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On the other hand, the standards of a firm's structure, operation and financial level tend to change everyday not only in their nature but also in their quantity and quality. In order for a company to achieve these standards, there are some requirements that need to be met in a short or a long-term basis. One of the most important issues that a firm has to face is that of attracting and retaining clients especially when operating in high competitive financial markets.
This paper examines the forms, the causes and the solutions of such a problem especially to the area of the financial services market and more specifically to the case of a small accounting firm. It has been put effort to analyze the role and the importance of this factor to the whole existence of the firm as it can be observed in the today's market. The reference to the particular issues related with this problem was considered as necessary as they all influence (in a low or higher level) the way that the firm responds to the problem. A series of possible solutions is then presented as they also have their impact in the effort of the firm to confront the situation. As it can be concluded from the presentation and the analysis of the problem, the effort towards that direction can lead to positive results only if it remains active and constantly adapted to the new trends of the market.
II. Problems that arise during the operation of an accounting firm regarding the creation and the retention of a customer's net
a. Competitiveness of the market
The operation of an enterprise under the current market conditions is really a very challenging task. The existing circumstances tend to promote the large corporations with very extended margins of profit. The major advantage of the enterprises of this size is their operational structure, which widens the options given to a client regarding his decisions, which can usually be formulated under the prospective of a specific interest or desired profit. When coming to the area of small firms, the limited presentation to the market (due to the lack of capital for extended marketing) as well as the absence of very specialized staff (which - as an opposite - can be found to the large corporations) can influence the whole image of the firm to the market in a negative way.
b. Lack of strategic planning
The formulation of the strategy of each firm usually depends on the vision and the targets of the specific firm. Moreover, the ownership and the capital structure of firms is also a critical factor in the deployment of strategic planning. Some small and medium-sized firms are owned by a small number of individuals or by an owner/manager. These firms are generally classified as independent. Other small and medium-sized firms are wholly owned subsidiaries of larger organisations. Such firms are considered SMEs, but in practice they can fall back on the expertise and resources of the parent company. The backing and support of a larger organisation arguably results in critical differences between these SMEs and independently owned SMEs.
The absence of a strategic planning (or an insufficient one) can cause a series of problems to the firm. The main indicator for the lack of a strategy in a firm is usually the difference between the targets of the specific firm and its vision, especially in cases that the above difference can be noticed all around the business activities. The absence of organization, of effective marketing, of sufficient resources and of satisfactory customer support are usually indicators that the strategy of the firm is weak or non-existent and as a result the direct action from the management team appears as necessary.
c. Insufficiency of staff - lack of specific knowledge - lack of customer support
It is well known that the ability to achieve a successful sale is a basic requirement regarding the staff of a company that operates directly with customers. This is also applied even when the specific target of the firm is not sales-focused and that can be explained by the fact the characteristics of a sale can be found in almost every enterprise activity. As for the area of financial markets, especially the accountancy, sales can be used when promoting a specific product or a project (of financial interest) or when handling the financial documents of a client. In any case, the staff can be proved insufficient especially in the cases of the absence of knowledge on the industry or the specific products of the firm. The level of the knowledge is not the only criterion in order for the staff of a firm to be proved as non-qualified for the requirements that this firm has put as a standard regarding its services to customers. Another important factor is the lack of motivation and the absence of active interest for the aims and the vision of the firm. And we should notice here that although the first factor, that of the lack of knowledge, can be ‘resolved' through the use of programs that are created especially for this reason (seminars, other methods of staff training), the second factor (lack of interest for the industry and for the specific firm's targets) cannot be improved and the only way of handling it seems to be the ‘reconstruction' of the staff. This is not necessary related with the ‘premature' end of working contracts but also with the placement of the employees to different positions where they may be more productive (according to their knowledge and their competences).
