Strategy Formulation and Organizational Structure in SMEs: Taking Business Models beyond the Hands of the Founders

Strategy Formulation and Organizational Structure in SMEs: Taking Business Models beyond the Hands of the Founders

Guilherme de Farias Shiraishi (Universidade de São Paulo, Brazil) and Saulo Dubard Barbosa (EMLYON Business School, France)
DOI: 10.4018/978-1-4666-8348-8.ch035
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Abstract

One of the biggest challenges faced by small and medium enterprises (SMEs) concerns the capacity of the entrepreneur to formulate strategies within a formal organizational structure. Very often, important knowledge about the business remains solely in the deeper levels of the entrepreneur's mind and cannot be accessed by any stakeholder. As a result, many of the good ideas that entrepreneurs have end up dying with them. This hinders business growth, business model replication, and successful succession in family businesses and SME's in general. Therefore, it is important to investigate ways to structure within the firm the strategies generated in the entrepreneur's mind, in order to prepare SMEs for growth and long-term sustainability, above and beyond the minds, hands, and lives of their founders. Our chapter explores this general theme by offering methodological insights on how to extract and formalize the tacit knowledge coming from SME founders. We focus on the formulation of strategies based on the marketing knowledge and life experience of the entrepreneur.
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Business Environment, Marketing, And The Life Of The Business Owner

Many entrepreneurship manuals focus their first chapters on the entrepreneur’s need to know the market and customers’ preferences in order to identify and exploit a business opportunity. However, few entrepreneurship books and little research actually offer insights on how to align business environment, marketing, and the entrepreneur’s previous and present life. Very often, researchers that observe entrepreneurs working in their SMEs for more than a decade or for their whole life ask themselves how these individuals can achieve success without having any kind of special support or advice from experts (Aidar, 2007; Degen, 2009; Dornelas, 2008).

Such question becomes even more salient when one considers the paradigmatic changes that take place in the way organizations operate, when they follow changes in the business environment through a historical series of economic, social, technological, political, and ecological cycles. A few examples of such changes are reengineering, the introduction of the internet, globalization, protectionism, oil crises, and economic crises of diverse durations in Asia, Europe, Latin America, United States, etc. Such brutal changes in the competitive environment have a powerful influence on the entrepreneurs’ success or failure in dealing with their markets.

Key Terms in this Chapter

Organizational Structure: The formal and informal channels of communication and authority within the firm.

Tacit Knowledge: Knowledge and know-how that is neither written nor formalized, being seldom verbalized, often accumulated through experience.

Marketing Knowledge: Specific knowledge about the markets served by the organization, including customers’ preferences, distribution channels, and the relative efficiency of different types of marketing mix (configurations of product characteristics, price, promotion tactics, and place/points of sale).

SMEs: Small and medium enterprises. Definitions vary considerably depending on the country, and may adopt different measures of size (the most used being number of employees and volume of sales). We suggest that number of employees is a more relevant measure for our purposes and the SMEs we have in mind in this chapter do not have more than 200 employees.

Knowledge Extraction: The process of recording, organizing, and formalizing tacit knowledge from the entrepreneur’s mind.

Business Narratives: Stories related to the history of the business and the lessons learned over time by business founders and senior managers.

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