What Makes Small Firms Behave in a More Agile Manner than Their Larger Counterparts in Scotland-UK - Research Proposal Example

Small Companies Table of Contents Introduction 3 The Research Question 4 The Research Objectives 5 Literature Review 5 Research Methods 11 Project Management Plan 13 Works Cited 15 What makes small firms behave in a more agile manner than their larger counterparts in Scotland-UK? Introduction Small companies have formed the basis of many economies and provide employment to millions of individuals across the world. However, despite their small size, they often lead in terms of innovation, agility and the ability to change depending on the changing situations of the market. Hemming (2003) reports that remaining small or choosing to remain a small company may even be a strategic decision since small and medium sized companies may have tax advantages and privileges that are not accessible to larger companies. At the same time, it seems that small companies are losing out on the advantages of access to large investment capital, high repute, public recognition, economies of scale and the financial strength which a larger company could take for granted. This situation has resulted in a lot of academic and business attention towards the advantages of adaptability and flexibility which small enterprises claim to have. The interest has been developed to an extent that even global companies such as GE have changed some of their methodologies to match small businesses. As described by Eugenio and Pernías (2006), small companies are the envy of the business world since they can change their operations and business systems in a matter of hours and this allows them to enter and exit markets ease. Of course, this does not mean that all small companies are successful since many small companies based on trends and business fads were quickly put out of business once the fad went away. However, there remains the conventional wisdom that small companies will always be more agile than their larger counterparts. The Research Question Thus the research question becomes to see what makes small companies more agile than their larger counterparts and from an initial review of the literature on the topic; it seems that there are three aspects to an answer to the question. The three aspects which seem to differentiate why smaller companies are more agile than larger ones are the use of technology, the culture of the organisation and finally, the individual who leads the company. While the last element may be common to both small and large organisations, the culture of a small company may be inherently difference from a company that employs thousands of employees across the world. Similarly, the manner in which a small company can easily adopt to new technology can be vastly different from the painstaking process by which a large company accepts change and moves from using one technology to another. The Research Objectives The Objectives of the research therefore would be: Examine how new technology changes force small and large companies to change their businesses and evaluate if small companies can commit to the change faster than their larger counterparts. Examine the culture of small companies and compare it to the culture of larger companies. If the culture of smaller companies is found to be more conducive to change, it can be said that smaller companies are more likely to adapt quickly when the markets change. Compare owners of small companies with CEOs of larger organisations to see how their behaviour and decision affect the agility of the company. Literature Review Eugenio and Pernías (2006) undertook an extensive study correlating production and innovation strategies. They studied the tile industry in the UK and found that small companies were more likely to be innovative both in terms of production and in terms of using those innovations in production techniques to create new designs and bring new products to the market. Considering the agility as well as the quick response given by small companies to the needs of the market, the writers conclude that “Small firms tend to be more innovative overall (Eugenio & Pernías, 2006, Pg. 1)”. This claim is also developed further by Thackston (2000) who reports that there are several advantages which a small company has in terms of structure since a flat organization is more likely to make critically important decisions quickly. This becomes particularly important in world where technology drives innovation for small companies (Levy and Powell, 1998). Thackston (2000) further reports that chains of command that are short make the process of managing employees much easier and make the company more flexible when it comes to changes in the environment. However, there are also disadvantages of being small since the majority of start-up companies fail to even achieve critical mass. Nearly half of all new companies fail before their sixth year of business and only one in five stay afloat after eight years of being started (Hardy, 1996). There have been cases where small companies have eventually grown to become big businesses but such cases are few and far between. Nevertheless, small companies are the future of business in the UK and Scotland since they provide economic growth as a whole. The Herman Group (2004) pointed out that the importance of small companies for the European economy by saying that: “Future economic growth will come from these small enterprises, which are more flexible and mobile than their lumbering big brothers. Communications technologies overcome many of the functional limitations of being small, and micro-businesses can usually relocate quickly to draw from a new labour pool, serve new customers, and contribute to a new regions tax base (Herman Group, 2004, Pg. 14)”. However, going beyond communications and technology, Burlingham (2003) argues