Int. Journal of Business Science and Applied Management, Volume 4, Issue 1, 2009
Strategic management and entrepreneurship:
Friends or foes?
Sascha Kraus
Helsinki University of Technology, Finland
& University of Liechtenstein, Fürst-Franz-Josef-Str., FL-9490 Vaduz, Liechtenstein
Email: sascha.kraus@hochschule.li
Ilkka Kauranen
School of Management¸ Asian Institute of Technology
Office room 236, Phathumthani 12120, Thailand
Tel: +66-89 (0) 6890560
Email: ilkka@ait.ac.th
Abstract
The objective of this article is to create a better understanding of the intersection of the academic fields
of entrepreneurship and strategic management, based on an aggregation of the extant literature in these
two fields. The article structures and synthesizes the existing scholarly works in the two fields, thereby
generating new knowledge. The results can be used to further enhance fruitful integration of these two
overlapping but separate academic fields. The article attempts to integrate the two fields by first
identifying apparent interrelations, and then by concentrating in more detail on some important
intersections, including strategic management in small and medium-sized enterprises and start-ups,
acknowledging the central role of the entrepreneur. The content and process sides of strategic
management are discussed as well as their important connecting link, the business plan. To conclude,
implications and future research directions for the two fields are proposed.
Keywords: strategy, strategic management, entrepreneurship, small and medium-sized enterprises,
SMEs, intersection
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38
1 Introduction
In a new competitive landscape (1995), entrepreneurial strategies are becoming more and more
important for both new as well as established enterprises. Due to e.g. increasing environmental
dynamics and intensifying global competition, enterprises, regardless of their age or size, are forced to
build more entrepreneurial strategies in order to compete and survive (Hitt, Ireland, & Hoskisson,
2001; Meyer, Neck, & Meeks, 2002). These entrepreneurial strategies are said to be related to better
company performance. They aim to build on the identification of opportunities and develop them
towards competitive advantages (Hitt, Ireland, Camp, & Sexton, 2002). This is where the fields of
entrepreneurship and strategic management intersect.
Both academic fields are focused on the process of adapting to change and exploiting
opportunities. Despite this shared focus, they have developed largely independently of each other (Hitt
et al., 2001). Recently, scholars have called for the integration of these two fields (Meyer & Heppard,
2000; McGrath & MacMillan, 2000). The need for integration emerges as strategists, on the one hand,
need to use resources in order to exploit opportunities (mostly under uncertain conditions) – and
entrepreneurs, on the other hand, need to include a strategic perspective in their planning and actions.
In times of growing uncertainty and increasing speed of change, both new threats and new
opportunities emerge (Brown & Eisenhardt, 1998; Shane & Venkataraman, 2000). The identification
and exploitation of these opportunities is the essence of entrepreneurship – whereas the essence of
strategic management is in how these opportunities can be transformed into sustainable competitive
advantages (Zahra & Dess, 2001; Venkataraman & Sarasvathy, 2001; Kuratko, Ireland, Covin, &
Hornsby, 2005). The call for the integration of these two fields is a surprisingly new phenomenon.
Both disciplines are concerned with value creation, acknowledging it as a major organizational
goal. Entrepreneurial actions and strategic actions can contribute to value creation independently, but
they can contribute even more when they are integrated. Indeed, entrepreneurial opportunity-seeking is
at the same time also strategic behaviour with the aim of value creation (Ireland, Hitt, & Simon, 2003;
Ramachandran, Mukherji, & Sud, 2006). A central interest of researchers in strategic management is to
explain differences of enterprises in their value creation – an interest which is increasingly shared by
researchers in the field of entrepreneurship as well (Ireland, Hitt, Camp, & Sexton, 2001).
In addition to “classical” variables that describe entrepreneurship, such as the characteristics and
motivations of entrepreneurs, many authors favour a greater emphasis on organizational and strategic
variables (e.g., Zahra, 1991; Entrialgo, Fernández, & Vázquez, 2000). Zahra & Dess (2001) argue that
the integration of different views is a key to more fruitful research in entrepreneurship, and specifically
name strategic management as a most promising area to be integrated into entrepreneurship research.
The positive outcomes of such an integration can be observed in real business life, where
entrepreneurial enterprises are more inclined to engage in strategic management practices than more
established enterprises which are by nature more conservative (Shuman, Shaw, & Sussmann, 1985;
Bracker, Keats, & Pearson, 1988; Woo, Cooper, Dunkelberg, Daellenbach, & Dennis, 1989).
Entrepreneurship and strategic management both have made their unique and valuable
contributions to management theory. Although their foci differ, both are inevitably interrelated, and are
often complementarily supportive of each other (Ireland et al., 2003). Meyer & Heppard (2000) remark
that the two fields are in fact even inseparable, forming two sides of the same coin, since the research
results of the one cannot fully be understood without the other (Barney & Arikan, 2001).
