Page 198 -

164 PART 2 • STRATEGY FORMULATION
Strategic Management in Small Firms

The reason why “becoming your own boss” has become a national obsession is that
entrepreneurs are America’s role models. Almost everyone wants to own a business—from
teens and college students, who are signing up for entrepreneurial courses in record
numbers, to those over age 65, who are forming more companies every year.
As hundreds of thousands of people have been laid off from work in the last two years,
many of these individuals have started small businesses. The Wall Street Journal recently
provided a 10-page article on how to be a successful entrepreneur. 40 Not only laid off
employees but also college graduates are seeking more and more to open their own busi-
nesses. As of April 15, 2009, the Small Business Administration had approved more than
$1.5 billion in Recovery Act loans and supported more than $2 billion in lending to small
businesses. “I was not envisioning myself as an entrepreneur when I began the MBA pro-
gram at Northwestern University, but this is part of the journey,” said student Tiffany
Urrechaga. “It’s kind of a blessing that I didn’t get a job because I was able to reshift my
thinking.” 41
Strategic management is vital for large firms’ success, but what about small
firms? The strategic-management process is just as vital for small companies. From
their inception, all organizations have a strategy, even if the strategy just evolves from
day-to-day operations. Even if conducted informally or by a single owner/entrepre-
neur, the strategic-management process can significantly enhance small firms’ growth
and prosperity. Because an ever-increasing number of men and women in the United
States are starting their own businesses, more individuals are becoming strategists.
Widespread corporate layoffs have contributed to an explosion in small businesses and
new ideas.
Numerous magazine and journal articles have focused on applying strategic-management
concepts to small businesses. A major conclusion of these articles is that a lack of strategic-
management knowledge is a serious obstacle for many small business owners. Other prob-
lems often encountered in applying strategic-management concepts to small businesses are
a lack of both sufficient capital to exploit external opportunities and a day-
to-day cognitive frame of reference. Research also indicates that strategic management in
small firms is more informal than in large firms, but small firms that engage in strategic
management outperform those that do not.

Conclusion
The main appeal of any managerial approach is the expectation that it will enhance
organizational performance. This is especially true of strategic management. Through
involvement in strategic-management activities, managers and employees achieve a bet-
ter understanding of an organization’s priorities and operations. Strategic management
allows organizations to be efficient, but more important, it allows them to be effective.
Although strategic management does not guarantee organizational success, the process
allows proactive rather than reactive decision making. Strategic management may repre-
sent a radical change in philosophy for some organizations, so strategists must be trained
to anticipate and constructively respond to questions and issues as they arise. The 16
strategies discussed in this chapter can represent a new beginning for many firms, espe-
cially if managers and employees in the organization understand and support the plan for
action.

Key Terms and Concepts

Acquisition (p. 158) Business-Processing Outsourcing (BPO) (p. 161)
Backward Integration (p. 140) Combination Strategy (p. 137)
Balanced Scorecard (p. 135) Cooperative Arrangements (p. 156)
Bankruptcy (p. 147) Cost Leadership (p. 151)