Turbulent environments and SMES

1. Seminário de Pesquisa
TURBULENT ENVIRONMENTS AND SMES
Kurtz, Diego Jacob; Lalanne, Emmanuelle; Silva Pereira, Thiago
Prof. Dr. Klaus North / Prof. Dr. Gregório Varvakis
TERM PAPER
submitted in partial fulfillment of the requirements for the Master Course
INNOVATION AND KNOWLEDGE MANAGEMENT
Wiesbaden Business School
Hochschule RheinMain

2. TABLE OF CONTENTS
INTRODUCTION Importance of SME’s; the relation with the environment
THEORETICAL Definition; Types of Turbulent Environments;
BACKGROUND Measurement Approaches
ANALYSIS OF Overall turbulence level; SWOT Analysis; Challenges
EMPIRICAL CASES
CONCLUSION Final considerations and propose for future research

3. Importance of SME’s
INTRODUCTION
In the European Economic Area (EEA) with
Switzerland, SMEs are more than 16
million and they provide two third of all
jobs.
To succeed, managers have to lead theirs teams through every
type of internal or external turbulence. They have to define
new strategies and engage efforts to implement them in order
to prolong the company´s life in a sustainable way.
European Commission, 2005, cited by Festing and Engle, 2008

4. INTRODUCTION
...the environment
The environment is “the pattern of all the external
conditions and influences that affect its life and
development” (Andrews, Mintzberg and Quinn, 1992).

5. Definition of Turbulent
BACKGROUND Environment
THEORETICAL
A turbulent environment is characterized as difficult to understand
and requires a flexible organization to respond quickly and
adequately in order to remain competitive (Stigter, 2002).
“[…] an environment in which one cannot predict the
outcome of one’s actions” (Dankbaar, 1996).
“an environment characterized both by several changes
occurring rapidly and simultaneously and by a situation
where only the most optimistic see the possibility of a
return to a more stable environment in the foreseeable
future” (Sadler, 1996).
“A situation that is subject to continuous and substantial
changes which are uncertain and unpredictable“ (Brown
and Eisenhardt, 1998; Stigter, 2002).

6. Definition of Turbulent
BACKGROUND Environment
THEORETICAL
So… what’s the difference between turbulence and quick change???
Quick change can be predictable and turbulence is equal to
unpredictability (Emery and Trist, 1965).
These changes are no longer Turbulent consisting of two main
incremental. Usually they are parameters: dynamics and
more radical, non-linear and complexity (Johnson and Scholes,
frequent (Kidd, 2000). 1989).
Adaptation: complex interaction of the
effects that different parts of the social-
economic-political (Emery, 1977).

7. Types of Turbulent
BACKGROUND Environments
THEORETICAL
Four groups of key drivers behind change: Political, Economical,
Sociocultural and Technical) (Johnson and Scholes, 1989)
Political: “changes in legislation and taxation arean
Pine (1993): „Market turbulence‟ that is some factors that affect
an organization” term but connotes the amount of
imprecise
instability, uncertainty, and lack of control
Economical: “related to interest rates, GPD trends and unemployment
within a firm‟s marketplace.
affect the organization”
Sociocultural: “changes in population, income, mobility, and attitudes”
Technical: “government spending on research, government and industry
focus on technological efforts, new discoveries/development, speed of
technology transfer, and rates of obsolescence”
Hedlöf & Janson (1999)

8. Measurement Approaches
BACKGROUND
THEORETICAL
Four types of environments based on two different dimensions:
Complexity and Dynamism
Dynamism dimension measures the degree of
movement in the external environment of an
organization
organisation needs to high complexity and
Complexity consider its environment rapid changes
dimension assesses
the structural nature Organisation can operate organisation has to
in terms of intricacy without having to adjust to recognise that there are
and density of the its environment other actors in its
environment. environment
Emery and Trist (1965); Edelmann and Benning (1999)

9. Changes at these levels occur without
Measurement Approaches notice, without visibility, unpredictable
BACKGROUND and extremely rapid.
THEORETICAL
Limited visibility, partial
The matrix below provides a visualization of the five levels of
predictability, rapid change and usually
an inability from the firm to a 5 points scale useful to help categorize the
turbulence, as well as react to the
new change withinwhich an organization may be:
actual stage in the required time
frame.
Ansoff and McDonnel (1990) cited by Kipley and Lewis, 2009a and 2009b; Campbell, 2010; Edelmann and
Benning, 1999; Carver and Kipley, 2010