Nevertheless, the evident intersection between these two research fields has been largely left
uncovered so far. Thus, the objective of this article is to create a better understanding of this
intersection, based on an aggregation of the extant literature in these two fields. The article attempts to
structure and synthesize the existing scholarly works on this topic, thereby generating new knowledge.
The results can be used to further enhance fruitful integration of the two academic fields.
2 THE FIELDS OF ENTREPRENEURSHIP AND STRATEGIC MANAGEMENT
2.1. Entrepreneurship
Entrepreneurship was emerging as an academic field of study when Karl Vesper founded an
interest group within the Academy of Management‟s (AoM) Business Policy and Strategy division in
1974. Five years later, David Birch (1979) reported that small enterprises created about 90 percent of
all new jobs, and thereby highlighted entrepreneurship as the engine of growth in the economy. In
1987, entrepreneurship finally became a separate division of the AoM (Meyer et al., 2002). At present,
entrepreneurship is acknowledged as one of the major driving forces of the economy of every modern
society (Brock & Evans, 1989; Carree & Thurik, 2000) and is considered as the instrument to cope
with the new competitive landscape and its enormous speed of changes (Hitt & Reed, 2000).
Sascha Kraus and Ilkka Kauranen
39
Entrepreneurship entails far more than starting up a new venture (Stevenson & Jarillo, 1990). It
can also take place in established organizations where renewal and innovation are a major goal
(Sharma & Chrisman, 1999). Entrepreneurial behaviour can accordingly be found in all kinds of
enterprises, regardless of their size, age or profit-orientation (Kraus, Fink, Rößl, & Jensen, 2007).
Entrepreneurship describes the process of value creation through the identification and exploitation of
opportunities, e.g. through developing new products, seeking new markets, or both (Lumpkin, Shrader,
& Hills, 1998; Shane & Venkataraman, 2000; McCline, Bhat, & Baj, 2000). It focuses on innovation
by identifying market opportunities and by building a unique set of resources through which the
opportunities can be exploited, and is usually connected with growth (Ireland et al., 2001; Davidsson,
Delmar, & Wiklund, 2002). Reynolds et al. (1999) e.g. proposed that 15 percent of the highest growth
enterprises created 94 percent of all new jobs. One of the key challenges for entrepreneurs is to deal
with the strategic changes required with the growth of their enterprise (Thompson, 19999). Many
scholars have thus decided to separate (growth-oriented) entrepreneurship from small business
management (i.e. mom and pop enterprises or lifestyle businesses), describing growth as “the essence
of entrepreneurship” (Sexton & Smilor, 1997, p. 97).
Entrepreneurial enterprises identify and exploit opportunities that their competitors have not yet
observed or have underexploited. An appropriate set of resources is required to exploit entrepreneurial
opportunities with the greatest potential returns (Hitt et al., 2002). An entrepreneurial enterprise‟s
resources are often intangible, such as unique knowledge or proprietary technology. According to
Ireland et al. (2001), entrepreneurial behaviour arises through the “…concentration on innovative,
proactive, and risk-taking behaviour” (p. 51). In real business life, though, there is not yet a cogent,
direct treatise to formally recognize entrepreneurial behaviour as a new “dominant logic” in enterprises
(Meyer & Heppard, 2000).
2.2. Strategic management
The “birth” of strategic management as an academic field can be traced to the 1960s (Furrer,
Thomas, & Goussevskaia, 2007). Chandler‟s “Strategy and Structure” (1962) and Ansoff‟s “Corporate
Strategy” (1965) are among the first seminal publications in this field. In its first decades of existence,
strategic management almost solely investigated strategic issues in large, established enterprises
(Analoui & Karami, 2003).
The basis of strategic management is the notion that strategy creates an alignment between the
enterprise‟s internal strengths and weaknesses on the one hand and its opportunities and threats
(SWOT) in its external environment on the other (Andrews, 1987). Schendel and Hofer (1979)
identified the following six “major tasks” of strategic management: 1) goal formulation, 2)
environmental analysis, as well as the 3) formulation, 4) evaluation, 5) implementation and 6) control
of strategies. Sandberg (1992) lists an enterprise‟s resources, processes, strategy and field of industry as
the primary variables of strategic management.
Strategic management deals with how enterprises develop sustainable competitive advantages
resulting in the creation of value (Ramachandran et al., 2006). An underlying basis of the Austrian
school in strategic management (Schumpeter, 1993 [1934]) is the temporary nature of such competitive
advantages. Accordingly, strategic management can be regarded as setting the context for
entrepreneurial behaviour, i.e. the exploitation of opportunities (Ireland et al., 2001).
