Similarities And Differences Between The Growth Strategies Business Essay

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Considering that the Italian industrial context is dominated by medium and small size family businesses, the purpose of this research is to identify how these have grown in the past years, how they are planning to grow in the future, the presence of common growing strategies and evaluate similarity and differences between the strategies adopted and those proposed by scholars.

Methodology - The research will be conducted in two phases: the first one will be a large scale survey carried out through the use of questionnaires. This is aimed to identify 6-7 representative companies to analyze more deeply. The second phase will be based on one-to-one interviews with the owners and management staff of the chosen businesses. The research will use a both deductive and inductive approach and will test the following hypothesis:

Hypothesis - Italian family businesses pursue growth in very different ways diverse from those proposed by scholars.

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Value - After a deep research on the topic, this study will contribute to the literature in different ways. Firstly, an initial research basis on the subject will be built allowing future research developments on the topic. In addition, the analysis will provide Italian family businesses with a tool to better understand their situation and the environment where they are operating. Moreover, it will provide an incentive to pursue different growth strategies from the ones adopted, in order to achieve higher and more sustainable growth rates.

Key Words

Growth, Strategies, SME, Family Business, Famyly-owned, Italy, Italian, Owner-managers

Background

Family enterprises are firms in which the majority of the capital is held by one, or few, families connected from ties of relative, affinity or solid alliances. They still represent the dominant business model all over the world. In Italy, they account for approximately 83% of the number of medium and small capital enterprises (Corbetta et al. , 2002);

Less than half of all family-owned firms, however, survive into the second generation, less than a fifth are still viable into the third generation and almost none reaches the dimension of most public corporate companies. Firms with greater family control are prone to exhibit lower rates of sales growth than feasible, given financial performance. For most family businesses, growth is limited not by financing constraints but by family-related attitudes (Anaïs Hamelin, 2009).

Objective and Purpose

The purpose of this study is to provide a significant contribution to the literature on the topic, to evaluate the different strategies adopted by small and medium Italian Family businesses and consequent coherences or discrepancies with those proposed by scholars and to verify or deny the existence of common and generic growth strategies.

Justification

Although a substantial amount of literature relates to the analysis of the best growth strategies, almost nothing has been said about those adopted by Italian small and medium family enterprises. In addition, having studied entrepreneurship for many years, in Italy first and in the UK then, I recognize that there are some discrepancies in the literature related to SMEs. What is taught to be winning growth strategies for SMEs in the Italian approach differs a lot from what taught in the Anglo-Saxon one. This research will not only provide clarity on the topic but it will also constitute an important tool for entrepreneurs of small and medium companies to be awarded of the environmental situation and to consider different and more effective growth strategies from those used.

The Research question

Considering the Italian context, is it possible to identify common and generic growth strategies adopted by the majority of Family Businesses? Do these strategies differ from those proposed by scholars?

In order to provide an answer to the question above it is necessary to consider what follows:

Evidences of growth within the context of Italian Family Businesses

Owner-managers' attitude regarding company's growth:

Apparent greater reluctantly of family businesses to involve independent directors on company boards than non-family firms.

Pro-growth vs. growth inhibiting attitude

Growth Strategies:

Segmentation

expansion outside company's core

acquisitions and alliances

Other strategies

The final result that this research aims to achieve is to verify or reject the following hypothesis:

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Italian small and medium Family Businesses pursue different growth strategies from those proposed in the entrepreneurship literature.

Literature Review

This research will draw upon entrepreneurship literature such as the growth models, family business and SME in literature in general. For the purpose of this research a sample of Small and Medium family businesses will be explored, in an attempt to understanding the growth dynamics, this is explained in detail later. To understand the focus of this study it is necessary to provide; first, a definition of this category of enterprises, and of the quantitative and qualitative criteria that will be used in selecting the companies and, second, of the elements which characterize a company's growing path.

With regard to company dimension, we will adopt the following criteria: no more than 250 employees and an annual turnover lower than 50 million euro (Article 2 of the Commission of Recommendation). With regard to the company governance, family businesses will be identified as those in which "the majority of decision-making rights are in the possession of the natural person(s) who established the firm […] or in the possession of their spouses, parents, child or children's direct heirs" where "at least one representative of the family or kin is formally involved in the governance of the firm" (Direction General Entreprises Et Industrie, 2009).

Turning to growth, as Weinzimmer et al. (1998) underlined, it is a dynamic measure of change and scholars have historically used a very wide range of quantitative and qualitative tools to define synthetic growth indices. These are mostly based on the analysis of independent variables measured using secondary data sources (Weinzimmer et al., 1998). However, very few researches have been conducted to identify which are the most appropriate measures of organizational growth (Birley & Westhead, 1990). In order to conduct this study, the approach used to assess enterprise growth, is whether the enterprise has experienced 'growth' in the following areas (Hangstefer, 2000):

Market position strength

Organizational vitality

Productivity gain

Financial performance

Stakeholder value produced

After assessing growth using the listed growth measurement criteria, the next step will be to compare the strategies adopted by companies which achieved positive increases in all the areas above. To facilitate easier comparison and clarity of the results' analysis, quantitative values will be used in assessing companies' performance.

