How Can Small Firms Adapt to Improve their Performance Outcomes?

In an increasingly competitive market, how can small and medium-sized enterprises (SMEs) compete with larger, longer established corporations? And which of their own characteristics can SMEs exploit to their advantage to improve their performance outcomes?

On 9th May, Birkbeck Centre for Innovation Management Research was delighted to welcome George Chryssochoidis, University of Kent, and Dimitrios Dousios, University of East Anglia, to discuss their recent paper on this subject area:

Small Firm Adaptive Capability, Competitive Strategy, and Performance Outcomes.

The paper belongs to a series of workshops organised in affiliation with the journal Strategic Change. Past contributions have focused on financing innovation and the difficulties for contemporary financial systems to assess the risks associated with innovation, but this paper specifically considers firms with limited resources and their ability to stay competitive in the market by other means – in this case, by adapting.

 

Adapt, Respond, React

Adaptability is the tendency or lean towards capitalising on opportunities, and the ability to react and respond to customer preferences to adjust products and services. Adaptability numbers, therefore, among the “dynamic capabilities” – the capabilities of an organisation to purposefully adapt its resource base. Dynamic capabilities pose an interesting challenge for small and medium-sized enterprises; where larger firms may have the resources to spend on evaluation to inform adjustment and adaption, smaller firms may be required to spend resources in the most vital areas. However, the size and scale of SMEs can also be seen as advantageous – they can be flexible and implement changes more quickly than larger enterprises because of their size.

By implementing strategies for effective search and balancing exploration and exploitation, SMEs could adapt, respond and react to changes in the market more effectively and efficiently than larger corporations. This is just one of the reasons SMEs provide a great opportunity for researchers – the impact of dynamic capabilities on their performance is pronounced. Moreover, success is not only easily identified, but can be measured in its immediate and cumulative forms, once business relationships have been established.

Professor Chryssochoidis and Dr Dousios put forward three hypotheses in their paper, to consider the internal relationships between adaptive capability, competitive strategy and performance outcomes in SMEs:

  • That adaptive capability is positively associated with small firm performance;
  • That adaptive capability mediates the relationship between competitive strategies and performance;
  • That adaptive capability moderates the influence of competitive strategies on performance.

Using models, they confirm that adaptive capability and strategy had a profound effect on performance. In particular, they demonstrated that adaptive capability mediates, rather than moderates, the impact of competitive strategy on performance, underscoring the fundamental role of adaptive capability for SMEs to be able to sustain their competitiveness.

Informing Advances in Innovation

The authors acknowledged that the complexity of the topic requires investigation through further studies; this paper only had scope to consider Greek firms, and the nature of SMEs will differ by country, sector and subjective managerial strategy. However, this paper sheds lied on factors crucial to advancing entrepreneurship research; “while adaptive capability is not a ‘silver bullet’”, remarked Professor Chryssochoidis, “it is something that has been isolated as a crucial factor in the relationship between strategy and performance.”

In his final words of thanks, Carlo Milana, Editor of Strategic Change, commented that research in this field on the connection between strategy, performance and influence remains largely silent. This paper, however, opens up new avenues on a number of fronts – between SMEs and large corporations, production, skills and finance.

Birkbeck Centre for Innovation Management Research would like to thank all those in attendance and contributed to a lively, insightful debate.

See the full research paper here: Small Firm Adaptive Capability, Competitive Strategy, and Performance Outcomes.

Event Programme and Participants

2:00 pm: Workshop on “Small Firm Adaptive Capability, Competitive Strategy, and Performance Outcomes”

Presentation by George Chryssochoidis (University of Kent) and Dimitrios Dousios (University of East Anglia)

Discussion roundtable:

Carlo Milana, Editor, Strategic Change (Chair)

Jeanne Le Roux, Business mentor and coach, JBR People Management

Ning Baines, Vising Fellow, Birkbeck CIMR, and Teaching Fellow, UCL School of Management

Dina Mansour, Entrepeneurship in Emerging Countries PhD student, Birkbeck

 

 

 

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