editorial overview: small business, entrepreneurship and enterprise development

Strat. Change, 9, 397–403 (2000)

Strategic Change, November 2000Copyright Þ 2000 John Wiley & Sons, Ltd.

Graham Beaver* Editorial overview:Nottingham Business School, The NottinghamTrent University, Nottingham, UK Small business,Peter Jennings entrepreneurshipUniversity of Southampton School ofManagement, Southampton, UK and enterprise

development

This special edition of Strategic Change isdevoted to the increasingly important con-tribution of small firms and emerging enter-prises and contains an interesting andstimulating collection of papers from a selec-tion of prominent contributors reflecting vari-ous approaches, positions, attitudes andresearch outcomes.

Small business, entrepreneurship andenterprise development are subjects that fas-cinate both the business community andsociety as a whole. The people who startand develop small firms are often reveredas entrepreneurs—the self-made people oftoday who have generated their own wealthrather than inheriting it. A great deal ofserious academic research has been devotedto studying these individuals and the busi-nesses they create and develop. Both theserious and popular press invariably containstories that describe the personal and businesslives of exceptionally successful entre-preneurs and owner-managers who are fre-quently cited as the role models that everyaspiring business graduate and enterprisingmanager should seek to emulate.

Small firms remain much easier todescribe than to define and to this day

* Correspondence to: Graham Beaver, Department ofStrategic Management and Marketing, Nottingham Busi-ness School, The Nottingham Trent University, ChaucerBuilding, Burton St, Nottingham, NG1 4BU, UK. E-mail:[email protected]

there is no generally agreed operational ornumerical definition of what constitutes asmall business (see Appendix). Countries and,in many cases, individual institutions withinthem have developed classifications and defi-nitions that reflect their own particularrequirements. These criteria tend to reflectthe nature and composition of that country’seconomy. Definitions and understandings mayalso reflect the nature and context of theindustrial sector or market under con-sideration—for example, different criteriawould be considered appropriate for firmsengaged in manufacturing, construction,retailing, hospitality and tourism, professionalservices, E-commerce and so on.

The role and importance of small busi-nesses to the economies of both developedand developing nations has been the subjectof substantial research, particularly in the lastthree decades. This was mainly due to thebelief that a prosperous and dynamic small-business sector was crucial to the overallperformance of a domestic economy. Manygovernments have promoted their small-busi-ness sector as the way forward out ofrecession, claiming that new and emergingenterprises create jobs, economic prosperity,competitive and structural balance, consumerchoice and personal opportunity. The sectoris also thought to act as a natural brake onlarge-company dominance and the misuse ofmonopoly power for competitive advantage.

Graham Beaver and Peter Jennings

Copyright Þ 2000 John Wiley & Sons, Ltd. Strategic Change, November 2000

398

There are many reasons why such views stilldominate the socio-economic, cultural andpolitical agendas of governments in indus-trialized countries across the world.

First, since the early 1980s, most indus-trialized nations have experienced a sub-stantial restructuring of their economies. Thisled to a considerable growth in the numbersof small enterprises in general and micro-firms (those employing less than 10 people)in particular.

Second, a general decline in manufacturingand the substantial growth of the servicesector resulted in smaller firms becomingmore important and efficient within bothtraditional and emerging industries.

Third, the apparent flexibility of smallerfirms in responding to market changes andopportunities placed them at the forefront ofeconomic thought and policy initiatives. Theresulting ‘enterprise culture’ (Carr, 1999),articulated by a number of governmentsacross the world, has had an important andenduring impact upon domestic economicpolicies aimed at reducing unemploymentand inflation rates and revitalizing flaggingindustrial and commercial sectors. For theforeseeable future, small businesses are likelyto retain their crucial position both withindomestic economies and across an increas-ingly international and global stage.

However, the reality behind the popularperception of the smaller enterprise is oftenvery different. Successful business devel-opment demands shrewd and careful man-agement, innovative approaches to strategicthinking and decision-making, substantial per-sonal risk and a great deal of hard work. Thefailure rate of new firms, especially in theirearly years, is still unacceptably high, withthe attendant social and economic cost caus-ing real hardship for the ill-prepared and theunwary. After some 30 years of enterpriseresearch, it is now generally accepted that

There is nothing automatic about thebirth and development of a ‘successful’small firm. It has to be planned andmanaged from the top against a seem-

ingly endless array of internal and exter-nal constraints. (Beaver and Jennings,1995)

Successful small firms, especially those pur-suing growth and business development, donot just materialize or evolve, regardless ofthe frequent policy hype and statements ofwishful and ill-informed thinking. They haveto be planned and managed to overcome theproblems associated with enterprise fragilityand small scale. Obstacles such as resourceand positional disadvantage, assembling andorganizing ‘the credibility merry-go-round’(Birley, 1996) and achieving the requiredstrategic and professional posture necessaryto sustain competitive advantage are fun-damental considerations that require sensitiveand imaginative management thinking andattention.

Furthermore, (and recognizing somenotable exceptions), small firms have notbeen particularly successful in reducingunemployment or counterbalancing the mar-ket domination and influence of large busi-ness organizations. Many ‘entrepreneurs’ donot fit the classic economic stereotype ofprofit maximizers and seek only inde-pendence and control, deliberately ignoringopportunities to grow and develop the enter-prise beyond a given point (Beaver and Lash-ley, 1998). It must be remembered that manyentrepreneurs and owner-managers definesuccess in much more narrow terms thanexternal stakeholder groupings and the publicin general. These individuals seem to beoblivious of the benefits that they can orshould provide to the wider community. Forthem, success is internally defined and mea-sured. Undoubtedly, such enterprises shouldbe regarded as successful in these terms, butit is questionable whether in times of scarceresources such firms should receive assistancefrom the public purse. What is clear is thatthe application of singular and account-ancy-driven notions of business successand their relevance to the small-firm sec-tor are not only inappropriate but naı̈veand dangerous.

Editorial overview


399

Strategy, management andcompetitive advantage

The management process in the smaller enter-prise is not simply different from its largecounterpart—it is special and frequentlyunique. Indeed, it bears little or no resem-blance to the management processes found inlarger organizations that have been the subjectof substantial academic research, resulting innumerous constructs, prescriptions, theoriesand models (Jennings and Beaver, 1997). Inthe larger enterprise, competitive advantage isoften created deliberately as a result of explicitpolicies designed to minimize operating costsor achieve product and service differentiation.Consequently, strategic management becomesprimarily a predictive process, concerned withthe articulation, clarification and com-munication of long-term objectives, the for-mation of intended policies to attain them andthe feedback of information to indicate suc-cessful or unsuccessful achievement of pre-determined goals (Faulkner and Johnson,1992; Johnson and Scholes, 1999).

In contrast, competitive advantage in thesmaller firm frequently arises as a result of theparticular operating circumstances sur-rounding the enterprise. Here, strategic man-agement becomes primarily an adaptiveprocess, concerned with adjusting and man-ipulating a limited amount of resources, inorder to gain the maximum immediate short-term advantage. In the smaller firm, man-agement efforts are concentrated not on pre-dicting and controlling the operatingenvironment but on adapting as quickly aspossible to the changing demands of thatenvironment and devising suitable tactics formitigating the consequences of any threat-ening changes that occur.

For the majority of small enterprises, themanagement process is characterized by thehighly personalized preferences, prejudicesand attitudes of the entrepreneur and/orowner-manager. The nature of managerialactivity expands or contracts with the charac-teristics of the person occupying the role. Suchexpansion or contraction is conditioned bothby the adaptive needs of the industrial context

in which the business operates and on thepersonality sets and needs of the key actors.Consequently, the management process in thesmaller enterprise cannot be viewed in iso-lation from the management capabilitiesrequired of the key actors together with thetechnical skills relevant to the operating con-text of the business.

Another frequent characteristic in the man-agement process is the closeness of the entre-preneur/owner-manager to their employeesand the business activities expected of them.This provides the key actors with extra-ordinary opportunities to influence theiremployees and their activities directly. Fre-quently, these relationships are informal, withno precise definition of rights and obligations,duties and responsibilities. Appointments andpromotions are often made on the basis of birthor personal friendship rather than on the basisof educational or technical qualifications andabilities. Organizational structures, in so far asthey exist, are likely to develop around theinterests and abilities of the entrepreneur andare likely to be organic and loosely structuredrather than mechanistic and highly formalized.Thus, the exploitation of competitive advan-tage in the smaller enterprise is seldom a read-ily visible process. It often has an abstractrather than explicit form with strategic man-agement being practised instinctively.

