How Strategy Impacts Business Model in the context of the SME: A case of Restaurant Sector.

Title:
How Strategy Impacts Business Model in
the context of the SME: A case of
Restaurant Sector.
Author:
Chetan Jayaram Waman
Academic Master Thesis
Tutor name: Prof. Julie McFarlane
IMIM 12th Edition 2015-17
June 13, 2017 Edinburgh

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ACKNOWLEDGEMENT
Firstly, I would like to thank all the staff members and professors who are part of IMIM
programme. The knowledge imparted by the professors over the period of two years have
equipped me with a theoretical background in management and have helped me to
successfully complete this thesis. I would specially like to thank my tutor, Prof. Julie McFarlane
for her vision, guidance and insights on the writing this thesis successfully. If it wasn’t for her,
I would not have completed the thesis on time.
I am grateful to all the restaurant owners/managers who participated in the study and invested
their valuable time and energy for this thesis. I am extremely thankful to all my IMIM colleague
for making this learning process fun and exciting. There was always something to learn from
every single member of IMIM family and the journey couldn’t have been better. I would also
like to thank my friends Sagar, Vipin and the members of ‘Z’ group to listen to me when I
needed them the most.
Finally, I want to express my deepest gratitude to my mother Mrs. Chhaya Waman, my father
Mr. Jayaram Waman, and my sisters Yogita Waman and Deepika Waman for their inspiration,
encouragement and endless support in all aspects of my life.

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ABSTRACT
The literature on relation between strategy and business models is bit ambiguous. It is not
clear if business model is part of strategy, strategy is derived from business model or the vice
versa (Gaedicke, 2012; Seddon, et al., 2004; Friis, et al., 2015). Moreover, the research on
the two concepts in the context of the small and medium enterprises (SMEs) seems to be
uncommon. The SMEs are crucial for economic growth of the country, but sadly the survival
rate of the SMEs are low in the first five years of operation (European Commision- SBA, 2016).
To promote the growth of SMEs this thesis aims to examines the relation between strategy
and business model in the context of the SMEs in the UK using restaurant sector as an
exemplar. This study also draws insights on the changes in small and medium restaurants
and the effect of strategy on the restaurants sector, using empirical data as the evidence.
The study takes an interpretivist approach for data collection and analysis. The empirical data
was collected using in-depth, semi-structured interviews with 8 owners and 2 managers
working in small and medium restaurants of the Edinburgh. The sample size is small, but
diverse in nature providing unique perspectives of the respondents.
The findings of this study suggest that strategy and business model are complementary to
each other and the relation between them depends on the phase in the business lifecycle of
the SME. In the start phase of the SME, the strategy seems to be evolved from the business
model, whereas in the growth phase, the business model acts as a tool in the strategy process
to implement the strategy formed during strategy formulation stage. The findings also indicate
that the strategy process increases the performances of the small and medium restaurants.
Finally, the most common changes brought in the small and medium restaurant are related to
menu and prices, and these changes are mostly brought in because of competition, location
and customer segment of the restaurant.
The conclusions drawn from this study regarding the relation of business model and strategy
seems to be unique, because not a lot of research is done on the topic in the SME context.

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TABLE OF CONTENTS
ACKNOWLEDGEMENT…………………………………………………………………………......ii
ABSTRACT……………………………………………………………………………………………iii
TABLE OF CONTENT…………………………………………………………………………….....iv
LIST OF TABLES………………………………………………………………………………….…vii
LIST OF FIGURES…………………………………………………….........................................viii
1 CHAPTER ONE: INTRODUCTION.................................................................................... 1
1.1 Introduction.................................................................................................................. 1
1.2 Thesis Context............................................................................................................. 1
1.3 Research Aim and Objectives...................................................................................... 2
1.4 Methods Used ............................................................................................................. 2
1.5 Thesis Outline ............................................................................................................. 2
2 CHAPTER TWO: LITERATURE REVIEW.......................................................................... 1
2.1 Introduction.................................................................................................................. 1
2.2 Overview of Restaurant Sector ................................................................................... 1
2.3 SME ............................................................................................................................ 3
2.3.1 SMEs in the United Kingdom................................................................................. 4
2.4 Strategy....................................................................................................................... 5
2.4.1 Strategic Management .......................................................................................... 7
2.4.2 Strategy Formulation............................................................................................. 8
2.4.3 Strategy Implementation ....................................................................................... 9
2.5 Strategy and SME ....................................................................................................... 9
2.6 Business Model ......................................................................................................... 10
2.7 Strategy and Business Model .................................................................................... 14
3 Chapter Three: METHODOLOGY.................................................................................... 17
3.1 Introduction................................................................................................................ 17
3.2 Research Aims and Objectives.................................................................................. 17
3.3 Research Philosophies.............................................................................................. 17
3.3.1 Positivism............................................................................................................ 18

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3.3.2 Realism............................................................................................................... 19
3.3.3 Interpretivism ...................................................................................................... 19
3.3.4 Pragmatism......................................................................................................... 19
3.4 Research Approach................................................................................................... 19
3.4.1 Induction ............................................................................................................. 20
3.4.2 Deduction............................................................................................................ 20
3.4.3 Abduction............................................................................................................ 21
3.4.4 Qualitative VS Quantitative Research ................................................................. 21
3.4.5 Researcher’s Stand on Philosophies and Approach............................................ 21
3.5 Sample Selection....................................................................................................... 22
3.6 Data Collection Methods............................................................................................ 22
3.6.1 Semi-Structured Interviews ................................................................................. 22
3.6.2 Restaurant Documents and Literature Review .................................................... 24
3.7 Data Analysis Techniques ......................................................................................... 24
3.8 Limitations of Study ................................................................................................... 24
3.9 Research Ethics. ....................................................................................................... 25
4 CHAPTER FOUR: ANALYSIS AND DISCUSSION .......................................................... 26
4.1 Introduction................................................................................................................ 26
4.2 Start Phase in the Restaurant Sector and Overcoming the Changes in Restaurants. 26
4.2.1 Start Phase in the Restaurant ............................................................................. 26
4.2.2 Changes in the Restaurant.................................................................................. 29
4.3 Effects of Strategy in SMEs Operational in Restaurant Sector................................... 32
4.4 Link between Strategy and Business Model .............................................................. 34
4.5 Discussion................................................................................................................. 36
5 CHAPTER FIVE: CONCLUSION ..................................................................................... 38
5.1 Introduction................................................................................................................ 38
5.2 The Restaurant Sector............................................................................................... 38
5.3 Effect of Strategy on Restaurant Sector..................................................................... 38

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5.4 The Relation between Strategy and Business Model in the SMEs (Restaurant Sector)
........................................................................................................................................ 38
5.5 Implications for Restaurant Owner/ Manager............................................................. 39
5.6 Limitation and Further Research................................................................................ 39
6 Appendices...................................................................................................................... 41
7 References ...................................................................................................................... 42

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LIST OF TABLES
Table 1: Different Criteria used for Defining SMEs in Different Countries ............................. 3
Table 2: Private Sector Businesses in the UK by Number of Employees............................... 5
Table 3: Alternate Business Model Components................................................................. 12
Table 4: Findings on Start Phase of Restaurants ................................................................ 28
Table 5: Findings on Changes in Restaurants..................................................................... 31
Table 6:Findings on Effect of Strategy on Restaurants........................................................ 33
Table 7: Findings on Growth Phase of Restaurants ............................................................ 35

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LIST OF FIGURES
Figure 1: United Kingdom Restaurants Industry Geography Segmentation, 2014. ................ 1
Figure 2: Three Dimensions of Strategy................................................................................ 6
Figure 3: Model of Strategic management process ............................................................... 7
Figure 4: Business Model Canvas....................................................................................... 13
Figure 5: Strategy, Business Model and Tactics Framework............................................... 14
Figure 6: Gaedicke's Strategy process framework .............................................................. 15
Figure 7: Research Onion ................................................................................................... 17
Figure 8: Induction approach............................................................................................... 20
Figure 9:Deduction approach.............................................................................................. 20
Figure 10: Abduction approach. .......................................................................................... 21

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1 CHAPTER ONE: INTRODUCTION
1.1 Introduction
This study explores the relation between strategy and business model in the small and
medium enterprises (SMEs) in the context of the UK restaurant sector. The study considers
different phases of the SMEs business life cycle to find the correlation between the two
concepts. Specifically, this study will enable a deeper understanding of how strategy and
business model interact with each other from the owner/manager’s perspective during start
and growth phase of the SMEs business life cycle. This study also tries to uncovers the effect
of strategy on the restaurant sector.
1.2 Thesis Context
The academic literature on the concept of strategy and business model is immense. The word
strategy has been introduced in the business world since 1960 (Walter, 2010) and is
concerned with value capturing and competitive advantage (Zott, et al., 2011). While, the
business model has been talked about in last few decades (Casadesus-Masanell & Ricart,
2010) and focuses more on the joint value creation for customers and stakeholders
(Osterwalder & Pigneur, 2010).The interaction and the convergence between the two
concepts is not very clear in the literature (Gaedicke, 2012). Because of the ambiguous nature
of the relation between the two concepts, some researchers have used strategy and business
model interchangeably in the past (Magretta, 2002). Strategy and business model are two
different concepts (Zott & Amit, 2008) and authors like Casadesus-Masanell and Ricart (2010),
Mansfield and Fourie (2004), Seddon and Lewis (2003), Friis, et al. (2015) and Gaedicke
(2012) have identified the necessity to display the correlation between strategy and business
model for better apprehension of the subject. However, the authors seemed to have different
findings regarding description of concept, practical implication, included concepts and the
theoretical framework.
Strategy and business model are not only reserved for large-scale and multinational
companies but can also be used in the SMEs. Predominant number of business around the
world come under SMEs sector (Awwad & Ali, 2012). SMEs are the engine of the economy
and contribute towards employment generation, economic growth, and social stability in an
economy (Oliveira, et al., 2015; OECD, 2004). In 2016, more than 99% of businesses present
in the UK were SMEs (BIS, 2016, p. 1). According to Small Business Association, more than
half of the new SMEs do not survive beyond 5 years (European Commision- SBA, 2016, p. 3).
SMEs have financial limitations and the Brexit (UK’s withdrawal from European Union) have
created a sense of uncertainty among the SMEs due to falling prices of pound (Pay, 2017). it
will be reasonable to conduct research to find the link between strategy and business model

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in the SMEs to check the legitimacy of the existing studies and promote growth in the SME
sector.
1.3 Research Aim and Objectives
The main aim of this study is to find how strategy impacts business model in the context of the
SMEs by means of the cases in the restaurant sector. To achieve this, the study focuses on
the following research objectives.
 Understand the restaurant sector
 To develop understanding of strategy in SMEs
 Explore the relation between strategy and business model in SMEs
1.4 Methods Used
An interpretivist approach was adopted to carry out this study as it was considered the best
approach to meet the research aims. Interpretivist approach allows one to focus on the details
of the situation, realities behind the details and better interpretation of the social actors
(Saunders, et al., 2009). Since the aim of the study was to develop insights from personal
experience of the social actors inductive reasoning was preferred over deductive reasoning.
The empirical data was collected using participant’s self-selection method. Thereafter, data
analysis was carried out using inductive technique adapted from Eisenhardt theory building
process (Eisenhardth, 1989).
The data was collected from 10 in-depth semi-structured interviews. The interview guide was
developed and open questions were asked to allow participants express their views freely and
gather detailed information on the topic. Even though the data collection was based on the
self-selection of the participant it covers different styles of restaurants. The interviews were
conducted face-to-face in the participant’s business venue in Edinburgh.
1.5 Thesis Outline
After the Introduction (chapter 1), the further chapters in this thesis have the following chapter
structure.
Chapter 2: Literature Review - The data reviewed from the academic literature to create a
theoretical understanding of the subject can be found in this chapter. The chapter discusses
about the restaurant sector, small and medium enterprises, strategy, strategy and SME,
business model and finally present literature on the link between strategy and business model.
Chapter 3: Methodology - This chapter talks about philosophical assumptions, research
philosophies and methodological approaches used by business students to carry out the
research. The chapter then focuses on the approaches used in this study, sampling size and
data collection methods used, followed by data analysis techniques used in this study.

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Chapter 4: Analysis and Discussion– It discusses the with-in cases analysis to each restaurant
followed by cross-case analysis and literature comparison of the findings. The chapter ends
with discussion of the findings from the interviews.
Chapter 5: Conclusion – In this chapter the findings of the research are drawn together to
answer the research questions. This chapter also shows the contribution of this thesis to
restaurant owners/managers, limitation of the research and further research section to
discover the better understanding of the subject.

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2 CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This chapter first gives the overview of restaurant industry in United Kingdom, followed by
relevant literature on small and medium enterprises (SMEs). The literature on SME gives detail
knowledge on general and specific definitions in different countries, and tries to highlight the
importance of SMEs in UK’s economy. The literature review then focuses into the concepts of
strategy and gives an idea about how strategy is perceived in the SMEs from the perspective
of different researchers. Finally, it concentrates on business model and the relation between
strategy and business model.
2.2 Overview of Restaurant Sector
As per Cambridge dictionary website, a restaurant is “the place where meals are prepared
and served to the customers” (Cambridge, 2017). The restaurant sector comes under the
umbrella of hospitality industry (MacLaren, et al., 2013). Restaurants can also be said as the
organisations which offer food, beverages and services in exchange of monetary gains
(Ottenbachker & Harrington, 2007). They can also be defined as a ‘for-profit foodservice
operation whose primary business involves the scale of food/beverage products to individuals
and small group of guests’ (Schmidgall, et al., 2002, p. 239). Specified area for dining is what
differentiates restaurants from retailers who offers packed food to go (O'Mahony & Clark,
2013). Restaurants can be categorized in different styles depending on factors like prices,
food quality, ambience, menu styles and other services provided (Dittmer & Keefe, 2009).
Restaurants can be categorized into four major types: fast food, fast-casual, casual dining,
and fine/formal dining restaurants (O’Mahony & Clark, 2013; Parsa, et al.,2005).
Figure 1: United Kingdom Restaurants Industry Geography Segmentation, 2014.
(Marketline 2015, P.11)

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The global restaurant industry has grown over years, the growth percentage in 2014 was 6.2%
to reach the total market value of $2,737 billion (Marketline, 2015, p. 8). It was forecasted in
2014 that the restaurant industry will grow up to 39% until 2019 (Marketline, 2015, p. 12). In
2014, United Kingdom contributed for the highest percentage of European restaurant industry,
a total of 18.4% (Marketline, 2015, p. 12). Restaurant industry in UK is finally returning to it
size after 2008 economic crises with current total revenue of £19bn and employing 554660
people (IBISWorld Website, 2017).There has been nearly 39% increase in turnover in the
restaurant industry since the economic recession. The restaurant industry will grow more
further in UK due to better returns on funding and lower inflation rate (LDF, 2017).
Recently, the restaurant’s environment has become more intricate because of changes in
technology, regulation, more competition and internationalization (Vasconcelos & Ramirez,
2011). The environment in which the restaurant is operational, has huge impact on the
restaurants success. The restaurant industry is dynamic, hence understanding the
environment and reacting to change is essential for the survival of restaurants (Muller &
Woods, 1992).Changes in the menu of the restaurant has a huge impact on the customer’s
food choice behaviour (AMJADI & RASTAD, 2015). The customer’s purchasing behaviour has
a direct relationship with menu design and the prices on the menu (Yang, et al., 2009). The
visual representation of food items on the menu and their origin increases the acceptance rate
of that dish by the customer (AMJADI & RASTAD, 2015). While, the descriptive labels on the
bottom of the dish name are said to increase the sales and customer satisfaction (Wansink,
et al., 2001). Also, finding the right client base is essential for the better performance of the
restaurants (Charise, 2010). The foundation of the restaurant business is good customer
relationship and service (Peppers & Rogers, 2004). Restaurant management plays a key role
in the process of change and less experienced staff have less chance of success (Chen,
2014).
The Restaurants have four stages in their life cycle: Start phase, Growth Phase, Maturity
Phase and Decline Phase (Dodge & Robbins, 1992). Out of this four phase the restaurants
are most vulnerable to failure in their start phase because of lack of flexibility to the change
(Romanelli, 1989). It is always suggested to consider complete set of external factors during
the start phase of the restaurant (English, et al., 1996) The survival rate of small independent
restaurant in the first year of operation is around 70%, which is found to decrease to nearly
60% by the end of third year (Chen, 2014, p. 12). Due to low profit margins and lower survival
rates, financial institutes offer SMEs either less capital or capital at higher interest rate
compared to large firms, which discourages SME owners to use financial institutes (Cassara
& Holmesb, 2003). The majority of restaurants which fall under small and medium business

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have savings and money from family, relative and friends as their initial investment to start the
business (Chen & Elston, 2013).
Apart from some large multinational chain, majority of the competitor in the restaurant sector
are small and medium restaurants (Marketline, 2015). In United Kingdom, the accommodation
and food service contributes for 4 % SME Business share thereby employing 8% of total
people employed in SME’s (BIS, 2016, p. 12).
2.3 SME
SME’s are the engine of the society and form a clear majority of firms in any economy (Oliveira,
et al., 2015). The world has acknowledged significance of SME’s and their valuable
contribution to economic growth, employment and local development (OECD, 2004). They are
also important to maintain stability in economy, social and political structure of economy and
better quality of life (Awwad & Ali, 2012) There are different definitions of SME worldwide
based upon the law and regulation made by the government of the country (Meredith, 1994).
The SME must have qualitative and quantitative perspectives where the qualitative part should
focus on operations and procedures of firm, while quantitative part should focus on tangible
financial aspects (Meredith, 1994). Small business Administration of The United States of
America says that companies with less 500 staff and annual sales below certain limit (changes
as per industry) can be considered as SMEs (U.S- International Trade Commision, 2010). Asia
Countries Number of
Employees
Sales
/Revenue
Assets Capital
/Investment
Sector
Australia X
Brunei Darussalam X
Canada X X X
Chile X X
China X X X X
Hong Kong X X
Indonesia X X X
Japan X X X
Korea X X X X
Malaysia X X
Mexico X X
New Zealand X
Papua New Guinea X
Peru X X
Philippines X X
Russia X X
Singapore X X X
Chinese Taipei X X X X
Thailand X X X
United States X X X
Vietnam X X
Table 1: Different Criteria used for Defining SMEs in Different Countries (APEC 2010, p.3)

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Pacific Economic Cooperation (APEC) have analysed different criteria used for defining SMEs
across the globe which can be seen in the table 1 (APEC, 2010).
While in Europe, European commission defines Enterprise as an entity engaged in an
economic activity. The factors which decides if an enterprise is an SME are staff headcount
and turnover of the entity. Staff Headcount considers employees, Owners and manager, and
partners who are actively engaged in enterprise activities and receive financial benefits from
it (European Union, 2015). Depending upon the threshold of staff head and turnover,
enterprise can be divided into three types. Micro Enterprises have less than 10 staff and
annual turnover not more than 2 Million Euros. Enterprise with less than 50 staff and annual
turnover less than 10 million Euros are called as Small Enterprise. Lastly, Medium Size
enterprise are the ones with less than 250 staff and annual turnover not more than 50 Million
Euros (European Union, 2015).
Factors which differentiate SMEs from large companies are uncertainty, innovation and
revolution factors (Hayes, 2009). SMEs have limited resources which prevent them from
exploiting opportunities in the marketplace (Hayes, 2009). Managers of SMEs focuses on
short-term profitability rather than spending resources and time on long-term strategic plans
(Munro, 2013). The main reason behind this behaviour of managers is financial limitation and
less number of staff (Munro, 2013). SMEs play a vital role in reducing unemployment,
developing skill employees, and supporting large as outsourcing and supplier companies
(Abdulla, 2002). SMEs have influenced government’s domestic policies in different countries
(Fingleton, et al., 2003). They also help shaping regional economy to achieve rapid growth in
less developed parts of the country (Fingleton, et al., 2003).
SMEs are the engines which drive job creation, economic growth and ensure social stability
in European economy. Two out of three jobs are created from SMEs and nearly 90 million jobs
were made available throughout EU just by SMEs. SMEs are estimated to add 2% more
enterprises compared to number’s in 2015 which in turn will increase employment by 2.3%
more (European Union, 2016, p. 30).
2.3.1 SMEs in the United Kingdom
In UK, one of the major causes of failure SMEs is weak and poor management skills (Ihua,
2009). The SMEs in the UK are also facing difficulties because of uncertainty of the market
environment brought by Brexit (The UK’s withdrawal from European Union) (Pay, 2017). The
United Kingdom have initiative of supporting SME with R&D and innovation. National
Technology Strategy Board and Regional Development Agencies are formed which help
SME’s with innovation strategies and conduct knowledge transfer program for them (OECD,
2010). As per EU definition of SMEs, there were 5.4 million small and medium enterprises

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(SMEs) forming more than 99% of all businesses in 2016 (BIS, 2016, p. 1).Out of which nearly
5.3 million of businesses where micro enterprises contributing to 32 % employment and 19%
turnover. Large businesses even tough contributed for just 0.1% of all businesses, the
employment and turnover in these companies was very high, 40 % and 53% respectively (BIS,
2016, p. 3). The Table 2 shows more detailed statistics of SMEs and Large companies in UK.
Table 2: Private Sector Businesses in the UK by Number of Employees, (BIS 2016, p.3)
In UK, the turnover of SME in 2016 was £1.8 trillion which is about 47% of all private sector
(BIS, 2016, p. 4). Number of research on strategic practices in the SMEs have increased due
to SME’s important role in the national as well as world economies (Papazov & Lyudmila,
2010)
2.4 Strategy
The term strategy is derived from two ancient Greek word:’stratos’ which means army, and
‘agein’ which means to lead (Cummings & Wilson, 2003). Strategy’s history is debatable
because there are two different views for the emergence of strategy; Military and political
strategy, and modern strategy (Carter, 2013). Military combat have been a part of most
civilizations and whether it is a success or failure story, both offer some strategic insights to
learn (MacIntosh & Maclean, 2015). Sun Tzu and Clausewitz have written about military
stories, while Machiavelli have written about political behaviour which provide the
conceptualization of strategy (MacIntosh & Maclean, 2015). In twentieth century, there was a
development in the strategy as the concept which empowered managers and organizations to
plan for the challenges they might face: modern strategy (Knights & Morgan, 1991).
The word strategy appeared in the business world in 1960’s, before that it was only used in
warfare and politics (Walter, 2010). While, Carter et al., (2008) argued that the term ‘strategy’
is evolved from the term ‘business policy’ which was first introduced by Harvard as a course,
hence the term strategy might have appeared before 1950’s. In business context, there are

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three dimensions of strategy; strategy process, strategy content and strategy context (Wit &
Meyer, 2010). Strategy analysis, formulation, implementation, and who will implement it and
when, comes under strategy process. Which aspects are considered to make a strategy, and
what should be the strategy, comes under strategy content. While, the strategy context deals
with which industry or environment the strategy is applied (Wit & Meyer, 2010). The relation
between these three dimensions can be seen in the figure below.
Figure 2: Three Dimensions of Strategy, (Wit &Meyer 2010, p.5)
Managers develop strategic plans using available resources to be competitive in the market
environment on behalf of stakeholders (Clegg, et al., 2011). Case studies and theories based
on strategy help managers to solve intricate business problems on daily basis (Faulkner &
Campbell, 2006). Strategy is interpreted in different way by different people and have different
meanings (Cole, 2006). Mintzberg (1987) have said that strategy can be used in 5 ways; plan,
ploy pattern, position and perspective. A plan is the consciously intended progress from
beginning to the end. A ploy as strategy can be set of short term objectives which can be
changed over course of time. A pattern as strategy is the repeated behaviour during the
progress to achieve objectives (Campbell, et al., 2012). The position strategy is related to
where does an organisation wishes to stand in the industry against its competition, and the
perspective strategy is influencing like-minded people to work for the common objective
(Campbell, et al., 2012).
There are four major theories of strategy; classical approach, evolutionary perspective,
processual approach and systematic perspective (Whittington, 2001). The classical approach
says that practical planning to meet objectives while achieving profits is the main goal of any
business. The evolutionary perspective approach is adopted when an organisation counts on

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the market to be profitable due to lack of top managements performance (Analoui & Karami,
2003). The fact that learning is continuous process and people are not perfect form, the base
of processual approach of strategy. While, the systematic approach focuses on value analysis
and evaluation for the achieving profits (Analoui & Karami, 2003).
2.4.1 Strategic Management
strategic management can be described as the process of analysing, formulating and
implementing strategies which aim at achieving the objectives and goals of the organisation
(Jeffs, 2008). Systematic internal and external environmental analysis and informed decision
making can be achieved using strategic management, which finally leads to improvement in
performance of organisations (Jeffs, 2008). Strategic management consist of basically four
principal elements of the organisations, which are organisation structure, culture, culture and
style. These principal elements help in creation/formulation, implementation and evaluation of
strategy in any organisation (Amason, 2011).
David (2013) have given a comprehensive model for strategic management process which
can be seen in the figure 3. The Strategic management process, which is dynamic and
continuous in nature can be represented by practical approach of formulating, implementing
and evaluating strategies (David, 2013).
Figure 3: Model of Strategic management process, (David 2013, p.46)

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2.4.2 Strategy Formulation
Strategy formation is often the responsibility of top management (Karami, 2007). Strategy
formulation through logical analysis and evaluation process is bit contradictory to the emergent
strategy approach (Grattan, 2011). Strategy formulation is complex process and beyond
human capacity to understand the complex strategic problems and hence cannot be
formulated by simple rational analysis (Grattan, 2011). No strategist can provide complete and
flawless strategic solution to the problem (Kachru, 2005). Strategist can only come up with
satisfying strategic solution which might become obsolete and must be abandoned after some
time (Kachru, 2005). Strategy is the series of decision making process throughout the strategic
planning of the organisation (Merriënboer & Kirschner, 2013). Strategies keep changing over
time leading to diversion of original strategies and hence there is no obvious boundary
between strategy formulation and implementation (Merriënboer & Kirschner, 2013).
Strategy formulation process involves development and creation of strategy focusing on
different levels of organisation activities (Ulwick, 2005). Good strategy formulation process
helps in achieving competitive position in the industry and hence is very important for the
business (Grattan, 2011). In the next step the strategy formulation process involves building
company’s vision and mission, deciding short-term and long-term goals, internal and external
environment analysis, selecting appropriate strategy for execution, resource allocation,
business diversification, supplier acquisition and potential new business ventures (Hadighi, et
al.,2013; Karami, 2007). Where the organisation’s vision is the virtual picture of company’s
future imagined by top management considering different departments and business units
(Prasad, 2009) and the organisation mission is the way in which managers and employees
work to accomplish organisational vision. It also communicates organisation’s ideas to
shareholders and provides direction in decision making process of strategy (Harrison & John,
2012).
The purpose of strategy is to achieve competitive advantage by outperforming its competitors
in the market (Amason, 2011). Competitive advantage can be duplicated by competitors very
quickly therefore sustainable competitive advantage must be invented by analysing internal
and external environment which will help to spot new opportunities at early stage (Goldman &
Nieuwenhuizen, 2006). Organisations must continuously improve in structure and culture to
achieve maximum benefits from the environmental changes which are likely to occur (Noorani,
2010). SWOT (strength, weakness, opportunities and treats) analysis can be used for internal
and external environment analysis of an organisation (Olsen, 2017).Effective Strategy
formulation can lead to larger market share, customer satisfaction, cost reduction and
competitive advantage for an organisation (Ulwick, 2005).Activities from different departments
like Marketing, human Resource, Finance, Production, and Research & Development play

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important role in formulating strategy to meet business objectives (Karami, 2007). One should
note that strategy formulation will not yield good results, if the strategy implementation is poor
(Karami, 2007).
2.4.3 Strategy Implementation
Strategy implementation is the part of strategic management which relates to organisational
structure, culture and management system (Machuki, 2011). All the organisational activities
are aligned with the strategic plan for the implementation of strategy (Slater, et al., 2010).
Strategy formulation develop strategies which in the form of idea and concepts which are put
into real-life using strategy implementation. In short, strategy formulation provide direction to
the firm while strategy implementation is all about how to reach the destination (Maclennan,
2011). It can also be said as pattern of resource utilisation which interacts between internal
and external environment of organisation to achieve short-term and long-term objectives
(Scott & Alan, 2006).Strategy implementation involves internal environment factors like
employees, structure, resources, capabilities and culture of the firm. The external environment
factors like political, economic, social and technological are also involved in the process
(Morden, 2012). The outcome of implementation will depend on certain factors like
organisations resources, technology and knowledge (Thompson & Martin, 2010).
Companies can successfully enhance their performance by improving and adjusting their
strategy implementation process (Heracleous, 2003). Strategy implementation builds
coordination among employees, efficient resource allocation, integration of structure and
development of corporate culture to achieve organisation goals (Witcher & Chau, 2010). An
organisation must re-evaluate strategy formulation if the strategy implementation fails to solve
the problem (Katsioloudes, 2006).
2.5 Strategy and SME
There are studies (Backer & pearson,1986; Nyamwanza,2013) which examine link between
strategy formulation and implementation, and performance in the SME, while other (Postma
& Zwart, 2001)explore the nature of strategy making and performance in SME. Some
researchers say SMEs performance is improved by strategic management. The SMEs are
getting more complex to handle and strategy plays a vital role in their growth (Grant, et al.,
2010). While some researchers believe that time and resources have been spent developing
business strategies, which are sometime not compatible with the SMEs (Analoui & Karami,
2003). In academic literature, there is a positive relation between formalised strategic planning
and performance of the SMEs (Kraus, et al., 2006).SMEs tend to have lower profit margins
compared to large organisations because of insufficient use of strategic planning techniques
(Papazov & Lyudmila, 2010).

10
The SMEs management and organisational structure changes as it grows over time (Levy &
Powell, 2005). In most of the cases, owners of the SMEs are the decision makers and
generally follow simple business strategy. Employees in such cases face problems because
of lack of authority to complete the task without owner’s consent (Levy & Powell, 2005). When
SME reaches a bit matured stage, the owner must empower professional managers for
decision making process (Peng, 2009). Professional managers have better chance of
developing a successful business strategy suitable for organisation compared to the owners
because of their past experiences (Peng, 2009). Pansiri & Temtime, (2010) noted that
insufficient training, education and experience of owner and manager can lead to business
failure. Owners and managers of the SMEs often formulate and apply strategies in different
ways than recommended in the literature (McCarthy, 2003). Strategic management can help
SMEs owner and manager to build vision and mission, to benchmark and to set appropriate
and feasible goals for their company (Morden, 2012). Managers can develop an approach for
achieving set objectives, tackle changes, achieve competitive edge, be prepared for dynamic
environment and improve communication using business strategy (Harrison & John, 2012).
2.6 Business Model
The word search for ‘Business Model’ shows more than million entries in the business
literature (HWU - Discovery, 2017). The origin of the idea can be tracked back to the work of
Peter Drucker, but the conceptual belief of the term business model has gained prominence
in last few decades (Casadesus-Masanell & Ricart, 2010). The Business model can be
referred as the way any firm operates, and the way it creates value for the firm’s stakeholders
or the owners (Casadesus-Masanell & Ricart, 2010). Since mid-1990’s, the term business
model is used more often as companies wanted to keep up the trend and earn more money
using internet (Seddon, et al., 2004).
The term business model has been widely researched, talked and applied in the business and
academic level (Richardson, 2008).The business model concept is represented in two
different ways, either concept of value creation and capture, or the structure and architecture/
framework of business (Ahokangas & Myllykoski, 2014). Some of the definitions of business
model based on the above-mentioned concepts are as follows. Safer sees business models
as the representation of the reality and business is fundamentally creating value and capturing
returns from that value (Shafer, et al., 2005). He defines business model as a “representation
of firms underlying core logic and strategic choices for creating and capturing value within a
value network” (Shafer, et al., 2005). Teece have adopted the above two representations of
business model and says that business model should be honed to meet the customers need
to achieve competitive advantage (Teece, 2010). He describes business model as “the design
or architecture of the value creation, delivery and capture mechanisms employed” (Teece,

11
2010). George and bock emphasizes on the entrepreneurship aspect of the business model
and have a business model definition focusing on the Small and medium enterprises. They
define business model as “the design of organizational structures to enact a commercial
opportunity” (George & Bock, 2011).
The two-different representation help us to connect business models from its abstract-level
strategy to its implementation on a practical level (Ahokangas & Myllykoski, 2014).
Osterwalder and Pigneur have connected the abstract level and implementation in the e-
business model and came up with their understanding of business model which is “the
conceptual and architectural implementation of a business strategy and as the foundation for
the implementation of business processes” (Osterwalder & Pigneur, 2002). Three years later,
Osterwalder with other came up with another study of business model concept where he calls
business model as the ‘blueprint’ for running the business while considering all aspects of the
business. (Osterwalder, et al., 2005) Few more concept or interpretation of business model
by different authors are given below. The literature on business models given below is from
the general business as well as e-business perspective, where Hamel and Magretta studies
are based on general business perspective and Amit and Zott studies are based on e-business
perspective.
Hamel puts business model as simply the execution of the business concept. To lead in the
revolution business model one must imagine different business concepts or come up with
totally different ways of doing current business concept (Hamel, 2000). Hamel identifies four
major interlinked components which can be used for developing a business concept- Core
Strategy (how does the firm chooses to compete), Strategic Resources (the core
competencies and strategic assets the firm has), Customer interface (Customer relationship
and distribution channels) and Value network (interaction with suppliers and partners) (Hamel,
2000).
Another writer Magretta, says that business models are stories which explain how the firm
works (Magretta, 2002). Whether, it is a new venture or a successful organisation all of them
have a business model (Magretta, 2002). She acknowledges Peter Drucker’s work and defines
a good business model as one which gives answers to the following questions: Who is the
Customer, and what does the customer value, what is the underlying economic logic that
explains how do we deliver value to the customer at an appropriate minimum cost? Magretta
approach gives two fundamental solutions to make the business model work: Check if the
story makes sense (Are your product and services creating value to the customer), and How
efficiently are you able to capture value from your business model? (Magretta, 2002) .

12
While Magretta’s definition is very broad and focuses on the general business model, Amit
and Zott’s definition is very precise and focuses on the e-businesses. These authors studied
different theories of value creation (virtual markets, value chain analysis, the resources based
view of the firm, dynamic capabilities and strategic network) and concluded that a firm’s
business model is critical source of value creation for firm, stakeholder and customers (Amit
& Zott, June 2001). Amit and Zott’s Definition of business model is “A business model depicts
the design of transaction content, structure and governance to create value through the
exploitation of the business opportunities” (Amit & Zott, June 2001). Based on the above study,
few year later Amit and Zott proposed an activity system perspective for designing business
model. They say that this new system enables the firm and its partners to create value in the
market. They suggested two parameters while designing the business models: design
elements which describe the architecture of the activity system, and design themes which
describes the source of the value creation of the activity system (Zott & Amit, 2009).
Table 3: Alternate Business Model Components, (Morris, et al.2005, p.728)

13
The business model is usually made of several components, these components when
considered together gives an overall view of how the firm works (Morris, et al., 2002). In the
literature of business model, different components are used by different authors (Morris, et al.,
2005). In table 3, we can see number of different business model components are compiled
by Morris et al (Morris, et al., 2005). In this table (table 3), most of the business model
components are based on general business perspective while few of them are based on the
e-commerce business perspective. Morris et al., (2005) found that there are total 24 different
business model components mentioned by different authors and there are 15 components
which are mentioned multiple times. The most frequently mentioned components are value
proposition (mentioned 11 times), revenue source (mentioned 10 times), customer
relationship (mentioned 8 times), partner network (mentioned 7 times), activities (mentioned
6 times) and target segments (mentioned 5 times) (Richardson, 2008).
Business model does not last for long time and must be reinvented from time to time to take
maximum benefits of the fast-changing nature of the market environment in some sectors
(Afuah & Tucci, 2003). Osterwalder & Pigneur, (2010) described business model using
business model components which clearly shows the logic of how firms money. Their nine
business model components are as follows: Customer Segment, Value Proposition, Channels,
Customer Relationship, Revenue Streams, Key Resources, and Key Activities (Osterwalder
& Pigneur, 2010).These nine business model components cover four different crucial areas of
Figure 4: Business Model Canvas, (Osterwalder & Pigneur 2010, p.44)

14
business: customers, offers, infrastructure and financial viability (Osterwalder & Pigneur,
2010). The figure 4 displays business Model Canvas as given in the book ‘Business Model
Generation’ by Osterwalder and Pigneur (Osterwalder & Pigneur, 2010). The canvas
framework is unique as it shows light on the internal factors related to business organisation
and operation, and some of the external factors related to customer and partners (Cosenz,
2017). The BMC is also a very important tool for the stakeholder as it enables them to
understand the business model in different dimension and understand the potential value of
the business for the customers (Cosenz, 2017).
2.7 Strategy and Business Model
Many people use the terms business model and strategy interchangeably, but they are not the
same thing (Magretta, 2002). Business models alludes as the logic of the firm and the way it
operates and way it creates value for its stakeholders. Whereas, the strategy alludes to the
choice of business model through which the firm will compete. (Ramon Casadesus-Masanell,
2009). The literature on business model and strategy is not very clear on the interaction and
convergence of the two field (Gaedicke, 2012). some authors say that the study on the
business model field is uncomplete (Mansfield & Fourie, 2004). While some authors argue
that business model is the abstract idea of strategy and lies within the field of strategy (Morris,
et al., 2005). Strategy and business model can be said as two distinct concepts as they focus
on two different things and have two different unit of analysis (Zott & Amit, 2008). Despite
being two different concepts, when combined show a positive effect on the organisational
Figure 5: Strategy, Business Model and Tactics Framework, (Casadesus-Masanell &
Ricart 2010, p.19)

15
performance in industry (Zott & Amit, 2008).Contrary, some authors argue business model
being new tool of strategy (Leem, et al., 2004) or a part of business model strategy (Gaedicke,
2012). Business model can also be called as an abstract of company’s strategy (Seddon &
Lewis, 2003).
The business model can be used as a tool for assessing strategic choices made by the
organisation (Shafer, et al., 2005). Firms compete through business model and have
contingency plans (Strategy) of actions made of choices in the event of strong potential
competition or changes in the environment (Casadesus- Masanell, 2010). The business model
are direct reflections of the strategy chosen and leads to respective tactical sets. Business
model are a part of strategic process in this framework (Casadesus-Masanell & Ricart, 2010)
(see figure 5).
The strategy in any organisation is concerned with competitive advantage and value capturing,
and on the other hand business model is more about joint value creation, partnership and
cooperation (Zott, et al., 2011). Many small businesses are not interested in formulating
strategies as they are difficult to change and find business models a lot easier in comparison.
(Hedman & Kalling, 2001)
Ohmae’s 3C model say that strategy consist of three perspectives; customer based strategies,
corporate based strategies and competitor based strategies (Ohmae, 2005). Business model
seems to have only customer based strategy perspective, and hence are not sufficient for
making a strategy, but it can be part of strategy process. (Gaedicke, 2012). The business
model is conceptual and architectural implementation of the strategy (Jesper Deleuran Friis,
2015). Business model helps in the execution of business strategy as it helps to explain and
Re-analysis
Strategy formulation
Business Model
strategy Implementation
uncertainty
Figure 6: Gaedicke's Strategy process framework, (Gaedicke 2012, p.32)

16
visualize activities of the firm (Richardson, 2008). Business model is the logic with which
organisation works and can be said an intermediate layer between business strategy and
business process (Al-Debei & Avison, 2010). Business model is a strategic tool used by
businesses to “translate strategic goals into implementation tasks and functions” (Gaedicke,
2012, p. 28). Gaedicke have suggested a framework which shows relation and interaction
between strategy and business model, where business model is the complementary function
in the strategy creation process (Gaedicke, 2012). Gaedicke’s version of strategy process
model is shown in the figure above (figure 6).
In conclusion, business model and strategy are related (Osterwalder & Pigneur, 2010; Seddon
& Lewis, 2003; Casadesus-Masanell & Ricart, 2010), and can also be complementary
functions (Gaedicke, 2012). Strategy is more about achieving competitive edge and efficient
use of resources and capabilities (Zott et al, 2011; Grattan, 2011; Karami,2007), while
business model gives importance to value creation for customer and stakeholder, value
exchange with suppliers, and cooperation (Zott et. al., 2011; Osterwalder & Pigneur,2010).
This study is conducted to check the real relation between strategy and business model in the
context of SMEs which currently seems to be ambiguous from the above literature review.

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3 CHAPTER THREE: METHODOLOGY
3.1 Introduction
This chapter first explains the aim and objectives of this master thesis. The chapter provides
a brief explanation of different research philosophies and approaches used in this thesis. The
chapter also discusses research philosophy and the methodology used to develop this master
thesis and the rationale behind it. Later in this chapter, the sample selection, data collection
techniques and the method of data analysis used in this study are explained in detail.
3.2 Research Aims and Objectives
The overarching aim of this thesis is to understand how strategy impacts business models in
the context of the SME: A case of Restaurant Sector. The following research objectives are
used to achieve the aim of the thesis.
Research Objectives:
 Understand the restaurant sector
 To develop understanding of strategy in SMEs
 Explore the relation between strategy and business model in SMEs
3.3 Research Philosophies
The research philosophy researcher adopts, gives an idea the way in which he views the world
(Saunders, et al., 2009). Research philosophies have their own assumptions which will
underpin research strategy and the methods researcher choose to study and understand new
Figure 7: Research Onion, (Saunders et al. 2009, p.108)

18
knowledge (Saunders, et al., 2009). One can also say that these philosophies are link between
knowledge and the process to develop knowledge (Saunders, et al., 2009). The research
onion by Saunders, et al. (2009) gives a complete over view of the research path a business
research student should follow. The philosophies and approaches given in the research onion
are discussed below as we move further in this chapter (see figure 7).
Before adopting any research philosophy, a researcher must understand different ways of
thinking about research philosophies to enhance his knowledge about different approaches.
Different ways of thinking towards a research philosophy are as follows.
 Ontology: It raises questions about the researcher assumptions and the way in which
world operates. In short, it is related to the researcher’s perspective of nature of reality.
There are two types of ontology which are validated by many researchers (Saunders,
et al., 2009). Objectivism - The objectivist views are that social entities exist unbiased
of social actor’s views on it. Subjectivism- The Subjectivist understand the relation
between individuals and social phenomena. Social phenomena are made from actions
and perceptions of social actors (Saunders, et al., 2009).
 Epistemology: It deals with what can be considered as acceptable knowledge in the
study (Saunders, et al., 2009). Some researcher who believe in the data of the
resources are said to follow positivist philosophy while others whose epistemological
stand are more inclined towards feelings are said to adopt interpretivist philosophies
(Saunders, et al., 2009).
 Axiology: The role of researcher’s value in the process of research contributes to
credibility of the research and axiology is the philosophical study of it (Saunders, et al.,
2009).
The four main research philosophies worth considering in the management studies are
summarized below.
3.3.1 Positivism
In positivism researchers believe in observable similarities of social reality and end products
of the research, and the research is considered valid only if can be verified (Remenyi, et al.,
1998). The positivist adopts stance of natural scientist that is to collect the data, build the
hypothesis, test and confirm the result (Saunders, et al., 2009). As per Crotty, positivist see
social entities as real in a similar way as physical objects and natural phenomenon are real.
Epistemologically positivist will focus on observable and measurable facts and phenomenon
which could be proved based on credible data (Crotty, 1998). Research who follow this
philosophy try to create law-like generalisation in their data like ones made by scientists (Gill
& Johnson, 2010)

19
3.3.2 Realism
This philosophy affirms that the things which are perceived using senses are reality in the truth
and that reality is independent of the mind (Saunders, et al., 2009). Realism can be
distinguished between two types; direct and critical realism. Direct realism means the things
one sees and experiences using his senses is the reality (Saunders, et al., 2009). Critical
realism means the things one sees and experiences using his senses may not be the actual
reality but just his manifestation of the things in real world (Saunders, et al., 2009). In this
philosophy, observable phenomenon can be proved only by complete and credible data and
facts. Researchers try to be minimise bias and errors in the search as it can change the results
and reliability of research (Saunders, et al., 2009).
3.3.3 Interpretivism
Unlike critical realism philosophy, the subjective thoughts and ideas of people on reality are
valid in interpretivism philosophy (Greener, 2008). The Interpretive philosophy lets
researchers create new understanding and interpretations of social worlds in different contexts
(Saunders, et al., 2009). This thinking of diverse interpretations of interpretive research have
made it one of the most common philosophy among business and management researchers.
Since interpretivism focuses on creating new and rich interpretations depending on the
different social actors it’s ontological thinking is totally subjectivist (Saunders, et al., 2009).
Epistemologically interpretivist focuses on the details of the situation, realities behind these
details and interpretations of social actors on these phenomena. Axiologically thinking
interpretivist values and beliefs play an important role in the research as the researcher must
take an empathetic stance to analyse the situations. Qualitative data collection methods are
most suitable for this type of study (Saunders, et al., 2009).
3.3.4 Pragmatism
Kelemen and Rumens states that in pragmatism, concepts are only relevant if they support
some sort of actions (Kelemen & Rumens, 2008). Pragmatist researcher start with a problem
and aims to finding a practical solution for it. This process of research starts when researcher
has a sense of something wrong and enquire about the problem, leading to research to solve
the problem. (Saunders, et al., 2009)Pragmatist believe in different ways of interpreting the
world and undertake the research so they use credible methods to get relevant and reliable
data to get practical outcomes (Kelemen & Rumens, 2008).
3.4 Research Approach
It is important for researcher to understand different research approaches to formulate how to
proceed with data collection, structuring and analysis. There are three research approaches
used by business and management researchers (Reichertz, N.A).

