Towards a strategy formulation framework that supports SME survival and growth

Snyman, Hendrik Andries (2020-03)

Thesis (PhD)--Stellenbosch University, 2020.

Thesis

ENGLISH ABSTRACT: Small- to medium-sized enterprises (SMEs) are critical to the socio-economic development of both developing and developed countries. Unfortunately, SMEs suffer from a high failure rate due to an inability to overcome their characteristic resource shortcomings and meet the necessary success criteria to execute effectively upon an opportunity. Although theory suggests that SMEs could benefit from formal strategic efforts, with such processes assisting them in identifying their shortcomings and discovering alternative means of obtaining the necessary success factors to overcome these, evidence suggests that SMEs rarely engage in formal planning activities. The lack of formal planning by SMEs is attributed to time constraints, or a fear that growth will change the family-like character of their business or upset their work life balance, as well as their belief that popular frameworks do not take into account their characteristic shortcomings and are geared primarily towards their larger corporate counterparts. Authors agree with the belief of SMEs that popular frameworks are indeed biased towards their larger counterparts with the unique characteristics of SMEs preventing their direct application. However, the evidence also suggests that certain components of main-stream strategy theory are not only applicable but beneficial to SMEs. With regard to the link between survival, growth and resources, the evidence suggests that the financial requirements to grow a business often extend beyond the resource base of the founders. Accordingly, the survival and growth of SMEs are linked to their ability to obtain external funding. The objective of this study was to develop a formal strategy formulation framework, which takes into account the specific characteristics of SMEs and assists management in developing the means to obtain the necessary success factors to exploit an opportunity, as well as to improve their chances of gaining access to finance from venture capitalists, which are a subset of private investors who provide finance to new ventures and SMEs. The research study adopted an action research paradigm because this supports the objective of the study of developing a practical tool, as well as the researcher’s subjective ontological standpoint and the researcher’s involvement in the research setting. The study utilised systems thinking as the methodology to conduct this action research, as it supports the belief that knowledge and understanding of a phenomenon are best derived from building up a picture of the phenomenon and understanding the various interactions between the different components of the system. The study thus utilised the systems engineering method to conduct the study, both because it supports grounded theory and framework building as a means to develop theory, and because it is also a fitting method for an industrial engineering doctorate, as it utilises an engineering driven method. The study developed a set of requirements from the fields of SME survival and growth, strategy formation and strategy formulation, as well as venture capital, as guided by a set of sub-research questions and sub-objectives that support the main research question and objective. In addition to the requirements derived from theory, the study developed additional design considerations by considering key words, concepts and phrases from the literature, and taking into account the scope of this study and its intended operating environment, as well as the use of the framework as a management tool. In accordance with the systems engineering method, the study utilised concept mapping to categorise and draw connections from the functional requirements derived from the literature in order to synthesise the various domains, and developed sub-frameworks of understanding associated with the factors that affect SME survival and growth, strategy formation and formulation, and the alignment of these sub-frameworks with venture capital decision criteria. With regard to the scope of the study, the dissertation developed upon the strategy formulation framework at increasing levels of detail, by first breaking it down into a set of phases and later into various constituent stages, each with a singular requirement and objective coupled with key considerations to guide the user(s) through the strategy formulation process. Despite the efforts of the framework to bring about understanding in an incremental fashion, the initial validation of the sub-frameworks, in the form of semi-structured interviews with domain experts, highlighted the complexity of the underlying theory. Accordingly, the final theoretical framework was translated into a practical framework by means of a metaphor and graphical illustrations. The result of this study is a comprehensive framework for use by SMEs that, (1) synthesises the factors that influence their survival and growth, (2) facilitates strategy formation as the successful interplay between formal strategy formulation and continuous learning, and (3) assists strategy formulation, by bringing about the discovery of knowledge, the recognition of opportunities and success factors, and the identification of the alternative means to overcome obstacles to obtain the necessary success factors to effectively execute upon opportunities.