We should notice here that, generally, the degree of trust between the service provider and the customer is directly influenced by the quality of the service and the by the bonding strategy and techniques of the provider. Offering superior service quality and effectively bonding with the customer leads the former to trust the service provider, which in return results to affective commitment to the provider. Developing this type of commitment appears to be particularly important not only for ensuring the maintenance of the relationship but also for further enhancing it, because it leads to an intention to further invest and strengthen the relationship with the provider. On the other hand, according to the findings of S.P. Gounaris (2005) research, commitment decreases as the levels of trust between the two parties increases. This is a positive development for the relationship because calculative commitment has a negative impact on the customer's intention to maintain the relationship and to further invest in it.
d. Limited or non-existent marketing
The issue of marketing effectiveness is of particular significance to those associated with the management of financial services in the UK. In recent years, the increasing liberalisation of the financial services market in the UK and its gradual transition from a sellers' market to a buyers' market have had a profound impact on organisations competing in the industry. Coupled with political, legal and economic pressures and higher levels of service expectation on the part of customers, banks and building societies are no longer able to assume source loyalty Consequently, many banks and building societies have focused on a variety of customer-oriented strategies in their quest for sustainable sources of differential advantage.
From a point of view, we could say that business is considered to possess a high level of marketing effectiveness if it has a close association with customers, is driven by a common set of values within the organisation and demonstrates an external orientation to its markets. First, customer relationships are distinguished by a service orientation, a thrust towards innovation and a broad view of the organisation from the customer's standpoint. Second, the set of values must be apparent and identifiable, with an accent on quality and on the value of people. Third, the external focus on markets acknowledges the importance of the marketplace as a key influence on corporate action. These principles define the creation and the operation of a successful marketing strategy. In case that the above characteristics are not presented in the firm's culture, then its marketing strategy has been an unsuccessful one. Moreover, regardless of the wide acceptance of the marketing philosophy in principle and the appreciation of its significance to modern day business, it appears that, in practice, only a limited number of firms implement the marketing concept effectively. It is therefore not surprising that most of the firms there have been called to enhance their overall degree of marketing effectiveness.
We should also notice that the most significant predictor of the customer based performance measure (customer retention) and profitability (profit margin) is customer philosophy. All the other four marketing effectiveness dimensions - operational efficiency, strategic orientation, adequate marketing information, and integrated marketing organisation also exert a significant impact on customer retention. However, the regression analysis also indicates that, with regard to the growth based performance measure (sales growth), adequate marketing information replaces customer philosophy as the strongest determinant of performance. Thus, the emphasis placed upon each dimension of marketing effectiveness appears to be determined by the performance objective set by the financial services firm. However, one can deduce from the research findings that customer philosophy is of primary importance in a financial services context.
The practice of the industry market has shown that there is a strong positive relationship between the kind of marketing culture a service firm has and its degree of marketing effectiveness. Even when the possible effects of firm size and geographical scope are removed, the relationship between culture and effectiveness remains significant. In other words, the number of employees working in a particular service establishment (e.g. five or 500) and the geographical scope of the firm (e.g. local or global) do not significantly moderate the impact culture has on effectiveness. While each component of marketing culture makes a significant contribution to the explanation of effectiveness, the import of a particular culture component (i.e. service quality) generally depends on the effectiveness component with which it is related.
III. Measures that could help the effort of attracting and retaining clients
a. Design of a solid strategy
The existence of an integrate planning regarding the firm's operation in the current conditions but also in the future is absolutely necessary in order for the latter to operate successfully and in accordance with its targets. The first step has to be the creation of a specific vision in order to vanish the chance of appearance of unexpected results. This has to be limited to feasible levels and the binding to unrealistic targets should be avoided. The whole strategy should be created following the next steps: a) consider the need for change, b) meet with members of the team, c) examine the necessary solution in order to achieve the change towards a positive direction, d) evaluate the possibility of achievement of the specific strategy and e) design a specific plan that will describe in details the firm's vision. In any case the decision must be taken after taking account all the factors related to the specific plan. The members of the team should be enforced to be critical in their evaluation (when examining the structure and the respected results of the strategy) in order for the feasible of the plan to be tested. They have also to be asked for their opinion about the final format of the route that is going to be followed, in order to be binding to the achievement of the vision. We should notice that the involvement of too many people in this stage could have a negative influence to the result. On the other hand, we should evaluate the relation between the plan and the target that is requested, i.e. to estimate the final profit - if there is to be any - for the firm. In case, that the total cost of the project is higher from the profit that is going to be produced from it, then the specific strategy should be abandoned. In all cases, the decision made in this stage has to be based in the importance of the time, the cost and the profit. After having agreed to the vision, the next step is to decide the methods that are going to be followed in order for the plan to get realized. The issue that should examine first is the relation between the result and the applied method, i.e. if there is real connection between them. The best way to define the most suitable methods for the achievement of the specific strategy is the use of a research of the market. This could be done by a member of the team who could inform the firm for the standards of the specific industry (that of the firm) at that specific point of time and who also could help to measure the position and the competitiveness of the firm in the market. In order for the above methods to be productive and operate successfully towards their destination, they have to meet the following requirements: a) they should be suitable for the firm as an entity and not for a part of it, b) they should be decided after a change of ideas between either the members of the team and the customers (wherever this could be possible - for the firm of this paper such an idea could be feasible to get realized), c) to be well defined and suitable for the achievement of the specific plan (in this way the team that is going to execute them is more enthusiastic and the whole work is done with the simultaneous efforts of all the members), d) if they have low grade of priority they should be abandoned and e) they should be designed in accordance with the specific targets, the measures, the priorities and their results. This could help to decide which of them need more efforts and resources.
