Description
On the present paper are analyzed 251 SMEs in the manufacturing and construction sectors on a Portuguese Region (Vale do Sousa) located in the Northern Region.
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Small Firms and Organizational Change: Opportunity or Threat?
Nelson Duarte: [email protected]
CIICESI - School of Management and Technology of Felgueiras – Porto Polytechnic
Center of Transdisciplinary Studies for Development – CETRAD
Change is something that firms are facing constantly, but are they dealing with it as an
opportunity or a threat?
On the present paper are analyzed 251 SMEs in the manufacturing and construction sectors
on a Portuguese Region (Vale do Sousa) located in the Northern Region.
This paper is organized in two main parts: (1) Business creation and external environment
and (2) Business management.
Even being a business creation a changing attitude the main reason that leaded to business
creation was not opportunities identification but the entrepreneur´s work experience. Keeping in
line with sector choice, appears firm localization that is chosen considering entrepreneur´s
residence. These results are in accordance to some OECD reports about entrepreneurship.
Considering also a society that do not understand failure as a learning opportunity, change and risk
taking is not welcome.
On business management were analyzed the main turnaround strategies, as well as
innovation and risk strategies. The results point out to strategies that were taken for survival reasons
and probably on a reactive attitude.
Change is also more difficult to implement when management is on family hands. In this
region the relation between management and family membership is notable.
Organizational change resistance leads to a large percentage of innovation and risk aversion,
75% and 94% of aversion attitudes, respectively. Along the paper are also analyzed the main
strategies followed by each group of firms considering the different innovation and risk steps where
firms were classified.
The results indicate that change is a threat. Is it possible to change their minds?
Key words: Organizational Change, Small Firms, Innovation, Risk.
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Introduction
Change is always present on business environment. Customers are changing; their needs and
demands change constantly, suppliers are coming and going, financial markets are changing their
rules, governments are changing their laws, etc. etc.. So if change is everywhere, it should be
something that managers are used to deal with. But how do they deal with changes? What are they
doing to welcome market changes? What are they doing to implement market changes? Or are they
just trying to avoid change? Are firms available to change? Is change availability more present on
small or large firms?
Today’s large firms were, sometime in the past, small ones. According to Magretta (2004)
they became large by being the best small ones. The question is: What did they do in order to
become the best ones? There is not only an answer to this question, however one of the factors that
certainly influenced it, was their decisions, goals, and plans, in other words, their management, or
their willing to change. Their growth also offers an interesting potential to transform local
economies. Considering this potential most governments and other institutions share the feeling and
try to support small businesses creation and growth. The main issue is how to help them. Many
authors identify as major problem financial issues [GEM (2001); Eversole (2003); OECD (2003);
Apolinário (2005); Green, Kirkpatrick, & Murinde (2006); Mueller (2006)] however sometimes
helping these firms by financial support only, may not be the best solution as refers, for instance,
Eversole (2003) about microcredit support. Some other problems as outsourcing analysis [Baxendal
(2004)], management styles and structures [Bruce, Cooper, & Vazquez (1999)], lack of competence
or experience that leads to wrong decisions [Malone (2004); Man, Lau, & Chan (2001)] and many
other problems related to internal factors such as innovation, marketing, human resources, or
external factors such as networks are presented by different authors [Arend (2006); Perks (2006);
Acquaah (2007); Kim, Knotts, & Jones (2008)]. The problems identified can be analyzed from
various perspectives; however, it is possible to find a common denominator: change or
organizational change internal and external level, respectively.
Most of these problems are related and will affect firms’ management and require flexibility
and adaptation capacity in order to overcome those problems. According to Todorut (2008) “The
features of innovation, flexibility and change mutually influence one another. Provided that change
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is perceived as a feature leading to innovation, flexibility is the feature that enables it. Innovation
cannot exist without change but nonetheless each and every change leads to innovation.”
According to Berry & Somerville (2010): “Scholars and practitioners agree that change
processes remains complex and challenging for organizations engaged in such initiatives. The pace
of change is greater than ever before (By, 2005). Yet, there is limited knowledge about how to plan
and implement organizational change (Burke, 2008). Research suggests that failed organizational
change initiatives range from one-third to as high as 80% of attempted change efforts (Fisher,
1994; Beer and Nohria, 2000; Higgs and Rowland, 2000; Hirschhorn, 2002; Knodel, 2004; Sirkin
et al., 2005; Kotter, 2008). Yet, organizational change is also seen as a constant (Vales, 2007) and
a critical skill set for twenty first century leaders and managers (Knowles, 1999; Beer and Nohria,
2000)”.
So if change is a critical skill for the 21
st
century, so it is innovation. Frequently, innovations
imply to take risks. A firm that welcomes change is also welcoming innovation and ready to take
some risks. According to Berry, Gordon & Hinings (2003) change drivers are events, activities, or
behaviours that facilitate the implementation of change. These events can be identified either at an
initial level (firm creation) or on management decisions, namely on innovation and risk strategies.
Benn & Baker (2009) argue that a new organizational development based on change and innovation
may lead firms to the sustainability (focused on ecological issues).
However as Hu & Hafsi (2010) argue, change patterns are determined by institutional
characteristics and are associated with firm capabilities. Even the environment where firms are
located can influence management options, for instance, on taking risky strategies. Or even on firms
attitude towards local development [Kirzner (1973); Venkataraman (2004)]. Human resources and
organizational culture are also an important factors to take into consideration on internal change
[Michel, Stegmaier & Sonntag (2010); Alfes, Truss & Gill (2010); Smollan & Sayers (2009); Dijk
& Dick (2009);…]
After a brief literature review of the main topics presented on this paper (change and small
business) it is possible to state the main purpose of this study:
“How do small firms face organizational change? Are firms changing by following
innovative and risky strategies? What were the factors that leaded to firm creation? Can
those factors be identified as change factors?”
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In order to analyze firms’ organizational change this paper presents two different
perspectives (1) Business Creation and (2) Business Management. On Business Creation it will be
analyzed the reasons that leaded the entrepreneur to choose business sector and firm location. When
someone leaves a job or unemployment situation to create a business, undoubtedly, there is a
change. But, how significant are those changes? What were the reasons that leaded to the new
situation? Why did they choose sector X or Y? Did they identify unexploited opportunities? What
were the reasons that influenced firm location? Localization economies? Market opportunities?
Logistic factors? There are plenty of reasons to justify location choice. Some of them are analyzed
on this paper.
Considering Business Management perspective the factors to be analyzed are those related
to entrepreneurship (innovation and risk). Both factors will be analyzed through management
strategies, in order to evaluate if management are taking innovative and/or risky measures on the
last three years. According to the results, firms can be classified as change takers or change averse.
From the results it is expected to relate firms’ strategies (since the very beginning – firm
creation) with organizational change. In other words it is expected to identify a changing attitude on
management behavior trough innovation and risk strategies.
The Region
The region where this study was realized is formed by six municipalities (Castelo de Paiva,
Felgueiras, Lousada, Paços de Ferreira, Paredes, Penafiel). This region is located in the North of
Portugal, and for statistical purposes is a region within NUTE III – Tâmega. According to INE
(2008) this region has 338.000 inhabitants with a relatively high percentage of young people.
Economically as most of the country, the primary sector was the main activity in the past.
Other activities such as manufacturing or services have been assuming a more relevant role.
