2. Theoretical Framework
2.2. Designing a Strategic Management System
2.2.1. Enterprise Philosophy
2.2.2. Strategy Formulation
.2.2.3. Strategy Implementation
2.3. Designing and Implementation Problems
3. Research Method
3.1. Research Design
3.2. Research Site
3.3. Data Collection and Analysis
4.1. Current Situation of the Case Company
4.2. Strategy Formulation
4.2. Strategy Implementation
5.1. Theoretical Implications
5.2. Managerial Implications
List of figures
Figure 1 Stages of Strategic Management and Methods
Figure 2 SWOT Matrix
Figure 3 The Balanced Scorecard
Figure 4 SWOT Analysis XY GmbH
Figure 5 SWOT Matrix XY GmbH
Figure 6 BSC I: Translating Strategy into Goals XY GmbH
Figure 7 BSC II: The Strategy Map XY GmbH
Figure 8 BSC III: The Balanced Scorecard XY GmbH
Designing and Implementing a Strategic Management Concept in an High-Tech SME
Abstract: Although extant literature on small and medium-sized enterprises (SMEs) suggests that strategic manage- ment positively affects organizational outcomes, evidence supporting this suggestion is limited to a few qualitative case studies. As many SMEs struggle with limited access to resources and with it no opportunity to enact a large and complex strategic management concept. This thesis develops a strategic management concept that considers these limitations. Drawing on resource- related arguments this study presents a framework for how a strategic management concept can be designed and implemented at a high-tech SME.
Methods: A single case study at a German technology company was applied, in which the strategy was formulated with the strengths-, weaknesses-, opportunities- and threats- (SWOT) analysis and further, the strategy was employed with the Balanced Scorecard. Therefore, an expert interview with the chief execution officer (CEO) was conducted, and a team out of high-level employees of the enterprise was assembled to discuss the steps of the developing processes. Results: As it was possible to design and implement a framework that includes strategy -formulation and -implementa- tion with limited resources of the case company, this study extends the literature by providing a reference case for other companies, especially SMEs. Furthermore, the paper provides evidence how the SWOT analysis and BSC theories can be applicated in a practical case.
Keywords : Strategic Management, Small and Medium-sized Enterprises, SME, SWOT analysis, the Balanced Scorecard Strategic Planning
Many empirical studies show the economic signifi- cance of SMEs (e.g. Storey, 1994; Culkin & Smith, 2000; Bauer, 2002; OECD, 2017). This significance is reflected in the fact that SMEs both make up a ma- jority of companies in many economies, and in the fact that much of the economic performance of these economies is generated by SMEs (Ayyagari et al., 2007).
Because of their im-portance in economics, it is of particular interest to identify factors that contribute to the performance of these enterprises. Strategic man- agement appears likely to be one of these factors. Empirical studies have identified a strong positive re- lationship between the success of SMEs and the de- gree of long-term planning undertaken (Peel & Bridge, 1998; Bracker et al., 1988; Griggs, 2002; Masurel & Smit, 2000; Gibson & Cassar, 2002).
Further, it has been observed that SMEs that engage in strategic management are more likely to be those that achieve higher sales growth, higher returns on assets, higher margins on profit and higher em- ployee growth (Bracker, Keats & Pearson, 1988; Carland & Carland, 2003; Gibson & Casser, 2005). Strategic management in SMEs, which are primarily owner-managed, is often characterized mostly by the personality of the entrepreneur. Strategic planning tends to be implicit and intuitive. Formal planning methods are not typically used given a more imme- diate prioritization of the day-to-day business, and the focus on securing immediate success and liquid- ity (Krüger, 2006). In addition, formal planning often fails because of the limited availability of time and, financial and personal resources as well as the im- mense amount of work of operational activities entail for management (Schöning et al., 2005, p. 25f).