The major issue that should be considered when deciding for the methods that are going to be applied for the realization of the specific strategy is the relation between the desired vision, the measures (that will show the progress of the realization of the vision), the current and the desired results (that are produced from the realization of the methods which have designed especially with the aim of the achievement of the vision and which are evaluated under the current market's measures). Especially for the accounting firm of this paper, one of the basic targets should be the improvement of the time needed for a decision to be made. This could refer to decisions of all levels from strategic to operational ones. The measure for the evaluation of the achievement of this target could be the reduction of the time needed to handle a customer's requirement. The preparation of the firm's offers to the clients should also be improved and the two possible ways to test the result are: a) the reduction of the time needed in order to prepare the offers and b) the following limitation of the training to specific products. The achievement of the above targets could help the improvement of the firm's image to its customers by presenting a well-organized and competitive business. This would also enforce the sense of security of the customer's rights and interests which is a decisive factor for the success of an enterprise under the current market conditions and especially when referring to the area of financial services.
Wiklund and Shepherd (2003) empirically assessed the relationship between the growth motivation and actual growth, in other words the motivation of the manager of the firm for growth and the growth that is finally achieved. They also explicitly assessed the influence of personal ability on growth using the theory of planned behaviour as a framework from which they empirically investigated the moderating role of resources and opportunities. Growth aspirations are important to small firm growth, but unless the small business manager has access to relevant resources and opportunities, growth will be constrained. Finally, the used the growth of the small business manager's total business activities as the dependent variable. Given that growth aspirations are an individual level construct, they captured realized growth of all that individual's businesses. Based on their findings, small firms are categorized along two dimensions; resources and opportunities for growth provides one dimension, and growth aspirations the other. Depending on their position along these two dimensions, four types of small firms are identified: (1) Starting with the firms which both possess the necessary opportunities and resources, and the aspiration to grow, those are the ones that exhibit actual growth, (2) The firms, which have an unused potential since they, if they were motivated, have the ability, resources and opportunity to expand. A relatively large proportion of all small firms are probably in this situation, (3) Firms, which strive for growth but lack certain skills, capital, or other abilities, resources and opportunities, are called constrained and (4) Firms in the fourth category have neither motivation nor abilities or resources for growth, and thus have little potential for growth. All firms are not suited for expansion. Due to limited management abilities, these firms may actually perform better if they remain at a smaller scale. From the above analysis it seems that although there is a relationship between the aspiration for, and actual growth, the relationship is more complex - it depends on the educational level and experience of the small business manager as well as the level of environmental dynamism. Education, experience and environmental dynamism appear to magnify the effect that growth aspirations have on growth.