Strategic management research is for a large part concerned with identifying differences among
enterprises‟ performance by examining their efforts to develop sustainable competitive advantages as
determinants of their ability to create value (Ireland et al., 2003). A competitive advantage results from
a long-lasting value difference in the product or service compared to those of its competitors as
perceived by the customers (Duncan, Ginter, & Swayne, 1998). The possession of valuable, rare, non-
imitable and non-substitutable resources (Prahalad & Hamel, 1990) as well as a favourable market
position (Porter, 1985) are regarded as major sources for sustainable competitive advantages. This
builds the basis for the resource-based view (RBV) of strategic management, which regards an
enterprise as a bundle of resources that needs to be deployed strategically in order to add value
(Wernerfelt, 1984; Barney, 1991). Small and medium-sized enterprises (SMEs) and start-ups (which
typically are small in the beginning, and therefore a subset of the former), have almost by definition
fewer resources than larger enterprises, and the types of resources of these two groups of enterprises
are different (Mosakowski, 2002). SMEs possess such capabilities as niche filling, speed and flexibility
that allow them to exploit certain opportunities faster and more effectively than established enterprises
(Li, 2001). Nevertheless, so far the RBV lacks the insights provided by creativity and entrepreneurial
behaviour (Barney, 2001). Therefore, the role of entrepreneurial behaviour in corporate strategy is
increasingly emphasized (Mosakowski, 1998; Alvarez & Barney, 2000; McCarthy, 2003).
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A major differentiation in strategic management is between content and process, i.e. the strategy
itself (content) and its implementation (process) (Stacey, 1993). On the content side, there are three
“levels” of strategy within enterprises: 1) the corporate strategy which defines what businesses the
enterprise is in and how all of its activities are structured and managed, 2) the business level strategy
which is concerned with creating a competitive advantage in each of the enterprise‟s product levels or
strategic business units, and 3) the functional level strategy examples of which are marketing strategy,
human resources strategy and research and development strategy (Thompson, 1995; Analoui &
Karami, 2003). In SMEs, level 1 and level 2 mentioned above are usually the same.
Strategy can also be classified into different “schools”. Table 1 shows Mintzberg‟s (1990a)
categorization of strategies, which was done after a review of about 1,500 published articles on
strategic management.
Table 1: Mintzberg’s Schools of Strategy
Prescriptive Schools
Descriptive Schools I
Descriptive Schools II
Design school
Conceptual strategy development
through achievement of a “fit”
between internal strengths and
weaknesses and external
opportunities and threats.
Main instrument: SWOT analysis.
Entrepreneurial School
Visionary strategy formation, vision
and intuition of the entrepreneur
instead of precise plans. Implicit
perspective (vision) which is
personal and unique
Main instruments: Start-up, niche or
turnaround strategies.
Political School
Power-based strategy formation:
The development of strategies
within the organization is
determined by politics and power,
micro power.
Main instruments: Strategy
development is based on self-
interest and fragmentation or tactics
and positioning.
Planning School
Strategy as a formal process with
single clear steps and techniques.
Main instruments: Scenario
planning, check lists, strategic
control.
Cognitive School
Regards strategy formation as a
mental process, based on individual
perceptions.
Main instruments: Deals with the
origin of strategies and the mental
processes of strategy development.
Cultural School
Strategy formation is a social
process which builds on culture.
Main instruments: Strategy
development is based on mutual
interests and integration; strategy
has a collective perspective and it is
unique and mostly implicit.
Positioning School:
Analytical strategy formation,
strategy being regarded as a generic
competitive position depending on
the industry situation.
Main instruments: Boston
Consulting Group matrix,
McKinsey matrix, PIMS study.
Learning School
Strategy development as an
emergent learning process.
Main instruments: Strategy
formulation and development mesh
with each other; frequently applied
in intrapreneurship.
Environmental School
The environment is not only seen as
a factor, but moreover as the central
actor which determines the strategy.
Main instruments: Examination of
the environmental conditions and
the specific position, termed niche
in population ecology.
Sources: Mintzberg (1990a); Sandberg (1992); Mintzberg & Lampel (1999).
Only the first three – the so-called “prescriptive” – schools have developed their own specific sets
of strategic management instruments; the other schools are not bound to any particular instruments.
The basis of all the schools is the design school‟s SWOT analysis from the early 1960s (Mintzberg &
Waters, 1985), which is also most applicable in SMEs. The design school sees the responsibility for
strategy development as being with the top manager. In SMEs, this mostly is the entrepreneur himself.
The high importance of formalization as well as the control function in strategic planning (e.g. in the
business plan) can be derived from the planning school, which usually defines strategy as a static
formal plan, where planners perform a detailed analysis of the enterprise, its product-market
relationship and the environment (Chandler, 1962; Ansoff, 1965). Check lists or scenario planning are
characteristic strategic management instruments of the planning school. Within the positioning school,
Porter‟s niche strategy seems to be particularly relevant for SMEs. Some of the most important
strategic management instruments of the positioning school are portfolio analyses such as the Boston
Consulting Group matrix or the McKinsey matrix. The use of these instruments in SMEs is applicable
once the enterprise has grown and developed more than one single product or service.
