Strategic Management in small and medium-sized businesses: yes to systematic managerial approaches, however they cannot entirely replace the flexible and organic nature of management

Press Release

Prague, May 30th 2013

The aim of this expert panel, comprised of representatives from Czech, Swedish, Slovak and Finnish universities and Czech entrepreneurs, was to identify how small and medium-sized businesses should be strategically managed, so that the strategic management would strengthen competitiveness, without creating excessive bureaucratization and limiting flexibility. The panel met at the end of February 2013 in Prague.

One of the main conclusions was that small and medium-sized businesses need to implement structural managerial approaches that will not replace but supplement traditional management techniques, in order to maintain competitiveness. Traditional techniques, based on improvisation and naturalness, are essential for searching for and creating new market opportunities. The panel responded to the preconceived myths:

- That structural managerial approaches do not apply to small and medium-sized businesses and that

- An improvisational management technique of small and medium-sized businesses is a sign of unprofessionalism.

The expert panel was held as a part of the first phase of the international Czech-Swedish-Slovak project aimed at supporting small and medium-sized businesses- “Education in Strategic Management for SMEs managers/owners” financed by the NAEP fund.

This press release contains the recently published findings:

a) General conclusions regarding strategic management of small and medium-sized businesses.

b) Suggestions for effective strategic management of small and medium-sized businesses.

c) Specific areas of strategic management of small and medium-sized businesses in comparison to larger businesses.

Participants of the Expert Panel:

• Dr. Annika Hall, PhD., Jönköping International Business School, Jönköping, Sweden

• Prof. Matti Koiranen, PhD., BIBS – University, Brno

• Ing. Tomáš Pyšný, PhD., Mendel University in Brno

• Mgr. Jozef Šimúth, PhD., The School of Management in Trenčín, Slovakia

• Leoš Tupec, Director, H.R.G. spol. s r.o.

• Emil Kováč, Country Manager, POS Media Czech Republic, s.r.o.

• Viktor Korček, PhD., MBA, Executive Head, KIFARU CONSULTING s.r.o.

• Ing. Pavla Břečková, Ph.D., Director of Foreign Trade and Strategy at Audacio s.r.o., Board Member of the Association of Small and Medium-sized Businesses and Entrepreneurs in the Czech Republic

• Ing. Alena Hanzelková PhD, MBA, BIBS – University, Brno

• Daniel Jesenský, MSc, MBA, POPAI CZ

Summary of the Expert Panel’s main findings:

a) General conclusions regarding strategic management of small and medium-sized businesses.

It is necessary to establish and support strategic management of small and medium-sized businesses, as it significantly contributes to the enhancement of their competitiveness. Despite this, small and medium-sized businesses fail to use these strategies, which negatively impact their competitive edge!

Strategic management is mostly based on systematic and structured managerial approaches, and is therefore associated with the functionality of large businesses. The panel agrees with Prof. Matti Koiranen, from the Finnish University of Jyväskylä, in that “Even in small and medium-sized businesses, structural strategic management is crucial, though its specifications need to be respected. Specifically, the naturalness on which small and medium-sized businesses operate is necessary for research, selection and utilization of business opportunities and for creating new ones, experimenting, constant improvement and learning from mistakes, as well as accepting the risks that come with experimenting, more so than in larger, systematically managed businesses.” In practice, small and medium-sized businesses usually struggle between “entrepreneurialism” and “managerialism”. If possible, it is ideal to combine both “isms”. Organic and unstructured “entrepreneurialism” must aid in finding new opportunities and in sustaining development. On the other hand, businesses need “managerialism”, including classic approaches, for strategic management. This approach is necessary for the effective realization and utilization of opportunities or for constant progress and for assuring the company’s competitive edge in the long run.

b) Suggestions for effective strategic management of small and medium-sized businesses.