When examining the suitable strategy planning for a small firm we have to bear in mind that usually in a firm of this size, the manager is also the owner. Woods and Joyce (2003) made a comparison between the owner-managers and other managers in terms of the growth record of their businesses suggested that the use of tools did confer advantages to businesses. The evidence for this is as follows. First, respondents were asked to describe the current health of their business. They could identify it as ranging from growing rapidly, through healthy and growing, stable, and finally declining. Out of the 41 firms that described themselves as rapidly growing only three respondents were owner-managers. Of the 28 declining firms 15 respondents were owner-managers. There was a statistically significant association between firm performance and respondent. It seems that 188 owner-managers were more likely to be in firms that were declining and less likely than other managers to be able to report a growth record. Second, the use of strategic tools was correlated with the performance of the business. On average, rapid growers used 3.75 tools compared with only 1.00 for the decliners. Interestingly the healthy and growing group used 2.36 and the stable group 1.75. This was significant (F = 3.490, at 0.017 level of significance). Third, owner-managers used typically 1.38 tools as against 2.34 for the other managers (F = 6.294, 0.013 level of significance). The result of the above research could be summarized as follows: A) the use of strategic management tools causes growth. Hence, owner-managers are less likely to be in firms that are growing because they do not make use of strategic management tools. B) owner-managers are more prone to be in firms that are declining and are thus not under the same pressure from their environments to use strategic management tools needed to cope with more dynamic growth issues. C) as the firm grows the owner-manager starts to recruit managers who have had previous exposure to strategic management tools and naturally use them in managing the firm's strategy. D) As the firm begins to acquire the tools its managers become increasingly aware of their own lack of expertise, consequently identifying this as a barrier to future growth. Exposure to some of the tools has made them much more critical of their own expertise.
b. Re-structure of the marketing strategy
One of the basic elements for the successful operation of an enterprise no matter its size, is the marketing strategy, in other words the method that is going to be used in order to inform the public for the existence and the areas of operation of a company which is activated either in the products or in the services area.
When a new product is put on the market there is usually a big advertising campaign to promote the launch of the product. Each type of product usually represents a specific section of the population and advertising is usually adapted to the requirements of this category in order to achieve the promotion of the product. The above are followed also when dealing with the promotion of services. The vital issue in advertising is to create the right image. The use of advertising can - with no doubt - help the improvement of the sales margins of a product or a type of services. On the other hand we must consider the cost, which is usually high, as well as the risk of the failure (in cases that the method followed and the decisions made were not in accordance with the public view - which we have to notice is sometimes difficult to foresee precisely). In order for an advertising to be successful, the most crucial factor is the existence of a well-defined and flexible marketing strategy. And we should notice that the latter has to be first when referring to time sequence. The marketing strategy should be followed the establishment of a firm. This ‘crucial' time reference can be explained by the importance of this strategy to the creation of profit and, in that way, to the existence of a company. The indicator of the marketing's success is usually the improvement of sales of products/ services, in other words the increase in number of clients that deal with the company. The decisions made while structuring the marketing strategy have to be based in a detailed and accurate research regarding the existing trend of the market, the financial situation (not precisely stated but in relevant terms) of the majority of people that this product/ service is addressed to and the level of profit of other similar products.
Regarding the formulation of the marketing decision we have to proceed to the following differentiation of the service products according to the typical customer needs, that of frequently or infrequently purchased. Thus, services such as fast food and filling stations that are needed on a daily or weekly basis may be thought of as frequently purchased, while less frequent or unexpected needs characterize services that are infrequently purchased. Highlighting the differences between marketing strategy decisions for frequently and infrequently purchased products, the goods marketing literature provides substantial streams of research comparing packaged goods to consumer durables. Packaged goods marketers have an extensive literature describing models that test the impact of marketing mix variables on customer buying behaviour. Because their goal is typically to build market share through increased repeat purchasing (as opposed to switching) behaviour, they may try to enhance awareness and trial of a new product among their target markets, who will then return for future purchases. As packaged goods are frequently purchased and not a major investment, they are not a risky purchase for the consumer; thus, buyers need not rely on word-of-mouth to help them decide which brand to buy. Instead, they might buy on impulse if they see an attractive display, or take advantage of a coupon offer to try a new product. Researchers typically assume a heterogeneous target market, i.e. one in which different households respond differently to various products and promotional activities, and use study results to optimise the marketing mix for each target market.
According to the above, the marketing strategy that is going to be followed for a particular firm may be selected with the goal of maximising profits resulting from cumulative product adoptions. Because the focus in durable goods marketplaces is on first purchases, trial is not easy to obtain and customers rely much more heavily on word-of-mouth than they do when buying frequently purchased packaged goods. Further, because the customer is often unable to experience ownership before buying a durable good, and because a durable good typically requires a substantial investment, the purchase of a durable good is more important and involves greater risk than does purchase of a packaged good. Based on the differences that have been observed between frequently and infrequently purchased goods, a similar differentiation might be useful in defining the marketing mix for services.