20
3.4.1 Induction
In induction first empirical data is collected using suitable data collection methods, analysis of
collected to make sense and the results from analysis will lead to formulation of the theory
(Saunders, et al., 2009). Conclusions drawn from the analysis are supported by appropriate
literature and if literature is not available, new theory is formulated. It can also be said that
induction involves derivation of totality from the empirical sample data to extend the current
body of knowledge or to form a new rule (Reichertz, N.A).
3.4.2 Deduction
Deduction approach is opposite to the induction approach (Saunders, et al., 2009). A well-
known rule or generalized theory is chosen and then literature survey is carried out to build up
hypothesis (Reichertz, N.A). These hypotheses are verified with the collected empirical data
to see the how true the rule or theory is. So, deductions are always used to verify the truth
behind a law using collected empirical data (Reichertz, N.A).
Figure 9:Deduction approach, (Sinha 2011, p.10).
Figure 8: Induction approach, (Sinha 2011, p.10)

21
3.4.3 Abduction
Pacius introduced the research method of abduction in 1597 and it remained unnoticed for
three centuries until Piere used it in his research (Reichertz, N.A). It can be said that induction
works on the logic of discovery while deduction works on the logic of justification. Abduction
is the merger of these two approaches to come to the meaningful conclusion and contribute
something to the body of knowledge (Reichertz, N.A). When researcher moves between
theory and empirical data to infer and derive conclusion he is said to adopt abduction research
method (Guba & Lincoln, 1994).
3.4.4 Qualitative VS Quantitative Research
The qualitative and quantitative research are focused on subjective and objective perspective
of the research respectively (Saunders, et al., 2009). The qualitative research methodologies
are more likely to be associated with the interpretivism philosophy while the quantitative
research methodologies are more likely to be associated with positivism (Saunders, et al.,
2009). In qualitative research one must look at social phenomena from the eyes of actor. It is
very flexible and gives emphasis on discovering novel theories or their anticipations (Bryman,
1984).Whereas, in quantitative research one must see reality with the positivist approach and
hence the findings are objective and replicable (Bryman, 1984).
3.4.5 Researcher’s Stand on Philosophies and Approach
To understand the nature of relation between the strategy and business model in the SMEs,
an interpretivist approach which allows the researcher to understand the realities and
perceptions of the participants (Guba & Lincoln,1994). The interpretive researcher’s
ontological assumption that social phenomena are result of different perceptions and actions
of social actors and hence have a subjectivist stance (Greener, 2008). Since the aim of this
study was to develop insights on the SMEs, inductive approach is preferred over deductive to
develop new theory (Saunders, et al., 2009). Qualitative data collection method was used in
Figure 10: Abduction approach, (Sinha 2011, p.11).

22
this study over quantitative, as it was necessary to understand the impressions, views,
perceptions and insights of the participants to carry out the study effectively (Saunders, et al.,
2009).The empirical data collected using qualitative data collection method was analysed to
extend the current body of knowledge in SME literature.
3.5 Sample Selection
In this study a non- probability self-selection sampling is used for the sample selection. Self-
selection sampling is used when the participants has a voluntary desire to take part in the
study (Saunders, et al., 2009). Self-selection sampling is chosen because not everyone wants
to spend their time on research. This study uses self-selection because it was convenient to
ask random restaurant owner/manager for the interview. Random restaurants in Edinburgh
which fall under SME and responding in positive way were selected and asked for semi-
structured interviews. The respondents were restaurant owners or managers and were
contacted directly face-to-face in the restaurant venue. To get correct and relevant data the
respondents must know in and out of the restaurant business and hence owners and
managers were selected for interviews. More than 20 restaurant owners/managers were
contacted during the data collection period, out of which 10 volunteered for this research. Even
though, the sample was small size, the data was diverse in nature. There was no age group
or gender criteria for selecting the respondents.
3.6 Data Collection Methods
Different sources were used for data collection during the development of this thesis to obtain
a comprehensive set of data which allowed to analyse, synthesize and merge information to
address the research questions of the thesis.
3.6.1 Semi-Structured Interviews
In this study, 10 semi-structured interviews were used to obtain insights which would help to
explore information related to research questions and objectives of the thesis. The exploratory
nature of the research question makes semi-structured interviews best option to understand
the relation between the variables in the research question (Saunders, et al., 2009).
Personal contact has been made with the owners/managers of the restaurants in Edinburgh
as the managers are more likely to be interested in the interview over questionnaire as it gives
them opportunity to obtain reflection of their business without any extra work (Saunders, et al.,
2009). The respondents were given a small instantaneous introduction on the concepts used
for the study to guide them what the research is on and what interviewer expects from the
interview. A mix of probing and open-ended questions were asked during the interview
process. The questions asked were in simple language so that the respondent can understand
it in better way and give information on the relevant topics. The length of interviews ranged

23
from 10 to 30 mins in all the interview samples. The interviews were audio-recorded with the
consent of the respondent.
3.6.1.1 Interview Design
With the help of insights obtained from the literature review and Eisenhardt theory building,
random sample of Restaurants (SME) in Edinburgh were considered on self-selection basis
in this study. Considering the objectives of the research, it was important that specifically the
owner or the manager of the restaurant was interviewed. Restaurant owners and managers
were considered the only individual who understand the business and have in-depth
knowledge about the changes occurring in the business. Same interview guide was used for
the owners and the managers. The open-ended questions in the interviews gave the
participant the complete freedom to express their opinions and beliefs without any restrains.
Some of the interviews have been conducted in Hindi due to participants request and
preference, but the results have been translated in English to express the same meaning. Two
mock interviews were conducted at the start of data collection process to understand the
restaurant sector and to build an interview guide which have helped to carry out the research.
3.6.1.2 Interview Guide
The themes of semi-structured interview were decided in a way to give freedom to the
researcher to introduce other issues and new questions which seemed appropriate depending
on restaurants situation. This allowed to uncover different aspects of the business which might
have direct or indirect relation with the research question.
The interview guide used during the interview process have allowed to carry out interview in
a systematic way. The interview guide was divided into three themes as follows.
 Theme 1: Story of the Restaurant
Questions related to general back ground of the participant and how and when they started
the restaurant were asked.
 Theme 2: Strategy, Business Model and the Changes brought-in
The question in this theme were mainly related to the strategy and business model of the
restaurant. It was made sure that detail information of the business was received using probing
questions. The different changes in the restaurant which were brought until interview date and
the changes which will be brought in the future were discussed. Study of restaurant menus
and websites beforehand have enabled the researcher to ask questions to uncover the
different changes.

24
 Theme 3: Detailed change Procedures
This theme started with the questions related to starting the business and what was the
procedure undertaken. Later, questions related to the major changes brought in the business
were discussed in detail. Again, the questions related to strategy and business model of the
specific changes brought in were asked.
3.6.2 Restaurant Documents and Literature Review
The documentary secondary data like restaurant’s website and menu card were used by
author. The qualitative data from these documents were used to collect information regarding
new concepts and changes brought in restaurant, as well as to understand the business model
of restaurant. The data collected from this documents helped to frame questions during the
interview process.
The literature review was mainly conducted using two electronic databases namely Discovery
and Ebscohost. The literature review is focused on strategy, link between strategy and SME,
business model, and the relation between strategy and business model. The knowledge
obtained while carrying literature review have helped to carry out in-depth interviews and to
provide a meaningful conclusion.
3.7 Data Analysis Techniques
The qualitative data collected was analysed using analytical induction approach. The author
wanted to explore, if there is some relation between strategy and business model of
restaurants in SME context. As the study is exploratory in nature, the inductive technique
adopted from Eisenhardth building (Eisenhardth, 1989) is used in this study to build the theory
on the strategy and business models of restaurants in SME context.
One by one all the restaurant case data collected by semi-structured interviews were analysed
to check the relation between strategy and business models. The analysis chapter is divided
into sections according to the objectives of this study. The analysis to the objectives start by
with-in case analysis of each restaurant to find the perception of reality of each restaurant
owner/manager. The with-in case analysis is followed by cross-case analysis of different
restaurants to discover the common trends in the data, followed by comparison with literature.
3.8 Limitations of Study
The researcher acknowledges that there might be flaws in the literature, citations and the
conclusion of the thesis. Just two electronic databases were used for carrying out the literature
review and hence the study might have missed some literature on the subject. Moreover,
perception of the subject in this study might have been completely different compared to the
other researcher’s perspective on the subject due to different comprehension skills.

25
The study is just focused on the restaurant industry SME’s in Edinburgh and cannot be
generalized to all the SME’s. The sample size of interview is small and the results are
subjected to change if the number of sample size is increased. Some interviews are also
carried out in different language and can affect the conclusion during data translation process.
3.9 Research Ethics
In this thesis, the following research ethics given by the Saunders, et al. (2009) and Bryman
& Bell (2007) in their respective books on business research were followed.
 The Research participant/respondent was not subjected to any harm while the
research.
 The dignity of participant was prioritised and respected.
 Participants full consent was taken before study and their privacy was ensured.
 Confidentiality of all types of research data obtained from participant and the anonymity
of participants in required cases was ensured.
 There was no exaggeration about the aims and objectives of research.
 Complete honesty and transparency was maintained during the research process.
 The participation was voluntary in nature and the participant had the right to withdraw
himself/herself during the research process.
 There was no human right abuse or any sort of embarrassment, pain and discomfort
to the participants in the research process.

