Small businesses are vast supporters of the U

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Academia de Ciencias Administrativas, A.C.
Congreso Anual Internacional 5 al 7 de mayo, 2004
Mexico: Strategic Planning In Small Businesses
Ignacio Rodríguez Bejarano
Universidad Autónoma de Chihuahua
[email protected]
Jaime Ricardo Olmedo Vargas
José González Baeza
Claudia Celina Rascón Arellano
Who is responsible for the strategic planning in small business in
Mexico? This study of six small firms led to ten propositions
exploring that question. Generally, the owner/manager is
responsible of such task.
A stream of research in several and different perspectives on small business
has appear during the last two decades (Covin & Slevin, 1989; McGee & Rubach,
1997; Castrogiovanni, 1996; Lyles, et. al., 1993; Schwenk & Shrader, 1993;
Deshpande & Flanagan, 1995, and Wasilczuk, 2000). In addition, during the last
decades, the importance of strategic planning in the literature has been presented
(Ramanujam, Venkatraman, & Camillus 1986; Ramanujam & Venkatraman, 1987;
Pearce, Freeman, & Robinson, 1987). In addition, these two streams of research
working together, that are strategic planning in small business (Schwenk &
Shrader, 1993; Robinson & Pearce, 1983; Lyles, M., Baird, I., Kuratko, D.F. &
Orris, J. 1993; Robinson, Pearce, Vozikis, & Mescon, 1984; Robinson, 1982).
However, Can these theories be transferred to a developing country? Would the
Acapulco Guerrero, México
Ponencia arbitrada clave: 69-ENO-IRR
theory work as in United States? We found a lack of research in this area. Thus,
this study seeks to present some findings in a developing country, Mexico, and
how strategic planning in Small Businesses is developed.
Since this study was the first of its kind, it was basically exploratory. It
attempted to answer the following research questions: (1) How do small
businesses owner/manager planning in Mexico? (2) Who is responsible of the
strategic planning in small businesses in Mexico? The findings in this study might
be of interest because there is not relevant literature with these conditions.
This article begins with a review of the literature on Small Businesses, and
strategic planning. Then we tried to transfer the literature to a developing country,
Mexico. We used a multiple case study. The results reported here are a set of
propositions challenging sometimes the traditional view of strategic planning. For
the purpose of this study, the setting is the service and trade industry. According to
the annual report on small business and competition (SBA, 2000) “Small
businesses are concentrated in the trade and service sectors that are growing
most rapidly.”
Backgrounds
Small businesses are vast supporters of the U.S. economy, accounting for
more than half of total employment during 80´s (Ward, 1987;Wheelen & Hunger,
1989; Schwenk & Shrader, 1993; Deshpande & Flanagan, 1995), and also during
90´s when gained almost 3.2 million jobs and real gross domestic product
increased by 2.0 percent during 1995 (SBA, 2000). During the 1982-1995 period,
the total number of firms with employees increased at a rate about equal to the
rates of the growth of the general population and work force (SBA, 2000). Many
firms in the United States are small businesses (Brown, Hamilton, & Medoff, 1990).
Small Business Administration (SBA) defines small business as “a business
smaller than a given size as measured by its employment, business receipts, or
business assets. The SBA’s Office of Advocacy generally uses employment data
as a basis for size comparisons, with firms having fewer than 100 or fewer than
500 employees defines as small.”
The impact of strategic planning theories, policies, researches and practices
on firm performance have evolved considerably over the past decades
(Ramanujam, Venkatraman, & Camillus 1986; Ramanujam & Venkatraman, 1987;
Pearce, Freeman, & Robinson, 1987). Also regarding small businesses and
strategic planning. Robinson and Pearce (1984) suggested that formal strategic
planning have effect only in large firms. However, later Pearce, Freeman, &
Robinson (1987) they conclude that empirical support in formal strategic planning
has been inconsistent and sometimes contradictory. Later Schwenk & Shrader
(1993) in a meta-analysis they conclude the case recommending the use of
strategic planning in al firms.
We can observe the importance of small businesses and strategic planning.