c. Development and change of current technology
During the past two decades the banking sector and financial markets have been completely transformed: labour intensity has been reduced and largely automated systems introduced. In the UK and in most of European countries regulation, competition and information technology developments are important drivers of change in most retail banking systems. Banks and financial intermediaries mainly need data capture and processing applications so as to exchange information with clients about markets and completed transactions. These activities are characterized, generally speaking, by the necessity of dealing with a large amount of data rapidly, which has to be transferred between numerous actors. ICT (Information and Communication Technology) enables large databases to be managed at high speed, and information to be transferred immediately and reliably over long distances. It seems that banks and related services are ahead of other sectors in the dynamics of introducing ICT. Monnoyer, M. (2003) argues that within the UK financial services industry in general, a strategic vision does not appear to exist, such as would enable the majority of firms adopting ICT innovations to develop marketing tools that could yield sustainable strategic advantage. According to Monnoyer, obstacles to the successful implementation of new technologies in services usually arise from the reorganisation of the division of labour in the knowledge creation process, which is enhanced by the use of ICT. The lack of basic training in computer science in many European countries explains why 80 to 90 per cent of ICT investments do not meet their performance objectives. Holland, Lockett and Blackman , studying the banking sector, find that the profitability of banks worldwide has decreased from the early 1980s to the 1990s. Holland argues that the broad competitive forces of information technology, globalisation and deregulation are destabilizing the banking industry and leading to irrevocable changes for providers and customers alike, arising from new entrants, disintermediation and innovation on a much greater scale than has occurred in the past.
There are cases where the technological change is considered as the best possible solution although it usually takes many months to be completed. This change refers mostly to the modification of the environment under which the computers of the firm operate. The main aim when applying such a project is to expand and strengthen the potential of the business, enabling it to meet its business goal i.e. the growth and the simultaneous cost reductions. Under this scheme, the firm has first of all to construct a solid technological base which is usually begin with the complete renovation of the business applications.
Chaston I. And Mangles T., examined the role of e-commerce particularly to small accounting firms (in an effort to minimise the influence of variance between different service sectors). They argue that small accountancy practices offer the advantage of both providing a large-scale database from which to sample and access to managing partners who can be expected to be closely involved in guiding the development of their practice's e-commerce strategy. On the basis of case-based observations that have been made about e-commerce strategies, the two null hypotheses selected for an empirical pilot study were: H1: Participation in e-commerce is not influenced by whether an accountancy practice exhibits an entrepreneurial or conservative (i.e. non-entrepreneurial) marketing style. H2: Participation in e-commerce is not influenced by whether an accountancy practice has adopted a relationship or a transactional marketing orientation. The result of their research was the design of the progression of e-commerce as it is usually takes place in small accounting firms.
PROPOSED PROGRESSION FOR DEVELOPING AN E-COMMERCE SYSTEM FOR SMALL ACCOUNTANCY PRACTICES (Chaston I., Mangles T.)
E-mail communication added to existing client communication mix
E-mail used to enhance promotional campaigns
Addition of Groupware to existing communication systems
Use Internet to expand financial services market knowledge
Launch of promotion-based, trial company Web site
Integrating Web site into overall marketing strategy
Inclusion of online purchasing facility to Web site
Inclusion of integrated online purchasing/order tracking systems
Integrating Web site with client service system
Clients can configure and price/products online
Key client customised extranet systems created
As for a specific definition for e-commerce, there have been a lot of efforts in the theory to state a generally accepted one. According to Daniel, E. Wilson, Hl, and Myers, A., e-commerce is a cluster of innovations. Regarding the SMEs, these will adopt e-commerce in a sequence of stages. Different types of organizations in terms of size, revenue and location, even within the same industry, are also expected to develop distinct strategies. We therefore expect that the current level of usage of e-commerce by SMEs, that is their stage of adoption, will depend upon contextual variables both at an industry and organizational level. The stage of adoption currently reached by a firm will depend on contextual variables both at an industry and an organizational level. Their research was based on cluster analysis, which is a technique for grouping cases or entities (in this case firms) into groups that are coherent according the attributes of interest (here this is activities being undertaken by e-commerce) whilst also distinguishing each group from others that differ according to these attributes. It is inductive in that the number and characteristics of the groups are not known prior to the analysis. The four cluster (that were produced by the use of this method) can be described as follows: a) Cluster 1 (Developers).These companies had the lowest levels of operational e-commerce services, b) Cluster 2 (Communicators).The companies in cluster 2 were making extensive use of email to communicate with customers and suppliers (90%) and the web to find business information (78%). They were also frequently using email for communication between employees (57%) and electronically exchanging documents and designs with customers and suppliers (56%). In this group the most common development activity is focused on the development of websites to provide company or product and service information (73% and 59% respectively), c) Cluster 3 (Web Presence).Companies in cluster 3 were undertaking all of the activities currently being undertaken by companies in cluster 2. That is, they were using email to communicate with customers and suppliers (95%), using the web to find external information (81%), using email between employees (63%) and electronically exchanging documents and designs (56%). They were also operating the services that cluster 2 companies were still currently developing. That is, they have websites that provide information about their company (98%) and its products and services (89%), d) Cluster 4 (Transactors).Companies in cluster 4 were found to be undertaking all of the activities undertaken by cluster 3 companies but in addition they were found to be taking orders on-line (62%), providing after sales service or contact (62%) and undertaking recruitment on-line (44%). Areas where development was being undertaken were receiving payment on-line (7%), ordering and payment of inventory purchasing (7%) and the delivery of digital goods on-line (6%).
