Small and Medium-sized enterprises play a very important role in economic developments and the provision of employment. They are however often faced with unique challenges which often affect their corporate performance and can sometimes lead to failure. The role of Entrepreneurs in this sector cannot be over-emphasised as they often form the core of the company’s strategy and performance. Strategy is often seen as something that is exclusive to large sized corporations which is a perception that often hinders entrepreneurs form creating and developing strategy. This is a major cause of failure as it can be argued that the smaller a company, the more focused it needs to be in order to maximize its resources.
Why Strategy is important to small businesses: Business is constantly evolving as a result of changing consumer needs and greater efficiency in the market place. This therefore means that unlike previous times, companies have to be very clear about what they want to achieve and how they wish to position themselves. SMEs must utilize strategy to reduce their cost profile by focusing on their core competence and ensuring that their business model provides maximum value for their clients. Kim and Mauborgne (2005) explain “…when a company’s value curve lacks focus, its cost structure will tend to be high and its business model complex in implementation and execution” (Many companies have been known to go down because of poor strategies. Small and medium sized companies have to be aware of this and work hard to develop strategic goals and understand their market place and competitive advantage. There are obvious challenges affecting small and medium sized companies including limited resources, unfavorable legislations, employee commitment and turnover, lack of adequate research, competition from bigger companies etc. However the focus must be on the opportunities available for differentiation and strategic focus as it is always easier to manage change in smaller organizations. SMEs must therefore step up to ensure they succeed and offer excellent service and products through efficient and innovative processes and methods. The Internet and technology presents awesome opportunities for competition with large organizations and small companies have been known to gain market edge over competition from large organizations simply by having a strategic focus that leads to a market advantage thereby eroding the market share of these competitors.
Balanced Scorecard: This approach seeks to use integral performance measurement to track and adjust business strategy (Steven Ten Have eta al, 2003). The balanced scorecard extends the scope of strategy from focusing only on financial objectives to also incorporate; customer perspective, operation and organizational learning. These four areas help entrepreneurs to critically look at their strategy and make improvements that will provide lasting value.
Six Sigma: This strategic tool is based on using an organisation’s key business goals and key performance measurements to define the scope of six sigma projects and develop the appropriate human resources. It is important to understand how projects impact on the strategic goals of an organisation which is what six sigma is useful for. When SMEs use these tools they help to provide a clear basis of measuring project performance and ensuring that they meet set goals. The six sigma approach involves four critical steps MAIC (measure, analyze, improve, and control) which help to provide the basis of monitoring project procedures.
Figure 1: Six Sigma approach Culled from the site http://www.isixsigma.com/library/content/c030224a.asp Six
Firstly it is important to measure the existing systems and identify the critical processes that will help incrementally to achieve the project goals. Secondly, we need to analyse what inefficiencies exist in the current processes and understand the underlying causes. Thirdly as a result of this analysis, we can evolve ways to improve the process performance of the system and measure how this impacts on the desired goal. Finally, it is important to control the new system which has evolved through this strategic analytic tool. This new structure then needs to be formally recognized as the standard and a process for its continual changes need to be set up to ensure that in the long run, it continues to be relevant to current corporate needs. Again as with every strategic process, the method is iterative and constantly continues to change with evolving market realities making strategy an often complex subject. Utilising this process in SMEs often poses a challenge as the trend is often to rely more on the entrepreneur’s direction and guidance. This however, is not enough most times and there is need for strategic analysis to ensure that every area of the project is covered. Burton T (2005) in his article explains how large firms have begun to insist on strategic analysis by their supply base. Generally, larger firms are beginning to demand more from the smaller partners as size cannot be an excuse for inefficiency. A case in example is how the influence of Asda is pushing their suppliers to adopt RFID technology.
What is the Role of the Entrepreneur: The Entrepreneur is the one who initiates and directs the business process within SMEs. The smaller a firm is the more significant role played by the entrepreneur in the success or failure of the organisation. Since most SMEs cannot afford the huge consulting costs often involved in using consulting companies, it therefore often falls on the shoulder of the entrepreneur to understand the basic processes, the need for change and what to do. There is clearly a strong advantage for SMEs in implementing change because of less bureaucracy once it is clear what needs to be achieved. This is why entrepreneurs are in a great position to help their organizations implement strategic initiatives that will promote change. It is also very critical in implementing change that the entrepreneur looks at the big picture and the future needs of the company by concentrating on what is important. Gary Hamel in the book “Leading the Revolution” explains the importance of the entrepreneurial foresight
“New business concepts are always, always the product of lucky foresight. That’s right – the essential insight doesn’t come out of any dirigiste planning process, it comes from some cocktail of happenstance, desire, curiosity, ambition and need”.
For a small and medium sized company, the entrepreneur is often the symbol of the company’s vision which is why it is essential for the entrepreneur to have the foresight that will bring strategic benefits to the company. Failure to anticipate and strategically move towards these future opportunities can often result into corporate failure which is what every entrepreneur should seek to avoid (Hamel G and Prahalad C, 1994). Another important value that entrepreneurs can add to their organizations is innovation which usually extends market perception of a product and gives the company an edge over established companies. It is also important to note that every strategy is a balance between opportunity and risk and understanding when to change and reorganize strategy is as important as initiating the strategy in the first place (Kim W.C and Mauborgne R, 2005). Again Entrepreneurs must be willing to accept that risk as indecision can result in a disadvantaged position. There must however be caution through adequate risk analysis and alternative plans as serious strategic errors can result in the “death” of an SMEs.
Conclusion: The role of the entrepreneur in guiding an organisation through strategic change is no doubt important, however, entrepreneurs must consciously move their companies from “the brain of the CEO” to a collective intelligence that belongs to the company (Hamel G and Prahalad C, 1994). This is important in order to guarantee the strategic future of the organizations which they seek to build.
Hamel G. (2002), Leading the Revolution, Page 23, Plume Pulishing
Hamel C, Prahalad, C.K. (1994), Competing for the Future. Page 26, Harvard Business School Press.
Steven ten Have, Wouter ten Have, Frans Stevens, Marcel van der Elst and Fiona Pol-Coyne (2003) Key Management Models. Page 12 – 14, Published by Pearson Education Limited.
W. Chan Kim and Renee Mauborgne (2005), Blue Ocean Strategy, Page 19. Published by Harvard Business School Press.
Terence T. Burton, Sigma for Small and Medium Sized Businesses http://www.isixsigma.com/library/content/c030224a.asp Six