HOW SMALL BUSINESSES MAKE THEIR STRATEGIC MARKETING DECISIONS. Graham Jocumsen University of Southern Queensland. Abstract

Transcription

1 HOW SMALL BUSINESSES MAKE THEIR STRATEGIC MARKETING DECISIONS Graham Jocumsen University of Southern Queensland Abstract While small business remains a significant contributor to the economic and social well-being of all countries, it continues to be plagued by poor performance levels and high failure rates, despite Government assistance and interventions by advisors, accountants and consultants. A fuller understanding of the dynamics of the process of strategic marketing decision making within small business will encourage supportive and empathic interventions with concomitant higher acceptance rates of improved strategic decision making approaches. This research followed a case study methodology. It firstly utilised the literature and 6 in-depth exploratory interviews to develop a theoretical research framework from which several research propositions were derived. Secondly, a comprehensive confirmatory case study phase, utilising 46 strategic marketing decisions drawn from 32 small businesses was conducted to confirm/disconfirm these research propositions. From the results, a model of strategic marketing decision making in small business was derived. This model showed that small business owner/managers follow a simpler process than that suggested by the research framework. Only 5 steps or phases were followed (including initiation and commitment) with little use made of analytical tools and outside assistance sources. Family played a dominant role in process. Furthermore, the effects of external and internal contextual factors upon decision process were minimal, hence confirming that context has little impact upon the processes used by small business owner/managers in making strategic marketing decisions. Introduction Competitive pressures, rapidly evolving technological environments, volatile marketplaces and growing regulatory environments continue to challenge small businesses to remain competitive and profitable into the future (Peacock 1999; Murphy 1996; Davig & Brown 1992). This research postulates that the quality of strategic marketing decision making may contribute to small business success and hence has taken a strategic and marketing oriented focus. Furthermore, efforts to improve decision quality by applying prescriptive, tool-box methods from large organisation research have largely been unsuccessful. Small businesses should not be regarded as smaller versions of large businesses (Murphy 1996) and more attention needs to be paid to the contexts and environments associated with small businesses and their decision processes (Peacock 1999). This research presumes an association between the strategic marketing decision making process and the quality of emerging decisions. This research is justified on three grounds: the importance and significance of the small business sector (Peacock 1999: ABS 1995; Lepnurm & Bergh 1995), evidence supporting relationships between both marketing and non-marketing strategic decision making processes, actual strategic decision outcomes and the effectiveness of such decisions in terms of business results (Dean & Sharfman 1996; Harrison & Pelletier 1995) and effective intervention to improve the quality of strategic marketing decision making in small business (and hence

2 increase likelihood of success) requires a deep understanding of current strategic marketing decision making processes in such firms (Culkin & Smith 2000; Chaston 1997). Method The research design involved 5 stages (figure 1). Stages 1-3 were exploratory, culminating in the formulation of 4 research propositions. Stages 4-5 were confirmatory and theory building. Stage 6, theory testing, is a planned future phase. The literature review was multidisciplinary covering strategy, strategic management, marketing, decision making process and small business. The 6 exploratory in-depth interviewees were chosen from academics and practitioners with direct experience in strategic marketing decision making and represented a variety of informed opinion on the research topic. The confirmatory case studies were chosen to include 4 industry groupings (agribusiness, manufacturing, non-manufacturing hard products and non-manufacturing services) and 2 size categories (<5 employees and >10 employees). The 32 case businesses provided a total of 46 strategic marketing decisions. Care was taken in research practices and procedures adopted to ensure that relevant validity and reliability criteria were met for this case study methodology. Results from the confirmatory case study phase were used to formulate a model of strategic marketing decision making in small business (figure 3). Figure 1: Research design Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Theory building stages Exploratory stages Confirmatory stages Theory testing (future) 6 In-depth interviews Literature Developme nt of theoretical framework Research propositio ns derivation 32 Confirmat ory case studies Theory building Source: developed for this research

