International comparative research report
Small and medium-sized businesses are paying an increased attention to strategic management, although there is still room for improvement in terms of efficient management practices. Their competitiveness and development can be improved for example by working more closely with strategic information, focusing on certain types of innovation, taking advantage of potential opportunities on the international market, or employing a more systematic approach to managing strategy implementation. These are the main findings of the extensive international study on strategic management in small, medium-sized and family businesses, carried out under the direction of the Mendel University in Brno in cooperation with Sweden’s Jönköping International Business School, Slovakia’s School of Management, the Association of Small and Medium-sized Enterprises and Crafts of the Czech Republic (AMSP), and the POPAI CE Association.
Data collection amongst owners and managers in over 1000 SMEs in the Czech Republic, Slovakia, Sweden and Finland, was carried out by the STEM/MARK agency. The research has shown that a considerable number of Czech and Slovak SMEs (as well as those from Finland and Sweden) already applies management approaches typical for systematic strategic management, despite the fact that they are naturally inclined towards a more intuitive and ad hoc management style. The research, though, also identified some significant development risks present specifically in family companies.
Small and medium-sized businesses tend to:
- Ensure that when setting a strategy, all key groups/members – especially owners and management – accept and support the strategy,
- Set goals and assess their performance,
- Focus on selecting and solidifying clear competitive advantages,
- Focus on the issues of corporate culture and organizational structure as the cornerstone of a successfully implemented strategy,
- Deal with the company’s ownership structure, including its quality and functionality,
- Focus on innovation- specifically developing existing products or the innovation of business processes,
- Work with certain types of “hard” strategic data – specifically, information about customers, their demands and level of satisfaction, developments in the demand for their products/services, at least partially with information regarding changes in legislature, developments in technology,
- Employ a more systematic approach to assessing the availability of resources – especially financial resources and expertise/skills, which they consider to be crucial for the company’s development.
The research, though, also confirmed that there are other practical tools and approaches in strategic management that a significant number of SMEs is not taking advantage of:
- Strategies are set for shorter periods, often 2 years as maximum,
- When setting their strategy, companies still tend to neglect opportunities to expand into the international market,
- In terms of innovation, companies are less inclined to expand their product lines and develop new products or utilize new technologies,
- They do not sufficiently monitor their competitors’ activities, trends or changes in society that can potentially impact their business,
- Companies are also less concerned with considering and assessing certain resources – especially contacts and social networks, time constraints for strategy implementation or suppliers,
- Companies often claim that their employees are not always familiar with the strategy and thus are unaware of what is expected of them in order for the strategy to be successful,
- Companies have a lower tendency to use detailed annual plans for the day-to-day management of the strategy’s implementation.
All of the above-mentioned aspects can bring about significant opportunities or pose as threats for SMEs in terms of efficient management and future development. It is worth noting that Czech, Slovak, Swedish and Finnish SMEs alike, all engage in strategic management to a relatively similar extent, differing in their approaches to certain sub-aspects of strategic management. Czech SMEs, compared to their international counterparts, fail to plan several years ahead when formulating their strategies, which can pose as a potentially significant risk. In addition, Czech SMEs are also less concerned with the development opportunities that new technologies offer, and when implementing new projects, they do not, compared to their competitors, sufficiently assess their contacts and networks – a practice which can significantly impact the success of a new project. Czech (and similarly Slovak) companies also claim to experience significantly greater difficulties, unlike Scandinavian companies, in the areas of legislature and its stability, government bureaucracy and corruption. It is also interesting to note that pressure from competition is more often perceived by Scandinavian companies than Czech companies, and even more-so, Slovak companies, only 29 % of which stated competing businesses to represent a major threat.