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4 CHAPTER FOUR: ANALYSIS AND DISCUSSION
4.1 Introduction
The purpose of this chapter is to present the results of the qualitative data collected using
semi-structured interviews. The data analysis is presented in three sections addressing three
research objectives of the thesis. In each section. the data analysis takes place in following
order; with-in case analysis, cross-case analysis followed by literature comparison. The
chapter ends with the discussion of findings of the data analysis.
4.2 Start Phase in the Restaurant Sector and Overcoming the Changes in Restaurants
4.2.1 Start Phase in the Restaurant
In this section the study tries to analyse the first research question of understanding the
restaurant sector and develop insights on the sector. The study brings into light different ways
in which the restaurant owners have started up their business, the changes brought in the
restaurant over the time and the factors considered to bring those changes. To address this
research question, with-in case analysis of each interview is done, which is followed by cross-
case analysis of the interviews in comparison to the literature for deeper understanding of the
interviews. The names of the restaurants are not revealed for the confidentiality reasons.
The restaurant A owner’s family own three restaurants in Edinburgh. The industry experience
of more than 6 years and family’s financial and mental support have helped restaurant A’s
owner to set his restaurant. In start phase of the restaurant, the business model was adopted
from family owned restaurants which was followed by the strategy formulation based on the
Indian tapas concept, location of restaurant and customer base.
“Basically, I wanted to open an Indian restaurant.…got opportunity to open in this area
… main thing is you need to know how to cook before you can start opening the
restaurant...or else it will be difficult job...so we had an experience in how to run the
Indian restaurant... We had a business model already because of our previous
experience with another restaurant so we knew about chefs, prediction of our sells so
we had our business model ready, but we tweaked it obviously…then basically strategy
implemented…So we started a new concept of Indian tapas. Our target was tourist and
student around...and to offer something diff so we started tapas...” (Restaurant A -
Owner)
The restaurant B’s data on start phase was not available since the restaurant was managed
by a new manager who didn’t had any information on the relevant topic. The information
relevant to restaurant C and restaurant D is also unavailable since current owners took over
the restaurants three and five years ago respectively.
The restaurant E’s owners had 3 years of experience working in a fish and chips shop and
have copied the business model of the previous workplace. They have leased the restaurant

27
using their saving and have made their strategy after setting up the business based on the
location, competitors and customer base.
“We are here from 4 months. we are brought this place on lease now …We wanted to
be successful…we were all together... We had previous experience … we knew how
are we going to set-up…we had our own business model ready…. We just looked at the
location we are in… it’s only the location you are in, you can work through that…you
can’t come in certain area and decide I am going to do that...if McDonalds wasn’t here
we would have done something different… there are schools around here.” (Restaurant
E- Owner)
The owner of restaurant F has a total experience more than 25 years and have started his
restaurant 12 years ago with the help of family and his personal saving. He started with leasing
the restaurant and then bought the restaurant once the business grew. The owner has copied
the business model from his previous workplace and made few changes to keep the cost low.
The strategy was made once the business model was setup. The strategy was based to serve
quality products at affordable price eliminating the gimmicks of fancy restaurant.
“I started this restaurant about 12 years before…before that I have worked in **** hall
for more than 13 years…. I got this place on lease and started with the help of family….
previous experience helped me to start with business. we never do marketing customer
recommend us to their friends. Our strategy is to serve quality products with outstanding
service which was made once we were about to start serving.” (Restaurant F- Owner)
The restaurant G’s owner was a software engineer and her passion for food combined with
previous successful attempts of food stall in Edinburgh Fringe festival have motivated her to
start the restaurant. The business model was formed before apply for bank loans for the
finance. The owner has also received financial and psychological support from her family. The
strategy was made after business model and was basically based on competition, niche
customer base of south-Indian food and location.
“I am a software engineer. I started this restaurant 5 years ago. we don’t have the
experience in restaurants...in 2009 we put a stall in Edinburgh Fringe ...our stall was
popular and we also got interviewed by BBC ...for a year I was doing research in India.
Bank have asked us for business model for giving the loan…. we didn’t know that
something called as business model…. I didn’t know what business model was but when
I did it…. all the things were done by us unknowingly.... after that, we started to target
the niche south Indian dishes market as there are no south-Indian restaurants in this
area” (Restaurant G- Owner)
The restaurant H owner had an experience of more than 15 years in the industry before
starting his own restaurant in 1995. He made his business model based on the previous
workplace’s logic of doing business and started selling simple menu. Later, after a month he
felt the need for strategizing and started marketing his restaurant and made changes in the
menu’s prices to make it more affordable according to the location and competitors in the
surrounding.

28
The restaurant I was started two years ago and is operational under the newly appointed
manager who has a work experience of 3 years as a supervisor in catering business. The
information regarding the start phase of restaurant was not available. The restaurant J’s owner
had some 5 years of experience in the restaurant industry. The owner’s family have few
restaurants around Edinburgh and have supported the owner financially. The owner analysed
the market, found the market gap and formed his strategy based on competition, customer
base and location.
“There was not much competition right there for peri-peri chicken apart from Nando’s….
we just had an idea to start something ourselves like value for money…. other
restaurants are not halal so we made halal that gave us competitive edge over other
restaurants and Nando’s, because the Muslim community will not go there they come to
us…. we also have university near our restaurant so we started student discount…. it’s
a grill restaurant but we had experience in grill from previous restaurant…. our portion
are a lot bigger than Nando’s” (Restaurant J- Owner)
Restaurants Person
Interviewed and
experience in
Restaurant type Financial help to
start the business
Start phase of
restaurant
Restaurant A Owner- 6 years Casual Dining Family Business model
followed by
Strategy
Restaurant B Manager - 10 years Casual Dining Data Not Available Data Not
Available
Restaurant C Owner - 10+ years Fast Casual Family and Friends Took Over
Business
Restaurant D Owner - 17+ Years Fast Food Bank Loan Took Over
Business
Restaurant E Owner- 3 years Fast Food Bank Loan Business model
followed by
Strategy
Restaurant F Owner - 25+ Years Casual Dining Family Business model
followed by
Strategy
Restaurant G Owner - 5 years Casual Dining Bank Loan Business model
followed by
Strategy
Restaurant H Owner - 15+ years Casual Dining Family Business model
followed by
Strategy
Restaurant I Manager - 3 years Fast Casual Data Not Available Data Not
Available
Restaurant J Owner - 5 years Fast Casual Family Strategy
followed by
Business model
Table 4: Findings on Start Phase of Restaurants

29
A summary of the interviews related to start phase of the restaurants is presented in the table
(Table 4) above. all the restaurant owners/managers interviewed had 3 or more years of
experience. The data regarding financial help received by the owners shows that majority of
restaurants have preferred to get money from family and friends over financial institutes. The
5 out of 8 restaurants (restaurant A, C, F, H, and J) have preferred funding from family and
friend due to complications and less capitals offered by the financial institutes, which supports
the previous studies carried out by Chen & Elston, (2013) and Cassara & Holmes, (2003).
The detail information regarding the start phase was available only for 6 restaurants. The 5
out of 6 restaurants (restaurant A, E, F, G, and H) owners made their business model before
strategy. The owners already had an idea about their business because of their previous
experiences. The restaurant owners either transformed a new idea into a business model or
the business model from their former workplace was adopted. Fries et al., (2015) argues that
“strategy is the reflection of business model” during the start phase, which also seems to be
true from the data gathered. However, the restaurant J’s owner has made his strategy based
on the environment analysis and then developed his business model according to the strategy.
4.2.2 Changes in the Restaurant
For the survival of restaurant business, it is very important for the owners to understand the
changes in the restaurants and the environment (Muller & Woods, 1992).The customers
purchasing decision has a direct relation with menu design, prices on the menu (Yang, et al.,
2009), the description labels (Wansink, et al., 2001),and visual representation of menu
(AMJADI & RASTAD, 2015). The changes and the factors considered to bring those changes
are analysed in this section of the study by comparing the interviews.
The restaurant A makes seasonal changes in the menu as per the availability of the food
products necessary for cooking. The owner has introduced Thali (meal deal), hired more
experienced staff and Bing Your Own Bottle (BYOB) concept in the restaurant. The location
of restaurant, competition and customer segments were analysed before introducing the
changes.
“we are going to change menus seasonally…new things different ideas… We have
added BYOB. Thali was our new idea, no one around was doing thalis around here …lot
of people don’t want to spend much ...because average spending capacity is about 6 to
7 pounds so we decided to make thali and it is doing very well. we started thali after two
months because we didn’t have experienced chefs when we started.”
The restaurant B’s manager brings seasonal changes in the menu, and staff. The decision for
changes are based on the internal and external environment analysis were more focus is given
on staffing, costing and tourism data available from Edinburgh council and events websites.

