Five modes of the strategy-making processes were introduced in Chapter Two. They are the rational, adaptive, entrepreneurial, symbolic and participative processes. Various authors have investigated these processes; in large firms and also in SMEs.
As explained before, rational strategy-making processes are o ften mistaken for the only kind o f strategy-making process that exists or assumed to be the normative ideal. When authors therefore discuss the absence or presence of strategy-making in a SME without clarification, they are usually referring to either the compilation of the business plan for attaining fi nance, or to a fonnal, rational 'strategy-making process. As discussed earlier, the main argument in the'SME planning (strategy-making) literature centres on the absence or presence of rational strategy-making processes in SMEs. Several studies focus on the use of these rational processes.' Frost (2003) for example, found in a study of 3 3 1 Australian SMEs with fewer than 1 00 employees that the use of strategic tools and a strategic plan was significant. But the range and depth of the tool usage were disappointing, especially when compared to previous studies in larger firms, such as that carried out by Clark ( 1 997). Neverthekss, some evidence for the existence of a more formal, or rational mode of strategy-making in SMEs exists;
There is also an argument· for the use of adaptive processes In SMEs. This strand o f thought is usually closely related t o the absence of strategy-making and paints the adaptive strategy-making process as one of indecision and reactiveness. For example, Harris, Forbes and F letcher (2000) find that strategy-making in SMEs is mainly reactive and reliant o n personal relationships. Keeley and Roure ( 1 990) tested 3 6 new technological based finns and proposed a structural model of the influence of management, strategy, and industry
'structure on firm performance. They found that, in these new firms, strategy i'mplement"ation has a greater impact on firm performance than strategy formulation. This
may be interpreted as indicative of a more adaptive than rational approach. But, Barney ( 1 99 1 ) posits that 'those who study these informal strategy-making processes tend to agree about their rareness and inimitability' (p. 1 1 3). Barney ( 1 99 1 ) argues that rational and adaptive processes are suitable for different settings and that less fonnal processes such as adaptive strategy-making processes may be a source of sustainable competitive advantage. Also, Chen and Hambrick ( 1 995) explain that smaller finns are more responsive .when attacked and implement their competitive reactions faster. This study argues that the adaptive mode of strategy-making indicates an active engagement of external stakeholders in the direction of the finn which is often employed by SMEs because of their dependence on these stakeholders, which typically include customers and suppliers. This engagement may be less fonnal than when a rational strategy-making process is followed, but may nevertheless exhibit elements of strategic thinking, as suggested by Quinn ( 1 980).
Neilsen and Rao ( 1 987) describe the symbolic (interpretive) mode of strategy-making as an approach ' in which strategy statements convey meanings' (p. 523) which motivate stakeholders positively. There is some dissent in the literature as to whether these symbolic strategy-making processes are relevant to SMEs. Common sense dictates that it is possible that Neilsen and Rao's description may be relevant, since a symbolic process would suggest that a fi nn has a strong culture which prevails when decisions are made and which may manifest as doing things in the same way they have always been done and having set practices that are followed year in and year out. Keeley and Roure ( 1 990) argue though that SME managers generally have limited vision, even when highly qualified, which does not provide strong support for the entrepreneurial and symbolic modes of strategy-making. But McCarthy and Leavy ( 1 998/9) identify the existence of charismatic owners with a visionary, idealistic and intuitive manner in their longitudinal study of SMEs with fewer that 1 20 employees, which may indicate some support for the symbolic mode of strategy m aking.
Two other modes of strategy-making were identified in Chapter Two. The entrepreneurial mode of strategy-making was discussed in some depth and a comparison was made to show the similarities between the use of this mode of strategy-making and the SME planning
literature. In order to avoid repetition, this section draws on the arguments in Section 2.4 and states that entrepreneurial strategy-making is very likely to occur in SMEs. The other mode of strategy-making is a participative mode of strategy-making. As explained before, this mode- indicates that strategy-making occurs mainly from the bottom of the firm upwards, or in the case of organic firms, through teamwork. Participative strategy-making is not indicative of rationality, but rather of an infonnal, but inclusive, decision making process. As indicated already, participation is often conceptualised as being political in nature, but in very small firms it is unlikely to be the norm. Participative strategy-making in SMEs has not been mentioned in articles very often, but one study that provides a typology of strategy-making processes employed in small firms and its impact on firm performance (Frese et aI. , 2000; Van Gelderen, Frese & Thurik, 2000) makes mention of it. Research on 80 owners of small start-up firms in the Netherlands investigated the use of ' co'mplete planning' (rational), 'critical point' (closest related to participative strategy making), 'opportunistic' (entrepreneurial), ' reactive' (closest to adaptive), and ' routine' (symbolic) strategy-making process. This study can serve as partial support for all the modes of strategy-making identified in the literature review of this thesis, including participati.ve strategy-making.
