It is not only the external conditions of a firm that influence the mode of strategy-making, but also the internal conditions that prevail. Four internal factors have been identified in the literature review, namely EO, firm size, firm age and the organicity of the organisational structure. In this section the propositions that accompany both Obj ectives Three and Four are investigated. That means that all four factors are investigated for their moderating influence on the strategy-making - firm performance rel ationship, but also for how strategy-m aking wil l differ depending on the type o f firm, namely its EO, organicity, size or age. Firstly, the entrepreneurial nature of the firm is i nvestigated.
a) Strategy-making and EO
The entrepreneurial nature of a firm may influence the relationship between strategy making and firm performance as well as the approach to strategy-making that a firm empioys. Entre
p
reneurial firms have been found to employ a number of modes of strategy making. For instance, Barringer and Bluedorn ( 1 999), in a study of 1 69 manufacturing firms, find support for their hypothesis that a positive relationship exists between a high level of employee involvement in planning and the intensity o f EO. They also find support for their hypothesis that a positive relationship exists between planning flexibility and EO i ntensity. They therefore find that entrepreneurial firms use participative and adaptive modes of strategy-making. This is supported by Ciavarella (2003) who argues that participative or high-involvement processes may be crucial to entrepreneurial firms to enable them to extend desired organisational life stages such as growth, and therefore delay. the bnset of unwanted stages such as decline. 'Although conceptual, this is one of few studies that link these' kinds of processes to smaller or entrepreneurial firms and this study suggests that they 'may hold advantages such as greater innovation, worker motivation, higher customer satisfaction and loyalty and therefore firm performance.
But, reflecting on Section 3 .4, the strongest support is found for the use o f entrepreneurial strategy-making processes in entrepreneurial finns. This section provides an in-depth analysis and comparisori, which is summarised in Table 3 .2, of the entrepreneurial strategy making and EO constructs. This table compares the characteristics of entrepreneurial strategy-making with the aspects of an EO and strategy-making in SMEs. It clearly indicates that the EO and entrepreneurial strategy-making constructs are inexplicitly linked through reoccurring themes such as innovation, risk-taking, autonomy and pro-activeness. At the same time, EO and entrepreneurial strategy-making are not the exact same constructs as some studies suggest (e.g. Dess et aI., 1 997).
Building on the arguments put forward in Section 3 .4, the relationship between these two constructs is better described as follows:
EO is an organisational culture that facilitates the use of entrepreneurial strategy-making processes to make strategy and may lead to the choice of strategies such as growth or differentiation strategies.
This means that entrepreneurial firms will follow an entrepreneurial strategy-making approach. It can therefore be proposed that:
P4a EO will influence the mode of strategy-making that a firm employs, specifically, entrepreneurial firms will employ an entrepreneurial mode of strategy-making
b) Size and strategy-making
S ize has also been found to influence strategy-making and finn perfonnance. As indicated earlier, the general consensus is that large finns are more likely to use rational processes while smaller finns are more likely to use adaptive or participative processes or no strategy making at all. It is even possible that size may be a moderating factor in studies of finn
performance in SMEs (Covin & Covin, 1 990). According to Chen and Hambrick ( 1 995) size is one of the most important variables in firm level studies and its relationship with other variables, such as structure and EO, has been studied widely. The authors explain that finns can be described as small in terms of their number of employees or industry market share. These two approaches are conceptually different but empirically related. This study uses FTEs to detennine the size of the firms in the study.
Rational and entreprenellripl processes -require investment in resources by the firm, usually in the form of human resources and/or money. These resources are used for tasks such as environmental scanning, strategy formation processes, i nnovative processes and to fund risk-taking activities. This indicates a requirement for a larger firm with more resources. T his notion is supported by Gibson and Cassar (2002) who find that larger fi rms with greater sales are more l ikely to employ formal planning. M intzberg ( 1 979) also hypothesises that larger firms will have more formalised behaviours and structures and Schumpeter ( 1 947) suggests that large firm size is a prerequisite for i nnovation and other entrepreneurial activities. This indicates a requirement for a larger or more resource rich firm. But, not everyone agrees that this requirement exists for entrepreneurial strategy m aking. For instance, Khandwalla ( 1 976/77) finds in his study of 1 03 public Canadian companies that entrepreneurial strategy-making is more descriptive of small and medium than large firms. Nevertheless, with SMEs in a Canadian context referring to firms with less than 5 00 employees it can be assumed that rational and entrepreneurial strategy making are more l ikely to occur in larger firms.
Adaptive and participative processes on the other hand can be integrated into the day-to '
day tasks o f the finn and may therefore be more appropriate in smaller finns (Hannon &
Atherton, 1 996; Harris et aI., 2000; van Gelderen et aI., 2000). It is worthwhile to note that other issues may further complicate an exploration of the .relationship between size, strategy-making and finn perfonnance. Studies such as that of Glancey ( 1 998) hypothesise that small fi rms will display lower levels of profitability i f entrepreneurs are motivated' by life style, or when the fi rm grows faster than what the entrepreneur can manage . successfully. Glancey also states that a positive relationship will exist between size and
growth where the owner/entrepreneur exhibits greater levels of entrepreneurial acumen and managerial ability and the firm nears the size that the entreprel1eur feels comfortable with.
