Diego
H. Álvarez Peralta
Universidad
de Palermo, Argentina.
E-mail:
dalvarezperalta77@gmail.com
Leandro
A. Viltard
Universidad
de Buenos Aires, Argentina
Professor
at Universidad Católica Argentina, Argentina
Universidad
de Palermo, Argentina
E-mail:
lviltard@yahoo.com.ar
Submission: 16/03/2015
Revision: 09/06/2015
Accept: 12/07/2015
ABSTRACT
This article explores the nature
and scope of Strategic Analysis Tools (SAT) application in SMEs[1]
(Small and medium-sized Enterprises) located in emerging countries such as
Ecuador (where there are no formal studies on the subject). It is intended to
assess which of them may contribute to formulate strategic options and create awareness
of relevant risks or distress specifically about continuity concerning their
operations. Through the application of a survey to an intentional
sample-selection of SMEs in Quito-Ecuador, we analyzed the consciousness about these
instruments to facilitate the creation of strategic options, their contribution
to assess their competitive position and their interaction with the improvement
of other capabilities to let them possibly achieve superior performance. Our conclusion is that SMEs can take advantage
of exploiting SAT by systematically considering relevant variables in order to
assess their current and future possibilities to outperform competition. On the
other hand, the identification of which strategic factors these firms should
pursue and its constant monitoring can help building sustainable advantages.
Cultural barriers and unconsciousness of their benefits may explain their low
usage rates. This is a qualitative investigation and the research design is transversal
but not experimental.
Keywords: Strategic
Analysis Tools; SME; Formulation; Competitiveness; Value
1. INTRODUCTION
As we
state in our previous paper on this subject, we could realize that a
representative portion of engagements of consulting executives at SMEs opt for
very relevant choices that are intentionally or not addressed to outperform
competition. However, minimum either effort or resources were utilized to
systematically sustain the validity of their decisions. Despite the large
economic contribution of SMEs in emerging market countries, there is little
research on tools aimed at either measuring or improving their internal
competitiveness. Quiñonez (2012) asserts that 95% of productive units in
Ecuador are SMEs. In addition, highlights that competitiveness and strategic management
are key elements to keep them sustainable (Álvarez
Peralta, D. H. & Viltard, L. A., 2015).
In
this sense, not only for practical but also for methodological reasons we
should recognize any factors or at least any cognitive elements that managers of
these firms include when making relevant choices. Lessard (2003) asserts that a
firm within either national or international boundaries is subject to analysis
at different levels such as the geographic scope of the industry and the
competiveness of various locations. Acting in any of these contexts demands a
strategic thinking to identify a set of issues, the selection or development of
an appropriate framework to asses those issues and identifying a viable course
of action.
In
case of not finding any kind of framework, we may presume that intuition or
their personal non-systematic assessment of the external and internal
environments are the main resources to make this kind of decisions.
As we
evidenced that in most of our sample SAT are barely applied, we focused in
inquiring which other instruments or specific actions were taken in order to
keep or improve their competitiveness. On the contrary, because of the size and
significance of some representative SMEs that were part of the sample, we
initially expected they might contribute with their own approaches that may
challenge conventional theories. However, we found that in general even these
firms allocate very few or no resources to take advantage to these tools.
As we
described in our different case analyses, these Organizations’ Management
missed some relevant elements and or connections. We will discuss how the
application of basic tools and especially how the systematization of them could
have led their managements’ teams to identify strategic areas threaten and let
management to be more focused on. We will also try to assess the expertise of
these firms on to apply insight from information that may be produced or
obtained from inside the organization and from the outside, which is sometimes
publically available.
1.1.
Design: Methodology and analysis
Our methodology is qualitative and
explores information gathered in a specific period of time (the last quarter of
2013 up to October 2014).
The analysis unit included the SMEs
established in Quito, Ecuador. As explained on the next section, we could
finally obtained 20 positives replies, which form our sample.
Since this is a pure qualitative
research, we were focused on selecting firms that can be representative of the
sectors to which they belong. Our purpose is not to obtain a statistical
sample.
Instead, we focused on a large range
of SME’s including the specific intention to include those, which are largely
acknowledged as the most representative of their sectors according to
specialized magazines.