Because marketing management in financial services is no well-established discipline, companies often lack sophisticated marketing information systems. However, it is a complex issue. Implementation of market orientation involves the whole organisation and generation of relevant information is only a small part of market orientation, which also involves dissemination of information and its use in decision-making. Interdepartmental cooperation and vertical communication may be crucial antecedents in the value creation process. This leads to recognition of the important role of accounting departments and accounting managers in all aspects of market orientation. Accounting managers represent very legitimate interests close to the strategic core of companies and they are often responsible for IT systems which form the backbone in the performance control of financial companies. Other information sources may have to compete harder for attention during strategic and operative decision-making. Increasing capacity to process information is exactly what new computer technology appears to do. However, an increase in information processing capacity is not only a question of investment in impersonal vertical information systems. Personal contacts and creation of lateral relations are also important. In fact, advanced information technologies are not universally superior to traditional technologies and they will not eliminate them. Traditional technologies still have benefits in respect to ease of use, acceptability and richness. The improvements provided by the use of computer-assisted information storage and acquisition technologies are in the dissemination stage of information processing. Decision makers will get more accurate, comprehensive, timely and available information under the assumption that external information sources have provided basic information with these qualities.
d. Designing a dynamic human resources management
From an initial position of skepticism concerning the contribution that personality could make to effective personnel selection, researchers and practitioners have moved to a position where there is confidence that personality can play a role. Robertson and Smith (2001) argued that, from this base, more refined research questions have to be investigated. These include several interesting questions such as: the level of analysis that should be used when utilizing personality for personnel selection and assessment purposes; the extent to which conscientiousness or a broad factor relating to integrity acts as the single best predictor for personality, in much the same way that general mental ability works in the cognitive ability domain; and the role of intentional or other forms of distortion in influencing candidate responses and the incremental validity provided by personality assessment over and above that which is provided by other more established methods of personnel selection, such as general mental ability.
The research literature on personnel selection methods generally focuses on one specific indicator of validity, the criterion-related validity coefficient. This is given prominence above all other indicators of validity. Clearly, in many ways, this emphasis on the extent to which personnel selection procedures can adequately predict work criteria is appropriate. The whole purpose of a personnel selection process is to identify candidates who are most or least suited to the occupational area in question. Although the current and historical focus on criterion-related validity as the major quality standard for personnel selection methods seems appropriate, difficulties arise when considering the interpretation of the evidence, concerning criterion-related validity of personnel selection methods. Meta-analysis has provided a statistical mechanism for giving a clear indication of the criterion related validity for personnel selection methods. The positive contribution to the research literature of meta-analysis should not be underestimated. Robertson and Smith (2001) examined the role of meta-analysis in the personnel selection procedure and came to the result that although the above method seems to be very helpful, the misapplications and misinterpretations of meta-analytic results that can sometimes occur may produce a different result.
e. Establishment of strategic alliances - franchising
Barret and Rainnie (2002) argue that an integrated approach can be developed for analysing small firm industrial relations. This integrated approach achieves three aims. First it accommodates small firm heterogeneity; second, it provides an analytical framework for ordering the effect of a range of factors (not simply size) on small firm industrial relations; and third it incorporates a dialectical relationship between structure and agency. Moreover, at the heart of this analysis must lie the questions of extraction and realization of surplus value as well as the contradictions between problems for management that arise at different moments in the circuit of capital. In structural terms this means considering the firm within its sector and the sector's trajectory of development (in an historical sense). However, to overcome charges of this analysis being overly structuralist, equal priority must be given to the reality of people's working lives within the firm, which entails considering how this reality is formed and constrained by the interplay of the labour market and the individual's expectations of work. Such an approach to analysing industrial relations in small firms must therefore start with the totality of economic and social relations in a particular sector and its contradictory constituents rather than the small firm per se.