Nowadays the main activities are: shoes making, textile, wood furniture and construction. In four of
the six municipalities it is even possible identify some industrial clusters (these are not real clusters,
but industrial districts) as referred by Bessa (2004) and DHVMC (2004): Felgueiras: Shoes
production; Lousada: Textile; Paços de Ferreira and Paredes: Wood furniture.
To describe the entrepreneurial fabric it was necessary to collect information from different
institutions, since the available information varies from source to source. By using data from
Statistics National Institute, this region had 34.049 firms registered in 2005. However information
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from CofaceMOPE reveals the existence of 11.973 firms, and according to the Work Ministry the
number of firms is 10.231. After some conversations with local entities, it was realized that there is
no valid information about the exact number of firms, and it was assumed, that a value of 12.000
firms should be very close to the reality.
The following step was an analysis of firm distribution according to activity sectors. This
distribution (relative values), considering data from the three institutions is similar, pointing as main
activities retailing, manufacturing, and construction sectors. Together they represent 75% of firms in
this region.
To analyse management strategies, entrepreneurial and innovative actions of firms from
different sectors is difficult by using a single approach to all of them. As Schwartz, Birch, & Teach
(2007) argue the degree and type of entrepreneurship differs from a clothing store to a technology
software industry (even on the adopted strategies, which includes management and attitude toward
organizational change). In order to find more significant results it was decided to limit this study to
industrial (manufacturing and mining and quarrying firms) and construction businesses. This choice
can be justified by the number of firms that is almost 50% of the total, and represents 75% of
employment. According to the data provided from the three institutions it was verified that the
number of firms in industrial and construction sectors are around 5.000 (this figure will be used as
the total population for this study).
On what regards firms’ dimension, according to the data provided by CofaceMOPE, it is
possible to verify that this region does not present the usual distribution, where micro firms present
an overwhelming percentage. In this region they are still the largest class with 62% (in Portugal this
figure is around 80%) and small firms represent 35%. Together they account for 97% which is
within the class distribution found in Portugal. The remaining 3% are classified as medium-sized
firms (large firms were not considered). However, considering the data provided from the Work
Ministry, micro firms reach 79% (considering only the criteria of less than 10 employees) and 85%
(considering the criteria of a turnover up to 2 million Euros).
This region can be described as a standard Portuguese or even European region, where small
firms (micro and/or small) are the largest number of firms based mainly on intensive work that does
not require high qualifications.
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The Questionnaire on Organizational Changes on Small Business
The Questionnaire
Since there was no viability to interview the total population (5.000 firms) the study was
taken by using a valid sample. In order to calculate the sample size Saunders, Lewis & Thornhill
(2006) present a formula that considers the variability of the factors to be studied, the confidence
interval required, and the error margin. The formula is:
n=p%*q%*[z/e%]
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where:
n: minimum sample size required;
p%: proportion belonging to the specified category;
q%: proportion not belonging to the specified category;
z: z value corresponding to the level of confidence required:
e: margin of error required;
According to Saunders et al. (2006), when the population is less than 10.000 a smaller sample
can be used without affecting the accuracy. The adjusted formula is:
n’={n/[1+(n/N)]}
where:
n’: adjusted minimum sample size;
n: the minimum sample size (as calculated above);
N: total population;
Considering strategic entrepreneurship (another variable analyzed on the questionnaire but not
mentioned on this paper) as the main factor, and a variability of 80 – 20 (result obtained on a pilot
study of 33 observations which was corroborated later with the final results) it was obtained a n =
245,86 and a n’ = 235,47, which means that are necessary 236 questionnaires the get a valid result
for the population by using a sample.
Business Creation
In order to analyze business creation strategies through a questionnaire the main questions
were related to business location and sector choice. In two different questions were asked the
reasons to sector and location choice. For both questions respondents could present a free text
answer, in order to get the real motives for their choices. This methodology was expected to cause
some problems to read the final answers, they could be various, and difficult to codify in order to be
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analyzed on the software SPSS. But the results were simpler than the expected. The answers to firm
location could be grouped into 5 categories, and into 3 categories in the case of activity sector. It is
also important to mention that a free answer presented the opportunity to refer more than one reason
to each question. When it was verified, all the answers were registered on the software database.
These multiple answers leaded to a situation that is technically defined as inflated N, which means
that the sample size for these questions is larger than the original one. However, the number of
answers is not very different from the original sample, because some respondents presented more
than one reason, but some others did not present any reason. The results will be presented on the
next chapter.
Business Management
In order to evaluate the strategies on innovation and risk it was done a literature review to
analyze the concepts to be considered. That review allowed to create the table next presented where
the questions mentioned on the last column supported the questionnaire.
Table 1. Initial research for questionnaire elaboration
Theory (References) Hypothesis Questions
ENTREPRENEURHSIP
Miller (1983); Lumpkin & Dess
(1996); Dean, Thibodeaux,
Beyerlein, Ebrahimi, & D.
(1993); Dess, Lumpkin, &
Covin (1997); Beaver (2002);
Schumpeter (1934); Knight
(1921); …
(1) INOVATION
(2) RISK
PROPENSITY
(1) Product Innovation
(1) Process and/or marketing;
(2) In order to get good results it is usual to take risks;
(2) Before a new negotiation/business success
probabilities are analyzed;
STRATEGY
Internal Strategy
CE (2000) Human resources
skills
Employees present low skills levels;
Human resources qualification is required and
promoted by firm managers;
Entrialgo et al. (2000); Man et
al. (2001); Malone (2004)
Strategic Analyzes Stakeholders play an important role on firm
management and business planning;
Man et al. (2001) ; Entrialgo et
al. (2000) ; Bruce et al. (1999);
Ad_Capita (2002); David
(1986); Ibrahim (1991); Kargar
(1996); Olson & Boker (1995);
Kerns (2002); Velho (2003)
Strategic Planning
Most of employees participated on decisions about
their sectors;
It exists a cooperation and collaboration among
different firm activities;
Work in this firm means to be part of a team;
Strategic decisions are a result of departments
discussion and collaboration;
Equal to previous Short/long run Long-run is more important than short-run;
Firm adopts a low cost strategy;
Inforegio (2000); CE (2000);
Caloghirou et al. (2004);
Magretta (2004)
Strategic flexibility Firm strategy is adapted according to feedback
received from the market;
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External Strategy
Freire (1997); Hasegawa
(2003); Ad_Capita (2002);
Rosenfeld (1996); Mytelka
(1991); Sarkar et al. (2001):
Greeve (1995)
External
Cooperation
Firm is a member of one or more entrepreneurial
association;
Collaboration with other firms is frequent;
Firms can take advantages from an entrepreneurial
cooperation network;
EC (2004) ; Voudouris et al.
(2000) ; Beaver (2002)
Markets Firm market is a local, national or international
market?
Firm plays in B2B or B2C?
Malone (2004)
GEM
Opportunity New businesses are planned and created during
economic crisis periods;
When results are as expected it is not necessary to
exploit new opportunities;
Voudouris et al. (2000)
Porter (1985)
Selling strategies Firm presents a good CRM;
Firm adopts a low-price strategy;
On the next chapter it will be possible to find the results to the strategies followed by
entrepreneurs on firm creation and firm management.
Results
The main results to be presented will follow the two perspectives presented above (1)
Business Creation and (2) Business Management.