The brief discussion presented above builds on the literature that was presented in Chapter Two and suggests that the five modes of strategy-making identified in the literature review are likely to exist in SMEs. Collectively, these findings suggest therefore that:
.p2a The rational, adaptive, entrepreneurial, symbolic and participative strategy-making processes are important strategy-making modes that
. SMEs may exhibit
M intzberg-and Lampel. ( 1 999) describe entrepreneurial strategy-making as a visionary
process, where strategy-making is centred on the CEO, and the process is intuitive. Strategy-making in this case is a vague vision, sometimes even a metaphor. The leader also controls the implementation of the vision. In Section 2 .4, research on strategy-making in SMEs was introduced. That section concluded that the argument by Mintzberg ( 1 973)
that entrepreneurial strategy-making is most appropriate in SMEs may be accurate . . When the aspects of entrepreneurial strategy-making and strategy-making in SMEs are compared, it is clear that they exhibit similarities such as a strong influence from the manager/owner, the use of emergent strategies, and the use of vision to set the general direction. It is therefore proposed that:
P2b The entrepreneurial mode of strategy-making will be' most favoured by SMEs
The next interesting question would be what the relationship is between strategy-making and firm performance. Although the literature identifies the existence of the aforementioned processes in SMEs such identification is of little consequence if these processes do not have the potential to improve firm performance. Several studies investigate the effect of strategy-making processes on firm performance. Note that a full discussion of firm performance is provided in Chapter Five.
The general consensus seems to be that processes that are more. rational in nature will be strongly associated with firm performance. For instance Miller and Toulouse ( 1 986) found in a study of 97 small firms in Canada that successful small firms have more explicit strategies, longer planning horizons and more detailed decision analysis, that is, rational processes. Hart and B anbury ( 1 994) also find in a study of 720 finns of all sizes that only the rational mode of strategy-making has a significant correlation with firm performance. Van Gelderen et al. (2000) find that rational processes will impact on performance .and that performance will in turn lead to more rational strategy-making processes. Knuckey and lohnston (2002) find that leading New Zealand firms (good performers) are more likely to employ long term planning practices than lagging firms (poor performers). In general it seems as if the support for a strong relationship between rational strategy-making' and firm performance is quite conclusive.
All these studies strongly support the relationship between rational strategy-making and firm perfonnance. Furthermore Harris et al. (2000) found in a study of 26 entrepreneurs in
S MEs that where a combination of rational and adaptive processes is used, it is strongly associated with growth. These authors advocate the mixed use of rational and adaptive processes in SMEs. Other authors only look at the relationship between adaptive strategy making and firm performance. As explained before, B amey ( 1 99 1 ) suggests that adaptive strategy-making is a rare and inimitable process that will lead to competitive advantage. This is supported by Hart.( 199 1 ) who finds in a study of 9 1 6 firms of all sizes and from all industry sectors that the adaptive (transactive) mode of strategy-making is more highly associated with firm perfonnance than the rational and generative (entrepreneurial) modes. But Van Gelderen et al. (2000) found that not only does adaptive (reactive) strategy making lead to poor performance, but poor performance leads to reactive strategies. The support for the rela�ionship. between adaptive strategy-making and firm performance is therefore_mixed and may depend on the conceptualisation of adaptive strategy-making in a particular study.
Participative and symbolic strategy-making have also received some attention In this regard. Pamell and Crandall (200 1 ) raise the possibility that participative decision-making techniques may improve decision quality and therefore organisational effectiveness. Frese et al. (2000) found that critical point (participative) strategy-making is the most highly related to firm success and that critical point and opportunistic (entrepreneurial) strategy making is the combination that is most highly related to firm success. This supports the previously mentioned study by Wooldridge and F loyd ( 1 990) who found that participation in strategy-making is associated with improved fi rm performance. Hart ( 1 99 1 ) found that the symbolic mode of strategy-making is highly associated with performance. Unfortunately the .discussion surrounding these two modes is limited and the support for their relation!ihip with firm performance is as yet.unsubstantiated.
Lastly, there has also been much debate about the performance outcomes of an
entrepreneurial mode of strategy-making. Beaver and Jennings (2000) posit in this regard that the 'relationship between enterprise performance, management actions (or inaction) and the value and contribution of strategy is extremely tenuous and very difficult, if not impossible, to demonstrate conclusively' (p. 400). Much of what has been written about
entrepreneurial strategy-making and its performance implication in both the popular press and academic journals assume that entrepreneurial strategy-making will lead to growth and profitability for the firm (Covin & Slevin, 1 99 1 ; Peters & Waterman, 1 982). But other research such as that carried out by Dess et al. ( 1 997) and Hart ( 1 99 1 ) found 'empirically that it may impede performance. The inconclusive evidence or evidence that suggest negative performance outcomes for all the modes of strategy-making except for the rational mode, leads to the conclusion that:
P2c Firms that employ the rational mode of strategy-making will petform well
Another interesting possibility that is mostly raised in conceptual studies (e.g. Mintzberg, 1 973 ) or in the discussion of empirical studies (e.g. Harris et aI., 2000; van Gelderen et aI., 2000) is the combined effect of strategy-making modes on firm performance. While the above authors all agree that the use of more than one mode should lead to better performance than the use of only one mode of strategy-making, only Hart ( 1 99 1 ), Hart and Banbury ( 1 994) and van Gelderen et al. (2000) have tested this assumption empirically. They found support for their proposition that capabilities in more than one mode of strategy-making will improve performance and it is therefore proposed that:
P2d Firms that employ more than one mode of strategy-making will perform well
Figure 4. 1 summarises the overall contribution o f the four propositions collectively called Proposition Two to the overall framework for this research. The overall framework will be presented in Figure 4.7. Figure 4. 1 indicates that strategy-making, either in the form of a single mode such as rationality, or combined, as suggested in Proposition 2d, will have an influence on firm performance.
. Fi ure 4.1' : 'Pro osi'tion 2 - Modes of strate Strategy-making mode ... Rational • Adapti ve • Entrepreneurial • Symbolic • Participative Performance