3 Theoretical research framework and research propositions A comprehensive literature review and in-depth exploratory study were used to develop a theoretical research framework from which 4 research propositions were derived (Jocumsen 2000). The theoretical research framework was built around the 3 key components of strategic decision making process; steps, methods (use of competencies and networks) and context (internal and external) (figure 3). Four research propositions derived from the theoretical framework included: Research proposition 1. Small businesses undertake a series of well defined, clearly delineated and sequential steps in making strategic marketing decisions (figure 3). Research proposition 2. The methods which small business owner managers use to carry out the various steps of strategic marketing decision making can be classified into learned competencies, inherent competencies, internal networks and external networks (figure 3). Furthermore, each of these methods are used by the small business owner/manager in making strategic marketing decisions. Research proposition 3. There are numerous external contextual factors which impact small businesses and which may influence their strategic decision making processes (figure 3). Research proposition 4. There are numerous internal contextual factors characterising operations and management which may influence strategic decision processes (figure 3). Results and discussion Data from the confirmatory case study phase were appropriately analysed utilising various qualitative data analysis techniques and NUDIST and Excel software. Analyses revealed that small business owner/managers utilise fewer steps and a more limited range of methods than the potential steps and methods of the theoretical research framework. Furthermore, the impacts of contextual factors upon process were minor compared with those indicated in the theoretical research framework. These results were used to construct a model of strategic marketing decision making in small business (figure 4). Implications for theory. This research has made numerous significant contributions to theory. Firstly, it has developed a theoretical research framework which may be used in further research in strategic decision making process. Secondly, it has clarified numerous key terms and constructs in strategy related research, including distinguishing between strategic decision process and content and between rationality and formality. Thirdly, it has refuted the presumed indirect relationship between use of inherent and use of learned competencies. Fourthly, it has built theory through appropriately designed empirical research and analysis. Fifthly, it has highlighted the need to separate what is done during strategic decision making process from how each of these things is done. Sixthly, it has fully incorporated the roles of internal and external contextual factors in influencing both steps and methods of strategic decision making process. Finally, it has combined the use of qualitative analysis techniques with considerable quantification through application of measurement techniques to qualitative data. Use of NUDIST combined with EXCEL helped achieve this integrative approach. Implications for practice and policy. The practical implications of this research relate to the effectiveness of interventions to improve small business performance. Attempts at such interventions to date have involved imposition of various prescriptions, which essentially ignore the internal decision dynamics of small businesses (Culkin & Smith 2000).

4 Furthermore, the entire small business sector is considered homogeneous for policy purposes, when in fact there are significant differences among small businesses caused by internal and external contextual variations. Five specific recommendations for practice and policy may be made from the derived model (figure 4). Firstly, change to process should be formulated within the maximum of five steps suggested in the model, with no sequentiality of steps imposed. Any suggestions to improve or enhance decision process should be integrated into the steps currently practiced by small business managers to maximise chances of acceptance and adoption. Secondly, while learned competencies play significant roles in methods used by small business managers in the strategic decision process, care should be exercised in imposing more sophisticated, unfamiliar approaches. While commitment to writing is evident, few sophisticated analytical tools are currently used, and any introduction of such tools demands understanding and sensitivity to current practices, attitudes and skills. Thirdly, intuition and gut feel should be better understood as valid methods in the decision process, rather than being dismissed as irrelevant in effective strategic decision making. Fourthly, for family-based small businesses, internal networking among family members is significant. Figure 3 Theoretical research framework for this research External context External context stakeholders competition/industry/market technology macroeconomic (incl.financial, credit, interest rate, inflation) regulatory (incl. political/legal) natural turbulence/uncertainty taxation industrial relations Learned competencies rationality formality written/unwritten use of formal analysis Inherent competencies Intuition/gut feel/instinct learning/experience long term strategic thinking Data collection/analysis Competencies Steps Market and environmental research Internal assessment Alternatives Evaluate alternatives Networks Decision criteria/weights Diagnosis/initial intelligence Favoured option emerges Predetermination of decision Final detailed financial assessment Internal networking family/founding Initiation father non-family Final commitment internal formal group non-family internal informal group External networking liase with customers/suppliers outside professionals (consultants, lawyers, accountants) financiers public bodies liase with friends/peers Internal context Internal context Decision type: urgency, importance, complexity. Manager: formal education, training/experience, ethnicity, leadership / management style, risk-reward, personality) Business: market, portfolio, size, culture, history, financial, org.struct.