In their summary of principal research fin-dings and conclusions regarding strategicissues in entrepreneurial ventures and smallbusinesses, Wheelen and Hunger (1998) con-clude that

Such enterprises are managed far moreinformally than are the large establishedcorporations discussed elsewhere in thisbook, with many of the more popular stra-tegic management concepts and tech-niques like portfolio analysis, of verylimited use and applicability. Small, rap-idly growing companies tend to follow theentrepreneurial mode of strategy for-mulation—characterized by bold movesand intuitive decisions. The time frame isoriented to the short run. Once the com-pany has opened its doors, management’s



400

concerns are for operations, not strategicplanning.

There is, however, a substantial and growingbody of research to support the conclusionthat small firms that engage in strategic man-agement outperform those that do not. Thisdoes not mean, though, that formal organ-izational procedures are either desirable ornecessary (see, for example, Storey, 1997–1998). It is the process of strategic planning,not the plan itself that appears to be the keycomponent of business performance. Fur-thermore, there are important differences inthe implementation process. The primary dif-ference being that, in many smaller firms, thekey actors are invariably responsible fordeveloping implementation plans and carryingthem out. Consequently, many small firmentrepreneurs and owners tend to make littledistinction between strategy formulation andimplementation. Similarly, the conduct ofevaluation and control is often very differentin smaller enterprises, with procedures oftenmuch less formal and often considerably fasterthan in their larger counterparts. Furthermore,many smaller enterprises are often run on acash basis and have minimum reportingrequirements.

Competitive advantage in small firms isan elusive concept. It is fashioned by theactions and abilities of the key players andowes much to their personal perception ofwhat constitutes satisfactory performance,business reward and strategic direction.Equally, strategic management in small firms isoften enacted in a highly personalized mannerand is strongly influenced by the personalitiesand characters, disposition, experience andabilities of the key actors. Researching smallbusiness management performance and thequest for competitive advantage is fraught withdifficulties, (see, for example, Beaver and Jen-nings, 1996). The relationship between enter-prise performance, management actions (orinaction) and the value and contribution ofstrategy is extremely tenuous and very difficult,if not impossible, to demonstrate conclusively.Only those persons immediately affected byorganizational events have sufficient knowl-

edge of the precise circumstances to be ableto suggest accurate cause-and-effect relation-ships.

However, the entrepreneur must fulfil anumber of basic managerial functions, rolesand duties for the business to succeed andachieve a measure of competitive advantage.Logically, it follows that a lack of attentionto these fundamental managerial activities andtasks will, at best, lead to sub-optimal per-formance and may even threaten the survivalof the enterprise. It also follows that the inter-relationship of the firm with its specific opera-ting context and the achievement of its stra-tegic ambitions requires managerial attentionto flexibility and adaptability.

The entrepreneur is, therefore, frequentlysubject to a number of competing and con-flicting influences that may cause real disson-ance, leading to erratic, unpredictable andsometimes unacceptable behaviour. This is intotal contrast with the rational, professionaland expected management bearing portrayedby Mintzberg (1973) and others. Frequently,the power that accompanies majorityownership cannot be challenged by otherstakeholders in the small firm. Therefore,the ability of the entrepreneur to cope withabsolute power and leadership responsibilityhas a significant impact on the survival anddevelopment potential of the business. For anyfirm to remain successful over a sustained per-iod there must be a capability to adapt to chan-ging circumstances. The much-cited work ofGreiner and his model of business growth(Greiner, 1972) shows that failure to adapt toa series of ‘crises’ caused by growth is one ofthe principal causes of failure for all organ-izations. It follows, therefore, that one of theprimary ingredients of small business successand longevity must be the managerial com-petence of the entrepreneur.

There needs to be a wider recognition andacceptance of several factors that are peculiarto the small business operating context. Forexample, the studies by Grieve-Smith and Fleck(1987), using a case study approach to examinethe business strategies in small high-tech-nology firms in the Cambridge area, raises sev-eral interesting managerial issues. They note

Editorial overview


401

that small enterprises can experience real dif-ficulties in developing or obtaining the appro-priate managerial talent, since they cannotprovide the salaries and accompanying ben-efits that managers from large organizationscan reasonably expect to obtain. Furthermore,their work illustrates several other importantissues worthy of note.