Business Creation
Considering the first perspective it will be presented the results for change identification on
business creation. As described above, this perspective will focus on the reasons that leaded to firm
location and activity sector choice. On what concerns firm location, as referred previously the
answers allowed to create 5 categories of reasons presented on the figure below:
Figure 1. Reasons to firm location
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From figure 1 it is easy to verify that the main reason for firm location is the owners’
residence. This choice may be responsible for something that is verified on this region: the
geographical dispersion of firms. There is a lack of industrial areas, where firms are closer to each
other. Owners’ residence is also pointed out by OECD (2003) as a motivating factor for
entrepreneurs to create their own business.
The second reason is strategic location (20%). It is important to mention that many
entrepreneurs consider a strategic location a place where other firms from the same business are
operating. This happens due to the identification of industrial districts mentioned above. This
perception might be correct if the entrepreneur intends to cooperate. However in this region that
does not occur. Other study [Duarte (2009)] shows that cooperation is extremely low.
With only 17% there is building facilities, which reinforces the absence of infrastructures to
support entrepreneurial fabric. The remaining 9% present as main reason the possibility to easily
recruit employees. Once again results from the industrial districts easily identified.
Along the questionnaire it was also analyzed firm relocation. From the sample inquired it
was possible to verify that only 4% of firms relocated their facilities after the first set up. Most of
them (60%) moved into the same municipality, and the rest moved to a cross border municipality
(sometimes the border between two municipalities is just a road). The main reasons to relocate
firms are building facilities (60%); strategic location (20%) and Owners residence (10%). The
reasons identified on relocation do not differ from those presented on location choice.
Up to now the reasons presented do not identify unusual reasons to start a business.
Obviously, that a new business is, per se, a change, but sometimes is a necessary change, not
opportunity exploitation. It is not possible to identify risk strategies on firms’ location choice.
Considering now the reasons for sector choice, the 3 reasons identified on the entrepreneurs’
answers are: (1) past work experience on the sector – 53%; (2) inheritance – 25%; (3) business
opportunity – 22%.
According to The Global Entrepreneurship Monitoring (GEM) entrepreneurship (and
entrepreneurship means necessarily change) can occur by two main reasons: opportunity or
necessity. This means that the main reason presented to start a new business is none of those
identified by GEM. It is possible to find the opportunity on the last position. Considering that the
most significant reason was the entrepreneur experience in the sector, a question (with no answer on
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this study) can be raised: “Did they really identify a business opportunity, or did they just follow the
Commons Tragedy theory (Garret Hardin, 1968)?
The inheritance reason shows the family relations and environment that is present in most of
the firms analyzed. It is important to mention that biological factors are also pointed as reason to
justify entrepreneurship behaviours [White, Thornhill & Hampson (2007)].
As in location, sector choice, does not present significant strategies on innovation and risk
on firm establishment. This means that the entrepreneurs had the courage to change, had the willing
or need to start their own businesses but most of them following a strategy of “One more player in
the market”. This might seem a negative perception of the reality, but the answers do not allow a
connection with the change drivers presented by Berry & Somerville (2010). Will the change be
identified on business management?
Business Management
The results of business management strategies, are focused on innovation and risk, and
consequently on organizational change.
As an introduction it will be presented a figure with the main turnaround strategies followed
by interviewed firms. This question got 38,2% of no replies. This absence of answers, can be
classified (and this is just a guess) as an absence of turnaround strategies on those firms. From the
answers received it was possible to verify that no one identified more than two turnaround
strategies, and only 11,6% of respondent firms presented two main turnaround strategies. From the
answers obtained it was possible to create 6 classes, presented on the next figure (Inflated N).
Figure 2. Main turnaroud strategies
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From figure 2, it is possible to identify new technologies as the most significant strategy,
followed by the reengineering processes, that is usually a consequence from the previous. 64,3% of
firms that bought new technology also presented reengineering process as a second strategy. This
means that the percentage associated to the second strategy may not be a real strategy. That change
occurred due to new technology used on the industrial process.
The next strategy is Market or product changes (21%), and it is interesting to notice that
50% of these firms also adopted reengineering processes. Once again the strategies adopted are
related to each other, and some of them are being implemented by necessity and not for a need or a
willing to change.
Considering Cooperation agreements, firms that adopted this strategy did not adopt any
other. The two last strategies, Marketing and Own brand creation present a reduced weight on
turnaround strategies. Those strategies present a connection with organizational change. It means
that most of turnaround strategies are taken not to welcome or implement market changes, but
mainly to keep in line with others incumbents.
Proceeding with the analysis innovation degree will be considered. For this measure it was
presented a table with 14 strategies that could score for 20 points. It was asked to the interviewees
to mark the strategies that firm had been following on the last three years. In order to classify each
firm on innovation degree were created 5 classes.
Figure 3. Innovation strategies classification
The reason to create different classes is related with the high percentage of firms that scored
9 or less points (87%).
[0 – 4[: Strategy very averse to innovation
[4 – 7[: Strategy averse to innovation
[7 – 10[: Strategy moderate to innovation
[10 – 15[: Innovative strategy
[15 – 20[: Very innovative strategy
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From figure 3 it is possible to verify that only 13% of firms present an innovative strategy
(innovative or innovative (+)) and 12% present a moderate approach. It is important to mention that
moderate approach to innovation is a result under 10 points (in a 20 score possible). Most of firms
(75%) present averse strategies to innovation (averse to innovation and averse to innovation (-)).
This means that there is not an innovation strategy tendency on these firms.
On table 2 it is possible to find the main strategies followed by these firms:
Table 2. Innovation strategies adopted (percentages)
Strategy %
Productive processes reorganization 14
New products 9
Differentiation 10
Focusing change from production to sales 2
New productive equipment invesments 19
Sales extension (New markets) 14
New Sales/marketing strategies 6
Management reorganization 9
Competitors cooperation 0
Suppliers cooperation 1
Customers cooperation 2
Social responsability 4
Firms’ image investments 10
Total 100
In first place scoring 19% firms choose a strategy of “investment in new equipments”
followed by a strategy of “productive process reorganization” (14%) and with the same importance
(14%) a strategy of “selling outside firms’ usual markets”. From these simple analyses it can be
concluded that firms do not present very important innovations, but those that are more frequent or
even necessary to keep firm sustainability.
This brief analysis to innovation procedures allows us to conclude that firms present a low
level of innovation on their management and just a few firms present a significant number of
innovation strategies: Differentiation 10%; New products 9%; Management reorganization 9%.
These figures present some innovative capacity on this region, but there still exists a long way to
reach a proactive attitude and behaviour towards organizational change. This result does not match
with the conclusions presented on OECD (2002) where Portuguese small industrial firms were
classified as innovators. At least on the region were this study was taken.
On table 3 it is possible to find some differences among the main classes on innovation.