Besides, in order to arrive to
relevant conclusions we interviewed principals of the SME’s Chamber of the
Province to support any evidence that the results of these surveys may produce.
This chamber has organized their own sectors of interest in which they have
special teams created for assisting them. The classification of sectors that we
have used included the same criteria used by this organization.
In this paper, we will concentrate
on results showed by the reply of a survey which was applied straight to
managers or executives of firms legally established in Quito, Ecuador.
The survey was applied by email and
in some cases lively. When executives accepted an interview it was held in
their respective offices because of their interest in knowing more details of
the content and scope of the research.
The survey form included fifteen
closed questions and four open to let us have access to their opinions and
perceptions about the contribution of these instruments.
In addition, we targeted to knowing
as complementary objectives, which were the basic additional resources and main
actions, aimed at keeping or generating sustainable competitive
advantages.
Finally, we have highlighted the
likely utilization of competitive position indicators in order to rank
benchmarks and assess capabilities to challenge offensive actions and make the
most over opportunities that market may expose.
1.2.
Research Limitations/Clarifications
·
The final sample is the best representation of the
work done over companies to have their response and it complements a prior
study done on the subject. (Alvarez & Viltard 2015).
·
Data collection involved the execution of three basic
tasks:
o
Configuration of the instrument for this purpose.
o
Application of the instrument.
o
Data available analysis.
·
The form used to collect data included objective,
definitions and clarifications in order to facilitate comprehension of the
research and enhance the probability of obtaining replies the more accurate as
possible.
·
The definite sample included twenty SMEs that have
positively replied. Concerning this group, three firms are representative of
their respective sectors and belong to the following industrial sectors:
o
Importation of medical supplies.
o
Optical sector.
o
Importation of shoes and leather accessories.
·
The whole sample except one firm had local ownership.
The international firm is a petroleum service which is headquartered in the
United States of America. This firm and another which represents the
importation of medical supplies lately mentioned currently also operates
abroad.
·
Our SMEs sample includes a diversified number of
sectors as shown bellows:
Table
1: SMEs sample´s Industrial sectors
Industrial sector |
SMEs units |
Weigh as % |
Agriculture |
3 |
10 |
Tourism |
3 |
10 |
Metal-mechanic |
1 |
3 |
Furniture installation |
2 |
7 |
Textile and cloth design |
2 |
7 |
Manufacturing |
3 |
10 |
Shoes and accessories importation |
1 |
3 |
Medical supplies importation |
1 |
3 |
Construction |
3 |
10 |
Health and medical services |
5 |
18 |
Retail |
1 |
3 |
Consulting |
3 |
10 |
Optical |
1 |
3 |
Petroleum services |
1 |
3 |
|
|
|
TOTAL |
30 |
100 |
As a
qualitative research, results shown cannot be generalized. However, they are
useful for assessing which factors may influence their low utilization rate in
this specific firm´s category. We find it especially useful to identify which
misconceptions may prevent managers of using these instruments properly.
1.3.
Findings
The lack of consciousness about
potential benefits of SAT application can provide along the vast majority of
the SMEs managerial community and some cultural factors, such as the related to
being daily-operation solving oriented, may cause their general low utilization
rate we found in this firms’ category.
1.4.
Originality and Value
This research has been a first
attempt to explore the quantity and scope of SAT in Ecuador and specifically in
its Capital District, Quito. Actual consideration of managers and executives of
value perception when using these tools can contribute to either assessing
their competitive position or alternatively creating their own approaches to
outperform competitors.
2. OBJECTIVE OF THIS INVESTIGATION
To
verify the awareness level in respect to endurance and worthiness of SAT;
specifically, its validity as a blueprint to facilitate creation of strategic
options and make relevant choices to lead functional areas. If they can provide
this functionality, we may expect that they result in conducting either actions
to improve incrementally or radically competences that support strategic
choices.
2.1.
The survey approach
The
analysis unit corresponds to SMEs located in Quito included in the sample.
The
reply unit was the CEOs and managers to whom we directed the form designed to
apply the survey.
Our
survey included SMEs with the following characteristics:
·
They are eager to invest mainly in areas of
technology.
·
They have little access to credit facilities.
·
They may show more flexibility to adapt to eventual
changes in the external environment.