For instance, they refer to the founders ofcertain companies being conscious at the out-set of the need to recruit external managersand to appoint these individuals from largercompanies, presumably to facilitate businessgrowth and development. Additionally, theyrefer to the need to attract managers withadditional skills to those already in the firm,to complement the expertise on which thecompany was based. This would suggest thatthe business founder(s) had the objective to‘construct a balanced managerial team’ asone of the prime drivers in attaining enterprisesuccess and performance. It is also a factorthat may well dramatically reduce the risk ofbusiness failure. It must be emphasised,however, that there are many types and cat-egories of small business, each with its owndistinctive operating context. Equally, thereare many ways of organizing and managing inthe search for sustainable competitive advan-tage and commercial success. There is an evengreater diversity of small-firm owners, man-agers and entrepreneurs with varying motiv-ations, abilities and expectations. Caution,therefore, should be exercised here, for itwould be unwise and simplistic to focus simplyon high-technology firms, or indeed any sector-specific research, as a basis on which to makegeneralizations about management strategiesfor enterprise growth and failure prevention.

The analysis of the managerial contributionto small-business success and failure mustacknowledge the factor of disadvantage,owing not only to the size and resource baseof the firm but also the nature of the operatingcontext and the relatively ineffective businesssupport infrastructure (Beaver and Murphy,1996; Jennings and Beaver, 1997). This is par-ticularly relevant to certain industries thatattract a large small-firm population, because,amongst other things, barriers to entry are rela-

tively low. A good example would be the hos-pitality industry in the UK. Here is an instancewhere many potential business practitionersfeel that they have the technical and operatingcompetencies for success because of thestrong link between hospitality and domesticservices. For some entrants, the attractions ofcatering and entertaining friends can be verymisguiding. However, successful hospitalitymanagement requires an array of com-petencies that extend way beyond merelybeing hospitable (Beaver and Lashley, 1998).

There have been many studies reporting onthe management customs and practices insmall firms. For example, Nicholson and West(1988) illustrate the many significant dif-ferences between managers in small and largefirms, confirming the presence and nature ofdisadvantage. Furthermore, there is some evi-dence provided by Charles Handy (1988) in hisinternational review of the education, devel-opment and training of managers that

Small Companies are different. In no coun-try do they take the same long-term viewof management development, nor are theyprepared to spend time and money on anyform of training that does not have analmost immediate pay-off.

To conclude this editorial overview, man-agement processes in small firms aredifferent and special and should berecognized as such. Much of the con-temporary strategic management theory andthe popular techniques currently in vogue arefounded upon the empirical analysis of mana-gerial actions and behaviour in large organ-izations (Rigby and Gillies, 2000). Theseprinciples, no matter how refined, cannot beapplied directly to the smaller enterprise.While common managerial skills need to be inevidence in many organizations, the con-textualization of these skills to meet therequirements of the small-business operatingenvironment is distinctive.

The attainment of competitive advantage formany small-enterprise contexts is easier todescribe than to define. It is fashioned by theactions and abilities of the entrepreneur and



402

the principal actors in the enterprise and owesmuch to their perception of satisfactory per-formance and strategic leadership. Growth anddevelopment of the small firm brings with itmany challenges, especially in terms of theseparation of ownership and control. The del-egation and professionalization of man-agement activities invariably demand lesspersonalized and consequently more formalapproaches to corporate strategy.

Our final comment is to remind all thoseinterested in, and committed to, small businessand enterprise development of the statementfrom Porter (1987) taken from his resumeabout strategy and entrepreneurship:

There are no substitutes for strategicthinking. Entrepreneurship unguidedby strategic perspective is more likelyto fail than succeed.

Biographical notes

Graham Beaver is Professor of Business Devel-opment at Nottingham Business School and theEditor of Strategic Change. He has publishedwidely in the areas of small business, entre-preneurship and strategic management and hasrecently been appointed a Fellow of the Centrefor SMEs at Warwick Business School.

Peter Jennings is a Senior Lecturer in StrategicManagement at The University of SouthamptonSchool of Management and the Editor of theJournal of Small Business and EnterpriseDevelopment. He is a leading authority onsmall business and entrepreneurship and amember of the Institute for Small BusinessAffairs.

References

Beaver G, Jennings PL. 1995. Picking winners: theart of identifying successful small firms. InRethinking Strategic Management, Hussey D(ed.). John Wiley, Chichester, UK; 91–106.

Beaver G, Jennings PL. 1996. The abuse of entre-preneurial power: an explanation of managementfailure? Strategic Change 5: 151–164.