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Table 3. Main strategies by innovation classes
Strategy
Averse to
innovation (-)
Averse to
innovation
Moderate Innovative
Innovative
(+)
N % N % N % N % N
%
New productive equipment invesments 53 33 53 19 19 13 25 13 3 8
Productive process reorganization 1 1 60 22 18 13 27 14 4 10
Sales extension (New markets) 31 19 36 13 18 13 23 12 5 13
Differentiation 13 8 33 12 18 13 17 9 4 10
New Sales/marketing strategies 16 10 7 3 11 8 12 6 4 10
New products 0 0 22 8 21 15 27 14 4 10
Focusing change from production to sales 3 2 3 1 1 1 5 3 4 10
Management reorganization 13 8 19 7 13 9 22 12 4 10
Competitors cooperation 0 0 0 0 0 0 2 1 0 0
Suppliers cooperation 4 2 4 1 2 1 2 1 0 0
Customers cooperation 6 4 5 2 3 2 1 1 1 3
Social responsability 1 1 11 4 5 4 9 5 4 10
Firms’ image investments 22 13 23 8 13 9 16 8 3 8
Others 0 0 0 0 0 0 1 1 0 0
On the shadow cells it is possible to find the most important strategies followed by each
class of firms (on innovation levels). By reading this table it is possible to do various combinations.
Considering those that can be more interesting for this paper it is possible to realize that the three
upper classes firms are those that present as main strategy something that can be linked to
organizational (internal and external) change. Their most important strategies are new products,
new markets and productive process reorganization.
These results means that change is more frequent on firms with propensity to innovate, the
main problem is to find firms with that propensity. As presented on figure 3 only 25% of firms are
(at least) moderate in relation to innovation.
Proceeding to risk analyzes risk strategies could score at a maximum of 10 points. The
results are presented on figure 4.
Figure 4. Risk strategies classification
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The results from risk analysis are similar from those obtained on innovation, 67% of firms
present a very high level of risk aversion which means that on the last years they adopted a
maximum of 2 risk strategies. There are still 28% of firms that adopted 2 to 4 risk strategies that can
be classified as risk averse which means that 95% of firms in this region present a risk aversion
management. Considering risk takers and moderates it is obtained a result of 5%.
As presented for innovation strategies it is also possible to analyze the most important risk
strategies followed by firms on the region of Vale do Sousa.
Table 4. Risk strategies adopted
Strategy %
Investments to identify customers needs 12,6
Appealed to financial support besides bank or governmental subsidies 13,8
Realized investments on quality improvement 31,9
Replied to new needs demanded for customers 26,4
Implemented the management team (qualified resources) 9,2
Appealed to consultancy services 2,1
Production Internationalization 0,6
Partial production internationalization 3,1
Others 0,2
100,0
The most frequent risk strategies are “quality investments” (31,9%) and “new customers
demand satisfaction” (26,4%). It is important to notice that both strategies are almost risk free, since
to survive firms must invest on quality and satisfy their customers. At the same time a strategy of
financing through other means than own capital, bank credit, or subsidies presented a result of
13,8% which means that is possible the existence of informal financing or firms support programs
(namely European supports) may not be designed to meet firms needs. These results do not differ
from innovation analysis, because if it was possible to conclude that there is a lack of risk such as
for innovation.
Besides financing out of the conventional systems the remaining strategies do not present a
significant value. Even those with higher values are conditioned by the percentage of firms that can
be classified as risk takers (2%).
When firms are not able to take risk strategies they are more averse to change. To change
means to take some risks, to become or make something different. For that it is necessary to be
innovative, and to take risks. Both innovation and risks are strategies to avoid on the region of Vale
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do Sousa. This change aversion means that change cannot be seen as an opportunity; on the other
hand change may be considered a threat.
But why are firms so averse to change? Even without a conclusive answer it can be pointed
out a possible answer to this question that could lead us on future research in this field: The relation
of change and family businesses. In this region there is an evident presence of family in businesses.
Taking into consideration the employees on the interviewed firms it was possible to realize
that on average, firms present 19% of employees with familiar relationships. And since statistics
can lie, this could be one of those cases, because standard deviation for this measure is higher than
the average result, it presents a value of 0,23. This deviation is explained because on the sample
analyzed it was possible to find one firm that had no familiar relations among their employees, but
11 where all the employees presented a familiar connection to firm owners.
On table 5 it is possible to analyze the average of workers that present familiar relations to
firms’ owners on the six municipalities that compose the region of Vale do Sousa.
Table 5. Average of workers with familiar relations with the owners
Owners included Owners excluded
Municipality Average% Std. Dev. Average % Std. Dev.
Castelo de Paiva 52,7 0,40 33,5 0,39
Felgueiras 16,2 0,21 8,3 0,18
Lousada 16,3 0,14 6,2 0,12
Paços de Ferreira 17,3 0,19 10 0,16
Paredes 16,1 0,19 7,2 0,14
Penafiel 20 0,27 7,9 0,20
When analyzed the number of managers by firm it was verified that 14,9% of firms do not
have any manager, or at least, someone officially assuming that position. Probably these firms are
taking the external accounting officer as the firm manager.
These results could be another problem to face and to implement change on firms’
management. Some businesses are running because the owners received it as inheritance, as it was
presented on activity sector choice. On family, sometimes is more difficult to implement change,
because both environments (familiar and professional) tend to be mixed. A change in the
professional environment may cause a change on the family stability, and this can be a constraint to
implement change. Another problem is the absence of a manager in the firm. If the major decisions
are allocated to someone that is an external stakeholder, the decision making process may be
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extremely simple and focused on the financial issues. Change is not a close friend to firms’
finances.
Taking into consideration, the results from management analyzes, it is possible to say that
organizational change is not an opportunity for these firms. Considering the behaviour that firms
present on issues such as innovation, risk, and firm management (decision making) change is by far
a threat, something to be avoided.
Conclusions and Further Research
As a conclusion for this paper it is possible to say that firms on the region of Vale do Sousa,
operating on industrial and construction businesses are not adopting strategies that welcome change
on their environment. Since the very beginning these firms (or the entrepreneurs responsible for
their set up) did not present a change attitude on their behaviour. The main reasons to firm location
and sector were owners’ residence and work experience, respectively. On both cases it was not
possible to identify some change patterns.
Considering business management the strategies adopted on innovation and risk were very
poor. The main strategies were related with firm survival changes instead of firm proactivity. The
most innovative firms present strategies related to new products, new markets or processes
reorganization.
On risk analysis the most frequent risk strategies can hardly be classified as risky. Both
investments on quality, and customers’ demands replies are almost obligations for firms that intend
to keep in the market.
To change means to take some risks, to become or make something different. For that it is
necessary to be innovative, and to take risks. Both innovation and risks are strategies to avoid by
firms on the construction and manufacturing sectors on the region of Vale do Sousa. This change
aversion means that change cannot be seen as an opportunity; on the other hand change may be
considered a threat.
Among many reasons to explain this change aversion may be the familiar relations within
the firm. There are many firms were the owners present a familiar relation to the employees. To
change sometimes means to break the rules, to move employees from old habits, to take risks not
only on managerial aspects but also on financial terms. When a manager is taking risks not only for
17
himself but for his family as well, a more certain (even though not the best) strategy might be the
chosen one.
As further research this paper may lead to new studies to develop:
- The construction of management change drivers on internal and external perspectives;
- A battery of innovation and risk strategies in order to evaluate the level of organizational
change;
- A study on family businesses and organizational change.
In practical aspects this paper and some future research may be useful as guidance to:
- Consultancy assistance to small firms’ management options on innovation strategies;
- Decision making, especially on firms where familiar links are present. Those members could
be important stakeholders on the decision making process;
- Develop some mechanisms on organizational culture to welcome and promote some business
proactivity. These proactivity may lead to new organizational change, starting like this a
growing cycle to innovation.