·
They may find difficulties to access to effective
communication channels to final consumers.
Questions
included in the sample were mainly addressed to inquire if whether or not their
firms use SAT, which functions are in charge of this activity, which are the
main resources to evaluate competitors’ actions, listing which SAT are used and
any particular order of application, and finally, the kind of improvement introduced and their
impact.
2.2.
The survey results
Before
introducing general results of the whole sample, we will provide some insights
on firms analyzed which are considered as representative SMEs in their
respective sector.
At
first, we refer to CIM, firm that is completely focused on importation of
medical supplies. Its basic competitive advantage was gained at the foundation
of the company two decades ago. Their executives were able to negotiate with
prestigious vendors located in Germany, whose brands are very well positioned
across Europe and America.
Since
then, this company could sign exclusive distribution agreements that cover the
entire country. In order to retain customers and win public biddings in both
private and public sectors, the firm started at the beginning of this decade to
obtain insight about their current and future key processes and especially
those involved in sourcing, bidding, invoicing and post-sale services.
Improvement
on these areas has been part of their basic strategy to outperform competition.
In order to reach that goal, the company had to use VCA (Value chain analysis)
to identify which of them were relevant to command a premium price and may
provide a better attention to customer needs that may increase clients’
loyalty.
Another
competitive advantage of the company is technology itself, which is
continuously demonstrated to customers during their post-sale visits. It is
worth to mention that the continuous upgrading of their products to either
perform tests or assist patients more efficiently is reinforced by knowledge
transferred by their allied suppliers.
Secondly,
we introduced COI (Centro Óptico Indulentes) in our previous paper which was
presented as a case analysis. Specifically, we concluded that this optical
company applied some of the SATs’ set in a very limited and non-systematic way.
Lastly,
one of the top SMEs that belongs to the shoes and leather accessories sector
included in the sample was ZAP. This is a local company that originally
imported shoes from related parties headquartered in Colombia. Afterwards, by
the beginning of this decade started importing products from Panama and Brazil
among other countries. Their distribution channel was exclusively retail though
shops classified in two categories (A & B) which are located across the
main cities in the country (basically, Quito and Guayaquil).
Executives
of this company are aware that because of their relative high investment in
merchandise which represents most of its working capital and assets, they
should start thinking strategically about activities such as procurement, and
marketing. However, they have not committed resources to actively take actions
in this regard or applying SATs insights.
Management
efforts are devoted at least half of their normal schedule to visiting shops
and solving any operational matters such as salesmen deficiencies or
visual-merchandising issues. On a weekly basis, they also monitor price levels
and promotions of competition located near the shops where ZAP has presence.
Despite
the fact that almost every year they launch promotional campaigns in radio and
do marginal marketing activities such as renewal of displays in their shops,
they sensed by the second half of 2014 that it was necessary to create a
position for a designer. Nevertheless, they strongly believed that this
position would also take care of all relevant marketing activities such as
promotions, advertisement in media and social networks, market research among
others. Unfortunately, their managerial structure and especially their human
resources function was not able to identify the whole set of competences that
this position should possess.
Although
they believe that procurement has to be oriented to, the fashion-segment there weren’t
resources committed to classify any current or potential portfolio of products.
In fact, purchases are based on particular criteria of the CEO and a
procurement-assistant by considering which trends might be embraced by current
or potential visitors at shops at the next season. Despite the huge
significance of decisions, for example the range of investment involved and
likely low turnover that rejection of clients may provoke, executives are not
willing to contract at least a pilot project to micro-segment the market and
exploit this insight.
Kotler
and Armstrong (2006) find this technique very useful to identifying a set of
competitive advantages in terms of product (style, design, and durability),
right people, and image among others. Applying this marketing technique would
have let the firm not only design a customized marketing campaign but also
improve their planning demand tasks and hence increasing their inventory
turnover.
In
addition, IT department did not have enough resources to build and keep
databases well enough structured that can be used to apply further analysis.
Concerning
the industry analysis, the company only monitors certain actions such as
promotions launched by new multinational players such as Aldo and Xoxo.