Beaver G, Lashley C. 1998. Competitive advantageand management development in small hos-pitality firms: the need for an imaginativeapproach. Journal of Vacation Marketing 4:145–160.

Beaver G, Murphy M. 1996. Carpentry and Joinery(Nottingham) Limited: a case study in enterprisesupport and development. Journal of Small Busi-ness and Enterprise Development 3: 28–33.

Birley S. 1996. The Start Up. In Small Business andEntrepreneurship, Burns P, Dewhurst J (eds).Macmillan: Basingstoke, UK; 20–39.

Bolton JE. 1971. Report of the Committee of Inquiryon Small Firms. Cmnd 4811, HMSO, London.

Carr P. 1999. The Age of Enterprise: The Emergenceand Evolution of Entrepreneurial Management.Blackhall: Dublin.

Faulkner D, Johnson G. 1992. The Challenge ofStrategic Management. Kogan Page: London.

Greiner L. 1972. Evolution and revolution as organ-isations grow. Harvard Business Review,July/August: 24–36.

Grieve-Smith A, Fleck V. 1987. Business strategiesin small high technology companies. Long RangePlanning 2: 61–68.

Handy C. 1988. Making Managers. Pitman:London.

Jennings PL, Beaver G. 1997. The performance andcompetitive advantage of small firms: a man-agement perspective. International Small Busi-ness Journal 15: 63–75.

Johnson G, Scholes K. 1999. Exploring CorporateStrategy, 5th edn. Prentice Hall: London.

Mintzberg H. 1973. The Nature of ManagerialWork. Harper and Row: New York.

Nicholson N, West M. 1988. Managerial JobChange. Cambridge University Press: Cambridge.

Porter ME. 1987. The state of strategic thinking.The Economist, 23 May.

Rigby D, Gillies C. 2000. Making the most of man-agement tools and techniques: a survey from Bain& Co. Strategic Change 9: 269–274.

Storey DJ. 1994. Understanding the Small BusinessSector. Routledge: London.

Storey DJ. 1997–1998. The Ten Percenters: fastgrowing SMEs in Great Britain. 1st, 2nd, 3rd and4th Reports, Deloitte Touche Tohatsu Inter-national, London.

Wheelen TL, Hunger JD. 1998. Strategic Man-agement and Business Policy, 6th edn. Addison-Wesley: Reading, MA.

Editorial overview


403

Appendix

Discussions about how to define small firms inthe UK invariably begin with reference tothe Report of the Committee of Inquiry onSmall Firms (The Bolton Report), publishedin 1971 (Bolton, 1971). This is not surprising,because not only was it critical in estab-lishing the importance of smaller enterprisesin the minds of officials, policy-makers andacademics but its deliberations on the ques-tion remain pertinent to some extent to thepresent day. The Committee adopted severaldefinitions of a small firm as follows:

ž in economic terms, a small firm is one thathas a relatively small market share;

ž it is managed by its owners or part-ownersin a pesonalized way and not throughthe medium of a formalized managementstructure; and

ž it is independent, in the sense that it doesnot form part of a larger enterprise andthat the owner-managers should be freefrom outside control and inter-ference in taking their principaldecisions.

Despite the passing of almost 30 years sincethe publication of the Bolton Report, thereis still not ‘a single, uniformly acceptable,

definition of a small firm’ (Storey, 1994).What emerges from a comprehensive reviewof the small business literature is a panoplyof definitions, which are justified by theirusers on the basis of their value to particularprojects. In order to meet the perceivedimperative of facilitating comparisonbetween sectors and Member States, the Eur-opean Commission recently adopted a com-mon definition of small and medium-sizedenterprises (SMEs) that emphasizes numbersof employees as follows:

ž micro-enterprises (or very small firms)—employ between 0–9 people

ž small enterprises — those with 10–99people

ž medium enterprises — those with 100–499 people

The major advantage of the EC definition isthat, unlike Bolton, it does not use any othercriteria other than employment and it doesnot vary its definition according to the sectorof the enterprise. The EC definitions havegained considerable currency in recent yearsand are now used, for example, by many UKgovernment departments in their reportingand comments. However, it should be notedthat the key problem with the EC classi-fication of a SME is that, for a number ofcountries and contexts, it is much too all-embracing.

editorial overview: small business, entrepreneurship and enterprise development

Documents