Empirical research shows that the use of strategic management in SMEs is low. So, Deimel (2008) con- ducted a survey of CEOs of German SMEs to deter- mine the degree of strategic planning within each company. Of the 1000 companies surveyed only 50,5% of SMEs have a written strategic documenta- tion. The most common non- financial methods were strengths and weakness analysis (45%), portfolio analysis (25%) and benchmark analysis (25%), and the political-, economic-, social-, and technological- analysis (15%). Deimel (2008) concludes that there is a strategy deficit in SMEs. Furthermore, case stud- ies in the field of strategic management on SMEs are scarce. Dyson (2004) has linked the SWOT analysis to a resource-based planning. Moreover, Sorensen et al. (2004) use the SWOT analysis to apply this method to a medium-sized company. Further, the BSC was researched in SMEs as a suitable strategic management method. Bernhard et al. (2003) recom- mends the use of the BSC in SMEs because of the pragmatic implementation of this method. Additional studies support this recommendation. Janssen (2004) argues, that the BSC concentrates the limited resources on the strategic goals and is therefore very efficient in business planning. Kummert, (2005) shows similar results. Finally, Lee et al. (2000) inte- grates SWOT analysis with the BSC to develop a strategic framework within Vocational Education.
As discussed, research on strategic management in SMEs is limited, as most recent studies concentrate on their use within larger organizations (Glaister & Falsaw, 1999; Kraus et al., 2007; Deimel, 2008). Since SMEs differ from large-scaled enterprises (LSEs) in their amount of resources and their differ- ent structure, it is doubtful that so-called “standard” strategic management methods work in the same way in SMEs as in LSEs. The methods therefore need to be aligned with the personnel as well as the cultural, organizational, and financial conditions of the specific enterprise in order to succeed (Kraus & Kauranen, 2009, pp. 37-50).
As examined, SMEs have not paid proper attention to developing effective, suitable strategies regarding to strategic management. This discrepancy in strate- gic management in SMEs leads to their attempts to adopt valid strategy methodologies designed for LSEs, despite the fact that these methods do not consider the limitations that SMEs face (Deimel, 2008). Though the economic importance of SMEs worldwide is known, and the proven positive correla- tion between strategic management and success in SMEs, little research has been conducted to support SMEs in the design and implementation of a strate- gic management.
In order to contribute to this gap in literature, this study develops a strategic management concept that takes into account into the limited resources of SMEs. Therefore, the following overall research question was formulated:
RQ1: “What are suitable strategic management methods for SMEs and, do they satisfy the strategic needs of high-tech SMEs?”
To answer this question, the following sub-questions were developed:
RQ2: “Which methods are suitable for strategy for- mulation in SMEs and why?”
RQ3: “How to bring strategy formulation into ac- tion?”
A three-month case study of XY GmbH, a high-tech company that produces data loggers for the automo- tive industry, was conducted. An action research (AR) methodology was used to apply the theoretical literature to a practical case as a participant in an SME. This methodology is a member of the case- study family of methodologies (Dick, 1995). A unique element of AR that differentiating it from other types of case studies is the active participation of the re- searcher. To gather and analyze the data of the case company, a team called the Brainstorming Team was assembled, consisting of high-level employees. To obtain insights into the enterprise’s philosophy, I con- ducted an expert interview with the company’s CEO. Furthermore, SWOT analysis was used to develop strategy formulations for the company. Based on them, a BSC was designed to implement the formu- lated strategies into goals and measurement sizes to put the strategies into practice.
The AR case study involves the firm XY GmbH, a small-and medium-sized German high-tech enter- prise in the automobile industry with about 100 em- ployees. It has been in business for 15 years and has mainly used short-term planning. As such, the enter- prise has less experience in applying and using stra- tegic management. The company is aware that it re- quires more strategic focus for their ongoing busi- ness, because of an increasing number of employ- ees and the rising demand for their products. The company also knows that it needs to create strategic approaches to deal with current problems in the au- tomotive industry. Furthermore, the firm is imple- menting the ISO90001 certification, a norm which sets out the criteria for a quality management sys- tem, and therefore it needs an internal and external business analysis. In summary, the XY GmbH rec- ognizes that it needs better long-term planning and organizational structures to guarantee the sustaina- bility of the enterprise and to optimize the business execution. Thus, the XY GmbH is a prime candidate for examining the research questions.
