compared to large firms.(2) It is of key importance to find out a given venture’s strategic competence in a specific strategic target market.

(3) The determination of a venture’s course of action best takes place in the context of acting, reacting, proacting, or ignoring. A demand-driven opportunity target market is preferable to a supply-driven one, as the supply-driven one carries the additional burden of first having to educate the buyer.The most intriguing and perhaps controversial thesis is (1) and shall thus be the focus of our investigation.

Our hypothesis is:H: Small firms have a very different “strategic competence” as compared to large firms.However, we will also occasionally touch upon theses (2) and (3), as they are interlinked with thesis (1). We will try to prove that there is a unique set of potential strategic competencies of small businesses which differs from large companies.

A word more frequently used than strategic competence is core competence. In our understanding, a core competence is a special case of a strategic competence, as it has to fulfill more conditions than a mere strategic competence. According to Vozikis and Mescon, strategic competence is developed as follows: “The entrepreneur believes that by satisfying customers, loyalty to the firm is created along with repeat business and word-of-mouth promotion” (85).Core competence is defined as the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies. It is an aptitude, capability, or skill that provides a firm with a sustainable competitive advantage. A competence must pass three tests to be considered a core competency: it should (1) be applicable across a range of products, (2) be difficult for competitors to imitate, and (3) provide a fundamental and valuable benefit to customers. A firm may possess many competencies, but only those that satisfy these criteria qualify as core competencies (see Prahalad & Hamel 1990, Hamel & Heene 1994, Kotler et al. 1999: 70, Barney 2002: 414).

Consequently, the strategic competencies which we are about to discuss may or may not be core competencies.1.3 What Motivated Our InvestigationThe topic of a unique set of strategic competences of small businesses is of great personal interest to us as students, and partially practitioners, of entrepreneurship. All of us are would-be entrepreneurs and thus must investigate as to whether there may be such a thing as a specifiable set of advantages which small businesses hold vis-�-vis large businesses.Generally, new venture creation, which inevitably starts with a somewhat small business, is “arguably the single most powerful force to create economic and social mobility” (Timmons 1999: 5). Smaller entrepreneurial companies, in the view of many senior managers, have also become role models for the way business should operate (Timmons 1999: 6).

Research has shown that in the US, small entrepreneurial firms have been responsible for a staggering 95% of all radical innovations, and for half of all innovations (Timmons 1999: 9). Perhaps most importantly, entrepreneurship has been described by Timmons as the “great equalizer and mobilizer of opportunity,” indifferent to race, religion, sex, or geography and rewarding of performance (Timmons 1999: 16).New and small businesses have long been recognized as a major source of jobs, technical innovation, economic flexibility, and growth. Identifying a set of specific strategic competencies is also likely to lead to a checklist of possible success factors. This is of great interest to public policy makers who are concerned with economic development and also to (would-be) entrepreneurs such as ourselves (see Lussier & Pfeifer 2001).

Small- and medium-sized enterprises exert a strong influence on the economies of all countries, particularly in the fast-changing and increasingly competitive global market (Aharoni 1994). They have been a major engine of economic growth and technological progress (Mulhern 1995). Small enterprises are often more fertile than larger firms in terms of innovation (Carrier 1994). The features of small firms such as flexibility, innovativeness, and problem-solving action orientation are now being considered as vital for success. Even large companies have attempted to implement entrepreneurship and have learned to think like a small business (Chittipeddi & Wallett 1991).Moreover, many small businesses have been started with a minute budget and they thus provide unique opportunities for the founders – as well as their staff – to obtain financial freedom.

Our team is influenced by Robert Kiyosaki’s concept of financial freedom (see Kiyosaki 1997,1998, 1999, 2000, 2002).2 Essentially, financial freedom can be achieved when the passive income (which is achieved through assets rather than work) exceeds one’s expenses. Kiyosaki defines assets as income-generating ventures such as real estate or the stock market. One of the safest investments, which also offers unique tax advantages, appears to be owning a business, specially when there is a fit between opportunity, team and resources.

Consequently, we are highly motivated investigating the hypothesis outlined in the previous section.2. Review of the Pertinent LiteratureIn the following literature review, we will look at many different angles on strategic competence. Once we dug deeper, we discovered that there is a rather amazing array of literature on the topic. The Journal of Small Business Management alone turned out to be a veritable treasure chest. In fact, we feel that in the following literature review, we are essentially only scratching the surface, and we are thus hardly in the position to state whether or not there are any gaps in the literature.Regarding methodological questions, we mostly relegate this information, wherever we have deemed it important, to footnotes, in order not to distract too much from the main content. On the question of theories, it does not seem to be the case that any major theories have been developed on the issue of strategic competence.