However, Can these theories be transferred to a developing country? According to
Kim and Lim (1988) there are two contrasting views on the transferability. The first
view supports the argument that such theories are not applicable to developing
countries (Kiggundu, Jorgensen, and Hafsi, 1983). The second view suggests that
some theories are transferable to developing countries (Kim, 1980). We found
some articles related to Korea (Kim & Lim, 1988; Kuratko, 1993), Belize (Priem,
Worrell, Walters & Coalter, 1995), Denmark and Sweden (Lee & Ackelsberg,
1993), Ireland, West and East Germany (Rauch, Frese, &Sonnentang, 2000;
Buhner, Rasheed, & Rosenstein, 1997), Netherlands (Masurel & Janszen, 1998),
Poland (Wasilczuk, 2000), and Canada (Wagar, 1998), but not in Mexico. Thus, we
try to contribute in this area.
This article is organized around these three elements: (1) small business,
(2) strategic planning, and (3) Mexico. Since this article is based in a Mexican
market small business classification would be according to Secretaria de Comercio
y Fomento Industrial (Diario Oficial, 1999) Table 1 describes that classification.
TABLE 1
Classification based on number of employees
Stratum
Micro
Small
Medium
Large
Adapted from
Manufacturing
0- 30
31 – 100
101 – 500
501 or more
Trade
0–5
6 – 20
21 – 100
100 or more
Service
0 – 20
21 – 50
51 – 100
100 or more
Diario Oficial, 1999. Secretaria de Comercio y Fomento Industrial.
For the purpose of this study, we define strategic planning as Pearce, Freeman, &
Robinson (1987) “the process of determining the mission, major objectives,
strategies, and policies that govern the acquisition and allocation of resources to
achieve organizational aims.”
The results reported here are a set of propositions of conducting strategic
planning of Small Businesses in Mexico. The evidence suggests ten propositions.
Methods
The study used a multiple case design, each case served to confirm or
disconfirm the inferences drawn from others (Yin, 1984). Table 2 describes the
firms studied.
TABLE 2
Description of firms
Firm
Copies
School
Restaurant
Cake Shop
Auto-Glass
Hotel
Number of
Employees
Number of
Informants
37
25
22
27
37
26
2
2
2
1
1
2
Year
Founded
Managed by
the Owner
1985
1943
1995
1978
1947
1972
Yes
Son
Yes
Yes
Son
Daughter
Number of
Stores
3
1
1
1
4
1
The names used to identify the firms studied are pseudonyms. Although each
name represents the sector of the service industry in which are established and
developed.
Data Sources
Interviews were conducted with every manager/owner of each firm. There
were three data sources: (1) initial CEO (owner/general manager) semistructured
interviews, (2) semistructured interviews with key personnel on strategic planning,
and (3) secondary resources when possible.
CEO (owner/general manager) interviews. An entry interview using a
semistructured format was conducted with the CEO (owner/general manager) of
each firm. The interview began by asking the general manager to broadly describe
the company. Then we asked him/her open-ended question about strategic
planning. According to the answer in depth questioning was addressed.
Interviews with any other manager (if applicable). After the owner/general manager
interview, semistructured interviews with any other manager suggested by
owner/general manager were conducted. The interview consisted of 22 openended questions. The interviews were from 90 minutes to two hours long. The
interview began by asking the also this manager open-ended question about
strategic planning. According to the answer in depth questioning was addressed.
As proposed by Eisenhardt (1989) two investigators conducted each interview with
one responsible for the interview and the other for taking notes. Also immediately
after the interview the investigators cross-checked facts and impressions. Four
rules were followed. The first was the “24-hour rule” required that detailed interview
notes and impressions be completed within one day of the interview. A second rule
was to include all data, regardless of their apparent importance at the time of the
interview. A third rule was to ask for a second interview if new doubts emerge due
to the interview. A fourth rule was to end the interview notes with recent
impressions of each company.
Data were gathered from the key informant. See appendix A for spanish format
semistructured questionnaire.
Secondary resources data. Informational observations on locations were made
with the only purpose to corroborate information.
Data Analysis
The qualitative responses were combined using profiles. These profiles
were build when characteristics were mentioned by more than one informant. For
example, three managers recall a clear and specific recommendation from their
parents. This characteristic “parental advice” was included as a profile, but other
characteristics mentioned by only one person were dropped.