By answering the research questions, this work pro- vides an illustrated framework for developing a stra- tegic management concept within high-tech SME. It extends studies concerning strategy-formulation and strategy-implementation process by applying theo- retical literature to a practical case. This paper espe- cially contributes to studies on SWOT analysis and the BSC in SMEs. This study shows that SWOT anal- ysis delivers necessary information about the busi- ness environment for SMEs. From this point, strate- gies can be derived that are on the one hand, in- spired by employees and on the other, contain im- portant pillars for the preservation a company. Fur- thermore, it has been observed that SWOT analysis is a sound basis for the strategy-implementation pro- cess. Finally, with the successful application of SWOT analysis for an SME, this study contributes to the literature of Dyson (2004). With the implemented BSC, it was possible to define goals from the formu- lated strategies. The process led to a solid under- standing of the operational businesses of the com- pany and provides a concept that delivers key stra- tegic direction factors, supporting the literature of Bernhard et al. (2003), Janssen (2004) and Kummert (2005). Furthermore, through the investigation, this work extends the studies on the use of SWOT anal- ysis in combination with the BSC. This has been pre- viously done in practical applications by only a few researchers (e.g. Lee & Sai On Ko, 2000).
Finally, it has been shown that the researched frame- work is suitable for SMEs because of its low con- sumption of resources.
More generally, through the evaluated framework from defining the philosophy of the enterprise to cre- ating performance measurements this study helps SMEs in order to build a strategic concept. Specially, the step-by-step implementation can improve the un- derstanding and execution for managers in SMEs.
The structure of this thesis is as follows: Section 2 presents a review of literature relevant to the topics in strategic management, including SWOT analysis and the BSC, as well as of SMEs. Section 3 de- scribes the research method. Section 4 explains the background of the case study, the process, and the results. Section 5 discusses the experiences of the case study and presenting theoretical and manage- rial contributions and, limitations. Finally, section 6 concludes the study.
2 Theoretical Framework
This chapter presents a literature review in strate- gic management and SMEs. Definitions of Strate- gic Management and SMEs are described in Sec- tion 2.1. Section 2.2 explains the process of de- signing a strategic management system, including SWOT analysis and BSC. Section 2.3 summarize the designing and implementation problems of strategic management in SMEs.
S m all and Medium-Sized Enterprises
Based upon the OECD (2015) and previous stud- ies (Stanworth and Curran, 1976, pp. 95-110; Monck et al., 1988; Oakey et al., 1988), the follow- ing definition of a small and medium-sized enter- prise (SME) was employed throughout this re- search. Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms that employ fewer than a given number of employees. This number varies across countries. The most frequent upper limit designating an SME is 250 employees. Financial assets are also used to de- fine SMEs. In the European Union, a new defini- tion came into force on January 1, 2005 applying to all community acts and funding programs as well as in the field of state aid where SMEs can be granted a higher intensity of national and regional aid than large companies. The new definition pro- vides for an increase in the financial ceilings:
The turnover of medium-sized enterprises should not exceed EUR 50 million.
S tr ategic Management
Bracker’s (1980) definition suggest that strategic management entails the analysis of internal and external environments of a firm to maximize the utilization of resources in relation to objectives. Further, strategic management can be interpreted as a set of managerial decisions and actions of an organization that can be used to facilitate compet- itive advantage and long-run superior perfor- mance over other organizations (Powell, 2001; Wheelen and Hunger, 2004). Thus, strategic man- agement involves a number of critical steps, in- cluding environmental scanning for information, selecting relevant data, building a strategic model and putting it into action (Cray and Mallory, 1998). Further, the strategic management activity is con- cerned with establishing objectives and goals for the organization, and with maintaining a set of re- lationships between the organization and the envi- ronment which enable it to pursue its objectives, are consistent with the organizational capabilities, and continue to be responsive to environmental demands (Ansoff et al., 2019).
2.2 Designing a Strategic Management System
The strategic management process consists of the main stages: strategy formulation, strategy imple- mentation, and strategy evaluation (David, 2011) Designing a strategic management system re- quires the use of special strategic management techniques that are based on the strategic man- agement process (Figure 1).