10. Overall turbulence level
EMPIRICAL CASES
… three cases were selected to be analyzed accordingly to their
level of turbulence…
ANALYSIS OF
Swiss SME in the food sector
(Kocher, Kaudela-Baum and Wolf, 2010)
B-to-B SMEs in India
(Javalgi, Todd, Granot, 2011)
SMEs from manufacturing, merchandising
and service sectors from Botswana
(Z.T Temtime, 2008)

11. Overall turbulence level
EMPIRICAL CASES
According Ansoff and McDonnel (1990) classification:
ANALYSIS OF

12. Overall turbulence level
EMPIRICAL CASES
Swiss SME (FLORA)
ANALYSIS OF
Turbulence Level
Changeability Predictability
Complexity Familiarity of Rapidity of Visibility of
events change future
the dairy food the enterprise the enterprise the changes on
sector for this confronts confronts the environment
enterprise pressure to regulation are in general
comprises only adapt to new changes or predictable
the national regulations in takeovers (deregulation or
market, thus not the market. This from acquisitions).
being a factor of way, the competitors, but
concern or enterprise has they have
higher to only enough time of
complexity. extrapolate their response for
own experience these issues.
to adapt to the
new conditions.

13. Overall turbulence level
EMPIRICAL CASES
SMEs in Botswana
ANALYSIS OF
Turbulence Level
Changeability Predictability
Complexity Familiarity of Rapidity of Visibility of
events change future
with high HIV there is a lack of one of the four they are not
ratios among national most strong long-term
adults (UNAIDS, standard for economies of oriented, and
2006), the business skills the region the country
complexity of for (World faces many
this SMEs, which Competitiveness changes – what
environment is contribute to Report, 2011- makes the
very high, with difficulties when 2012), faces future not easily
strong local identifying constant and predictable.
social issues. familiar events. fast changes.
Additionally,
their lack of
structure
contributes to
poor decision
making.

14. Overall turbulence level
EMPIRICAL CASES
SMEs in the B-to-B sector in India
ANALYSIS OF
Turbulence Level
Changeability Predictability
Complexity Familiarity of Rapidity of Visibility of
events change future
Indian SMEs are given their new the changes are the government
going directions, they fast and the supports the
international, face increasingly consumers SMEs, though
mainly in the unfamiliar demanding- the sharp
technological events. nevertheless, expansion of
sector – which Indian SMEs India makes the
situates them seem to be future only
between a prepared for this partially
regional and environment predictable.
global and
complexity. responds timely.

15. TURBULENT ENVIRONMENT
STRENGTHS WEAKNESSES
SWOT Analysis CHANGEABILITY PREDICTABILITY … the two main strengths that
CHANGEABILITY PREDICTABILITY
EMPIRICAL CASES Experience of managers Managers international Informal planning to a changeable
contribute Lack of strategic
… We analyzed Reaching customer cases of the
the two orientation environment are the high
Lack of staff
awareness by the
experience of management and the
managers
companies that needs in a effective and high orientation of
were in a Market level participation in the
ANALYSIS OF
efficient manner planning of effectiveness that
level Gap between
turbulence environment (3.75 / 4.25)… International Orientation
SME‟s have to understand and
information flows of
Lack of
International reach customer company's
communication
the needs…
Performance managerial team and
process goals and
employees
objectives
… Predictability: enough capitalrelation
Not positive to
SMEs in Botswana
with the International
incorporate more
do business abroad
short-term and fewer and Performance of
Orientation Lack strategic
SME‟s. Goingawareness and markets,
strategic issues in their to foreign
plans SMEs has only way, gives to the
in a success planning for long-term
operational‟s a than
SME rather hugecompetitiveness
field of possibilities
strategic implications
to create and exchange
Lack or resources and “going out their
experiences
usual box” …
expertise
Absence of a qualified
management team
Gap between goals of
company and
managers

16. TURBULENT ENVIRONMENT
STRENGTHS WEAKNESSES
SWOT Analysis CHANGEABILITY PREDICTABILITY CHANGEABILITY PREDICTABILITY
EMPIRICAL CASES Experience of managers Managers international Informal planning Lack of strategic
… lack of a well defined long and short
Reaching customer
orientation
Lack of staff
awareness by the
term formal planning,and Market orientation
needs in a effective that in some participation in the
management
ANALYSIS OF
cases doesefficientinvolve all the
not manner planning Gap between
International Orientation
staff… Lack of
information flows of
International the company's
communication
... problems with communication process... Performance
process goals and
managerial team and
employees
objectives
… absence of a strategic plan. Problems related with SMEs in Botswana
Not enough capital to
the lack of resources and expertise will reflect at the incorporate more
do business abroad
quality of the management team… short-term and fewer Lack strategic
strategic issues in their awareness and
Management strategic plans SMEs has only planning for long-term
awareness (most of times it operational rather than competitiveness
only exists in the manager or strategic implications
owner mind, without being Lack or resources and
systematized in a routine or expertise
explicated to the entire Absence of a qualified
organization). management team
Gap between goals of
Problems with the information company and
flows and structure managers