To some extent, we will discuss the seminal writings of strategy gurus such as Michael Porter and Peter Drucker, but when it comes to many empirical articles, the research results are rather narrow and precise and just add to a very complex and probably forever-incomplete mosaic structure. In our opinion, this is not a bad thing as grand theory may not be as reliable and empirically valid as the long and arduous process of grounded theory.From a practitioner’s point of view, theory may not be quite as interesting as the many snippets of real-life experiences which we will summarize in the following literature review.

So whenever possible, we will refer to practical conclusions, applications, and implications which have been derived in the context of the reviewed literature.To our knowledge, the most detailed and current account of our issue is found in Vozikis and Mescon (2002). We shall thus start with outlining the argument found there.2.

1 Vozikis and Mescon (2002) on the Strategic Competence of Small BusinessesVozikis and Mescon argue convincingly that small business ventures can compete in an era of corporate giants if they are able to effectively implement a market strategy in a competitive environment (2002: 84).3 Most small venture success stories hinge on satisfied customers and innovation. In the US, the saying is famous that “the customer is always right” (Vozikis ; Mescon 2002: 85).4Vozikis and Mescon argue that a small firm has distinctive advantages and disadvantages vis-�-vis a big business, as small firms have their own strategic competence, their own edge in the business world, their own abilities, fitness and means for survival (2002: 85).In the following bullet points, we summarize the strategic competence of small businesses, as discussed by Vozikis and Mescon (2002: 86-7):; Low need for co-ordination.; High degree of inherent flexibility.

; No need for sophisticated control mechanisms.; No costly sophistication.; Environmental scanning is less important.; Emphasis on effectiveness, not efficiency.; Emphasis on satisfying specific customer needs.; Experience curve learning effects.

; Short-term time-horizon and flexibility.; Small business owners are experienced general managers.; Decentralization; fewer hierarchical levels.; Entrepreneurs change and innovate quickly – they ask “why not?”; Intuition’s role in creativity, innovation, and change is indispensable,> Small firms are dynamic as theyo act to seize opportunities,o react to threats, ando proact to create opportunities.> Entrepreneurs “satisfice.”5While this appears to be a comprehensive list, it is useful to also consider what Vozikis and Mescon appear to conceive of as the most important advantages of small firms. In their analysis, flexibility is the small firm’s most important advantage.

Moreover, the small firm should:* Constantly redefine its strategic competence. A venture’s strategic competence can be redefined through:> Basic marketing and pricing strategies that flout industry norms.> Goal-oriented and rigorously trained sales force with tight parameters and attitudes.> A focus on profitability.* Continuously identify “strategic windows” (Abell 1980: 224).* Emphasize effectiveness rather than efficiency6* Identify its strategic flexibility tactics:> act to seize opportunities,> react to threats,> proact to create opportunities, and> ignore a threat or an opportunity (Vozikis & Mescon 2002: 88-92).

7However, small firms can also outperform large firms in terms of efficiency and economies of scale!Good strategic competence management requires careful considerations of the following managerial skills:(1) industry structure considerations(2) opportunity identification and evaluation considerations(3) obtaining, managing, and controlling resources considerations;(4) managing the strategic and operational elements of the business; and(5) professional development skills.Vozikis and Mescon recommend five guidelines for enhancing new venture performance (2002: 92-3):(1) Focus on industries facing substantial technological or regulatory changes, especially those with recent exits by established competitors.(2) Seek industries whose smaller firms have relatively weak competitive positions.(3) Seek industries in early, high-growth stages of evolution.(4) Seek industries in which it is possible to create high barriers to subsequent entry.(5) Seek industries with heterogeneous products that are relatively unimportant to the customer’s overall success (see Hofer ; Sandberg 1987: 13-17).Entrepreneurs must plan and develop an entrepreneurial strategy that matches successfully their strategic competence and the unique characteristics of the industry that they intend to enter.

Industry structure is a key factor in the success of a new entrepreneurial venture. We mention here in parenthesis that Barney did a thorough analysis about how industry structure affects the opportunities of firms and what strategies they should adopt. The following table adopted from Barney (2002:110) is very useful and should be considered very carefully.

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