Regarding the structural approach of the strategic management of small and medium-sized businesses, the panel recommended that small and medium-sized companies take into account the following criteria:

1. For effective management, it is necessary to clarify and define long-term developmental objectives. Defining these objectives leads to a discussion, in which the objectives are gradually reduced, resulting in more realistic aims. This prevents the risk of depleting the company’s resources due to overly ambitious goal-setting. It is equally important for the company to define how the objectives will be met, which also increases the success rate and efficiency of company operations.

2. Objectives should be easily measurable – the company should be able to assess whether or not the goals are being met or not. A company that is capable of measuring goals and identifying their success rate early on, can get a head start on problem solving and hone in on their competitive edge.

3. For the company’s competitiveness, it is necessary to systematically analyze key areas which can impact business- of the company itself as well as trends and influences of the market in which it operates. It can then react to main trends using its strategy. Compared with a nonsystematic and strictly intuitive approach, the structural approach reduces the probability that certain important trends or areas that impact the business will be neglected (including positive trends that suggest opportunity and negative trends, such as threats). The analysis should however be relevant and should include only the areas and information which are valuable for the company, and should then not be unnecessarily detailed or complicated in a way that burdens the company. It is imperative that the company will systematically focus its attention on these trends.

4. For successful implementation, it is crucial that the corporate strategy is defined by those who have key influence. For the successful realization of the strategy, it is also important to ensure the support of all of the company’s key interest groups (owners, management, employees etc.). It is also important to consider the other extreme- an excessive desire for consensus and the risk of too many compromises, which can significantly dilute and weaken the strategy.

5. The strategy should be complete, that is, it should include all crucial aspects of company management, or the aspects of it that the strategy is aimed at. Neglecting certain integral aspects can lead to the collapse of the entire strategy. Small and medium-sized businesses can utilize practical models, for example the 7P model (an extensive marketing mix model), useful for defining the framework of the strategy for certain products etc. If it is necessary to have more sub-strategies in the company, it is imperative that they mutually reflect and support one another to ensure their functionality.

6. It is also essential that the strategy is systematically and clearly communicated across the entire company and is unanimously understood by everyone in the company.

7. The success of the strategy requires it to be in accordance with the corporate culture and the organizational structure, i.e. for it to be supported by these two aspects and not burdened by them. A change in corporate culture can also be a strategic goal. A change in the organizational structure would be a part of the plan implementation process.

8. If possible, it is useful for the company to continuously pay attention to various developmental key trends which influence the strategy, and to prepare alternative variations of the strategy. In the event that a trend significantly deviates from the forecasted development, the company must be prepared to immediately modify and update the strategy.

9. For the successful implementation of the strategy, it is also necessary to segment the strategy into a series of detailed short-term plans (for ex. by year) and to systematically realize them and monitor their fulfillment.

10. For long-term stability, it is necessary for the company to regularly evaluate their strategy fulfillment, and if any significant deviations emerge it should respond by mapping out causes and taking action to remedy the situation.

The panel further commented that in the strategic management of small and medium-sized businesses it is necessary to address specific strategic areas which are not usually present in larger businesses:

c) Specific areas of strategic management of small and medium-sized businesses in comparison to larger businesses.

1. Small and medium-sized businesses are highly influenced by the integration of family and business. Many related aspects must then be considered in the formulation of the company strategy – the financial needs of the family vs. reinvesting into the company, the succession politics for future generations, ownership politics and the settlement of company ownership for future generations, the politics of employing and rewarding family members in the company etc.

2. Planning and managing intergenerational handovers of the company- a long-term, strategic and high-risk stage for small and medium-sized family businesses. This is usually not handled well and results in bankruptcy.

3. Company ownership – risk management on an ownership level, including its structure, which subsequently impacts company operations either positively or negatively. Some of the most common problems include the fragmentation of ownership, conflicts amongst owners, inadequate responsibility, and short-term focus on the owners’ profits etc. On the other hand, good owners increase the quality of company operations.