Once preliminary analyses had been developed from the respective profiles
we combined them and induce propositions using methods for building theory from
case studies (Glaser & Strauss, 1967; Weiss, 1994). After the development of
these initial propositions, each case was revisited and sharpened to improve
understanding of our initial attempted to answer our research questions: 1) How do
small businesses owner/manager planning in Mexico? (2) Who is responsible of
the strategic planning in small businesses in Mexico?
Firm’s planning process and formal written documents
Strategic planning literature is concerned with no planners to formal
planners (Kudla, 1980; Robinson & Pearce, 1983). The data from these
researches implies that planners are future oriented and that written documentation
emanates from the plannig process.
TABLE 3
Formal Planning
Firm
Examples:
Copies
“We are just starting to planning our goals for next year. It’s not that we didn’t have
plans before but we never write our goals. We started this process about three
months ago. We (store managers and owner) get together every Friday to have
lunch and we discuss our jobs.”
School
“We don’t have any goal, objective or mission statement. We never do that, but we
do plan next year or next semester. We detect the future generations and we plan
our groups, the demand for next year.”
Restaurant
“We don’t plan too much the future just coming events such as “posadas” or special
events Mother’s day, holidays and that kind of special days. Nevertheless, we try to
keep track of our competitors and what are they doing. ”
Cake Shop
“My plan is the same as the first day when I started, be the number one. However,
we don’t have any written document telling me what to do. Everything is in my head
and in my heart.”
Auto-Glass
“Yes, we do have a mission statement, and we plan different things from
promotions for holidays or vacations to open a new store for next year. My father
always told me to see in the future. For operational planning we have a computer
software for planning.”
Hotel
“We establish goals for the future but we never write those goals. We only struggle
to accomplish them.”
Proposition 1a: Formal strategic planning is not common in small firms of
Mexico, but it is applicable at some level.
Proposition 1b: Formal strategic planning is not a good indicator of
performance or future development in small firms of Mexico, but it might be
applicable at some level.
Follow Planning
As Pearce, Freeman, & Robinson (1987) suggested distinguishing control
and/or follow up the process of planning it is basic. What we could find about this
important theme is reviewed in table 4
TABLE 4
Follow up planning
Firm
Examples:
Copies
“We don’t have any specific following process for our planning, but hopefully our
meetings would find a way to keep track of our own goals.”
School
“As I mentioned earlier our way of planning is knowing our future demand. After
that, we plan our classes and teachers. We have been teaching for a long time and
our reputation is very good.”
Restaurant
“We don’t have a specific process for doing that. However, as I said before we keep
track of our competitors. I think there is enough customers for our kind of business.”
Cake Shop
“As I said before the plans are in my head. I know that we should be observing our
competitors and every new cake. Also new products like vanilla, chocolate flavors
or essences.”
Auto- Glass
“Most of our plans can be measured with our sales. Therefore, we keep track of our
sales from previous years in the same period (month). Also with the help of the
computer.”
Hotel
“We have to report our occupation to the Hotels Association every month that gave
us a good idea how are we doing.”
We inferred the following:
Proposition 2a: Some Small Firms in Mexico don’t have an established
process for measuring their goals and or planning.
Proposition 2b: Some Small Firms in Mexico don’t have an established
process for measuring their goals and or planning but they do it at some
level.
SWOT
Another relevant issue in the strategic planning is the mechanism of the
classical SWOT (Ramanujam & Venkatraman, 1987). We found the following:
TABLE 5
SWOT
Firm
Examples:
Copies
“five years ago we started a process for detecting the strengths, weaknesses,
opportunities, and threats. Unfortunately we didn’t follow up that process but we are
starting again. Hopefully now will come with better results”
School
“Although we don’t use a method to determine that (SWOT), we are aware of our
limitations. And we try to make the best decisions in any situation.”
Restaurant
“We try to focus on our customers. The behavior of them tells us what to do. For
example when we started, we didn’t sell beer but customers ask for beer. Later we
get the permit and new customers are coming.”
