Three internal organisational factors, namely structure, age and size keep recurring in the strategy-making literature as issues that may influence the relationships between strategy making process and firm performance (e.g. Gibson & Cassar, 2002; Lyon, Lumpkin &
Dess, 2000; Miller, Droge & Toulouse, 1 988) and are discussed as follows:
a) Organisational structure
Organisational structures can be placed on a continuum, ranging from formal to informal. B ums and Stalker ( 1 96 1 ) call it mechanistic and organic structures. Mechanistic structures are typ ically found in stable conditions and exhibit characteristics such as specialisation of tasks, well defined reporting lines, control, authority, an established hierarchy which is reinforced by the location of knowledge of actualities at the top, a tendency for vertical i nteraction, and an insistence on loyalty and obedience to superiors. This structure is not expected to be as prevalent in SMEs as the organic structure. An organic structure is characterised by flexible administrative relations, informality and delegation. These structures are believed to facilitate innovation. SMEs often have organic structures that 'develop around the interests and abilities of the entrepreneur and are likely to be organic and loosely structured' (Beaver & Jennings, 2000, p. 399). Many authors suggest that organic organisational structures allow for rapid organisational response to changing external forces in unpredictable environments, something that is not typical of mechanistic structures (Bums & Stalker, 1 96 1 ; Covin & Slevin, 1 989; Lawrence & Lorsch, 1 976).
The pervasiveness of organic structures in small businesses is supported in the l iterature. M intzberg ( 1 979) describes his simple structure as organic with little formalisation, standardisation and one or a few top managers. He further explains that this firm must be flexible because it usually operates in a dynamic environment. These firms are young, small and often vulnerable. Mintzberg proposes that entrepreneurial firms are classic examples of firms with this structure. The simple structure of Mintzberg is similar to the organic structure of Bums and Stalker. Dess, Lumpkin and McGee ( 1 999) describe three
organisational designs that are effective in reducing boundaries, namely the modular type that focuses on its core functional activities and outsources non-core activities to outside specialists, the virtual type that is part of a continuously evolving network of independent businesses, sometimes also called the networked-organisation, and the barrier-free type that typically has fewer layers of management, smaller business units, process teams or interdisciplinary work groups, empowerment, open communications and management willingness to seek close integration and co-ordination internally and external ly. This study therefore explore SMEs for the existence of organic structures in small businesses which may impact on. managerial processes, including strategy-making, that are used by these firms. In this study, the structure of S MEs will be measured on a scale ranging from mechanistic to organic, and its relationship with strategy-making will be investigated.
b) Age
Research has found that firm actions may vary at different stages o f its existence. Greiner ( 1 972), for example, suggests that this may be a result of institutionalisation of behaviours and attitudes, and. that few practices can be maintained over a long period of time. Mintzberg ( 1 979) proposes that older firms will exhibit more formal behaviours. More speci fically, Cooper ( 1 979) describes the strategy-making processes of small firms in the earlier and later growth stages. He explains that in the earlier growth stages methods are informal, with few policies and direct control. Furthermore, assumptions underlying decisions are sometimes faulty because they are based on l ittle information about the situation . . In the l ater growth stages, delegation of some duties by the founder occur and
hislher job becomes more strategic in nature. More formal processes are introduced in communicatiO.n, policies and control. Even though the growth may free the founder up to be' more involved in. planning, he/she may also ' lose touch' which may hamper environmental analysis and strategy implementation. At the same time firms that are growth orientated may·engage more in innovation because their, processes are still far less formal than that of l arge firms. It is therefore possible that strategy-making and its antecedents may differ depending on the age of the firm. This study investigates whether fi rm age influences the strategy-making process in SMEs.
c) Size
Size is one of the determining factors of this study as the research focuses on firms with
fewer than 1 00 employees. Researchers have maintained for many years that large firms
possess numerous advantages over small firms (Baumol, 1 967; Hall & Weiss, 1 967, Hart &
Banbury, 1 994), also in regard to their l ikelihood to make strategy. They base their
argument on an assumption that strategy-making is a formal process which does not suit small businesses. Furthermore, it has been argued that strategy-making has to be a formal process to lead to firm success. Whether this argument is valid is one of the questions posed in this thesis.
However, more recent strategy-making research has shown that certain advantages accrue to smaller firms with low market share (Dean et al., 1 998). In a comparative study of 28 small and large airlines, Chen and Hambrick ( 1 995) find that competitor actions and responses differ according competitor size. Smaller businesses initiate competitive challenges more actively, are speedier and more secretive in executing their challenges. Other advantages that small firms possess over larger firms, include their ability to seek out protected market niches that are too small or not important enough for larger firms (Porter, 1 980), that they are seen as quicker due to structural simplicity, streamlined operations and the l imited number of competitive moves (Chen & Hambrick, 1 995), a lack of structural inertia (Rannan & Freeman, 1 984), entrepreneurial and risk orientated leadership (Hitt, Hoskinsson & Harrison, 199 1 ) and innovativeness. The inabi lity of small businesses to bring their i nnovations to the market is one of their most limiting weaknesses (Dean et al., 1 998). However, Chen and Hambrick ( 1 995) caution that small firms can only be as successful as their larger rivals if they employ competitive strategies that are suitable for them . The impact of firm size on the relationship between the mode of strategy-making and firm performance is therefore extremely important to this study which focuses on small fi rms.
This section identifies a selection of factors from the firm's external, industry and internal environments that can possibly have an influence on the relationships between strategy making and fi rm performance. These factors represent what Pettigrew ( 1 987) terms the '.context' factors of strategic management. In the subsequent section the ' content' factors in the form of business (competitive) strategies will be discussed.
3 . 6
STRA TEGY TYPOLOGIES
Strategies are the ' intended or unintended actions taken to match the [ firm] with its environment' (Segev, 1 987, p. 565) ' that enables it to achieve its goals and objectives (Chrisman, Hofer & Boulton, 1 988, p. 4 1 4). Chrisman et al. ( 1 988) explain that ' strategy represents the content outcome of the strategy formulation process' (p. 1 43). Firms can have single or multiple strategies, and these strategies can exist on corporate level (corporate or grand strategies), business level (business, competitive or generic strategies) and functional level . Although SMEs employ a variety of functional strategies, these strategies seldom determine the strategic direction of the firm. Researchers, as shown in this section, therefore concentrate on the impact and effect of corporate and business strategies on SME performance. However, few smaller firms can divide their organisation and therefore strategies into a formal corporate and business level (Hofer, 1 975). Furthermore, most studies that investigate the strategies o f SMEs focus on business strategies. H ence, this section investigates the business strategies that are employed by SMEs.