Later, scholars began to concentrate more on the process side (Mintzberg & Waters, 1985;
Pettigrew, 1992), and highlighted the emergent nature of strategic planning due to cognitive limitations,
Sascha Kraus and Ilkka Kauranen
41
learning, organizational politics, and cultural biases. The view emerged that strategy was not simply
based on formality, but moreover also reflected experimentation, intuition and learning, and thereby
reflected the increasingly dynamic changes in the outside business economy (Hamel, 1996; Hayashi,
2001; Miller & Ireland, 2005). The entrepreneurial school e.g. emphasizes the central role of the
entrepreneur in strategic management. The vision and intuition of the entrepreneur are said to be more
important than precise and formal plans. The cognitive school deals with the origin of strategies as well
as with the mental processes of strategy development. It regards strategy formulation as a mental
process, which is partly based on individual perceptions. In the complex reality, the “via regia” can be
assumed to lie somewhere in between formal planning on the one side, and flexibility and intuition on
the other. Accordingly, the learning school sees strategy development as a learning process. This
includes the view that a formalized plan is not static, but needs to be revisited and adjusted, e.g. when
environmental conditions change.
The political school claims that the development of strategies within the organization is
determined by politics and power. This goes along with the “power promoter” of Hauschildt &
Kirchmann‟s (2001) promoter model, which states that in innovation processes, different persons with
different powers are needed to overcome the barriers of unwillingness and of ignorance. The cultural
school again considers strategy formulation as a social process which builds on culture. An
“entrepreneurial culture” within an enterprise which supports learning or innovation is an example of
this. The environmental school examines the environmental conditions of the enterprise. It attempts to
discover the enterprise‟s specific optimal position within this environment, e.g. a niche.
All of the nine schools presented in Table 1 are important for strategic management, and they have
also shown obvious intersections with entrepreneurship. In addition to the presented schools, Mintzberg
has developed a tenth school, the configurational school, which can be regarded as an integration of all
the other nine schools. In this school, certain characteristics and behaviours of enterprises and
entrepreneurs are clustered towards an optimal configuration. In this process, all of the named strategic
management instruments of the other schools can be used, depending on the respective situation
(Kohtamäki, Kraus, Kautonen, & Varamäki, 2008).
3 INTEGRATING ENTREPRENEURSHIP AND STRATEGIC MANAGEMENT
3.1. Interrelated fields
Strategic management research has often given the impression that entrepreneurship can be treated
as a subset of strategic management. The fact that the Entrepreneurship Division of the AoM was a
“spin-off” of the Business Policy and Strategy Division contributes to this image. The more recent calls
for the integration of these two fields are mainly due to the reasons that 1) researchers in both fields use
company performance as a major dependent variable, and 2) the new competitive landscape makes
entrepreneurial strategies more and more important (Meyer et al., 2002).
Stevenson and Jarillo (1990) remark that there is a need to establish links between the fields of
entrepreneurship and strategic management. As Dess et al. (1999) put it, “understanding
entrepreneurial processes has been a central theme in a good deal of both the entrepreneurship and
strategic management literatures” (p. 85). Schendel and Hofer (1979) had already linked both research
fields in the late 1970s when defining strategic management as “a process that deals with the
entrepreneurial work of the organization, with organizational renewal and growth…” (p. 11), and
furthermore stating that “the entrepreneurial choice is at the heart of the concept of strategy” (p. 6).
One of the most obvious linkages between entrepreneurship and strategic management are
opportunities. Opportunities are both at the very heart of entrepreneurship and part of e.g. the SWOT
analysis of strategic management. Enterprises create value by identifying opportunities in their external
environment and by subsequently developing competitive advantages to exploit them (Hitt et al., 2001;
Ireland et al., 2001).
Venkataraman and Sarasvathy (2001) used a metaphor based on Shakespeare‟s Romeo and Juliet
saying that strategic management research without an entrepreneurial perspective is like the balcony
without Romeo, and entrepreneurship research without a strategic perspective like Romeo without a
balcony.
Six “natural” domains where the intersection between entrepreneurship and strategic management
exist have been proposed: 1) innovations, 2) networks, 3) internationalization, 4) organizational
learning, 5) top management teams and governance, and 6) growth (Covin & Miles, 1999; Hitt &
Ireland, 2000; Ireland et al., 2001).