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doc_602816808.pdf
On the present paper are analyzed 251 SMEs in the manufacturing and construction sectors on a Portuguese Region (Vale do Sousa) located in the Northern Region.
1
Small Firms and Organizational Change: Opportunity or Threat?
Nelson Duarte: [email protected]
CIICESI - School of Management and Technology of Felgueiras – Porto Polytechnic
Center of Transdisciplinary Studies for Development – CETRAD
Change is something that firms are facing constantly, but are they dealing with it as an
opportunity or a threat?
On the present paper are analyzed 251 SMEs in the manufacturing and construction sectors
on a Portuguese Region (Vale do Sousa) located in the Northern Region.
This paper is organized in two main parts: (1) Business creation and external environment
and (2) Business management.
Even being a business creation a changing attitude the main reason that leaded to business
creation was not opportunities identification but the entrepreneur´s work experience. Keeping in
line with sector choice, appears firm localization that is chosen considering entrepreneur´s
residence. These results are in accordance to some OECD reports about entrepreneurship.
Considering also a society that do not understand failure as a learning opportunity, change and risk
taking is not welcome.
On business management were analyzed the main turnaround strategies, as well as
innovation and risk strategies. The results point out to strategies that were taken for survival reasons
and probably on a reactive attitude.
Change is also more difficult to implement when management is on family hands. In this
region the relation between management and family membership is notable.
Organizational change resistance leads to a large percentage of innovation and risk aversion,
75% and 94% of aversion attitudes, respectively. Along the paper are also analyzed the main
strategies followed by each group of firms considering the different innovation and risk steps where
firms were classified.
The results indicate that change is a threat. Is it possible to change their minds?
Key words: Organizational Change, Small Firms, Innovation, Risk.
2
Introduction
Change is always present on business environment. Customers are changing; their needs and
demands change constantly, suppliers are coming and going, financial markets are changing their
rules, governments are changing their laws, etc. etc.. So if change is everywhere, it should be
something that managers are used to deal with. But how do they deal with changes? What are they
doing to welcome market changes? What are they doing to implement market changes? Or are they
just trying to avoid change? Are firms available to change? Is change availability more present on
small or large firms?
Today’s large firms were, sometime in the past, small ones. According to Magretta (2004)
they became large by being the best small ones. The question is: What did they do in order to
become the best ones? There is not only an answer to this question, however one of the factors that
certainly influenced it, was their decisions, goals, and plans, in other words, their management, or
their willing to change. Their growth also offers an interesting potential to transform local
economies. Considering this potential most governments and other institutions share the feeling and
try to support small businesses creation and growth. The main issue is how to help them. Many
authors identify as major problem financial issues [GEM (2001); Eversole (2003); OECD (2003);
Apolinário (2005); Green, Kirkpatrick, & Murinde (2006); Mueller (2006)] however sometimes
helping these firms by financial support only, may not be the best solution as refers, for instance,
Eversole (2003) about microcredit support. Some other problems as outsourcing analysis [Baxendal
(2004)], management styles and structures [Bruce, Cooper, & Vazquez (1999)], lack of competence
or experience that leads to wrong decisions [Malone (2004); Man, Lau, & Chan (2001)] and many
other problems related to internal factors such as innovation, marketing, human resources, or
external factors such as networks are presented by different authors [Arend (2006); Perks (2006);
Acquaah (2007); Kim, Knotts, & Jones (2008)]. The problems identified can be analyzed from
various perspectives; however, it is possible to find a common denominator: change or
organizational change internal and external level, respectively.
Most of these problems are related and will affect firms’ management and require flexibility
and adaptation capacity in order to overcome those problems. According to Todorut (2008) “The
features of innovation, flexibility and change mutually influence one another. Provided that change
3
is perceived as a feature leading to innovation, flexibility is the feature that enables it. Innovation
cannot exist without change but nonetheless each and every change leads to innovation.”
According to Berry & Somerville (2010): “Scholars and practitioners agree that change
processes remains complex and challenging for organizations engaged in such initiatives. The pace
of change is greater than ever before (By, 2005). Yet, there is limited knowledge about how to plan
and implement organizational change (Burke, 2008). Research suggests that failed organizational
change initiatives range from one-third to as high as 80% of attempted change efforts (Fisher,
1994; Beer and Nohria, 2000; Higgs and Rowland, 2000; Hirschhorn, 2002; Knodel, 2004; Sirkin
et al., 2005; Kotter, 2008). Yet, organizational change is also seen as a constant (Vales, 2007) and
a critical skill set for twenty first century leaders and managers (Knowles, 1999; Beer and Nohria,
2000)”.
So if change is a critical skill for the 21
st
century, so it is innovation. Frequently, innovations
imply to take risks. A firm that welcomes change is also welcoming innovation and ready to take
some risks. According to Berry, Gordon & Hinings (2003) change drivers are events, activities, or
behaviours that facilitate the implementation of change. These events can be identified either at an
initial level (firm creation) or on management decisions, namely on innovation and risk strategies.
Benn & Baker (2009) argue that a new organizational development based on change and innovation
may lead firms to the sustainability (focused on ecological issues).
However as Hu & Hafsi (2010) argue, change patterns are determined by institutional
characteristics and are associated with firm capabilities. Even the environment where firms are
located can influence management options, for instance, on taking risky strategies. Or even on firms
attitude towards local development [Kirzner (1973); Venkataraman (2004)]. Human resources and
organizational culture are also an important factors to take into consideration on internal change
[Michel, Stegmaier & Sonntag (2010); Alfes, Truss & Gill (2010); Smollan & Sayers (2009); Dijk
& Dick (2009);…]
After a brief literature review of the main topics presented on this paper (change and small
business) it is possible to state the main purpose of this study:
“How do small firms face organizational change? Are firms changing by following
innovative and risky strategies? What were the factors that leaded to firm creation? Can
those factors be identified as change factors?”
4
In order to analyze firms’ organizational change this paper presents two different
perspectives (1) Business Creation and (2) Business Management. On Business Creation it will be
analyzed the reasons that leaded the entrepreneur to choose business sector and firm location. When
someone leaves a job or unemployment situation to create a business, undoubtedly, there is a
change. But, how significant are those changes? What were the reasons that leaded to the new
situation? Why did they choose sector X or Y? Did they identify unexploited opportunities? What
were the reasons that influenced firm location? Localization economies? Market opportunities?
Logistic factors? There are plenty of reasons to justify location choice. Some of them are analyzed
on this paper.
Considering Business Management perspective the factors to be analyzed are those related
to entrepreneurship (innovation and risk). Both factors will be analyzed through management
strategies, in order to evaluate if management are taking innovative and/or risky measures on the
last three years. According to the results, firms can be classified as change takers or change averse.
From the results it is expected to relate firms’ strategies (since the very beginning – firm
creation) with organizational change. In other words it is expected to identify a changing attitude on
management behavior trough innovation and risk strategies.
The Region
The region where this study was realized is formed by six municipalities (Castelo de Paiva,
Felgueiras, Lousada, Paços de Ferreira, Paredes, Penafiel). This region is located in the North of
Portugal, and for statistical purposes is a region within NUTE III – Tâmega. According to INE
(2008) this region has 338.000 inhabitants with a relatively high percentage of young people.
Economically as most of the country, the primary sector was the main activity in the past.
Other activities such as manufacturing or services have been assuming a more relevant role.