Although there is a lot of information provided by official and private web
pages in regards to economic aggregates, their managerial team has not
allocated any resources to organize data and obtain insights on position and
trends compared to main competitors. In this regard, official institutions such
as the Statistic National Bureau and controlling entities such as the “Superintendencia de Compañías”[2],
provide on their web pages a great deal of information according to their
corresponding sector.
Procurement
activities such as a pre-selection of the mix of purchase orders and amounts to
be procured to vendors are executed twice a year after attending international
fairs in Central and South America. Despite the fact that there is enough time
to optimize the purchasing-mix planning, the managerial team based their
decisions on cost-benefit analysis exerted by the Accounting Department.
Because this kind of decisions should involve well-structured financial
approaches, simplicity of that insight may not be adequate under those
circumstances. Furthermore, the Accounting Department is focused in complying
with new fiscal regulations, which may be not worth for the company in terms of
value.
After
management realized that a better orientation of the market preferences may provide
with information in order to be more accurate in identifying trends, they
decided to add a deeper research activity to the visual merchandising’s
function. Once again, lack of abilities to recognize competences was present to
not properly implement this key activity.
In
brief, the management style to obtain results was referred almost exclusively
through closely monitoring productivity of the sales area. Additionally, their
lack of strategic perspective may threaten their competitive position.
The
general results of the thirty replies obtained can be summarized as follows:
·
Although the whole set of firms included in the sample
consider that utilization of SAT may reinforce their competitive position, 67%
of them do not use any of these instruments.
·
In firms where some SAT are applied, they are utilized
by general managerial functions and sometimes with shared responsibility with
the financial function, except the case of SIC (A firm dedicated to processes
consulting) that preferred to support this activity with the contribution of
the sales manager. Their intention to expand geographically in the local market
may explain this decision.
·
In regards to PEST application, firms that use SAT
mention economic and technological variables as those that have more
implications for their performance. The first acquire some relevance because
they may create any value when differentiating from competitors. Technology is
recognized as a way to command a premium price over their peers. However,
because of the lack or economic resources, SMEs preferred to acquire any kind
of technology when it becomes affordable and the price seems to be reasonable
for their executives.
·
The most popular and acknowledged tools among firms
which use SAT are SWOT and VCA (Value chain analysis). Users of the first
instrument produce their information basically through the brainstorming
technique. As previously mentioned, firms such as CIM and COI used VCA
specifically to improving process in some areas.
·
Although the low utilization rate evidenced in this
research, some actions of competition are constantly evaluated. To perform this
task, these firms use client connections and vendors as well. Despite the fact
that some of those actions are commented during Sales meetings, there is no effort
evidenced to collect, process nor monitoring this information.
·
75% of firms that use at least one of the SAT
techniques took advantage of their sales force to inquire about competition’s
new actions in terms of service, quality and promotions.
·
Despite the low utilization of SAT, the whole sample
set made investments in areas which were considered of excellence. For
instance, at least half of them made investments in areas of technology and
marketing.
·
COI and CIM used exclusively market share as competitive
position indicators. Besides, SIC use their own indicators based on information
provided by their partner and vendor Oracle. The number of certifications
achieved and successful implementation cases are the main metrics used by this
firm to benchmarking against their competitors.
·
The incipient usage of SAT causes that the analysis of
this sample does not contribute to show any patterns in the path of the
application of different instruments. Thus, we could not use these results as a
possible basis to propose a systematic order of application as we did in our
previous research.
·
In general, actions needed to improve competiveness
were mainly focused to perform activities oriented to differentiate products or
services, and using some negotiation power with vendors.
·
Similarly, firms included in the sample introduced
either incremental or radical improvement in their business. In regard to the
first category, a better designing of products, the introduction of marketing
activities and acquisition of technology were the preferred activities for the
50% of them. Radical improvement basically involved revision and upgrading of
key processes.
3. CONCLUSIONS
Our
study revealed that SMEs do not strictly use a set of SAT. A large portion of
insights is intuitive and highly dependent of a very small managerial team
(owners with some occasional assistance). The main conclusions of this
investigation are described below:
·
VCA, which was the second preferred instrument of
analysis among firms that confirmed their utilization, dilutes its application
to identify and list some of the main activities and sub-activities. However,
these firms did not exploit its main advantage through benchmarking its
competitive position in terms of either create value or reduce costs.