Cooper (1979) was the first to place start-ups into the field of strategic management by
investigating the relationships between the characteristics of entrepreneurs, venture strategies and
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42
performance. He argued that strategic management researchers should study established enterprises and
growth-oriented start-ups, but not “mom and pop” small businesses. This later led to the distinction
between “entrepreneurs” and “small business managers” by Carland et al. (1984). From this point on,
more and more scholars have studied the relationship between strategic management and business
performance in SMEs (Schwenk & Shrader, 1993, Kraus, Harms, & Schwarz, 2006). SMEs are thought
to be so unique that standard textbook approaches of strategic management, which have originally been
developed for large enterprises, are not considered suitable for them. On the other hand, corporate
entrepreneurship (intrapreneurship), i.e. entrepreneurial behaviour within established organizations, is
closer to such a “standard” strategic management (Sandberg, 1992). SMEs have always been skilful in
identifying entrepreneurial opportunities, but less effective in developing and sustaining competitive
advantages for exploiting them. It is mostly the other way around with established enterprises (Ireland
et al., 2003).
It has been found that many of the key topics in entrepreneurship research, e.g. new venture
creation, innovation and opportunity-seeking do in fact apply to the strategic management paradigm as
well. New venture creation e.g. is in most cases about acquisition, mobilization and deployment of
resources and the integration of the resources with opportunities, and can thus be linked to Mintzberg‟s
design school, which is about matching resources with opportunities (Sandberg, 1992). Also,
innovation, being understood in the Schumpeterian sense as new combinations of factors of production,
builds on resources, which again build the basis of many strategic management instruments (e.g.
Wernerfelt, 1984; Barney, 1991). If the creation of innovations is understood as an individual process,
both the cognitive school and the entrepreneurial school of Mintzberg can be applied (e.g. in exploring
how innovations appear and in explaining the strategic nature of innovations), and the learning school,
where creation of innovations is seen as an organizational phenomenon (e.g. by the way an innovation
leads its way through the organization).
3.2. Strategic management in SMEs and young SMEs
The application of strategy in SMEs is a main part of the intersection between entrepreneurship
and strategic management (e.g. Chan & Foster, 2001). Next to the content and process side (which are
always interrelated, e.g. in the form of a business plan) of strategy within SMEs, the role of the
entrepreneur is particularly important. The following table as well as the following sub-chapters
exemplarily show four major constitutive elements of SME strategy and their characteristics.
Table 2: Constitutive Elements of SME Strategy
Entrepreneur
Strategy Content
Strategy Process
Characteristics
The Entrepreneur or
the SME manager
is the main
strategist and
decision maker
develops the vision,
mission and
strategies for the
enterprise
implements the
vision, mission and
strategies
Most promising market
entry strategies for
SMEs
niche strategy: allows
targeting of customer
needs by focusing the
limited resources on a
narrow market segment
differentiation strategy:
offers the customer a
special advantage
along a valued
dimension (e.g. quality
or price leadership)
Strategic
instruments which
are suitable for
SMEs
SWOT analysis
PEST analysis
industry analysis
product life-cycle
analysis
Business portfolio
matrixes
Other Issues
and Challenges
Personal goals,
traits and strategic
orientation having a
significant impact
on the SME‟s
strategy.
Daily business is
customarily
regarded as more
important than
long-term
strategies.
Other dimension of
assessing an
enterprise‟s market
entry: product/market
strategy (four-field
matrix with different
combinations for
implementing existing
or new products in
present or new
markets).
Other strategic
instruments (e.g.
benchmarking,
GAP analysis,
BSC), which could
also be used in
SMEs, are often
unknown in SMEs.
(Main) Sources
McKenna (1996);
Berry (1998);
Vesper (1980); Ibrahim
(1993); Lee et al.
Andrews (1987);
Zahra & Dess,
Sascha Kraus and Ilkka Kauranen
43
McCarthy (2003);
Analoui & Karami
(2003)
(2001); Gruber (2004)
(2001); Analoui &
Karami (2003);
Kraus (2007)
Research Gaps
and Areas for
Future Work
Changes in strategy
when the SME
grows and the
entrepreneur is no
longer the only
decision maker (e.g.
entrepreneurial
teams)
Possible correlations
between the applied
strategy and corporate
success; industry-
specific surveys
Possible
correlations
between the
instruments and
corporate success
3.2.1. The entrepreneur’s role in SME strategy
Empirical evidence suggests that entrepreneurs in SMEs plan in a way that is quite different from
the standard textbook approaches (McCarthy, 2003). In the multitude of SMEs, not top management
teams, but the entrepreneur himself is the enterprise‟s main strategist and decision maker, developing
the vision, mission and strategies, and also implementing them (Analoui & Karami, 2003). Strategic
decisions reflect the subjective orientations and attitudes of the entrepreneur. The role of the
entrepreneur and his attitude towards strategic issues are therefore often critical for the implementation
of strategy (Kraus, 2007).
Likewise, the entrepreneur‟s personal goals, traits and strategic orientation will have a significant
impact on the enterprise‟s strategy (McKenna, 1996). Many entrepreneurs routinely operate their daily
business, but do not believe that strategic management applies to them. However, it has been argued
that no business is too small to have a solid strategy (Sandberg, Robinson, & Pearce, 2001). The
question of whether or not to use sophisticated strategic management instruments again depends on the
entrepreneur‟s previous experience (Berry, 1998).
