Seminário de Pesquisa TURBULENT ENVIRONMENTS AND SMES Kurtz, Diego Jacob; Lalanne, Emmanuelle; Silva Pereira, Thiago Prof. Dr. Klaus North / Prof. Dr. Gregório Varvakis TERM PAPER submitted in partial fulfillment of the requirements for the Master Course INNOVATION AND KNOWLEDGE MANAGEMENT Wiesbaden Business School Hochschule RheinMain
TABLE OF CONTENTSINTRODUCTION Importance of SME’s; the relation with the environmentTHEORETICAL Definition; Types of Turbulent Environments;BACKGROUND Measurement ApproachesANALYSIS OF Overall turbulence level; SWOT Analysis; ChallengesEMPIRICAL CASESCONCLUSION Final considerations and propose for future research
Importance of SME’sINTRODUCTION In the European Economic Area (EEA) with Switzerland, SMEs are more than 16 million and they provide two third of all jobs. To succeed, managers have to lead theirs teams through every type of internal or external turbulence. They have to define new strategies and engage efforts to implement them in order to prolong the company´s life in a sustainable way. European Commission, 2005, cited by Festing and Engle, 2008
INTRODUCTION ...the environment The environment is “the pattern of all the external conditions and influences that affect its life and development” (Andrews, Mintzberg and Quinn, 1992).
Definition of TurbulentBACKGROUND EnvironmentTHEORETICAL A turbulent environment is characterized as difficult to understand and requires a flexible organization to respond quickly and adequately in order to remain competitive (Stigter, 2002). “[…] an environment in which one cannot predict the outcome of one’s actions” (Dankbaar, 1996). “an environment characterized both by several changes occurring rapidly and simultaneously and by a situation where only the most optimistic see the possibility of a return to a more stable environment in the foreseeable future” (Sadler, 1996). “A situation that is subject to continuous and substantial changes which are uncertain and unpredictable“ (Brown and Eisenhardt, 1998; Stigter, 2002).
Definition of TurbulentBACKGROUND EnvironmentTHEORETICAL So… what’s the difference between turbulence and quick change??? Quick change can be predictable and turbulence is equal to unpredictability (Emery and Trist, 1965). These changes are no longer Turbulent consisting of two main incremental. Usually they are parameters: dynamics and more radical, non-linear and complexity (Johnson and Scholes, frequent (Kidd, 2000). 1989). Adaptation: complex interaction of the effects that different parts of the social- economic-political (Emery, 1977).
Types of TurbulentBACKGROUND EnvironmentsTHEORETICAL Four groups of key drivers behind change: Political, Economical, Sociocultural and Technical) (Johnson and Scholes, 1989) Political: “changes in legislation and taxation arean Pine (1993): „Market turbulence‟ that is some factors that affect an organization” term but connotes the amount of imprecise instability, uncertainty, and lack of control Economical: “related to interest rates, GPD trends and unemployment within a firm‟s marketplace. affect the organization” Sociocultural: “changes in population, income, mobility, and attitudes” Technical: “government spending on research, government and industry focus on technological efforts, new discoveries/development, speed of technology transfer, and rates of obsolescence” Hedlöf & Janson (1999)
Measurement ApproachesBACKGROUNDTHEORETICAL Four types of environments based on two different dimensions: Complexity and Dynamism Dynamism dimension measures the degree of movement in the external environment of an organization organisation needs to high complexity and Complexity consider its environment rapid changes dimension assesses the structural nature Organisation can operate organisation has to in terms of intricacy without having to adjust to recognise that there are and density of the its environment other actors in its environment. environment Emery and Trist (1965); Edelmann and Benning (1999)
Changes at these levels occur without Measurement Approaches notice, without visibility, unpredictableBACKGROUND and extremely rapid.THEORETICAL Limited visibility, partial The matrix below provides a visualization of the five levels of predictability, rapid change and usually an inability from the firm to a 5 points scale useful to help categorize the turbulence, as well as react to the new change withinwhich an organization may be: actual stage in the required time frame. Ansoff and McDonnel (1990) cited by Kipley and Lewis, 2009a and 2009b; Campbell, 2010; Edelmann and Benning, 1999; Carver and Kipley, 2010
Overall turbulence levelEMPIRICAL CASES … three cases were selected to be analyzed accordingly to their level of turbulence…ANALYSIS OF Swiss SME in the food sector (Kocher, Kaudela-Baum and Wolf, 2010) B-to-B SMEs in India (Javalgi, Todd, Granot, 2011) SMEs from manufacturing, merchandising and service sectors from Botswana (Z.T Temtime, 2008)
Overall turbulence levelEMPIRICAL CASES According Ansoff and McDonnel (1990) classification:ANALYSIS OF
Overall turbulence levelEMPIRICAL CASES Swiss SME (FLORA)ANALYSIS OF Turbulence Level Changeability Predictability Complexity Familiarity of Rapidity of Visibility of events change future the dairy food the enterprise the enterprise the changes on sector for this confronts confronts the environment enterprise pressure to regulation are in general comprises only adapt to new changes or predictable the national regulations in takeovers (deregulation or market, thus not the market. This from acquisitions). being a factor of way, the competitors, but concern or enterprise has they have higher to only enough time of complexity. extrapolate their response for own experience these issues. to adapt to the new conditions.