Nowadays the main activities are: shoes making, textile, wood furniture and construction. In four of
the six municipalities it is even possible identify some industrial clusters (these are not real clusters,
but industrial districts) as referred by Bessa (2004) and DHVMC (2004): Felgueiras: Shoes
production; Lousada: Textile; Paços de Ferreira and Paredes: Wood furniture.
To describe the entrepreneurial fabric it was necessary to collect information from different
institutions, since the available information varies from source to source. By using data from
Statistics National Institute, this region had 34.049 firms registered in 2005. However information
5
from CofaceMOPE reveals the existence of 11.973 firms, and according to the Work Ministry the
number of firms is 10.231. After some conversations with local entities, it was realized that there is
no valid information about the exact number of firms, and it was assumed, that a value of 12.000
firms should be very close to the reality.
The following step was an analysis of firm distribution according to activity sectors. This
distribution (relative values), considering data from the three institutions is similar, pointing as main
activities retailing, manufacturing, and construction sectors. Together they represent 75% of firms in
this region.
To analyse management strategies, entrepreneurial and innovative actions of firms from
different sectors is difficult by using a single approach to all of them. As Schwartz, Birch, & Teach
(2007) argue the degree and type of entrepreneurship differs from a clothing store to a technology
software industry (even on the adopted strategies, which includes management and attitude toward
organizational change). In order to find more significant results it was decided to limit this study to
industrial (manufacturing and mining and quarrying firms) and construction businesses. This choice
can be justified by the number of firms that is almost 50% of the total, and represents 75% of
employment. According to the data provided from the three institutions it was verified that the
number of firms in industrial and construction sectors are around 5.000 (this figure will be used as
the total population for this study).
On what regards firms’ dimension, according to the data provided by CofaceMOPE, it is
possible to verify that this region does not present the usual distribution, where micro firms present
an overwhelming percentage. In this region they are still the largest class with 62% (in Portugal this
figure is around 80%) and small firms represent 35%. Together they account for 97% which is
within the class distribution found in Portugal. The remaining 3% are classified as medium-sized
firms (large firms were not considered). However, considering the data provided from the Work
Ministry, micro firms reach 79% (considering only the criteria of less than 10 employees) and 85%
(considering the criteria of a turnover up to 2 million Euros).
This region can be described as a standard Portuguese or even European region, where small
firms (micro and/or small) are the largest number of firms based mainly on intensive work that does
not require high qualifications.
6
The Questionnaire on Organizational Changes on Small Business
The Questionnaire
Since there was no viability to interview the total population (5.000 firms) the study was
taken by using a valid sample. In order to calculate the sample size Saunders, Lewis & Thornhill
(2006) present a formula that considers the variability of the factors to be studied, the confidence
interval required, and the error margin. The formula is:
n=p%*q%*[z/e%]
2
where:
n: minimum sample size required;
p%: proportion belonging to the specified category;
q%: proportion not belonging to the specified category;
z: z value corresponding to the level of confidence required:
e: margin of error required;
According to Saunders et al. (2006), when the population is less than 10.000 a smaller sample
can be used without affecting the accuracy. The adjusted formula is:
n’={n/[1+(n/N)]}
where:
n’: adjusted minimum sample size;
n: the minimum sample size (as calculated above);
N: total population;
Considering strategic entrepreneurship (another variable analyzed on the questionnaire but not
mentioned on this paper) as the main factor, and a variability of 80 – 20 (result obtained on a pilot
study of 33 observations which was corroborated later with the final results) it was obtained a n =
245,86 and a n’ = 235,47, which means that are necessary 236 questionnaires the get a valid result
for the population by using a sample.
Business Creation
In order to analyze business creation strategies through a questionnaire the main questions
were related to business location and sector choice. In two different questions were asked the
reasons to sector and location choice. For both questions respondents could present a free text
answer, in order to get the real motives for their choices. This methodology was expected to cause
some problems to read the final answers, they could be various, and difficult to codify in order to be
7
analyzed on the software SPSS. But the results were simpler than the expected. The answers to firm
location could be grouped into 5 categories, and into 3 categories in the case of activity sector. It is
also important to mention that a free answer presented the opportunity to refer more than one reason
to each question. When it was verified, all the answers were registered on the software database.
These multiple answers leaded to a situation that is technically defined as inflated N, which means
that the sample size for these questions is larger than the original one. However, the number of
answers is not very different from the original sample, because some respondents presented more
than one reason, but some others did not present any reason. The results will be presented on the
next chapter.
Business Management
In order to evaluate the strategies on innovation and risk it was done a literature review to
analyze the concepts to be considered. That review allowed to create the table next presented where
the questions mentioned on the last column supported the questionnaire.
Table 1. Initial research for questionnaire elaboration
Theory (References) Hypothesis Questions
ENTREPRENEURHSIP
Miller (1983); Lumpkin & Dess
(1996); Dean, Thibodeaux,
Beyerlein, Ebrahimi, & D.
(1993); Dess, Lumpkin, &
Covin (1997); Beaver (2002);
Schumpeter (1934); Knight
(1921); …
(1) INOVATION
(2) RISK
PROPENSITY
(1) Product Innovation
(1) Process and/or marketing;
(2) In order to get good results it is usual to take risks;
(2) Before a new negotiation/business success
probabilities are analyzed;
STRATEGY
Internal Strategy
CE (2000) Human resources
skills
Employees present low skills levels;
Human resources qualification is required and
promoted by firm managers;
Entrialgo et al. (2000); Man et
al. (2001); Malone (2004)
Strategic Analyzes Stakeholders play an important role on firm
management and business planning;
Man et al. (2001) ; Entrialgo et
al. (2000) ; Bruce et al. (1999);
Ad_Capita (2002); David
(1986); Ibrahim (1991); Kargar
(1996); Olson & Boker (1995);
Kerns (2002); Velho (2003)
Strategic Planning
Most of employees participated on decisions about
their sectors;
It exists a cooperation and collaboration among
different firm activities;
Work in this firm means to be part of a team;
Strategic decisions are a result of departments
discussion and collaboration;
Equal to previous Short/long run Long-run is more important than short-run;
Firm adopts a low cost strategy;
Inforegio (2000); CE (2000);
Caloghirou et al. (2004);
Magretta (2004)
Strategic flexibility Firm strategy is adapted according to feedback
received from the market;
8
External Strategy
Freire (1997); Hasegawa
(2003); Ad_Capita (2002);
Rosenfeld (1996); Mytelka
(1991); Sarkar et al. (2001):
Greeve (1995)
External
Cooperation
Firm is a member of one or more entrepreneurial
association;
Collaboration with other firms is frequent;
Firms can take advantages from an entrepreneurial
cooperation network;
EC (2004) ; Voudouris et al.
(2000) ; Beaver (2002)
Markets Firm market is a local, national or international
market?
Firm plays in B2B or B2C?
Malone (2004)
GEM
Opportunity New businesses are planned and created during
economic crisis periods;
When results are as expected it is not necessary to
exploit new opportunities;
Voudouris et al. (2000)
Porter (1985)
Selling strategies Firm presents a good CRM;
Firm adopts a low-price strategy;
On the next chapter it will be possible to find the results to the strategies followed by
entrepreneurs on firm creation and firm management.
Results
The main results to be presented will follow the two perspectives presented above (1)
Business Creation and (2) Business Management.