3.2.2. Strategy content
The market entry of a start-up is of major importance because it determines the strategic basis
from which the enterprise tries to achieve competitive advantages in the market place (Gruber, 2004).
The enterprise‟s relative position within the market strongly influences its performance. Within the
spectrum of the generic strategies by Porter (1985), there are (at least) three options: 1) cost leadership,
2) differentiation, and 3) focus on a market niche. Whether there is a cost advantage or a differentiation
potential for the enterprise is the result of the enterprise‟s ability to cope with the five competitive
forces (industry competitors, potential entrants, buyers, substitutes, and suppliers) better than its
competitors. Young SMEs can seldom develop cost advantages, as these are often based on economies
of scale. For these enterprises, most researchers recommend the niche strategy (e.g. Vesper, 19800).
Besides, young SMEs can hardly target a market as a whole, but more likely have to target certain
narrow market segments which larger competitors ignore (Lee, Lim, Tan, & Wee, 2001). A niche
strategy allows an enterprise to target customer needs by focusing the enterprise‟s limited resources on
a narrow segment of the market. This gives time for establishing a market position and developing both
the necessary resources to survive (Bamford, Dean, & McDougall, 1997). Numerous empirical studies
confirm that the niche strategy is often the most successful initial entry strategy. Ibrahim (1993) made
this observation with small enterprises and Bantel (1996) with 166 small technology-based enterprises.
Still, the niche strategy leaves several risks for SMEs, since larger enterprises can easily launch an
attack on the market niche simply by making the choice to do so.
The differentiation strategy is also possible for SMEs. The core of this strategy is to offer the
customer a special advantage along dimensions that are highly valued by the customers (Porter, 1985).
This could be e.g. quality leadership where the enterprise aims to offer the market the best quality
compared to its competitors. The differentiation potential of SMEs is mostly imbedded in the business
idea of the enterprise or in a technical innovation. A common mistake of entrepreneurs is being
enthusiastic about their new ideas, neglecting the market, and failing to assess if there is a target group
for the new products or services.
Another dimension of assessing an enterprise‟s market entry is the product/market strategy. The
decision within this strategy is whether to implement existing or new products in present or new
markets. The original matrix concept of the product/market strategy by Ansoff (1965) consists of four
different strategies: 1) present product in present market, representing status quo, 2) present product in
new market, e.g. through internationalization, 3) new product in old market, usually based on some
innovation, and 4) new product in new market, which is the most risky and most expensive strategy
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option. These strategies can be useful for young SMEs as well, despite the fact that these enterprises
are usually restricted in their actions because of their limited resources. The product/market matrix can
be an efficient management instrument for identifying new strategies and for planning resources
accordingly. For achieving the highest performance, each strategy option needs to be linked with
appropriate resources (Borch, Huse, & Senneseth, 1999).
3.2.3. Strategy Process
With regard to the strategy process, several different strategic management instruments can be
applied in SMEs, depending on the respective situation the enterprises are in. For instance, any
enterprise needs to assess its position within its environment and within the market (Zahra & Dess,
2001). A common instrument for this is the SWOT analysis, which aims at studying internal strengths
and weaknesses and matching them with the enterprise‟s external opportunities and threats (Andrews,
1987). A SWOT analysis can be used as a basis for developing future strategies as well as for
developing the business plan. Another part of the environmental analysis is the PEST analysis, which
tries to identify political and legal (P), economical (E), socio-cultural (S), and technological (T) factors
influencing the enterprise. Finally, the industry analysis tries to assess the attractiveness of a specific
industry for the enterprise (Analoui & Karami, 2003). The industry analysis again can use sub-
instruments, such as market analyses (e.g. Wickham, 2001) and Porter‟s (1985) five forces analysis.
The product life-cycle (PLC) concept can be utilized in enhancing the effectiveness of operative
instruments and in changing the strategies, especially in young SMEs. The basic idea of the PLC
concept corresponds to the law of birth and death of all biological existence. This idea can be
transferred to man-made systems, such as products or markets. Even if the forecasting ability of the
PLC concept has been deemed rather limited (Levitt, 1965; Cox, 1967), it provides a good overview of
marketing decision options, especially in the implementation phase and growth phase of an enterprise
(Kraus et al., 2007).
Business portfolio models, such as the Boston Consulting Group (BCG) matrix or the McKinsey
matrix rely, on the one hand, on the PLC concept as a predictor for the axis of market attractiveness
and, on the other hand, on the concept of the learning curve as an indicator for the relative market share
(Hedley, 1977). Originally, these matrixes were designed to facilitate recourse allocation between
different strategic business units (SBUs) of an enterprise. In this sense, portfolios are not applicable for
young SMEs which, due to their small-scaled structure and age, typically do not consist of SBUs.