Overall turbulence levelEMPIRICAL CASES SMEs in BotswanaANALYSIS OF Turbulence Level Changeability Predictability Complexity Familiarity of Rapidity of Visibility of events change future with high HIV there is a lack of one of the four they are not ratios among national most strong long-term adults (UNAIDS, standard for economies of oriented, and 2006), the business skills the region the country complexity of for (World faces many this SMEs, which Competitiveness changes – what environment is contribute to Report, 2011- makes the very high, with difficulties when 2012), faces future not easily strong local identifying constant and predictable. social issues. familiar events. fast changes. Additionally, their lack of structure contributes to poor decision making.
Overall turbulence levelEMPIRICAL CASES SMEs in the B-to-B sector in IndiaANALYSIS OF Turbulence Level Changeability Predictability Complexity Familiarity of Rapidity of Visibility of events change future Indian SMEs are given their new the changes are the government going directions, they fast and the supports the international, face increasingly consumers SMEs, though mainly in the unfamiliar demanding- the sharp technological events. nevertheless, expansion of sector – which Indian SMEs India makes the situates them seem to be future only between a prepared for this partially regional and environment predictable. global and complexity. responds timely.
TURBULENT ENVIRONMENT STRENGTHS WEAKNESSES SWOT Analysis CHANGEABILITY PREDICTABILITY … the two main strengths that CHANGEABILITY PREDICTABILITYEMPIRICAL CASES Experience of managers Managers international Informal planning to a changeable contribute Lack of strategic … We analyzed Reaching customer cases of the the two orientation environment are the high Lack of staff awareness by the experience of management and the managers companies that needs in a effective and high orientation of were in a Market level participation in theANALYSIS OF efficient manner planning of effectiveness that level Gap between turbulence environment (3.75 / 4.25)… International Orientation SME‟s have to understand and information flows of Lack of International reach customer companys communication the needs… Performance managerial team and process goals and employees objectives … Predictability: enough capitalrelation Not positive to SMEs in Botswana with the International incorporate more do business abroad short-term and fewer and Performance of Orientation Lack strategic SME‟s. Goingawareness and markets, strategic issues in their to foreign plans SMEs has only way, gives to the in a success planning for long-term operational‟s a than SME rather hugecompetitiveness field of possibilities strategic implications to create and exchange Lack or resources and “going out their experiences usual box” … expertise Absence of a qualified management team Gap between goals of company and managers
TURBULENT ENVIRONMENT STRENGTHS WEAKNESSES SWOT Analysis CHANGEABILITY PREDICTABILITY CHANGEABILITY PREDICTABILITYEMPIRICAL CASES Experience of managers Managers international Informal planning Lack of strategic … lack of a well defined long and short Reaching customer orientation Lack of staff awareness by the term formal planning,and Market orientation needs in a effective that in some participation in the managementANALYSIS OF cases doesefficientinvolve all the not manner planning Gap between International Orientation staff… Lack of information flows of International the companys communication ... problems with communication process... Performance process goals and managerial team and employees objectives … absence of a strategic plan. Problems related with SMEs in Botswana Not enough capital to the lack of resources and expertise will reflect at the incorporate more do business abroad quality of the management team… short-term and fewer Lack strategic strategic issues in their awareness and Management strategic plans SMEs has only planning for long-term awareness (most of times it operational rather than competitiveness only exists in the manager or strategic implications owner mind, without being Lack or resources and systematized in a routine or expertise explicated to the entire Absence of a qualified organization). management team Gap between goals of Problems with the information company and flows and structure managers
SWOT AnalysisEMPIRICAL CASES TURBULENT ENVIRONMENT OPPORTUNITIES THREATSANALYSIS OF CHANGEABILITY PREDICTABILITY CHANGEABILITY PREDICTABILITY Globalization Globalization New requirements from Competitors predicts customers the market before Advance of ICTs Advance of ICTs Cultural Differences International International Agreements Agreements Competitors provide same offers ... globalization process... … rapid evolution of ICTs, facilitating communication… … International agreements: good opportunities for doing business and reducing barriers abroad….
SWOT AnalysisEMPIRICAL CASES TURBULENT ENVIRONMENT OPPORTUNITIES THREATSANALYSIS OF …At the same rate that access to CHANGEABILITY PREDICTABILITY CHANGEABILITY PREDICTABILITY information has been incremented to the organizations, Globalization happened for the same Globalization New requirements from Competitors predicts consumers… Advance of ICTs Advance of ICTs customers the market before Cultural Differences International International Agreements Agreements Competitors provide same offers … The lack of adaptation to different cultures can lead organizations both to failure and to predict wrong environmental conditions… … Competitors become threats when they first launch products, anticipating market conditions and the environment….
ChallengesEMPIRICAL CASES Challenge A: To turn Turbulent Events into Real OpportunitiesANALYSIS OF Organizations that get environment opportunities in a successful way usually are those that are able to create, amplify or even modify your resources base (Eisenhardt and Martin, 2000).… … they need to use the knowledge generated externally, to internalize (sensing and capture) and match (transform) the information and new knowledge with existing knowledge base (Teece, 2007)….
ChallengesEMPIRICAL CASES Challenge B: To Create an Organizational StructureANALYSIS OF The analysis of Botswana‟s SMEs showed that one of their weaknesses is exactly their organizational structure. Brown and Eisenhardt (1998) suggested that in order to be innovative, firms need to create a culture where an acceptance of continuous change is central… … organizations can be Infinitely flat organization Exploding stars organized in four ideal types, based in knowledge (North, Reversed organization Web structure 2010):
ChallengesEMPIRICAL CASES Challenges C: To Transform Competences and Knowledge into SuccessANALYSIS OF There’s a need to find a way to avoid conflicts that could emerge when people with different perspectives and ideas are brought together, in new functions and groups… >> work group, commom vision… Challenge D: Understanding the Turbulent Market and Staying Competitive e.g: Indian SMEs case, since their environment is highly turbulent, and the enterprises are still competitive in their sectors. … reach short-term goals whilst keeping long term goals of the firm in mind. SMEs in Botswana incorporate more short-term views, neglecting the long- term issues (Z.T Temtime, 2008).
CONCLUSION The lack of adaptability in some cases can be critical, especially for SMEs, where resources are often relatively limited compared to the reality of large organizations. The analysis of the turbulent conditions of the environment, allowed us to realize that the experience of managers has a key role in adaptation of SMEs. Also the ability of perception customers‟ needs and market opportunities are fundamental. Importance of the alignment of managers regarding the guidance for external markets and its positive relationship with the ability to perceive opportunities in the environment. High informality levels >>> lack of systematic processes in this case may affect the performance of organizations, and are also related to lack of strategic planning, resources and market knowledge.
CONCLUSION The biggest opportunity refers primarily to the current speed of the flow of information and advancement of technology and globalization. Developing markets that are currently heated also are showed as good opportunities…. … BUT while the environment provides favorable conditions for success, can also lead quickly to SMEs bankruptcy prediction in harsh environments and high instability…. Based on these considerations we present four key challengesRESEARCH for the management of SMEs in turbulent environments…. FUTURE … which may be refined and associated to the levels 4 and 5 of Ansoff and McDonnel’s approach. Another approaches must also be used.