“I used to observe my employees and my customers. I talk to them frequently, ask
them how they fell about different things, what do they think about this or that.”
Cake Shop
Auto-Glass
“We can say that I do the SWOT analysis. But now I’m thinking about get more
people (employees) involved in that process, the thing is that I haven’t decide how.”
Hotel
“We can say that the SWOT analysis is made by The Asociacion de Hoteles y
Moteles, (Hotel and Motel Association). We have meetings every month and we
discuss issues important for all of us. We also participate in different activities the
rest of the month.”
Proposition 3a: SWOT analyses in Small Firms in Mexico are not properly
established but is made at some level.
Proposition 3b: SWOT analyses in Small Firms in Mexico are provided by
different people such as customers, associations, and personnel. The
important issue is how to perceive it objectively and methodically.
Competency in Small firms
Another theme relevant is the competitors and the environment (Covin, &
Slevin, 1989; Kim, & Lim, 1988; McGee, & Rubach, 1997). We can perceive the
intention to induce higher levels of performance.
TABLE 6
Competency and Environment
Firm
Examples:
Copies
“Although we have three stores and we are looked as number one it is very
important to know what other firms are doing. If they introduce a new, kind of
service, we evaluate if we can do it. If it is possible, we develop that service. In
addition, another way to be ahead of the competency is knowing what our customer
wants. My father who was also a business man, always insisted in a perfect service
for the customers, I follow that pattern”
School
“We followed the governmental regulations, which are also followed by our
competitors. We have a good reputation in our field so.”
Restaurant
“Our wages are higher than those established by labour regulations. We try to
maintain our employees motivated with their jobs and a good salary is an easy way
to do it. We keep track of our competitors and basically we monitor if they offer
sales or specials.”
Cake Shop
“My wages are the highest of all market (bakery and patisserie). My personnel
know that and are happy in my company. Along the years we have become in the
number one, to keep that position is essential to know any new product (develop by
our selves or the competitors) and how to get costs lower. Right now we have more
capacity to produce than any other competitor and we use more quality products.”
Auto-Glass
“The competitors within this State are either my cousins or any of my brothers. We
still observe what they do. But, the real “benchmarking” is with similar business out
of the State when we get together every two months in an association (Windshield
distributors association)”
TABLE 6 (continue)
Competency and Environment
Hotel
“The real competency is with ourselves. We try to be better everyday and provide a
good stay to our regular customers. We attend sales representatives from four
other states. We have customers from more than 25 years.”
Proposition 4a: Each different market in the service industry is well known
by the small firms owners/managers.
Proposition 4b: Owners/managers from Small Firms in Mexico get
information and support from different associations.
Other Topics of Interest
There were several interesting topics of Human Resource Management
such as demography and gender (Harrison, Price, & Bell, 1998).
TABLE 7
General Findings
Firm
Copies
School
Restaurant
Cake Shop
Auto-Glass
Hotel
Number of
Employees
Number of
Females
37
25
22
27
37
26
20
16
3
2
3
15
Number of
Males
17
9
19
25
34
11
Strategic Planning
Activities by:
Owner and store manager
Owner and son
Owner and manager
Owner only
Owner and store manager
Manager (daughter)
Proposition 5a: Small Businesses in Mexico are managed principally by
the owners.
Proposition 5b: Some sectors of the service industry are dominated by
males and others by females without a clear pattern.
Conclusions, limitations and implications for future research
This article began by describing some findings in Small Businesses in
Mexico specifically around strategic planning. The results fail to support some of
the previous literature. Rather, the findings here suggest that more studies on the
topic are needed. We can conclude that strategic management in small businesses
in Mexico as other areas is managed by the owners. The owner/manager in small
businesses in Mexico is responsible of the strategic planning.
We are aware of some limitations during the present study. First, the firms
under study belong to only one State, Chihuahua, where none previous studies
has ever been reported. Second, the firms studied are from different sectors.
Although these firms are in the service industry and they fit in the category
proposed by the Mexican regulations as Small Firms. Third, as we mentioned
earlier since this study was the first of its kind, it was basically exploratory and
more studies are needed. Empirical and/or archival are strongly suggested.
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Small businesses are vast supporters of the U

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