However, transferring the concept to the range of different products, these matrixes can be useful
strategic management instruments for young SMEs as well. The ideal distribution of products within
the portfolio can especially be interpreted as the optimal structure of the product line, as it shows
opportunities and threats of each single product in relation to both the market share and the maturity of
the market. Such analyses can reveal when a new product should be introduced into the market in order
to rejuvenate the product line, and furthermore when measures need to be taken to boost a product into
a market dominating position (to make a cash cow out of a star).
Other well-known strategic management instruments, such as e.g. benchmarking, GAP analysis or
Balanced Scorecard, which can also be used in SMEs, are often unfamiliar to entrepreneurs, especially
if the entrepreneurs do not have an educational background in management (Kraus, 2007).
3.2.4. The business plan
Every business, regardless of its size, has some form of a strategic plan. In small enterprises, this
may include e.g. the general ideas put forward by the entrepreneur; with increasing size of the
enterprise, however, the strategic plan usually becomes more formal and elaborate. Such a document is
called a business plan. It is the document which describes the enterprise‟s strategy, i.e. content and
process, thereby presenting the vision of the enterprise and how the enterprise is going to attain its
vision (Honig & Karlsson, 2004). The business plan can particularly serve as the basis of the strategy
itself and as its formalized documentation. Usually, it is written to serve as a means of communication
with external stakeholders, especially potential investors (Castrogiovanni, 1996). In addition, it can
serve as a mechanism for internal control and goal-achievement.
Entrepreneurs who prepare a business plan become more conscious of their business instruments
and their assumptions about how to become successful. In some cases, after devising the business plan,
especially after making the financial calculations, the entrepreneur might even find that his business is
not likely to succeed, and thereby gets the chance to not go into business rather than engaging in one
which is ex ante deemed to fail. This can be seen as a most positive outcome of the pre-start-up
planning process.
The pure existence of a business plan and the quality of the business plan are commonly regarded
as indicators of the enterprise‟s attitude towards strategic planning. They also provide insight into how
Sascha Kraus and Ilkka Kauranen
45
much the entrepreneur is committed to his venture (“signalling effect”). Research has indicated that the
probability of actually founding the new company is six times higher among entrepreneurs who have
written a business plan than among entrepreneurs who have not written a business plan (Heriot &
Campbell, 2004). Furthermore, the existence of a business plan has been positively associated with the
success of the enterprise e.g. in an Austrian study of 458 young SMEs by Kraus and Schwarz (2007)
and in a study of 312 nascent entrepreneurs from the USA by Liao and Gartner (2008). Similarly, a
study by Schulte (2008) of 585 business plans from Germany also regarded pre-start-up planning as an
important requirement for success.
The business plan can be regarded as one of the most important strategic management instruments
in young SMEs. Nevertheless, the actual process of decision making that can be observed in reality
often deviates substantially from the management‟s ideal picture of rationality – planning in SMEs
seems to be rather unstructured, sporadic, and incremental, due to e.g. limited resources, limited time,
or the entrepreneur‟s attitude towards formal planning (Kraus, 2007). As a consequence, the majority
of SMEs still do not have a written business plan (e.g., only 29.5% of the 468 young SMEs in the study
by Kraus & Schwarz, 2007 had a business plan).
3.2.5. Limitations of previous research studies
Previous research on the fields of strategic management in SMEs has numerous limitations that
need to be addressed in future research. First, it is often limited to those enterprises that have already
been identified as conducting strategic planning or to the surviving enterprises, whereas failed
companies are not considered (“survivor bias”). These studies‟ response rates have mostly been rather
low. It can be assumed that questionnaires are more frequently returned by such enterprises that apply
strategic management instruments more than the others. The results concerning the use of strategic
management instruments might therefore be unintentionally inflated. Furthermore, in previous studies,
the aggregation of single functional plans has often been a sufficient condition for categorizing an SME
as using strategic planning, which might give a questionable picture of the real nature of the strategic
management in the companies.
Furthermore, previous research studies are difficult to compare with each other due to their
differences in terms of enterprise type, field of industry, sample size, company size, or investigation
period. Likewise, previous studies are often limited to only one industry, which reduces the potential to
derive generalizable conclusions. In this respect, it would be interesting to examine whether there are
differences in the usage of strategic management instruments as it regards the industry sector. It can be
assumed that in these industries, in which product development and order processing have a shorter
time frame (e.g. in the services industry) or in those with a generally smaller range of products,
strategic management instruments are less frequently used.
4 DISCUSSION AND CONCLUSIONS
The objective of the present article was to create a better understanding of the intersection of the
academic fields of entrepreneurship and strategic management. The article was based on an aggregation
of the extant literature in these two fields. It has been shown that there are intersections between both
of these fields of studies, and this is pointed out e.g. by Mintzberg‟s schools of strategy. Obvious
intersections are strategy content and processes within SMEs, i.e. the development of strategic
management instruments for enterprises. The niche strategy has been shown to be a most successful
market entry strategy for new enterprises, whereas the differentiation strategy can also gain importance
once the enterprise grows. Success for any enterprise – regardless of its size or age – is highly
dependent upon its ability to find a valuable strategic position (Thompson, 1999).
