Ossie Jones
Allan Macpherson
Brahim Herbane
Resources and Small Firms
 Resource-based view (RBV) of the firm

Dominant explanation for competitive advantage
 Valuable, rare, imperfectly inimitable and non-
substitutable (VRIN)
 Salient resources for entrepreneurial ventures


Tangible - Financial, Physical, Technology etc
Intangible – Knowledge, relationship, Know how/who
 In SMEs – suffer significant resource constraints.
 Resources necessary to deal with crisis not readily available
 Challenge – When faced with Crisis and uncertainty how
do SMEs manage the challenges they face?
Dynamic Capabilities in SMEs
 RBV considered to static to account for coping in dynamic
situations
 DC proposes the ability to envisage and enact new
configurations of resources – respond to environment.
 Challenge for SMEs


Limited internal resources (tangible and intangible)
Informal organizational routines and processes
 Dynamic capabilities research in small firms



Newbert (2005): gestation activities – prepare business plan, develop
model, obtain financial support, hire employees etc
Wu (2007): resource integration & reconfiguration, learning and response
to environmental change
McKelvie and Davidsson (2009): idea generation, market disruptiveness,
new product development (NPD) & new process development
DC and Learning
 Learning fundamental to reconfiguration
 Learning processes, integrate and allow creative use of
resources (Easterby-Smith and Prieto, 2008)
 Learning is a DC (Bowman and Ambrosini, 2003)
 Four key learning modes supporting DC (Zahra et al,
2006)




Improvisation
Trial and error
Experimentation
Imitation
Improvisation & Bricolage
 Display creativity in working with limited resources
 Demonstrate originality – even when working with limited
resources
 Able to combine resources to produce novel outcomes (new
products/services)
 Able to find new ways of using existing methods or
equipment
 Take risks in undertaking new projects
 ‘Worthless’ discarded resources can become valuable when
combined with existing knowledge & skills.
Learning in and from Crisis
 In SMEs Crisis is critical precursor to learning
 Discontinuous, punctuated experiences are fundamental to learning
trajectories (Cope, 2005)
 Need to understand how crises are translated into action
 Critical learning events focus entrepreneur on future not past
(Herbane, 2010)
 Entrepreneurial learning largely focused on individual experience
 Growing recognition of need to focus on entrepreneur in context
 Learning has to be shared/embedded if it is to be useful long-term
(Jones et al, 2010)
 Entrepreneurial learning environment
 Task characteristics, internal communication and external interaction



Formal internal communication
Informal internal communication
External communication: buyers, customers, suppliers and other experts
Method and Data
 Data from 23 SMES (part of a larger set of 90 firms)
 Interviews focused on coping with critical incidents
 Used AT to focus interview questions.
 Interrogate how changes enacted and new routines or
artefacts seen as evidence of learning
 Coded using Nvivo – three main activities
 Combination of template and inductive coding
Expanding the solution space
 Engage in three main practices/sources to expand the
solution space:
 Engaging with actors in close proximity:
 Learning from others, Staff, friends and family
 Identifying partner salience:
 Deploying complimentary skills, developing
partnerships, searching for experience
 Developing downstream relationships
 Grafting solutions, bonding
Solution source
Example*
Learning from
other’s
mistakes/failures
Failure of neighbouring business provided a new service expansion opportunity rather than into the property
(AFCO).
Supplier failures forced switching that then allowed firm to “get new ranges in and explore different ideas”
(BACO).
Staff
Observations and photos made by staff allow the company to operate newly purchased equipment that is a
gateway technology for new product development to be realised (ANCO).
Friend/family
skills and
guidance
Recognition that employees have deep knowledge about production and machinery that owners do not
possess (ASCO).
Engineering background of owner’s father helped procedural improvement following failed audit for an
aerospace contract (BECO).
Cousin provides manufactured goods to begin new sales venture (AACO)
Friendship and close relationships are considered to be more important than professional links and
comprehensive business, market and process knowledge (PMCO).
Father plays an “organisational [rather than operational] role” in the business, resulting in better capacity
planning and scheduling. The son has improved procurement and costing (something that the father was less
willing/able to undertake) (TGCO).
Wife ‘keeps the books’ but the technical accounting activities are carried out by a trained accountant that was
brought in to replace a lady who was “trusted” and who left on maternity leave, at which point the
disorganised financed were discovered (RACO).
Partner’s friend writes stock control software (AFCO).
Respondent indicates that he wouldn’t recruit someone he knows socially or personally because “you put too
much trust in the relationship” (MVCO).
Solution source
Example
Complementary
skills
Owner finds a new partner to share burden of financial planning
and procurement (was planning to sell the business) (AOCO).
Respondent refers to a partner’s strength that prevents the firm
over-committing working capital to stock (EVCO).
Enhanced
Respondent refers to his partners in terms of the close support
partnership – beyond that they provide, the “very, very close bond” that is essential for
co-ownership
future development. Associated personal maturity with
formalisation of business processes and professionalization
(BTCO)
Several board members had known each other prior to formation
of the business, and “the longer we work together, the more we
trust each other” (WLCO).
Experience
An uninvolved partner had resulted in an expensive buy out
(WECO).
Sought a partner with experience, a pragmatic view and foresight
(AFCO).
Solution
source
Grafting
solutions
Example
Personal relationships considered important in business turnaround plus joint problem solving
with client (ATCO).
Customer helped in the process of change (talking to staff at a change meeting) (BECO).
Following the loss of a major customer at a previous company, the owner showed marketing
plans and samples to trusted customers (DPCO).
Value of network in problem resolution. A problem with a product led to the invention of a new
product via the local Chamber of Commerce, market research company, marketing company and
then an engineer at a local university (MVCO).
Client recognises that the firm’s problem resides with upstream payments and offers to work
together to improve the situation. Respondent adopted this problem solving approach as his
modus operandi (FPCO).
Bonding
Respondent’s honesty in acknowledging an error enhanced the relationship with the client
relationships (EOCO).
Respondent recounts the development of mutual trust with a supplier in the far east. The
relationship means that errors are not perceived to be problematic nor opportunist (FPCO).
Financial difficulties “stops you being as trusting” in order to prevent exposure of the firm to
creditors (FGCO).
Despite having a problem with staff managing a client group, the respondent would be no less
trusting, but would supervise the situation more closely (RMCO).
Respondent would not have a commercial relationship on the basis of friendship alone,
Summary: Learning to Cope
 Crisis creates a context where entrepreneurs need to manage
uncertainty and ambiguity.
 DC in SMEs:
 Large firm Dynamic Capability literature presupposes existing
resource capacity
 In SMEs, the capacity building (accretion) necessary to
reconfigure the resource base of small firm is fundamental.
 So accretion enlarging 'the solution space' is a precursor or
antecedent to DC in small firms
 Identified three ‘purposeful activities’ to expand Solution Space
 Exploratory understanding of DC in SMEs and learning to cope.