·
Firms did not use indicators of competitive position
especially in terms of productivity or optimizing financial decisions. By
exception, two of our sample mentioned that market share is their basic figure
on this matter. However, it is very arguable that this indicator can be
strictly related to measure better positioning in terms of competitiveness.
·
The lack of awareness of benefits provided by some set
of SAT prevents the capability to recognize and assess the real impact of
strategic issues. Contextual assessment of elements inside and outside the firm
may contribute to better judging and then suggesting viable alternatives.
·
Information technology may become a crucial resource
to produce process and structure systematically information. The higher degree
of responsiveness on this issue and management’s commitment to allocate enough
resources in this area may lead to reach competitive advantages in terms of
effective actions. E.g. sourcing and following actual client’s trends and their
value perception.
·
The absence of methodological application of SAT may
enhance the gap in capabilities to gain competitive advantages when compared to
approaches made by multinational firms, which are used to base decisions on
pilot projects and then accepting larger scope projects that contribute to
optimized decisions.
·
Embracing SAT as a likely resource to facilitate the
creation of choices may also be used in some sequence to validate their
individual output if compared to results obtained when they are applied as a
set, and thus increasing probabilities to let them be instruments to facilitate
value creation.
REFERENCES
ALVAREZ, D.; VILTARD, L. A. (2015) Simple
strategic analysis tools at SMEs in Ecuador, Independent Journal of
Management and Production (IJM&P), v. 6, n 2
KOTLER, P.; ARMSTRONG, G. (2006), Principles of Marketing, 11th ed. London: Pearson Education Inc.
LESSARD, D.
(2003) Frameworks for Global Strategic Analysis. Senate
Hall Academic Publishing (MIT), v. 1, n1
QUIÑONEZ,
M. (2012), Estudio de la gestión
competitiva de las pequeñas y medianas empresas (Pymes) comerciales en la
provincia de Esmeraldas en Ecuador. Available:
http://www.eumed.net/cursecon/ecolat/ec/2012/ Access: 31st August,
2013).
ATTACHMENT
I
List of firms
included in the sample (arranged by sector)
FIRM |
ORIGIN |
SECTOR |
Agriful |
Ecuador |
Agriculture |
Agrirose |
Ecuador |
Agriculture |
Rosas de la Montaña |
Ecuador |
Agriculture |
Office solutions |
Ecuador |
Retail |
Clínica Internacional |
Ecuador |
Health
& Medical |
Idytes |
Ecuador
|
Health
& Medical |
Torres Médicas |
Ecuador |
Health
& Medical |
Medisalud |
Ecuador |
Health
& Medical |
Sermens |
Ecuador |
Health
& Medical |
CIM |
Ecuador |
Medical
supplies |
Alcristal |
Ecuador |
Construction |
Evolux |
Ecuador
|
Construction |
Servicios técnicos industriales |
Ecuador
|
Construction |
Casa Kolping |
Ecuador
|
Tourism |
Comiexpress S.A. |
Ecuador
|
Tourism |
Segutouring |
Ecuador
|
Tourism |
Airprotek |
Ecuador
|
Manufacturing |
Plastimet |
Ecuador
|
Manufacturing |
Ecuacable |
Ecuador
|
Manufacturing |
Almetal |
Ecuador
|
Metal-mechanic |
Centro Óptico Indulentes |
Ecuador
|
Optical |
Generación Modular |
Ecuador
|
Furniture
installation |
Diarte |
Ecuador |
Furniture
installation |
Magbor |
Ecuador
|
Textile
& Clothing Design |
Soria |
Ecuador
|
Textile
& Clothing Design |
Grupo Ideas |
Ecuador
|
Consulting |
Jorge López & Asociados |
Ecuador
|
Consulting |
SIC |
Ecuador
|
Consulting |
Swanberg |
USA
|
Petroleum
Services |
ZAP |
Ecuador |
Shoes |
[1] SME stands
for small and medium-sized Enterprises. Factors such as the number of employees
and turnover are basically considered to define them in regions across the globe.
In Mercosur, firms are categorized as medium-sized enterprises if they have up
to 300 employees or if they gross up to US$ 10 million in revenues.
[2] This
controlling entity is the technical institution which acts independently which
follows the activity, function and dissolution of businesses according to local
laws.