Academic journal article IBAR

Phases in the Strategy Formation Process: An Exploratory Study of Irish SMEs

Academic journal article IBAR

Phases in the Strategy Formation Process: An Exploratory Study of Irish SMEs

Article excerpt


This paper provides a description of how strategies form and evolve in the small to medium-sized enterprise (SME). The results are based on a series of nine case studies and the methodology used involved an intensive, longitudinal, inductive and comparative case-based approach. Although the research undertaken is quite limited and exploratory in nature, a number of important observations may be drawn from the empirical evidence:

the strategy process was planned but also emergent in nature;

the degree of planning undertaken in the foundation phase appeared to be most influenced by the personality of the entrepreneur, the type of business and business context;

the strategy process appeared to follow a phase pattern over time, with firms moving from an early fluid phase to a more defined phase, usually triggered by a crisis or defining episode. Therefore, the degree of planning undertaken was a function of organisational history.

This paper is organised as follows: first, a brief exposition of the literature on strategy is given; second, the research design is outlined; third, the data is presented and analysed; finally, conclusions are set out.

Conceptual background

A review of the relevant literature reveals several perspectives on strategy (Mair, 1999) and this section outlines two central perspectives which are labelled here as the rational-planning and intuitive-- learning perspectives (see Table 1).

The treatment of strategy in the small firm literature: the predominance of the rational planning model

Traditional thinking on strategy tended to define it in terms of planning and plans and the quest was to arrive at the optimum strategy for a given context. Plans were based on a linear model of decision making (as described by Chaffee, 1985), and the planning process was divided into two main stages: strategy formulation and implementation (Ansoff, 1965). The formulation of strategy was seen as the preserve of top management (Chafee, 1985) and was a rational exercise, involving the objective analysis of company resources and the external environment. The planning model of strategy focused on the linkages between the external environment and the organisation (Fahey and Christensen, 1986) and achieving `strategic fit' was an important goal for strategists. Consequently, sophisticated techniques were developed to aid managerial decision-making. These included portfolio analysis (The Boston Consulting Group, 1973; Day, 1977), the PIMS model (Schoeffler et al., 1974), the General Electric market attractiveness-business position matrix (Rothschild, 1976), Porter's model of industry attractiveness (Porter, 1980) and product life cycle theory (Polli and Cook, 1969). Great faith was placed on the gathering of 'hard' factual information for planning and control purposes. The planning model was adaptive in the sense that it suggested that the organisation had to continually strive to keep up with an environment that moves ahead of it (Hamel, 1996). Certain writers (Huff and Reger, 1987) have presented the planning school of thought as voluntarist in nature, giving the impression of well-informed leaders choosing between clearly articulated alternatives (Huff and Reger, 1987).

According to Hanlon and Scott (1995), the dominant perspective in relatation to strategy in smaller organisations has been the rational planning model. Planning is often seen as the key to company success (Bamberger, 1980; Timmons, 1978; Leidecker and Bruno, 1986; Monck et al., 1988), since it reduces uncertainty, it ensures that alternatives are considered and assists managers in dealing with investors (O' Gorman and Cunningham, 1997). Researchers suggest that planning is contingent upon the nature of the business (Murray, 1984; Berry, 1998; Monck et al, 1988) the skills of the owner-manager and his or her predisposition to planning (Garland et al., 1989), company size, and stage of development/life cycle stage (Robinson and Pearce, 1984; Scott and Bruce, 1987). …

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