Abstract
The chapter is a systematic literature review of fundamental theories about small and medium business (SME) success. The chapter examines how they specifically impact digital SMEs. The chapter examined six theories: dynamic capability view (DCV), composition-based view of firm growth (CBV), resource-based view (RBV), resource dependence theory (RDT), upper echelon theory (UET), strategic contingency theory (SCT). The results showed that RBV, DCV, and UET become relevant in articulating the value inherent to the internal resources in SMEs (which render their capabilities dynamic). In contrast, the SCT framework and the RDT model show more significance in relation to uncertainty and contingency. CBV was found to be a more pertinent framework to predict the success of SMEs. The results support CBV's hypothesis that SMEs (including digital SMEs) are able to be competitive without extensive resource advantage, too complicated technologies, or market power. The increased deployment of CBV can be advocated as a critical determinant of digital SME success.
TopIntroduction
The past three decades have seen a significant growth in the literature coverage of small and medium-sized enterprises (SMEs) which are said to represent some 90 per cent of the businesses globally; (OECD, 2019). Despite their numbers and contributions, SMEs do not attract as many headlines in the business media as the larger businesses and multinationals (Mesquita & Lazzarini, 2008). This is often attributed to the fact that a single large company can make a significantly noticeable impact due to the number of people they employ and the posted yearly profit. It is equally thought that the prominence of large firms in the headlines is linked to the fact that their strategy formulation draws extensively on external environmental factors and resources in the public domain, thus affecting many people and communities. Conversely, SMEs’ strategy formulation draws on adequate resources and contexts that are SME-specific and with less widely spread footprint. This is particularly visible in digital SMEs.
What constitutes an SME has been clarified by many academics. However, political definitions have also been formulated through guidelines in various economic zones. For instance, in the European Union, an SME is a company that has fewer than 250 employees, and under £45 million in annual turnover (Europäische & Equal Opportunities Unit, 2005). In the United States, SMEs are often thought to be constrained by resource shortages. The definition of SME adopted in this paper encapsulates businesses with limited resources whose competitiveness derives largely from stretching ordinarily available resources into dynamic capabilities. These actions are instrumental for their survival (Korsakiene & Diskiene, 2015; Luo & Child, 2015) as they attempt to compete with larger businesses with more established resources. The academic literature coverage of SMEs has been extensive in the past two decades (Rakićević et al., 2016).
A key issue in digital SME’s success research is the development of a theoretical foundation. More understanding of the arena of enterprise scholars in enterprise and that of digital SME owners probing the theories that support SME growth. There is, however, some obscurity around what is known about pertinent theoretical frameworks in the field. This research, thus, purports to examine some common theories deployed by academics to expound the achievement of SMEs. This study is equally an effort to establish critically pertinent theories to support scholarly investigations in the future.
The paper centres on the following research questions:
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What are the critical assumptions of Dynamic Capability View (DCV), Resource-Based View (RBV), Upper Echelon Theory (UET), Strategic Contingency Theory (SCT), Resource Dependence Theory (RDT), and Composition-Based View of Firm Growth (CBV)?
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What are the main criticisms and critiques on Dynamic Capability View (DCV), Resource-Based View (RBV), Upper Echelon Theory (UET), Strategic Contingency Theory (SCT), Resource Dependence Theory (RDT), and Composition-Based View of Firm Growth (CBV)?
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What is the most appropriate theory to study the SME’s business context w.r.t sustained organisational performance and competitive advantage?
This paper has three main parts. The first is concerned with the methodology that is used to approach the investigation; the second part reviews the literature surrounding the four theoretical frameworks under investigation, and the third part provides a critical evaluation of the literature and the theories discussed.
Key Terms in this Chapter
Resource Dependence Theory (RDT): It provides directions about how to the external constraints facing organisations.
Digital SME: A small or medium-sized enterprise that undergoes digital transformation and adopt an electronic commerce approach to its operations.
Composition-Based View of Firm Growth (CBV): It suggests that company growth is achievable in the absence of resource advantage, basic technology and market power.
Strategic Contingency Theory (SCT): It postulates that organisational performance is a result of the congruence between the company’s key characteristics (goals, demands, needs, and structures) and contingent factors in its environment.
Upper Echelon Theory (UET): the personality, values and experiences of managers exert significant impact on how they view and assess organisational and business reality.
Dynamic Capability View (DCV): The ability of a company to frame and reframe internal and external competencies in order to cope with unpredictable environmental events.