Strategy Formation for Small Companies: Is Critical Evaluation of Resources the Key?

Abstract

The field of strategic management has tended to be preoccupied with the study of large corporations. This is not surprising considering the size and market power of these corporations. However, in recent years, there have been a number of attempts to relate strategic management concepts to small companies and to suggest tools and methods to facilitate this application (see, for example, Krishnan, 1997). Strategic management as a field has also been changing over the years. From an initial focus on the entrepreneur's strategic intent and the values and ideals driving strategy formulation, the strategy field became more explicitly externally focused after Michael Porter presented a simple yet powerful framework to analyse the company's environment and its impact on performance. Drawing from the Industrial Organization perspective, Porter (1980) argued that industry profitability is more a function of industry structure than of technology, products or any other factor. In the last decade we have seen a return to an internal focus through the resource-based view of the firm (Wernerfeit, 1984). In this perspective, firms are seen as bundles of different resources and capabilities. Since different firms are built up over time in different ways, no two firms have the same resources. Success is likely to come to those companies which have a close match between their resource base and their business strategy. Porter also added momentum to the process of integrating the "SW" and "OT" parts of the conventional SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis through a careful look at the value chain in his 1985 work, Competitive Advantage.