The research study assessed family companies according to certain characteristics that are specific for this type of business. A significant risk for both Czech and international family businesses was primarily the fact that only a small percentage of companies engaged in systematic intergenerational transfers. This risk was most prominent amongst Czech and Slovak family companies. The company’s founder stepping down from actively managing the company and handing over the business to the next generation is a complicated and risky process. In order to make this process successful, both generations must be able to handle all of the difficult and ongoing changes, not only in terms of the company and its operations, but also issues of a personal nature. The ultimate foundation is open communication, respect and trust between both generations.
A significant number of family companies also indicated that they had experienced problems when attempting to balance family life with work. Family companies can be at risk if they have not clearly defined the criteria for involving family members in business activities or remunerating them.
SMEs can find strategic management support on the new platform, www.strategy4smes.cz, which represents the main outcome of the project, and which is freely available in Czech, Slovak, Swedish and English. Within this platform, companies can test themselves to find out to what extent the company is being strategically managed, compare their results with aggregated data from other SMEs in the Czech Republic, Slovakia, Sweden and Finland, and most importantly, take advantage of the online lessons on strategic management.
Methodology and Research Results
First, a ten-member international expert panel comprising entrepreneurs and experts in strategic management from Czech, Slovak, Swedish and Finnish universities defined the activities and other aspects related to strategic management, which SMEs can benefit from. The level of feasibility was determined based on the operational specifics of SMEs, which were primarily a lack of: time, financial resources, organic management etc.
The second step involved conducting phone interviews with Czech, Slovak, Swedish and Finnish entrepreneurs, owners or managers of SMEs. Questioning was conducted using a structured and validated survey, the aim of which was to determine to what extent their company engaged in activities/aspects typical for strategically managed companies. In total, over 1000 owners and managers of SMEs participated in the questionnaire. SMEs were defined as companies with a turnover of 1-50 million EUR and an employee count between 10-250. The questions targeted several areas:
AREA 1 – Does the company have a long-term strategy which is, from the respondent’s point of view, realistic, concise, and generally accepted by other members of the company, contributing to its successful implementation?
AREA 2 –To what extent does the company operate intuitively while simultaneously working with hard strategic data?
AREA 3 – To what extent does the company systematically manage strategy implementation?
AREA 4 – To what extent does the company monitor or revise its strategy?
AREA 5 – If the business in question is a family company, does it take strategic specifics into consideration? (Especially finding a balance between the needs of the family and company, as well as intergenerational transfers, where applicable.)
Respondents were presented with statements which were to reflect their general stance on individual items. Respondents selected a response on a scale from 1-5, thus expressing their level of agreement from “strongly agree” (1) to “strongly disagree” (5). Generally speaking, higher values in responses to these statements indicate that the respondent is experiencing problems or shortcomings in that given aspect of strategic management.
Each surveyed aspect was selected in order to serve as a realistic standard for SMEs that are considered as being strategically managed. Responses with a value of 2.0 and higher (orange fields in the chart) were assessed as indicating minor weaknesses in the area of strategic management, while a value of 2.5 and higher (red fields) indicated more serious weaknesses.
Below is an overview of the average results for the main (selected) statements regarding the aforementioned areas.
|Statement to prompt evaluation AREA 1
Does the company have a long-term strategy which is, from the respondent’s point of view, realistic, concise, and generally accepted by other members of the company, contributing to its successful implementation?