In the entrepreneurship literature, there is a substantial amount articles relating to growth strategies that scholars suggest small and medium business might pursue. For this study, the most relevant categories and their main representative academics have been identified:

Change in company's unit of business and in the performances on existing key metrics (McGrath & MacMillan, 2005). For a company's success is essential to define what its competitive advantage over rivals is. According Michael Porter, every company bases its activities on two macro categories of market strategies: differentiation (niches) and cost leadership. Companies which compete on the cost are generally the biggest ones, able to reach economies of scale and cost advantages over competitors. This work studies the case of SME; to explore why SMEs make bad cost leaders (Welsh & White, 1981) and the impossibility of a 'price-clash' with the giants of the market. The only strategy that these companies can successfully pursue is differentiation. In their study, McGrath & MacMillan underlined the possibility for companies operating in markets of commodities or poorly differentiable products to differentiate their offer matching customers' need. They suggest, through market segmentation, the shift from selling mere products to value for customers. In addition to that, the authors identified some company's key metrics which are largely responsible for organization's performance. By the combined modification of these factors, the business can pursue low risk growth.

Growth, creating new growth platforms (Laurie, Doz & Sheer, 2006). In their study, the authors identified NGPs as a powerful tool to evaluate and catch new market opportunities where develop new lines of products or services in areas outside company' core and therefore guarantee sustainable growth rates. This is a framework that many companies use to extend their own specific capabilities into new markets. NGPs result from the match between industry's innovation and market's macro trends, unmet customers' pain and company's capability to satisfy that pain.

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Italian family business models: lack of literature justifies this study.

Research Design

The research aims to do an in depth study of the growth strategies adopted by Owner-Managers of Italian small and medium family businesses. An inductive/deductive approach will be used and the initial exploratory study will be followed by the verification of one hypothesis (Bryman & Bell 2007). The inductive element of the research is the analysis of the growth strategies adopted by this category of companies in the past and the ones that are planned to be used in the future whereas the deductive element will be the testing of the hypothesis that family SMEs adopt growth strategies that differ from those proposed by scholars. In order to obtain he information needed for the study, the research will be conducted in two phases. Both will involve primary data collection. The first one will be a large scale survey carried out through the use of questionnaires. This is aimed to identify 6-7 representative companies to analyze more deeply. The format used will be phone interviews with enterprises' representatives where the interviewer and interviewee will work together to fill a structured questionnaire. At this stage, respondents are asked to provide mostly quantitative data. These are related to the performance achieved over a five years time in the following area: market position strength, organizational vitality, productivity gain, financial performances and stakeholder value produced (Hangstefer, 2000). Once raw data are collected, they need to be organized and categorized in order to identify the 6-7 companies in the sample that experienced the highest growth rates.

These identified 6-7 companies will be the focus of the second phase of the research. At this stage the interviewer will collect primary data through semi-structured face-to-face filmed interviews with owner-manager of the selected firms. The purpose of this second phase is the identification of the strategies adopted by these companies to pursue growth. Giving the expected great variety of strategies adopted and considerations that drove to those choices, the data collected will be mainly qualitative (e.g. entrepreneur's assumptions, background, drivers etc). Interviews will have time limitations (10 minutes) and a preconceived set of questions to cover. In this way the focus can be maintained on the relevant aspects and the following comparison study will be facilitated. Once data are collected and organized, an analytical induction analysis (Bryman & Bell, 2007) will be used to determine whether or not there are evidence of general growth strategies pursued by a relevant amount of Italian small and medium family businesses. Afterward, the identified adopted strategies will be compared to those proposed by scholars: Growth through segmentation, expansion outside company's core, acquisitions and alliances (literature review) in order to evaluate similarities and differences. If similarities are found to exist, the hypothesis will be disproved; if not the hypothesis are verified.

Practical and Ethical Issues

Project Planning

References

Journals

Birley, S., & Westhead, P. (1990). Growth and performance contrasts between "types" of small firms. Strategic Management Journal, 11: 535-557.

Corbetta

Weinzimmer, L.G. et al., 1998. Measuring organizational growth: Issues, consequences and guidelines. Journal of Management, 24, pp. 235-262

Hangstefer, J (2000). REVENUE MARGIN. A Better Way to Measure Company Growth. Strategic Finance, Vol. 82 Issue 1, p40-44, 5p

Welsh, J. & White, J. (1981) A Small Business Is Not a Little Big Business. Harvard Business Review, Jul-Aug 1981, pp. 18-32

Books

Bryman, A. & Bell, E., 2007. Business Research Methods. 2nd ed. Oxford: Oxford University Press

Websites

Official Document

Official Journal of the European Union, Article 2. Annex of Recommendation. 2003/361/European Commission.

Rapport Final du Groupe d'Experts. Promotion de la compétitivité des PME

2009. COMMISSION EUROPÉENNE. Direction General Entreprises Et Industrie