5 Fifthly, external networking is currently used sparingly by small business managers as an integral part of strategic decision making process and this must be appreciated in intervention efforts. In summary, effective interventions to improve strategic marketing decision making process and consequently the quality of strategic marketing decisions will require a thorough understanding of current decision processes and an ability to integrate suggested change with such processes. Figure 4 Model of strategic marketing decision making in small businesses Learned competencies perceived rational behaviour some written simple analyses Inherent competencies intuition/gut feel: inherent personal and learning experience Competencies financial analyses/assessments Steps Networks information gathering/research internal matters initiation final committment Internal networking Informal family interactions External networking very little: bankers, consultants, accountants, professionals Implications of context. While several contextual factors were found to have some impact upon strategic marketing decision making process, the effects were minor. Firstly, tertiary educated managers utilise slightly more steps, greater learned competencies and less inherent competencies than less educated counterparts and hence are likely to be more receptive to the need for changed decision process and be more understanding of any decision process recommendations. Secondly, if management style is democratic/consultative and/or the manager has a low risk tolerance then slightly more steps, more learned competencies and less use of external networks are likely to characterise strategic decision making process. Once again this may suggest a reasonable receptivity to suggestions for changes in process. Thirdly, if small businesses are characterized by relatively high degrees of success and/or relatively comprehensive organisational structures then their strategic marketing decision making processes will be characterised by slightly increased steps, greater use of learned competencies and greater use of internal networking. Fourthly, less attractive market and industry conditions may result in greater reliance on learned competencies and less reliance upon inherent competencies in strategic marketing decision making than business counterparts in more attractive industries and markets. In summary, it is suggested that interventionists into small business strategic decision making use these identified contextual factor impacts as a useful guide only to establishing the nature of the current strategic marketing decision making process within a specific small business and accept that contextual factors as a whole

6 have been shown to have minor impacts upon the model of strategic marketing decision making process. Future research. Future research will be focused upon assessing the applicability of the model to a wider population of small businesses and in determining potential relationships between strategic marketing decision making process and overall organisational performance. In addition, this model is essentially descriptive, utilizing case study methodology. Future research may investigate other modeling approaches (for example system dynamic modeling) if, upon testing, this current model proves somewhat inadequate in its explanations. Bibliography Australian Bureau of Statistics 1995, Small business in Australia, AGPS, Canberra. Chaston, I. 1997, Small firm performance: assessing the interaction between entrepreneurial style and organizational structure, European journal of Marketing, vol. 31, no. 11/12. Culkin, N. & Smith, D. 2000, An emotional business: a guide to understanding the motivations of small business decision takers, Qualitative Market Research: An International Journal, vol. 3, no. 3, pp Dean, J. W. & Sharfman, M. P. 1996, Does decision process matter? A study of strategic decision making effectiveness, Academy of Management Journal, vol. 39, no. 2, pp Harrison, E. F. & Pelletier, M. A. 1995, A paradigm for strategic decision process, Management Decision, vol. 33, no. 7. Jocumsen, G. 2000, Strategic marketing decision making in small business-a theoretical research framework, Proceedings of ANZMAC 2000, Gold Coast, Queensland (ISBN Lepnurm, R. & Bergh, C. D. 1995, Strategic management and entrepreneurial orientation in sick, marginal and healthy small businesses, Journal of Small Business and Entrepreneurship, vol. 12, no. 2. Murphy, M. 1996, Small Business Management, Pitman Publishing, London. Peacock, R. W. 1999, Understanding Small Business, Bookshelf Pubnet, Adelaide.