Abbildung in dieser Leseprobe nicht enthalten
Figure 1 Stages of Strategic Management and Methods
Based on Hadrbolec (2007, p. 26), David, Fred R. (2011, p.45), Guilding et al. (2000)
This study uses SWOT analysis for environmental scanning. The SWOT analysis is chosen because of the simplicity of the application for environmen- tal scanning, and its known potential to serves as a good strategical basis for strategy formulation (Pasonen et al., 2000). Because of its simple ap- plication, it can save resources and thus seems suitable for an SME. Further, for the process of strategy implementation the BSC is used. A large number of researchers have confirmed the hy- pothesis presented by Norton and Kaplan (e.g. Monk, 2000; Gumbus and Lussier, 2006; Fer- nandes, Raja, & Whalley, 2006; Andersen, 2001) The hypothesis that it is possible to adapt this model to the specific characteristics of SMEs. The conclusions of these studies point out that even in some segments, it is easier to enact the BSC in SMEs than in larger enterprises, as their size can be used as a major advantage (Janković et al., 2016).
2.2.1 Enterprise Philosophy
Before an enterprise decides to introduce a strate- gic management concept, the management must be aware of what will be essential for the enter- prise in terms of a positive long-term development. The management’s ideas should be expressed in the vision and, mission -statement and then in the strategy (Gehringer & Michel, 2000, p. 29).
The mission or mission statement of the enterprise defines the self-understanding of the organization and the general positioning towards the market, employees and society (Gaedke, 2005).
It expresses how the enterprise primarily wants to be seen by the customers and for what reasons it exists. If an enterprise is not deeply concerned with the question of its purpose and the values as- sociated with it, there is no basis for deriving a clear strategy (Rüth, 2004, p. 11).
With the vision, which is also to be defined as the company’s guiding principle, a trend-setting view of the future is created, clarifying the long-term ori- entation of the enterprise and striving to build a common basic understanding within the enterprise (Horváth, 2006, p. 80)
2.2.2 Strategy Formulation
The strategy formulation process entails identify- ing an organization’s external opportunities and threats, determining internal strengths and weak- nesses, establishing long-term objectives, gener- ating alternative strategies and choosing particular strategies to pursue. Strategy formulation issues include deciding what new business to enter, what business to abandon, how to allocate resources whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover. Because no organization has unlimited resources, strategist must decide which alterna- tive strategies will benefit the firm most. Strategy formulation decisions commit an organization to specific products, markets, resources, and tech- nologies over an extended period. Strategies de- termine long-term competitive advantages.
As an organization starts the efforts for strategic management and setting out long-term goals, it is important to have a clear view of its current posi- tions. As shown in previous research (Chang & Huang, 2006), the SWOT analysis is considered as a very important tool in the process of strategy formulation. Further, according to (Coman & Ro- nen, 2009) the merit of SWOT as the leading tool for strategic analysis lies in its simplicity and clar- ity. Taking these factors into account, the SWOT analysis appears to be a suitable method for the strategy formulation in an SME and will be investi- gated in this work.
A SWOT analysis guides to identify organization’s strengths(S) and weaknesses (W), as well as broader opportunities(O) and threats (T).
- Strengths are aspects or characteristics of the business, or project teams, that give an advantage over others.
- Weaknesses are aspects or characteristics that place the organization at a disad- vantage relative to others.
- Opportunities are internal and external pro- spects that can improve an organization’s performance within the context.
- Threats are internal and external influenc- ing factors in the environment that could cause trouble for the organization
SWOT focuses on
- Internal and external factors Internal fac- tors may include personnel, finance, fund- raising, capabilities, and board perfor- mance.
- External factors may include the economic climate, technological changes, legislation, social culture changes, and competitors (Ronald Quincy, Shuang Lu, Chien-Chung Huang, 2012).