Business Creation
Considering the first perspective it will be presented the results for change identification on
business creation. As described above, this perspective will focus on the reasons that leaded to firm
location and activity sector choice. On what concerns firm location, as referred previously the
answers allowed to create 5 categories of reasons presented on the figure below:
Figure 1. Reasons to firm location
9
From figure 1 it is easy to verify that the main reason for firm location is the owners’
residence. This choice may be responsible for something that is verified on this region: the
geographical dispersion of firms. There is a lack of industrial areas, where firms are closer to each
other. Owners’ residence is also pointed out by OECD (2003) as a motivating factor for
entrepreneurs to create their own business.
The second reason is strategic location (20%). It is important to mention that many
entrepreneurs consider a strategic location a place where other firms from the same business are
operating. This happens due to the identification of industrial districts mentioned above. This
perception might be correct if the entrepreneur intends to cooperate. However in this region that
does not occur. Other study [Duarte (2009)] shows that cooperation is extremely low.
With only 17% there is building facilities, which reinforces the absence of infrastructures to
support entrepreneurial fabric. The remaining 9% present as main reason the possibility to easily
recruit employees. Once again results from the industrial districts easily identified.
Along the questionnaire it was also analyzed firm relocation. From the sample inquired it
was possible to verify that only 4% of firms relocated their facilities after the first set up. Most of
them (60%) moved into the same municipality, and the rest moved to a cross border municipality
(sometimes the border between two municipalities is just a road). The main reasons to relocate
firms are building facilities (60%); strategic location (20%) and Owners residence (10%). The
reasons identified on relocation do not differ from those presented on location choice.
Up to now the reasons presented do not identify unusual reasons to start a business.
Obviously, that a new business is, per se, a change, but sometimes is a necessary change, not
opportunity exploitation. It is not possible to identify risk strategies on firms’ location choice.
Considering now the reasons for sector choice, the 3 reasons identified on the entrepreneurs’
answers are: (1) past work experience on the sector – 53%; (2) inheritance – 25%; (3) business
opportunity – 22%.
According to The Global Entrepreneurship Monitoring (GEM) entrepreneurship (and
entrepreneurship means necessarily change) can occur by two main reasons: opportunity or
necessity. This means that the main reason presented to start a new business is none of those
identified by GEM. It is possible to find the opportunity on the last position. Considering that the
most significant reason was the entrepreneur experience in the sector, a question (with no answer on
10
this study) can be raised: “Did they really identify a business opportunity, or did they just follow the
Commons Tragedy theory (Garret Hardin, 1968)?
The inheritance reason shows the family relations and environment that is present in most of
the firms analyzed. It is important to mention that biological factors are also pointed as reason to
justify entrepreneurship behaviours [White, Thornhill & Hampson (2007)].
As in location, sector choice, does not present significant strategies on innovation and risk
on firm establishment. This means that the entrepreneurs had the courage to change, had the willing
or need to start their own businesses but most of them following a strategy of “One more player in
the market”. This might seem a negative perception of the reality, but the answers do not allow a
connection with the change drivers presented by Berry & Somerville (2010). Will the change be
identified on business management?
Business Management
The results of business management strategies, are focused on innovation and risk, and
consequently on organizational change.
As an introduction it will be presented a figure with the main turnaround strategies followed
by interviewed firms. This question got 38,2% of no replies. This absence of answers, can be
classified (and this is just a guess) as an absence of turnaround strategies on those firms. From the
answers received it was possible to verify that no one identified more than two turnaround
strategies, and only 11,6% of respondent firms presented two main turnaround strategies. From the
answers obtained it was possible to create 6 classes, presented on the next figure (Inflated N).
Figure 2. Main turnaroud strategies
11
From figure 2, it is possible to identify new technologies as the most significant strategy,
followed by the reengineering processes, that is usually a consequence from the previous. 64,3% of
firms that bought new technology also presented reengineering process as a second strategy. This
means that the percentage associated to the second strategy may not be a real strategy. That change
occurred due to new technology used on the industrial process.
The next strategy is Market or product changes (21%), and it is interesting to notice that
50% of these firms also adopted reengineering processes. Once again the strategies adopted are
related to each other, and some of them are being implemented by necessity and not for a need or a
willing to change.
Considering Cooperation agreements, firms that adopted this strategy did not adopt any
other. The two last strategies, Marketing and Own brand creation present a reduced weight on
turnaround strategies. Those strategies present a connection with organizational change. It means
that most of turnaround strategies are taken not to welcome or implement market changes, but
mainly to keep in line with others incumbents.
Proceeding with the analysis innovation degree will be considered. For this measure it was
presented a table with 14 strategies that could score for 20 points. It was asked to the interviewees
to mark the strategies that firm had been following on the last three years. In order to classify each
firm on innovation degree were created 5 classes.
Figure 3. Innovation strategies classification
The reason to create different classes is related with the high percentage of firms that scored
9 or less points (87%).
[0 – 4[: Strategy very averse to innovation
[4 – 7[: Strategy averse to innovation
[7 – 10[: Strategy moderate to innovation
[10 – 15[: Innovative strategy
[15 – 20[: Very innovative strategy
12
From figure 3 it is possible to verify that only 13% of firms present an innovative strategy
(innovative or innovative (+)) and 12% present a moderate approach. It is important to mention that
moderate approach to innovation is a result under 10 points (in a 20 score possible). Most of firms
(75%) present averse strategies to innovation (averse to innovation and averse to innovation (-)).
This means that there is not an innovation strategy tendency on these firms.
On table 2 it is possible to find the main strategies followed by these firms:
Table 2. Innovation strategies adopted (percentages)
Strategy %
Productive processes reorganization 14
New products 9
Differentiation 10
Focusing change from production to sales 2
New productive equipment invesments 19
Sales extension (New markets) 14
New Sales/marketing strategies 6
Management reorganization 9
Competitors cooperation 0
Suppliers cooperation 1
Customers cooperation 2
Social responsability 4
Firms’ image investments 10
Total 100
In first place scoring 19% firms choose a strategy of “investment in new equipments”
followed by a strategy of “productive process reorganization” (14%) and with the same importance
(14%) a strategy of “selling outside firms’ usual markets”. From these simple analyses it can be
concluded that firms do not present very important innovations, but those that are more frequent or
even necessary to keep firm sustainability.
This brief analysis to innovation procedures allows us to conclude that firms present a low
level of innovation on their management and just a few firms present a significant number of
innovation strategies: Differentiation 10%; New products 9%; Management reorganization 9%.
These figures present some innovative capacity on this region, but there still exists a long way to
reach a proactive attitude and behaviour towards organizational change. This result does not match
with the conclusions presented on OECD (2002) where Portuguese small industrial firms were
classified as innovators. At least on the region were this study was taken.
On table 3 it is possible to find some differences among the main classes on innovation.