that it is the culture of a small company which can allow it to avoid the bureaucratic pitfalls that a larger company is subject to and thus avoid any inefficiency with regard to decision making and employee empowerment. A review of the culture at the Zingerman’s Community of Businesses shows that elements such as hippie sandals and casual clothes connect directly with the entrepreneurial nature of the firm and the profits made by the company. As a small company, Zingerman has built a sense of belonging and enabled employees to trust the management with their entrepreneurial ideas. The company invests in the ideas of the employees to develop, produce and market goods and the entire process is managed by the employee who came up with the idea in the first place (Burlingham, 2003). It seems that such steps can only be taken by a small company which is willing to make investments in people rather than investments in equipment and policy managers. By working as a small company, an entrepreneurial culture was created where change was appreciated and flexibility was lauded. However, for companies such as Zingerman, a match between the company culture and the nature of the person who comes to work for the company has to be established. Zingerman encourages entrepreneurs to come and work for them since it keeps them full of new ideas that can be developed into fresh products. The local community is also happy with the company since a percentage of their operating profits always go towards helping charitable causes within their community (Burlingham, 2003). Of course, when operating in an environment that supports innovation, a company is likely to reap the benefits therefore the business environment may also lead some small companies to display more agility than their larger counterparts. In terms of the business environment, the economic conditions of the time may create opportunities and place small companies in advantageous positions that may not be available to larger firms. The best example of this comes from the oil and gas industry. Even though conventional wisdom may suggest that small companies could be no match for large organisations such as BP, they find places to compete where larger energy companies such as BP simply can not compete. In fact, a quick glance at the list of most successful small companies shows that amongst the top ten, nice come from different industries while the top positions are dominated by those small companies which are involved in the oil and gas sectors (Cecily et. al., 2004). In recent years, deals worth billions of pounds were signed in Africa for oil and gas exploration, the majority of which were taken up by small companies that had intimate knowledge of the area and had local contacts which larger companies could only dream about. The nature of the business in the oil market such that new discoveries require quick mobility and immediate action and this is where smaller companies have the advantage. They have the advantage of mobility and they have the ability to take risks in areas where more well known companies may stay out of (O’Hanlon, 2004). An example of this is Tullow Oil which is based in the UK but has taken over Energy Africa with a payment of 600 million and that has given the company complete access to all of Energy Africa’s installations from Cairo to Namibia. For Shell, BP or ExxonMobil, Energy Africa was too risky an investment but for Tullow Oil, it was the perfect opportunity. As a result of this simple move, a small company from the UK now has active operational installations in a dozen African nations while ExxonMobil only has a presence in seven countries across the entire African continent (O’Hanlon, 2004). Undoubtedly, small companies from the UK such as Tullow Oil do not present any real competition to organisations such as Shell or BP because the large companies in the energy business may be playing with billions of dollars across the world. The profits of large oil companies and their scale are so vast that they could easily swallow smaller organisations through takeovers but when it comes to measuring return on investment, a small oil company can outshine them all. The process of a small company outperforming a larger one also depends considerably on how the person leading the company handles the business. Quick and responsible decisions coming from the top can lead a small company to vast success. On the other hand, irresponsible actions and corporate greed may have been the root cause of the failure of many larger companies. However, it must be understood that adaptability and flexibility is not only seen in small companies. Large companies can also show agility and quick responses to changes if the person leading the company is able to create a culture of change within the company. This is because Companies might take on the culture which is supported and demonstrated by the owners or the CEO. For larger companies, CEOs and the board of directors can and should guide the culture of the company to the direction they wish to take it. In this manner, larger companies can develop a culture of change by rewarding employees for upholding the company’s desired values. This recommendation comes from Welch (2005) who further believes that large companies should try and behave like smaller organisations in order to become more agile and more able to develop the opportunities that they are presented with. However, Welch (2005) considers adaptability and flexibility in any organisation to come from the CEO of the company and it is taken to be as important as remaining profitable and competitive in a changing business environment. Discussing change management at length, he reports that entrepreneurs and anyone else who has the responsibility of leading the company must be open to change. If such a person is hesitant of change or does not have the ability to