Small Business

Much of the organizational and business literature has focused on the practices and processes used by large firms (Robinson et al. 1979; Webster & Wind, 1972; Sheth, 1973; Kohli, 1989). Unfortunately, there is much less research concerning these practices in small firms or concerning how the size of a firm might affect the application of these practices (Pearson & Ellram, 1995; Adams et al. 2012). Little information exists about buyer–supplier relationships within small business organizations (Quayle, 2002) and practitioners and researchers often assume that purchasing practices that work in large organizations are also appropriate for use in smaller organizations (Gibb, 2000). The result has been that organizational buying theory is dominated by a default paradigm of large manufacturing organizations (Wilson, 2000).

However, are the theories and dynamics true for small businesses as well (Adams et al. 2012)? Given its sheer size, it is surprising that small business research has received relatively limited focus. Small businesses represent the lifeblood of the economy (Hausman, 2005). In the U.S., approximately 98.2% of all firms have payrolls of fewer than 100 employees (U.S. Census, 2012). Companies with fewer than 20 employees comprise 89.6% of all firms. This

concentration exists across all industrial verticals in the U.S. with the lowest concentration of firms with fewer than 20 employees being NAICS codes 55- Management of Companies and Enterprises (66.2%) and 22- Utilities (69.5%). The NAICS codes with the highest concentration include 53- Real Estate and Rental and Leasing (95.8%) and 11- Agriculture, Forestry, Fishing and Hunting (93.6%). Entire industries are effectively comprised of small businesses.

The observation that very few businesses are actually large is not unique to the United States. In Europe, for example, firms with fewer than 50 employees for 99.8% of all enterprises and account for two-thirds of all employment (European Union, 2013). Micro firms, those with

fewer than five employees, comprise more than 92% of all enterprises. In Germany, 98.7% of all enterprises have fewer than 50 employees (European Union, 2013) while in the United Kingdom firms of this size account for 97.9% of all businesses (U.K. Office of National Statistics, 2014).

While the cumulative research on small firms is overshadowed by its larger counterparts, small company research has gained recognition within academia, attracting attention from

researchers originating in the fields of organization theory, strategic management and economics, among others (Ellegaard, 2006). Indeed, research on small companies has evolved and grown during the last two decades (Christensen, 2003). Given the sheer aggregate size of small companies, there’s little question why there have been calls for increased research into small business purchasing (Quayle, 2002; Ellegaard, 2006).

Purchasing is a critical task within the small firm as it is particularly dependent on external resources due to its limited size and internal resources (Ellegaard, 2006). Purchasing is more than just the ordering of goods as oftentimes vendor relationships form an integral part of the small business’s competitive intelligence system: a firm's purchasing strategy can be just as important as its merchandising or marketing strategy (Dollinger & Kolchin, 1986). All business must address its market environment and, in large firms, this is usually left to what is referred to as “boundary roles” (Aldrich & Herker, 1977). These functions and the employees who fill their roles find themselves at the boundary of the organization for the purpose of effecting transactions within the firm's environment. In larger organizations, these roles may include marketing and sales, purchasing, personnel, government relations, and so forth. For the small business, many of these roles are performed by the small business owner/operator (Dollinger & Kolchin, 1986).

Unlike the dominant buying center literature that suggests multiple members representing various functional organizations, small business purchasing seems to be meaningfully different.

In an evaluation of small and medium sized firm (SME) purchasing literature, Pressey et al. (2009) identified that purchasing in SMEs generally falls within the remit of the owner or a key few employees and that it is not viewed as a separate function but is an integral part of running a company (supported by Gadde & Ha˚kansson, 2001) which oftentimes is the responsibility of the owner-manager (Ellegaard, 2006; Dollinger & Kolchin, 1986). Due to fewer resources and a lack of ability to specialize, purchasing may actually mean more to small firms so as to

maximize scarce investment capital (Quayle, 2002). Celuch, Goodwin, and Taylor (2007) found that small-scale firms were likely to consist of an individual buyer rather than a purchasing group as found in larger organizations. This aligns with Crow and Lundquist’s (1985) contention that as the size of the firm increases, the number of individuals involved in the purchase decision increases. This is consistent with the general observation that larger firms require more

specialization and, therefore, more individuals will be engaged in purchase processes. However, this is not always the case, even in large firms. In a study investigating potential mediating variables on whether vendor selection decisions are made by individuals or a buying group, Patton et al. (1986) identified that in certain type of purchases, 74.2% of decisions were made by individuals, not groups.

As the NAICS Code data indicated, a preponderance of business transacts among smaller organizations within large established industries. Take, for example, the three trillion-dollar healthcare industry (Munro, 2012). In a survey of U.S. physicians, Campbell, Gruen, Mountford, Miller, Cleary and Blumenthal (2007) identified that 68% of doctors’ primary practice organizations were either group practices or “solo or two-person” practices. Interacting with these medical professionals are individual sales representatives from the $325 billion U.S. prescription industry (Staton, 2012). IN 2002, more than $4.8 billion was spent specifically on

detailing, the one-on-one promotion of drugs to doctors by pharmaceutical sales representatives – “drug reps” (Fugh-Berman & Ahari, 2007). Pharmaceutical information is critical to the medical doctor as the selection of an individual drug for a particular patient is one of the most important clinical decisions in office-based medical practice (Soumerai et al. 1989). Physicians in solo, two-person, or group practices – the majority of U.S doctors – may have more freedom in their prescribing choices than their counterparts in hospitals and clinics, which frequently limit the prescribing autonomy of physicians (Campbell et al. 2007). In this example, prescription drugs in the U.S. are prescribed by individual decision makers (medical doctors), employed by their own small businesses, to the tune of $325 billion annually, influenced by the type and amount of specific sales activities of individual drug reps. In essence, this industry transacts B2B commerce between only two individuals, one representing the buyer and one representing the seller with the patient (consumer) ultimately the one responsible for commiting resources.