It is frequently cited that many small service sector firms suffer from what is generally termed human and financial ‘resource poverty' operating at the margins of profitability. It represents a central contributing factor to the failure of approximately 33 per cent of independent small firms within the first three years of their existence. The two key overarching causes of small firm failure identified are managerial inefficiency and under-capitalisation (Kuratko and Hodgetts, 1998). However, it is argued that an exclusive focus on these endogenous causes neglects to take into account those of an exogenous nature. In difficult times, the likes of economic recession, environmental crisis and market turbulence further aggravate the resource poverty situation. Lacking the managerial skills, support structures for advice and finance, research and development, marketing expertise and economies of scale possessed by their larger and more experienced counterparts, many small firms lose the struggle for survival (Stanworth and Purdy, 2000).
It is proposed that one small firm entry strategy, designed to address resource poverty, could be to become the owner-operator of a franchise within an ethical international business format franchise system (Morrison and Macmillan, 2000]). In the UK, business format franchising involves ‘the granting of rights by a company (the franchisor) for a third party (the franchisee) to operate their business system using a common brand and common format for promoting, managing and administering the business'.
Increasingly, large franchise systems are transforming the service sector, replacing, absorbing or making redundant a vast array of atomistic, traditional small firms. This is particularly significant in the contemporary competitive environment, as organisations attempt to be concurrently large and small, centralised in strategic direction but decentralised in tactical operation, global and local. Drawing on the qualities of empowered individual-operator franchisees (Lashley, 2000a), and blending proven business concept and local expertise, franchisors have the potential to benefit from the synergy of a network of, what could be regarded as ‘small firms'. One explanation for this trend can be attributed to resource-based theories. These indicate that the endurance of franchising as an organisational form represents a response to a scarcity of the necessary resources for business expansion, such as financial capital, labour capital, managerial talent and local market knowledge, experienced by franchisors. Lashley (2000a) balances this perspective by proposing that franchising also represents a source of resource efficiencies from the perspectives of both the franchisor and franchisee. The organisational format is fraught with tensions and contradictions across a number of dimensions. For example:
• Interdependence/independence. Strictly speaking, the franchisor organisation has an interdependent relationship. Unlike the relationship an organisation might have with its suppliers or customers, the franchisor cannot operate as an independent business in relation to the franchisees. • Income source/client. The franchisee is both a client as a source of income, and a partner in expanding and operating the business. The franchisor has to balance immediate self-interest with the need to support and encourage the partner organisation - the franchisee. • Multiple alliances/mutual purpose. Alliances develop between franchisees, and between franchisees and franchisor organizations. The organisation needs to develop a sense of mutual purpose, objectives and rewards. • Diversity/creativity. Diversity in the organisational structure contributes to the ultimate health and survival of all parties. Yet diversity taken too far leads to confusion in the market place.
The existence and operation of small firms is absolutely necessary in the modern industry where the ‘waves' of mergers and acquisitions try to create a ‘multinational' type of firm that will operate around the world without the fear of competitiveness (as the small (family type) companies will have vanished). Mostly for this reason, the legislation as it is expressed through the commercial ‘standards' has to create the conditions for the promotion of the small firms' activities. Although this appears as a rather easy task, in real terms is very difficult to achieve because of the growing power of the large corporations, which tend to co-operate and create even bigger firms that are usually multinational.
The basic problem for the small firm seems to be the most fundamental one, that of the customer binding. The above element can be considered as basic for the survival of the firm and is rather difficult to be resolved in a permanent and absolute base. However, there are practices, those which described above, which, when followed, can assure the cover of the firm's needs at least for a period and in case that they succeed in their application they can promote the growth and the development of the firm in a long-term basis. In any case, under the modern industrial environment the achievement of long-term solutions regarding the profit of a firm can be considered as a success for the business strategy.
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