|We have set goals for our business – e.g. specific turnover and profit projections etc.||1.8||1.7||1.6||1.7|
|Goals such as projected profits, turnover etc. have been set for 2 + years in advance.||3.0||2.8||2.2||2.6|
|The owners of our company generally agree on plans for the future of the company, meaning that the future direction and activities of the company are concisely outlined.||1.6||1.5||1.7||1.6|
|Most of our members of management consider our future plans to be realistic and attainable.||1.7||1.7||1.5||1.5|
|We are actively developing one or more aspects of our business, differentiating us and giving us a competitive edge over our competition.||1.9||1.8||1.9||2.1|
|Individual departments (marketing, sales, production, purchasing etc.) clearly contribute towards attaining our primary business goals.||1.8||1.6||1.9||1.7|
|The values, principles and attitudes which represent us as a business contribute towards attaining our primary business goals.||1.8||1.6||1.7||1.9|
|The fulfillment of our business goals is supported by our corporate structure.||1.8||1.6||1.8||1.8|
|In terms of ownership structure and our company’s owners, our company is owned by one or more major owners, meaning our ownership structure is not fragmented, ownership is long-term and stable, owners favour the company’s long-term potential over immediate profits and exhibit solid moral values.||1.4||1.5||1.6||1.6|
|We make an effort to be innovative in the following areas: WE LAUNCH NEW GENERATIONS OF PRODUCTS OR EXPAND OUR PRODUCT RANGE||2.0||2.1||2.3||2.4|
|WE ENTER NEW TECHNOLOGY FIELDS||2.7||2.4||2.4||2.2|
|WE ENTER NEW MARKETS||2.8||2.6||2.8||2.7|
|WE IMPROVE THE QUALITY OF OUR EXISTING PRODUCTS||1.9||1.7||1.9||1.9|
|WE INCREASE PROCESS FLEXIBILITY||1.9||1.8||2.0||2.1|
|WE DECREASE PRODUCTION COSTS||2.0||1.8||2.1||2.2|
Visually, the answers seem to be rather similar, in the particular countries, but statistical testing of similarity through the chi-square coefficient shows a different picture:
- In spite of optical similarity of the average answers, the only country-couple with a statistically significant similarity regarding setting goals is SW-FI (chi-square value on 5% level of significance under 4 degrees of freedom reaches the value 9.09, whereas the critical value is 9.45).
- Long term goals setting is evaluated differently in all analyzed countries (chi-squares varying from 10.35 to 121.19).
- Agreement (accord) of owners is similarly perceived only in FI and CZ (3.57), all other country-couples evaluate it differently.
- Realisticity of plans is similarly perceived only in CZ-SK (1.73), and SW-FI (4.05).
- Active development of a competitive advantage is perceived similarly in FI and CZ (2.74).
- Clear focus of activities towards reaching the set goals is seen similarly only in SW-SK (6.35), and SW-CZ (2.01).
- Appropriateness of corporate structure is evaluated similarly in SW-FI (4.48), FI-CZ (7.00), and SW-CZ (1.50).
- Ownership structure is evaluated similarly in CZ-SK (7.48), SW-SK (7.60), and SW-CZ (5.26).
- Innovative efforts are similarly evaluated in only in case of SW-CZ in entering new markets (5.90) and increasing quality (4.14), and in FI-CZ in increasing process flexibility (2.86) in all other fields and country couples the answers differ.
Statement to prompt evaluation AREA 2
To what extent does the company operate intuitively while simultaneously working with hard strategic data?
|We monitor developments and trends in the following area: DEMAND FOR OUR PRODUCTS||1.6||1.6||1.7||1.8|
|OUR COMPETITORS’ ACTIVITIES||2.2||2.1||2.2||2.5|
|CUSTOMER SATISFACTION AND DEMAND||1.5||1.4||1.8||1.6|
|TECHNOLOGY WHICH COULD GIVE US A COMPETITIVE EGDE||1.9||1.8||2.3||2.0|
|LEGISLATION WHICH AFFECTS OUR BUSINESS||2.0||1.8||2.2||1.9|
|GENERAL TRENDS IN SOCIETY WHICH COULD IMPACT OUR BUSINESS||2.3||2.2||2.3||2.3|
|When deciding on whether or not to implement a new business idea or project, we take into account whether or not we have sufficient quantities of the following resources and if not, how we can resolve any possible shortages: FINANCIAL RESOURCES||1.6||1.5||1.8||1.8|
|EXPERTISE AND SKILLS||1.7||1.7||1.8||1.8|
|SOCIAL CONTACTS AND NETWORKS||2.6||2.3||2.5||2.3|
|SUPPLIERS, THEIR AVAILABILITY ETC.||2.0||1.8||2.5||2.1|
Statistical testing of similarity through the chi-square coefficient in the area of intuitive vs. systematic approach shows the following:
- Demand for products and its monitoring is perceived similarly only in case of FI-SK (chi-square value on 5% level of significance under 4 degrees of freedom reaches the value 5.99, whereas the critical value is 9.45).