make quick and rational decisions, the position of responsibility should not be given to him/her. Research Methods The three aspects of what makes small companies more agile and adaptable then their larger counterparts all deserve greater investigation since there are overlaps between the aspects. The first research method would be to judge how technology impacts both large and small companies and if smaller companies are able to adapt to new technology faster than larger organisations. In this regard, the research can focus on the issue of new software and computer operating systems such as Windows Vista to see if small companies in the UK and Scotland were more willing to adopt the new operating system rather than larger ones. With regard to the culture, it would be a simple matter to first study how the culture of the organisation changes with regard to size. Different measures of culture such as openness can be plotted against the relative sizes of several different companies and that could show if smaller size makes a company more open. At the same time, historical research regarding the culture of a company can also be undertaken as to how the culture of the company changed as the size of the company changed. As recommended by Maylor and Blackmon (2005), employee surveys may be conducted to guide the research regarding the past and present cultures of companies. The business environment also ties in with the notion of culture but since it is an external factor, it would become important to see how both small and large companies respond to the environment depending on the prevalent economic conditions. For example, it would be useful to examine the expenditure and investment patterns of small companies and compare them to the expenditure patterns of larger organisations in times of economic boom and economic downturns. While it can be expected that these companies would respond in similar manners, it must also be evaluated if smaller companies are more likely to exploit the opportunities presented in a time of economic downturns. To judge the character of the CEO, it would be quite simple to obtain information about the business practices and ideas of the CEO of large companies in the UK since individuals such as Richard Branson and other flamboyant CEOs are often quite vocal about their approach to business. However, when it comes to smaller companies, it would be important to find out about the more successful local companies and then arrange for a few meetings with their CEOs to determine how they operate and how their philosophy of business allows their company to make the best of given scenarios. As described by Saunders et. al. (2007), interviews come with certain drawbacks as they are more akin to in-depth case studies of a particular organisation but trends can certainly be developed if a sufficient number of personal interviews are gathered. Project Management Plan The project is to be completed in three phases. In the first Phase, the impact of technology on small and large business as well as their response to changing technology is to be evaluated and since that can largely be done from library research the first phase is not expected to take more than a week or two. The second phase may require the creation and administration of a number of surveys for which it might take a month or more. However, any time investment of more than six weeks might be too long for such a project and additional library research may need to be used to bring the project to completion. For the third phase, the time required depends largely on how and when the CEOs of local small companies are able to offer their time for a short meeting. While it can mean that a wait of a month or more may come into play when a meeting is being setup, the faster the meetings are concluded the easier it would be to complete and deliver the final report. The project phases and a summary of what needs to be done along with the expected time of completion are listed on the following page in tabular format. Project Phase What needs to be done Expected Time Phase 1 The impact of technology on small and large business as well as their response to changing technology is to be evaluated in this phase. Two Weeks Phase 2 The creation and administration of a number of surveys for past and present employees of large firms Six Weeks Phase 3 Interviews with CEOs of local small companies Six Weeks Table 1 Project Plan Works Cited Burlingham, B. 2003, ‘The Coolest Small Company in America’, Inc,. vol. 25, no. 1, pp. 64-72. Cecily, F. et. al. 2004, ‘200 Best Small Companies’, Forbes, vol. 174, no. 9, pp. 180-181. A list of the best small companies and the methods by which they remain competitive Eugenio, M and Pernías, J. 2006, ‘Innovation Complementarity and Scale of Production’, Journal of Industrial Economics, vol. 54, no. 1, pp. 1-29. Hardy, E. 1996, ‘Meet the boss’, Forbes, vol. 158, no. 11, pp. 268-286. Hemming, R. 2003, ‘Thinking Small has its Advantages’, Aspec Huntley, [Online] Available at: http://www.aspecthuntley.com.au/af/news?xsl-newsID=11&xtm-licensee=aspecthuntley Herman Group. 2004, ‘Strength in Small Business’, Futurist, vol. 37, no. 4, pp. 14-16. Levy, M and Powell, P. 1998, ‘SME flexibility and the role of information systems’, Small Business Economics, vol. 11, no. 2, pp. 183-197. Maylor, H. and Blackmon, K. 2005, Researching in Business and Management, Palgrave Macmilan. Saunders, M. et. al. 2007, Research Methods for Business Students, FT Prentice Hall. O’Hanlon, T. 2004, ‘Oil Fry’, Economist, vol. 373, no. 8399, pp. 66-67. Thackston, H. 2000, ‘Small Business: Being Small Gives You Big Advantages’, InsiderReports.com, [Online] Available at: http://www.insiderreports.com/department.asp_Q_ChanID_E_SO_A_DeptID_E_GTKN_A_StoryID_E_20001377 Welch, J. 2005, Winning. HarperCollins. 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