13
Table 3. Main strategies by innovation classes
Strategy
Averse to
innovation (-)
Averse to
innovation
Moderate Innovative
Innovative
(+)
N % N % N % N % N
%
New productive equipment invesments 53 33 53 19 19 13 25 13 3 8
Productive process reorganization 1 1 60 22 18 13 27 14 4 10
Sales extension (New markets) 31 19 36 13 18 13 23 12 5 13
Differentiation 13 8 33 12 18 13 17 9 4 10
New Sales/marketing strategies 16 10 7 3 11 8 12 6 4 10
New products 0 0 22 8 21 15 27 14 4 10
Focusing change from production to sales 3 2 3 1 1 1 5 3 4 10
Management reorganization 13 8 19 7 13 9 22 12 4 10
Competitors cooperation 0 0 0 0 0 0 2 1 0 0
Suppliers cooperation 4 2 4 1 2 1 2 1 0 0
Customers cooperation 6 4 5 2 3 2 1 1 1 3
Social responsability 1 1 11 4 5 4 9 5 4 10
Firms’ image investments 22 13 23 8 13 9 16 8 3 8
Others 0 0 0 0 0 0 1 1 0 0
On the shadow cells it is possible to find the most important strategies followed by each
class of firms (on innovation levels). By reading this table it is possible to do various combinations.
Considering those that can be more interesting for this paper it is possible to realize that the three
upper classes firms are those that present as main strategy something that can be linked to
organizational (internal and external) change. Their most important strategies are new products,
new markets and productive process reorganization.
These results means that change is more frequent on firms with propensity to innovate, the
main problem is to find firms with that propensity. As presented on figure 3 only 25% of firms are
(at least) moderate in relation to innovation.
Proceeding to risk analyzes risk strategies could score at a maximum of 10 points. The
results are presented on figure 4.
Figure 4. Risk strategies classification
14
The results from risk analysis are similar from those obtained on innovation, 67% of firms
present a very high level of risk aversion which means that on the last years they adopted a
maximum of 2 risk strategies. There are still 28% of firms that adopted 2 to 4 risk strategies that can
be classified as risk averse which means that 95% of firms in this region present a risk aversion
management. Considering risk takers and moderates it is obtained a result of 5%.
As presented for innovation strategies it is also possible to analyze the most important risk
strategies followed by firms on the region of Vale do Sousa.
Table 4. Risk strategies adopted
Strategy %
Investments to identify customers needs 12,6
Appealed to financial support besides bank or governmental subsidies 13,8
Realized investments on quality improvement 31,9
Replied to new needs demanded for customers 26,4
Implemented the management team (qualified resources) 9,2
Appealed to consultancy services 2,1
Production Internationalization 0,6
Partial production internationalization 3,1
Others 0,2
100,0
The most frequent risk strategies are “quality investments” (31,9%) and “new customers
demand satisfaction” (26,4%). It is important to notice that both strategies are almost risk free, since
to survive firms must invest on quality and satisfy their customers. At the same time a strategy of
financing through other means than own capital, bank credit, or subsidies presented a result of
13,8% which means that is possible the existence of informal financing or firms support programs
(namely European supports) may not be designed to meet firms needs. These results do not differ
from innovation analysis, because if it was possible to conclude that there is a lack of risk such as
for innovation.
Besides financing out of the conventional systems the remaining strategies do not present a
significant value. Even those with higher values are conditioned by the percentage of firms that can
be classified as risk takers (2%).
When firms are not able to take risk strategies they are more averse to change. To change
means to take some risks, to become or make something different. For that it is necessary to be
innovative, and to take risks. Both innovation and risks are strategies to avoid on the region of Vale
15
do Sousa. This change aversion means that change cannot be seen as an opportunity; on the other
hand change may be considered a threat.
But why are firms so averse to change? Even without a conclusive answer it can be pointed
out a possible answer to this question that could lead us on future research in this field: The relation
of change and family businesses. In this region there is an evident presence of family in businesses.
Taking into consideration the employees on the interviewed firms it was possible to realize
that on average, firms present 19% of employees with familiar relationships. And since statistics
can lie, this could be one of those cases, because standard deviation for this measure is higher than
the average result, it presents a value of 0,23. This deviation is explained because on the sample
analyzed it was possible to find one firm that had no familiar relations among their employees, but
11 where all the employees presented a familiar connection to firm owners.
On table 5 it is possible to analyze the average of workers that present familiar relations to
firms’ owners on the six municipalities that compose the region of Vale do Sousa.
Table 5. Average of workers with familiar relations with the owners
Owners included Owners excluded
Municipality Average% Std. Dev. Average % Std. Dev.
Castelo de Paiva 52,7 0,40 33,5 0,39
Felgueiras 16,2 0,21 8,3 0,18
Lousada 16,3 0,14 6,2 0,12
Paços de Ferreira 17,3 0,19 10 0,16
Paredes 16,1 0,19 7,2 0,14
Penafiel 20 0,27 7,9 0,20
When analyzed the number of managers by firm it was verified that 14,9% of firms do not
have any manager, or at least, someone officially assuming that position. Probably these firms are
taking the external accounting officer as the firm manager.
These results could be another problem to face and to implement change on firms’
management. Some businesses are running because the owners received it as inheritance, as it was
presented on activity sector choice. On family, sometimes is more difficult to implement change,
because both environments (familiar and professional) tend to be mixed. A change in the
professional environment may cause a change on the family stability, and this can be a constraint to
implement change. Another problem is the absence of a manager in the firm. If the major decisions
are allocated to someone that is an external stakeholder, the decision making process may be
16
extremely simple and focused on the financial issues. Change is not a close friend to firms’
finances.
Taking into consideration, the results from management analyzes, it is possible to say that
organizational change is not an opportunity for these firms. Considering the behaviour that firms
present on issues such as innovation, risk, and firm management (decision making) change is by far
a threat, something to be avoided.
Conclusions and Further Research
As a conclusion for this paper it is possible to say that firms on the region of Vale do Sousa,
operating on industrial and construction businesses are not adopting strategies that welcome change
on their environment. Since the very beginning these firms (or the entrepreneurs responsible for
their set up) did not present a change attitude on their behaviour. The main reasons to firm location
and sector were owners’ residence and work experience, respectively. On both cases it was not
possible to identify some change patterns.
Considering business management the strategies adopted on innovation and risk were very
poor. The main strategies were related with firm survival changes instead of firm proactivity. The
most innovative firms present strategies related to new products, new markets or processes
reorganization.
On risk analysis the most frequent risk strategies can hardly be classified as risky. Both
investments on quality, and customers’ demands replies are almost obligations for firms that intend
to keep in the market.
To change means to take some risks, to become or make something different. For that it is
necessary to be innovative, and to take risks. Both innovation and risks are strategies to avoid by
firms on the construction and manufacturing sectors on the region of Vale do Sousa. This change
aversion means that change cannot be seen as an opportunity; on the other hand change may be
considered a threat.
Among many reasons to explain this change aversion may be the familiar relations within
the firm. There are many firms were the owners present a familiar relation to the employees. To
change sometimes means to break the rules, to move employees from old habits, to take risks not
only on managerial aspects but also on financial terms. When a manager is taking risks not only for
17
himself but for his family as well, a more certain (even though not the best) strategy might be the
chosen one.
As further research this paper may lead to new studies to develop:
- The construction of management change drivers on internal and external perspectives;
- A battery of innovation and risk strategies in order to evaluate the level of organizational
change;
- A study on family businesses and organizational change.
In practical aspects this paper and some future research may be useful as guidance to:
- Consultancy assistance to small firms’ management options on innovation strategies;
- Decision making, especially on firms where familiar links are present. Those members could
be important stakeholders on the decision making process;
- Develop some mechanisms on organizational culture to welcome and promote some business
proactivity. These proactivity may lead to new organizational change, starting like this a
growing cycle to innovation.
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