- Monitoring competitors is perceived similarly only in case of FI-CZ (3.59).
- Customer satisfaction, technological developments, and legislation monitoring are perceived differently in all country-couples.
- Monitoring the general trends in society is the overall most similarly perceived factor, where the only difference was identified in case of FI-SK (12.14), and in all other country-couples the chi-square was below the critical value.
- Aspects of implementation of new projects or business ideas are also seen rather differently, with the only similarities identified in evaluation of finance in case of SK-CZ (7.30), evaluation of knowledge and skills in SW-SK (9.41), and evaluation of time capacity in FI-SK (1.94) and SW-CZ (2.73). On the other hand, evaluation of suppliers is one of the most differently perceived factors among all countries.
Statement to prompt evaluation AREA 3
To what extent does the company systematically manage strategy implementation?
|Our employees are familiar with our plans and know what is expected of them in order for these plans to be successfully implemented.||2.0||1.9||2.2||2.0|
|We also use detailed, usually annual plans which outline the specific activities or projects which need to be implemented.||2.0||1.8||2.1||2.3|
|Conflicts and problems between individual departments, such as marketing, production and sales, are at a minimum.||2.3||2.2||2.1||2.0|
Evaluation of inter-country differences in this field (again, via statistical testing of similarity through the chi-square coefficient) showed that:
- Employee familiarity with plans is perceived similarly only in SW-FI (chi-square value on 5% level of significance under 4 degrees of freedom reaches the value 9.06, whereas the critical value is 9.45).
- Utilization of shorter-term plans is evaluated differently in all the different countries.
- Similarity of evaluation of conflicts and problems between internal departments was discovered in the cases of SK-CZ (7.87), and FI-SK (7.86).
Statement to prompt evaluation AREA 4
To what extent does the company monitor or revise its strategy?
|Throughout the year, we systematically monitor (assess) our company’s performance and compare it with projected profits, turnover and other goals.||1.6||1.4||1.8||1.7|
|If we discover that our performance is lower than our projected goals, we identify the problem and take corrective measures.||1.5||1.5||1.6||1.5|
In the area of monitoring and adjustment of plans, there were identified similarities in the cases of
- Monitoring in SW-FI (2.28)
- Taking corrective actions in SK-CZ (7.44) and SW-CZ (5.88).
In all other cases and country-couples the evaluations differed.
Statement to prompt evaluation AREA 5
Family companies - strategic specifics (intergenerational transfers, balance between the family and business etc.)
We take into serious consideration what will happen with the company if the owner leaves (e.g. the company is sold, transferred to another family member/member of management etc.).
(this question was only asked to companies for which intergenerational transfers were relevant)
|There is a balance between our family life and business with no serious conflicts disrupting the two.||2.3||2.7||2.1||2.3|
|The company has clear standards for remunerating family members who work in the company, meaning they must meet certain criteria prior to landing a position at the firm etc.||2.1||2.2||1.9||2.0|
|Ties between family members are strong and of a positive nature, with no serious conflicts to speak of.||2.0||2.1||1.6||1.8|
In the case of family companies it is interesting to note, that there were the following numbers of respondents from this type of businesses:
- CZ – 178 (57.23 % of Czechs); SK – 89 (44.5 %; FI – 130 (60.19 %); SW – 145 (52.35 %).
- The only identified similarity related to the standards for remunerating family members, where it was statistically confirmed in the case of FI-CZ (7.11), and SW-SK (7.10). All other answers could not be claimed similar, major differences being found in the case of evaluation of the strength and nature of relations between family members.