30
“you must prepare for season, make sure your cost is down, reduce the staffing steeply
during winter, start training the staff so that when the season arrives you can serve
people.... after some time, you have to change menu except popular item and add more
experimental dishes. we see historical figure and get data from council about tourism,
analyse the environment ...check if any event is happening ...you have to plan ahead
make sure have enough people and resources.” (Restaurant B - Manager)
The restaurant C’s owner believes that change in the business is ongoing process and if an
owner is happy with the current state of business he will never grow. The owner has brought
changes in the menu, prices, service considering factors like location, competitors, customer
base
“This street is hard to survive. The menu has been changed, I have brought all day
breakfast in this area .... they never used to sell cakes or muffins so I added that because
a lot of afternoon customer just want coffee and a cake. Also, I changed the menu and
the prices and I keep doing so every year because you must keep up with your
competitors. I used to write down what I can do, whether changes in service, product or
even attracting new customer ...what category of customer coming in the store... so I
change some deal or offers.” (Restaurant C - Owner)
The owner of restaurant D believes in fast service and have only brought changes in the menu
and started doing discount cards based on internal analysis of the business.
“we added some new food to the menu and give discounts to the loyal customers…”
(Restaurant D - Owner)
Even though the restaurant E was just started 4 months ago, the restaurant owners have
already understood the importance of change in their business. The owners were looking for
changes in the menu, visualizing the menu, prices and have included kid’s menu. The changes
brought or will be brought in the restaurant E are based on location, competitors (specially
McDonalds), and customer segment.
“we are always changing our menu trying to give different things for example we are
taking picture of food so that we can put it on the menu, price changes, different variety
of food. There are schools around her and McDonald, because of that we provide menus
for kids...we got little kids bags for kids...” (Restaurant E - Owner)
The restaurant F is operational for about 12 years and have seen many changes. The
restaurant F’s owner has made changes in the changes in the menu, prices, kitchen and décor
based on competition, customer demand, restaurant regulation and cost of the resources.
“We keep on changing the menu.... we keep on experimenting with the menu depending
on the customer demand. There was no paneer dish on the menu so later we started
paneer dishes on customer demand. we have made changes in kitchen equipment’s
based on health and safety regulations…” (Restaurant F - Owner)
The restaurant G’s owner tries to bring in seasonal changes in the menu to keep the customers
interested. The owner has also brought changes like standardizing the recipes to meet the

31
taste requirement of customers. Other major changes in the restaurant are special chefs and
décor changes keeping in mind the factors competition, location and customer base.
“We made three major changes. First was standardizing our recipes so that customer
has same wonderful taste each time. Second, got immigrations approval from
immigration office for our chef from South-India and third was the décor changes to
increase the tables in the restaurant.” (Restaurant G - Owner)
The restaurant H’s owner has brought changes in the menu, price and suppliers over the
period of 21 years which were based on competition and cost of the resources. The restaurant
I’s manager has also brought changes in menu and prices by benchmarking competitors in
the market.
“There have been minor changes in menu and prices making sure everything is in place.
we are just trying to find the benchmark is who our competitors are and what should we
do.” (Restaurant I - Manager)
While the restaurant J’s owner has brought changes in the décor, timings, menu and prices
by analysing customers reaction, competitors in the market and upcoming events.
Restaurants Changes made Factors on which Changes are based
Restaurant A Menu, Introduced New concept, BYOB Competition, Location, Customer segment
Restaurant B Menu, Staff, Prices Competition, Customer segment, Data on tourism
and Events, Internal analysis
Restaurant C Menu, Prices, Service offered Competition, Location, Customer segment
Restaurant D Menu, Prices Internal analysis
Restaurant E Menu, Prices Competition, Location, Customer segment
Restaurant F Menu, Prices, Kitchen equipment, Décor Competition, Cost of resources, Customer segment
and Law Regulation
Restaurant G Menu, Standardized Recipe, Staff (from
India)
Competition, Location, Customer segment
Restaurant H Menu, Price Competition, Cost of resources
Restaurant I Menu, Prices Competition
Restaurant J Menu, Prices, Décor Competition, Location, Customer segment,
Upcoming events
Table 5: Findings on Changes in Restaurants

32
“We have brought changes in the menu, we wanted to introduce new things so that
customer don’t get bored. we introduced new desserts, milkshakes and lamb burgers
which are massive hit. we have done some small redecoration which makes it look more
cosy. We have also applied for new timing for festival period to get more sales...we
increased time 11pm to 3 am...” (Restaurant J - Owner)
A summary of changes the restaurant owners have brought in their businesses is given in the
table 5. As one can clearly see all the restaurants have made changes in their menu and
prices and the most common factors for change were competition, location and customer
segment. The changes were mainly brought to survive the complex and dynamic environment
of the restaurant industry (Muller & Woods, 1992; Vasconcelos & Ramirez, 2011). The
restaurants have used menu and prices changes to keep the customers interested and
influence the customers purchasing choices which matches with the result of the research
done by Yang et al. (2009). The factor like competition, location and customer segment are
important from the restaurants survival point of view (Parsa, et al., 2005) and are used by
majority of restaurants (7/10) under this study.
4.3 Effects of Strategy in SMEs Operational in Restaurant Sector
The SMEs play an important role in the growth of economy, which have attracted many
researchers to find the strategic practises of SMEs (Papazov & Lyudmila, 2010). Some
researcher believes that the performance of SME increases with strategic management
(Backer & pearson,1986; Nyamwanza,2013).
The owner/manager of restaurants A, F, I, and J knew about the strategy literature and have
followed it. The restaurant A and J’s owners focuses on being different to achieve competitive
advantage in the market. While the restaurant F’s owner believes in word of mouth marketing
and focuses on providing better quality food and service at affordable rate compared to his
competitors. While the manager of restaurant I relies on fresh Scottish produce (local produce)
and competitive rates. On the other hand, the restaurant G’s owner didn’t know about the
strategy literature but unknowingly have followed the required steps for strategy process.
The owners of the restaurant E and H seem to know the little about strategy literature but
seem to take random strategic decision without properly analysis of environment or without
setting the goals. The restaurant owners of restaurant D and C didn’t know about the strategy
literature. The restaurant D’s owner believe that he doesn’t need strategy and business model
to run his business. While, the restaurant C’s owner experimented with the new products
before including that product in his business.
The table 6 summarizes the stands of owners of the restaurant on strategy. The table 6 also
shows the rankings and total positive reviews of the restaurant as shown on the TripAdvisor
website. The TripAdvisor is a peer review website for hospitality industry. One can see from

33
the figure that the performance of restaurant A, B, F, I, and J is good compared to restaurants
who don’t or randomly follow strategy process. This seems to concur with the existing literature
which illustrates strategies positive impact on the performance of the SMEs (Kraus et al., 2006;
Postma & Zwart, 2001; Nyamwanza, 2013). SMEs formulate and apply their strategies in a
completely different way than what is recommended in the books (McCarthy, 2003).
McCarthy’s theory appears to be true for restaurant G and the restaurant is also performing
great.
The restaurant D’s owner doesn’t believe in strategy and business model, and takes decisions
based on his instincts without analysing the environment, or setting goals and objectives.
While, the restaurant C’s owner brings changes in his restaurant by experimenting different
samples and products or arranging products in different fashion. Casadesus-Masanell &
Ricart, (2010) suggest that every business has a business model but not every business will
have a strategy. The above statement seems to be true in the case of restaurant D and C.
In all the restaurants interviewed, the owners of the restaurant were the ones who carried out
the strategy process except for restaurant B were the manager was responsible for making
the strategy. In most cases, only owners of the SMEs have authority to formulate business
strategy and to create a strategic change (Levy & Powell, 2005). The problem of authority was
Restaurants TripAdvisor
Ranking
Total positive review =
(Excellent + Very good)
review on TripAdvisor
(%)
Restaurant A 179 92
Restaurant B 339 78
Restaurant F 727 89
Restaurant I 719 74
Restaurant J 726 79
Didn't knew about
literature but followed
steps unknowingly
Restaurant G 310 83
Restaurant E N.A. N.A
Restaurant H 1058 74
You don’t need
strategy and business
model
Restaurant D 940 60
Experimenting with
changes
Restaurant C N.A. N.A
Use Strategy
Random strategy
decisions
Do Not Use
Strategy
Owner/Managers Stand
Knew about Strategy
literature
Table 6:Findings on Effect of Strategy on Restaurants

34
perceived in case of restaurant I, where the manager desperately wanted to bring in strategic
change but had to hold back due to lack of authority.
4.4 Link between Strategy and Business Model
To address this research objective, the study will draw light on each case of restaurant
followed by comparison among cases and literature. The study has already analysed the
relation between strategy and business model in the start phase while addressing the first
objective, this section concentrates on the relation between two concepts in the growth phase
of restaurants.
The restaurant A owner made a strategic decision of introduction Thali (lunch meal deal) by
analysing environment. Once the strategic decision was finalized corresponding changes
were brought in the business model to support the strategy implementation.
“First, we thought we need to do something different so we started looking around ....
rather than having our lunch menu what can we do different... we did a bit of research,
no one around was doing thalis around here. we thought that will a good idea for lunch
time ...small thali quick lunch...we brought material required, got more staff included
during the lunch time, we made sure we had enough chef, trained them. We started
giving out flier and started promotion. Made a video of restaurant for social media and
started implementing the idea. “(Restaurant A - Owner)
In restaurant B, strategic changes are based on the internal and external analysis of the
environment. More importance was given on tourism data from council and event websites for
making decisions. The changes mostly done in key resources and cost structure components
of the business model before implementing the strategy.
“Changes in business model are brought as per the analysis made during making
strategy ......we make changes in business operations before implementation....”
(Restaurant B - Manager)
The restaurant E’s owner was looking forward to introduce new product based his analysis of
the environment. The business model will be altered as per the new product followed by
promotion and actual sale of the product.
“Suppose everything goes well, we are thinking to start sandwiches for that we will start
making changes in the business accordingly, give out the flies and then start selling it.”
(Restaurant E - Owner)
The restaurants F, G and H’s owners seem to follow a similar trend as restaurant A, B and E
where they analyse the environment to make strategic decision, make corresponding change
in business model and implement the strategy. The restaurant I’s manager also seems to
follow the similar trend but have to rely on top management for making the strategic decision.
The manager wants to introduce new product for which she need to changes in key resources
and cost structure of business model before selling the product.

How Strategy Impacts Business Model in the context of the SME: A case of Restaurant Sector.

How Strategy Impacts Business Model in the context of the SME: A case of Restaurant Sector.

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