17. SWOT Analysis
EMPIRICAL CASES
TURBULENT ENVIRONMENT
OPPORTUNITIES THREATS
ANALYSIS OF
CHANGEABILITY PREDICTABILITY CHANGEABILITY PREDICTABILITY
Globalization Globalization New requirements from Competitors predicts
customers the market before
Advance of ICT's Advance of ICT's
Cultural Differences
International International
Agreements Agreements Competitors provide
same offers
... globalization process...
… rapid evolution of ICTs, facilitating communication…
… International agreements: good opportunities for doing
business and reducing barriers abroad….

18. SWOT Analysis
EMPIRICAL CASES
TURBULENT ENVIRONMENT
OPPORTUNITIES THREATS
ANALYSIS OF
…At the same rate that access to
CHANGEABILITY PREDICTABILITY CHANGEABILITY PREDICTABILITY
information has been incremented to the
organizations, Globalization happened for
the same Globalization New requirements from Competitors predicts
consumers… Advance of ICT's Advance of ICT's
customers the market before
Cultural Differences
International International
Agreements Agreements Competitors provide
same offers
… The lack of adaptation to different cultures
can lead organizations both to failure and to
predict wrong environmental conditions…
… Competitors become threats when they first launch
products, anticipating market conditions and the
environment….

19. Challenges
EMPIRICAL CASES
Challenge A: To turn Turbulent Events into Real Opportunities
ANALYSIS OF
Organizations that get environment opportunities in a successful
way usually are those that are able to create, amplify or even
modify your resources base (Eisenhardt and Martin, 2000).…
… they need to use the knowledge generated externally, to internalize
(sensing and capture) and match (transform) the information and
new knowledge with existing knowledge base (Teece, 2007)….

20. Challenges
EMPIRICAL CASES
Challenge B: To Create an Organizational Structure
ANALYSIS OF
The analysis of Botswana‟s SMEs showed that one of their
weaknesses is exactly their organizational structure.
Brown and Eisenhardt (1998) suggested that in order to be innovative, firms
need to create a culture where an acceptance of continuous change is
central…
… organizations can be Infinitely flat organization Exploding stars
organized in four ideal types,
based in knowledge (North, Reversed organization Web structure
2010):

21. Challenges
EMPIRICAL CASES
Challenges C: To Transform Competences and Knowledge into
Success
ANALYSIS OF
There’s a need to find a way to avoid conflicts
that could emerge when people with different
perspectives and ideas are brought together, in
new functions and groups… >> work group,
commom vision…
Challenge D: Understanding the Turbulent Market and Staying
Competitive
e.g: Indian SMEs case, since their environment is highly turbulent, and the
enterprises are still competitive in their sectors.
… reach short-term goals whilst keeping long term goals of the firm in mind.
SMEs in Botswana incorporate more short-term views, neglecting the long-
term issues (Z.T Temtime, 2008).

22. CONCLUSION
The lack of adaptability in some cases can be critical,
especially for SME's, where resources are often relatively
limited compared to the reality of large organizations.
The analysis of the turbulent conditions of the environment, allowed us to realize
that the experience of managers has a key role in adaptation of SME's. Also the
ability of perception customers‟ needs and market opportunities are fundamental.
Importance of the alignment of managers regarding the guidance for external markets
and its positive relationship with the ability to perceive opportunities in the
environment.
High informality levels >>> lack of systematic
processes in this case may affect the performance of organizations,
and are also related to lack of strategic planning, resources and
market knowledge.

23. CONCLUSION
The biggest opportunity refers primarily to the current speed
of the flow of information and advancement of technology
and globalization. Developing markets that are currently
heated also are showed as good opportunities….
… BUT while the environment provides favorable conditions for
success, can also lead quickly to SME's bankruptcy prediction in
harsh environments and high instability….
Based on these considerations we present four key challenges
RESEARCH
for the management of SME's in turbulent environments….
FUTURE
… which may be refined and associated to the levels 4 and 5 of
Ansoff and McDonnel’s approach. Another approaches must
also be used.

24. OBRIGADO!
diegokurtz@gmail.com