Nonetheless, some authors have questioned the overall value of strategic management in SMEs
(e.g. Bhidé, 1994), and argued that it does not work in a dynamic environment where flexibility and
responsiveness are key conditions for survival (Mintzberg, Quinn, & Ghoshal, 1995). We are of a
different opinion. Many of the strategic management instruments which have originally been developed
for large enterprises, such as the SWOT analysis, can be important for SMEs as well, but need to be
adapted according to their particularities. Since SMEs considerably differ from large enterprises in their
amount of resources, it is doubtful that „standard‟ strategic management instruments work in the same
manner in SMEs as in large enterprises. The instruments therefore need to be aligned with the
personnel as well as the cultural, organizational, and financial conditions of the specific enterprise in
order to be successful. Since many strategic instruments are simply not known or applied in SMEs, a
consciousness regarding the virtue of the use of proper strategic instruments needs to be raised. This is
Int. Journal of Business Science and Applied Management / Business-and-Management.org
46
where politics and education have to take over. They both need to use their respective channels for
generating a greater strategic awareness, starting with SMEs, especially the young ones.
All in all, the integration of entrepreneurial (opportunity-seeking) and strategic (advantage-
seeking) perspectives seems to be a promising approach for contemporary management, and is
probably even a necessary approach for coping with the effects of the new competitive landscape. Both
perspectives can be regarded as essential for value creation, although neither is sufficient on its own
(McGrath & MacMillan, 2000; Ireland et al., 2001). Strategic management must therefore without a
doubt become more entrepreneurial, and shift from the traditional administrative approach to a
strategic entrepreneurship approach. This would characterize a new management philosophy that
promotes strategic agility, flexibility, creativity, and continuous innovation. It can also be used in
transforming administrative-oriented employees into intrapreneurs.
A concrete managerial implication of the strategic entrepreneurship approach is the possibility to
develop more entrepreneurial and innovative thinking, especially in young SMEs. This stands in
contrast with the traditional strategic management approach, which characteristically emphasizes
administrative management and focuses on day-to-day business. Intuition and utilizing “gut feelings”
are important elements of the entrepreneur‟s strategy development, although they have to be
supplemented by wise use of strategic management instruments. It is also generally acknowledged that
proper planning has its positive implications for successful implementation. Accordingly, planning
complements and enhances entrepreneurial behaviour or, as Liao and Gartner (2008) put it: “Planners
are doers!” (p. 18).
With regard to research, recent years have brought significant progress in the investigation of
strategic management in (young) SMEs (e.g. Kraus, Harms, & Schwarz, 2008). This has mostly taken
place only on a general, i.e. cross-sectoral level, and has been limited to one country at a time. Future
research regarding the intersection between the entrepreneurial approach and the strategic management
approach should concentrate on (quantitative) empirical investigations from different contexts, i.e. firm
sizes, industries, countries etc. Also, other entrepreneurial sub-groups such as family firms or spin-offs
(corporate venturing) should be investigated regarding their strategic management particularities.
Numerous areas are still under-researched. For example, the changes in enterprise strategies when the
SME grows and the entrepreneur has to delegate power should be investigated in more detail. Possible
correlations between the strategic management instruments applied and company success need more
research. One of the most promising areas for future research is the pre-start-up planning stage.
Strategic management of an enterprise before and during the phase of its foundation is a topic of
increasing interest. This includes research on the role of the business plan in the planning process,
another topic of growing academic interest.
The question of whether the formality of the business plan or the strategic management in general
is beneficial for the success of young SMEs seems to be promising. The dichotomous questions of
whether there is a plan and/or how the qualities of the plan relate to enterprise success should be
investigated. Other relevant research questions entail the content of a business plan, its single elements
and areas, as well as the quality and quantity of such a document. The timing in the preparation of the
business plan (e.g. prior, during or after the founding process) should also be investigated further. Both
quantitative and qualitative research studies, including case research, are called for.
Last but not least, the interplay between personal, structural, strategic and environmental factors in
SMEs, the so-called configurations, (e.g., Harms, Kraus, & Reschke, 2007) is a promising approach for
conceptualizing strategic entrepreneurship by integrating these elementary domains. Of these four
domains, this present article has tried to shed light on the personal and strategic elements of SME
strategy. Accordingly, the two remaining domains of the four in the configuration approach need more
attention. Both theoretical and empirical research work should be done on the (company) structure and
(industry) environment. We regard the configuration approach as one of the most promising avenues
for future research where valid questionnaires for quantitative empirical investigations can be
developed.
Sascha Kraus and Ilkka Kauranen
47
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