In commenting on Objective Three, it can also be noted that size has been treated as a moderating variable in various other studies such as Co.vin and Covin ( 1 990) who find that size has a moderating effect on the relationship between competitive aggressiveness, environmental hostility and firm performance. Hofer ( 1 975) also identifies size as a moderating variable on the relationship between strategy and performance. Lastly, H art and Banbury ( 1 994) find in a study of 720 firms o f all sizes that smaller firms (one to'eight employees) perform better when using single or double modes, while large firms perform better when using three of four modes of strategy-making. It can therefore be proposed that:
P4b Size will inflllence the mode of strategy-making that a firm employs, specifically; smaller SMEs will employ adaptive and participative processes, while larger SMEs will employ rational and entrepreneurial processes
c) Age and strategy-making
It has often been hypothesised that younger firms will act entrepreneurially, while
rationality is something that develops over time (e.g. Mintzberg, 1 973). The assumption is
that formal planning requires experience and resources, which m ay not always be avail able to a young firm. However, Gibson and Cassar (2002) who studied the effect of age on planning practices in S MEs find that very young firms and much older firms employ formal planning processes. This indicates a U-shaped relationship between age and formal planning in small firms. They explain that at the outset of the business this may be a result of the importance of business and project plans, which aim to attract funding, whereafter planning will decline. As the owners/managers of the firm become more experienced and the firm has better resources, planning increases again. One should, however, treat the assumption that the development of a business plan for the purpose of attaining finance
necessarily equates to strategic planning with caution. It seems therefore that this study indicates that older firms are more likely to p lan fonnally or rationally. Hannon and Athe110n ( 1 996) also propose that older SMEs will exhibit more formalised strategy making behaviours. A· similar argument can be fol lowed· for symbolic strategy-making, which by definition assumes the existence of a well established culture or way of doing things. This is unlikely to be the case in a young firm.
With the exception of business plans that new businesses have to prepare to attract funding, it is more likely that young finns will be so caught up in operational issues and that they may adapt to their environment in order to survive, which is indicative of adaptive strategy making. Similarly entrepreneurial strategy-making, as defined in this study, remains beneficial in the early years of the finn when strategic decisions have to reflect fu l l knowledge o f the fi nn. These findings support the suggestion that:
P4c Age will inflllence the mode of strategy-making that a firm employs. specifically; younger SMEs will employ entreprenellrial and adaptive processes. while older SMEs will employ rational and symbolic processes
d) Organisational structure and strategy-making
Lastly, the organicity of the organisational structure may also affect the strategy-making - finn perfonnance relationship. Organicity is o ften studied together with entrepreneurial strategy-making. Authors such as Covin and S levin ( 1 98 8), Dess et al. ( 1 997), Miller and Friesen ( 1 978) and M intzberg ( 1 973) all indicate that entrepreneurial strategy- making processes are more successful in fi rms with organic organisational structures. Unfortunately M intzberg's study is conceptual, while the other three other studies draw their samples mainly from larger finns.
. ,
Th�se ·shIdies do, however; provide a basis for the proposition· that is fonnulated in this
section.- Covin �md S levin ( 1 988) find in a study of 80 finns that an organic organisational
structure moderates the entrepreneurial style and finn performance relationship. Small finns in this study are defined as finns with less than 500 FTEs. This means that this
rel ationsh i p may be less l i kely to be positive i n New Zealand S MEs (with less than 1 00 FTEs). Accordi n g to M i l ler ( 1 988), continge ncy theorists have argued that i n novation and/or uncertai n environments are usual ly associ ated with required organ ic, i ntensively i ntegrated, di fferentiated and decentral ised structures .
One study that i n vestigated organisational structure, planning behaviour and firm performance in small firms is Chaston ( 1 997 ). He fi nds support for his hypothesis that an organic structure and entrepreneurial management style together wi l l i m prove. fi rm performance. A lthough this entrepreneurial style is slightly di fferent from en trepreneurial strategy-maki ng, i t does strengthen the argument that an organic structure and entrepreneurial strategy-making have a combined positive effect on firm performance. Th is study draws on the works of Chaston ( 1 997) and Dess et al . ( 1 997) as wel l as the arguments from Section 3.2.3 to hypothesise that:
P4d Finn strtlcture will influence the mode of strategy-making that a firm
employs, specifically; firms 'yvith organic stmctures will employ entrepreneurial /'Iwdes of strategy-making
Furthermore the last four sections can be drawn together to propose that:
P3d EO, firm size. firm age and organicity of strllclllre will influence the relationship between strategy-making and peljormallce (moderating
factor)
Figure 4.2: Proposition 4 - The influence of size, age, structure and EO on the mode
of strate -makin
Size, age, Mode of strategy-
structure, EO making
Fi gure 4.2 shows how the four sub parts of Proposition Four contribute to the overall
framework for this study . It shows that the i nternal contextual factors, namely fi rm size,
age, organi"city and EO may have a d i rect effect on the mode of strategy-mak i n g . Figure
'4.3 exte nds th is relationship to i nclude Proposition Th ree and i ts subsections to show the moderating effects of the ame four i nternal factor as well as environmental dynam i s m on the modes of strategy-making - firm performance relationship. It also indicates that i ndustry l i fe cyc l e and i ndustry sector wi l l have a d i rect i n fl uence on the mode of strategy making. Figure 4.3: strate Strategy-making . mode
Industry life cycle, industry' sector
of contextual factors on the modes of
EO, si ze, age, structure
Performance.
Environmental