SWOT Environmental Scanning
From the whole process of strategic planning, SWOT analysis is an early but crucially important step in the area of strategic analysis. As (Pashi- ardis, 1996) comment, “Environmental scanning is essential for an effective planning. One needs to know the environment in which one operates be- fore making any decisions about the organization, so as to be able to match one’s capabilities with the environment in which the organization oper- ates”’. SWOT consists of two main parts: the anal- ysis of the internal situation (strengths and weak- nesses) and the analysis of the external environ- ment (opportunities and threats). It is important to note that the external environment should be de- scribed in a dynamic sense by considering the ac- tual situations, namely existing threats and unex- ploited opportunities as well as probable trends. The internal situations should also be discussed on the basis of the existing factors. In other words, SWOT analysis should not contain speculative, fu- ture or strengths, but real, actual ones (Horn, Nie- mann et al., 1994).
S WOT Strategy Formulation
SWOT analysis examines both internal and exter- nal factors of an organization. The prioritized SWOT factors are used to formulate alternative strategies. Weihrich (1982) developed the TOWS matrix as the next step of the SWOT analysis in developing strategies. The TOWS matrix provides means to develop strategies based on logical com- binations of factors related to internal strengths, or weaknesses, with factors related to external op- portunities, or threats (Weihrich, 1982). To create strategies, the TOWS matrix identifies four con- ceptually distinct strategic groups: Strength- Op- portunity (SO), Strength – Threats (ST), Weak- nesses- Opportunities (WO) and Weaknesses- Threats (WT) (Fig.2). The SO strategies use the internal strengths to take advantage of external opportunities and the WO aim strategies at reducing internal weak- nesses by taking advantage of external opportuni- ties. On the other hand, ST strategies entail using the strengths in order to avoid or reduce the effects of external threats whereas WT strategies are de- fensive tactics aimed at reducing internal weak- nesses and external threats.The primary ad- vantage of this approach is the influence of priori- tized internal and external factors embedded in strategies (Weihrich, 1982); (Gomatesh M. Ravanavar & Dr. Poornima M. Charantimath, 2012).
Abbildung in dieser Leseprobe nicht enthalten
Figure 2 SWOT Matrix Source: Author Based on: Vaněk et al., (2012, p.24)
In most studies, the term SWOT analysis already includes the TOWS matrix. For simplification, the term SWOT analysis also includes the TOWS ma- trix in the following sections of this work.
S WOT Implementation Process
A SWOT analysis is usually conducted in practice with an (interdisciplinary) team in a moderated workshop. The real purpose of SWOT analysis is the (creative) development of strategies. The SWOT implementation process used in this study is based on the basis of Pelz (Prof. Dr. Waldemar Pelz – Technische Hochschule Mittelhessen 2018) and is proceed as followed:
1. Define the goal(s) of the SWOT analysis
2. Explain the process, the composition of the team, the volume of the project and the re- sponsibility to the participants.
3. Brainstorm the four fields of the SWOT ma- trix (strengths, weaknesses, opportunities, and risks) and visualize the results.
4. Merge, prioritize and discuss the four fields on a sheet.
5. Enter the strategic dialogue. At the same time, critical questions should be asked and discussed. 6. Develop possible measures from the Strategic Dialogue and evaluate these actions in terms of effectiveness and ef- ficiency.
7. Integrate the measures into the corporate strategy
8. Formulate business strategies from the above step.
Studies about the SWOT analysis in SMEs
The current research of the SWOT analysis for strategy formulation is limited, especially in SMEs. Dyson (2004) studied the strategic development process at the University of Warwick (UK) by link- ing SWOT analysis to resource-based planning in an iterative process, embedded within overall stra- tegic planning.
Lee et al. (2000) described the framework em- ployed in strategy formulation by the Hong Kong Institute of Vocational Education. The study joined the SWOT analysis with the BSC. Further, for profit- companies were studied individually as well.
So, Ahmed et al. (2006) used SWOT analysis to study Air China and their recent total quality man- agement implementation.
Sorensen et al. (2004) studied the Kirby company used applications of SWOT analysis and the stra- tegic choice approach to assess the company’s learning process. The majority of those studies confirm the statement that the SWOT analysis is a useful method for understanding and improving strategic business processes. In order to contrib- ute the studies in strategic management, this pa- per is implementing the SWOT analysis for strat- egy formulation through examining the literature of the SWOT analysis in relation to SMEs and strate- gic management and further to develop a frame- work out of the investigated literature.