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APPROACHES TO BUSINESS PRACTICE



APPROACHES TO BUSINESS PRACTICE
 

ASPECTS OF BUSINESS PRACTICE

PROMOTER                                                TRUSTEE

Small Business                                      Large Company
Strategic Orientation
Capitalize on an opportunity
Focus on efficient use of current resources to determine the greatest return
Resource Commitment Decisions




Act in a very short time frame
Long time frame, considering long term implications
Multi-staged
One-time up-front commitment
Minimum commitment of resources at each stage
Large scale commitment of resources at one stage
Control Decisions
Respond quickly to changes in competition, market, and technology
Formal procedures of analysis such as capital allocation systems
Adapted from Stevenson, 1999

Aspects along the continuum relate to strategic orientation and decision making that involves resource commitment and control decisions.  The strategic orientation of small business managers suggests they will take an external focus in order to effectively capitalize on emerging opportunities.  Alternatively, large company administrators will focus internally on making efficient use of existing resources.  The decision making process is composed of two components.  Initially, a resource commitment decision is made and then follow-up control decisions are made to respond to changes that may impact the revised situation.  The small business manager will act in a very short time frame and attempt to make a minimum commitment of resources in multiple stages in order to maintain flexibility.  When making resource commitment decisions the large company administrator will consider long term implications of a large scale allocation of resources at the outset of an initiative.  The control decisions are made in response to changes in the business practice environment.  The small business manager will react quickly to any changes in the environment.  An assessment will be made about impacts as a result of the competition, market, and technology.  The large company administrator will follow formally established and repeatable procedures to analyze the situation and potential impacts on internal systems relating to financial and human capital.

Another perspective of small business involves the concept of “Resource Poverty” (Thong et al, 1994).  This concept addresses the issue that small business managers lack important resources necessary to conduct operations.  These resources relate to skills, time, and finances.

Small business, because of their limited size, employs only a few people.  Each person is required to perform a number of varied tasks.  While being a generalist would be helpful there may be situations where the individual does not possess the necessary skill.  Because of the small number of employees not all of the appropriate skills may be available to support the entire business operation.  Acquiring the necessary skills externally through outsourcing may be an alternative.  The third component of Resource Poverty, finances, may have a negative impact by preventing the acquiring the necessary skills, as discussed below.

Another aspect of Resource Poverty relates to time.  Small businesses possess fewer employees.  Beyond the skill issue discussed above, having fewer employees means less time to devote to the necessary activities to carry out business operations.  This lack of time relates to both the work level as well as management.  Workers may not have sufficient time to carry out their duties.  It may take longer than expected to build a product or provide a service.  At the management level the lack of time for decision making may lead to poor decisions or the lack of recognition that a decision is necessary.

The final aspect of resource poverty relates to finances.  As most small businesses are privately held, they tend to be similarly financed resulting in a limited supply of money.  In general, small business has difficulty obtaining financing.  Indeed, small business has more difficulty than large companies in accessing financial resources (Ang, 1991).  Small business managers may take an informal approach generally described as the “3Fs” – Family, Friends, or Fools.  This approach may prove difficult.  Initially, the amount of finances available may be limited.  Further, if repayment is delayed for some reason personal relationships may be negatively affected.  A more formal approach would be to establish a business relationship with a lending institution (Cole & Wolken, 1996; Ang, 1992).  However, because of the centralized nature of credit granting policies, the unique regional or industry sector aspects of small business operations may not be considered (Hunter, 2011; Boot, 2000; and Degryse & Van Cayseele, 2000).

Small businesses tend to focus on a relatively small customer base (Zontanos & Anderson, 2004).  The focus is also within the local region (Weinrauch et al, 1991).  The customer and regional focus are related to the fact that the business is small and lacks necessary resources to expand operations (Thong et al, 1994).  This focus, however, creates a conundrum.  It is incumbent upon the small business managers to work directly with their customers to provide a personalized service (Berry, 1983; McKenna, 1991; and Cardwell, 1994).  Indeed, a long term relationship with customers will prove beneficial.  However, this narrow focus could result in a negative financial impact upon the small business.  A downturn in the local economy may lead to a slowing of operations in the small business customer base.  This, in turn, will affect the small business.  Further, relying on a few customers could also have a negative impact if even one or two customers cease operations of start dealing with another business.  Note that one or two customers could represent a large percentage of a small customer base.  Thus, it may be worth the effort required to establish a diversified customer base and regional operation which may contribute to reducing the risk of a more focused approach.

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