AFRIKAANSE OPSOMMING: Klein en mediumondernemings (KMO’s) is van kritieke belang vir die sosio-ekonomiese ontwikkeling van beide ontwikkelende en ontwikkelde lande. Ongelukkig is die mislukkingskoers van dié ondernemings baie hoog as gevolg van hul inherente onvermoë om hulpbron tekortkomings te oorkom en die nodige sukseskriteria te behaal om geleenthede effektief te benut. Alhoewel die teorie daarop dui dat KMO’s kan voordeel trek uit formele strategiese prosesse, wat hulle in staat sal stel om hul tekortkomings te identifiseer en alternatiewe suksesfaktore te bekom ten einde dié aspekte te oorkom, dui die praktyk daarop dat KMO’s selde formele beplanningsprosesse toepas. Die gebrek aan formele beplanning deur KMO’s word toegeskryf aan tydsbeperkinge, ‘n vrees dat groei die besigheid se familie-karakter of hul werk-lewe-balans kan versteur, sowel as hul oortuiging dat gewilde raamwerke nie hul kenmerkende tekortkominge in ag neem nie, en dat dit gerig is op hul groter korporatiewe eweknieë. Skrywers stem saam met die beskouing van KMO’s dat gewilde raamwerke hul groter eweknieë bevoordeel, en dat die karaktereienskappe van KMO’s direkte toepassing daarvan sal verhoed. Tog is daar bewyse dat sekere komponente van hoofstroomstrategieteorie nie slegs toepaslik is nie, maar ook voordelig is vir KMO’s. Gegewe die verband tussen oorlewing, groei en hulpbronne, dui bewyse daarop dat die finansiële vereistes wat nodig is om ‘n besigheid te groei dikwels groter is as die hulpbronne tot die stigters se beskikking. Dienooreenkomstig is die oorlewing en groei van KMO’s gekoppel aan hul vermoë om eksterne befondsing te kry. Die doel van hierdie studie was om ‘n formele strategieskeppingsraamwerk te ontwikkel wat die spesifieke eienskappe van KMO’s in ag neem, en die bestuur help om metodes te ontwikkel om die nodige suksesfaktore te bekom om ‘n geleentheid te ontgin, sowel as om hul kans te verbeter om toegang tot waagkapitaalfinansiering – ‘n subkategorie van private beleggers wat befondsing aan nuwe projekte en KMO’s verskaf – te verkry. Dié studie het ‘n aktiewe navorsingsproses gevolg vanweë die vermoë van dié proses om die studiedoelwit van die ontwikkeling van ‘n praktiese instrument te ondersteun, asook die navorser se subjektiewe ontologiese standpunt, en die navorser se betrokkenheid in die navorsingsopset. Die studie het stelselsdenke as die metodologie toegepas om aktiewe navorsing te doen, aangesien dit die benadering ondersteun dat kennis en begrip van ‘n verskynsel die beste verkry kan word deur ‘n beeld daarvan saam te stel en die verskillende interaksies te verstaan. Ter ondersteuning van stelselsdenke as ‘n metodiek, is die stelselsingenieurswesemetode gebruik om die studie te doen, aangesien dit gefundeerde teorie en raamwerk daarstelling as ‘n metode om die teorie te ontwikkel, ondersteun. Dit is ook toepaslik vir ‘n bedryfsingenieurswesedoktoraat, aangesien dit die aanwending van ‘n ingenieurswesegedrewe metode gebruik. Die navorsing het ‘n aantal vereistes ontwikkel gebaseer op KMO-oorlewing en -groei, strategie-ontwikkeling en formulering, asook waagkapitaal, soos gerig deur ’n stel subnavorsingvrae en subdoelwitte, wat die hoofnavorsingsvraag en doelwit ondersteun. Benewens die vereistes wat afgelei is van die teorie, het die studie bykomende ontwerpoorwegings ontwikkel deur sleutelwoorde, konsepte en frases uit die literatuur te oorweeg, in ag genome die bestek van die studie en die beoogde bedryfsomgewing, sowel as om die raamwerk as ‘n bestuursbenadering te gebruik. In ooreenstemming met die stelselsingenieurswesetegniek, gebruik die studie konsepformulering om te kategoriseer en konneksies van die funksionele vereistes – soos afgelei van die literatuur – te maak, en om begripsraamwerke met toenemende vlakke van diepte en begrip te ontwikkel. Die sintese van die verskillende domeine het tot gevolg dat subraamwerke ontwikkel is wat verband hou met die faktore wat ‘n impak het op die KMO se oorlewing en groei, strategievorming en die formulering en belyning van hierdie subraamwerke met die kriteria vir besluitneming oor waagkapitaal. Gegewe die omvang van die studie, het die tesis op die strategieformuleringsraamwerk ontwikkel, op toenemende vlakke van detail, deur dit eerstens af te breek in ‘n groepering van fases en later in verwante fases, elk met ‘n enkele vereiste en doelwit, asook kernoorwegings om gebruikers deur die strategieformuleringsproses te begelei. Ondanks die pogings om geleidelike begrip met behulp van die raamwerk te bewerkstellig, het die aanvanklike verifiëring van die subraamwerke die voortgaande kompleksiteit van die onderliggende teorie beklemtoon. Dienooreenkomstig is die finale teoretiese raamwerk omgeskakel in ‘n praktiese raamwerk met behulp van ‘n metafoor (beeld) en grafiese voorstellings. Die resultaat van die studie is ‘n raamwerk wat die faktore wat ‘n impak het op oorlewing en groei tot ‘n eenheid bring, strategievorming as die suksesvolle tussenspel tussen formele strategieformulering en ‘n deurlopende opvoedings- en leerproses, en strategieformulering wat streef na die ontdekking van kennis, die identifisering van geleenthede en suksesfaktore, en die vermoë om struikelblokke te oorkom ten einde die nodige suksesfaktore te verkry om geleenthede effektief te kan benut.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/107749
This item appears in the following collections: