STRATEGIC ANALYSIS TOOLS (SAT) APPLICATION AT SMALL & MEDIUM-SIZED
ENTERPRISES (SMEs) IN THE NORTH AREA OF BUENOS AIRES[1],
ARGENTINA[2]
Leandro Adolfo Viltard
Pontificia Universidad Católica Argentina
Graduate School of Business, Facultad de Ciencias Económicas Universidad de
Palermo, Argentina
Universidad de San Isidro (USI), Argentina
Universidad del Pacífico, Ecuador
Universidad Nacional de La Pampa, Argentina
Universidad Nacional de Luján, Argentina
Universidad Nacional del Comahue, Argentina
E-mail: lviltard@yahoo.com.ar
Submission: 18/09/2018
Accept: 29/10/2018
ABSTRACT
This paper studies the
nature and amplitude of Strategic Analysis Tools (SAT) application in SMEs
located in emerging countries, specifically the North Area of Buenos Aires,
Argentina (NABAA), where there are no formal studies on the subject. It is
intended to understand their contribution to strategic options formulation and
implementation. A survey to SMEs’ owners/executives /managers in NABAA and
interviews with specialists were applied, intending to analyze the use of these
tools to facilitate the creation of strategic options, their support in
assessing a competitive position and their promotion of superior performance.
The results of this investigation developed that SAT and their related KPIs
(Key Performance Indicators) should be considered in SMEs in order to improve
strategy formulation and find better ways to implement it. Their
formalization –not leaving aside intuition- become a key issue as documenting
this process appears vital when analyzing strategic options and performing
better interrelations among different elements that may be identified. An
improvement in strategic analysis may help also to have a better cohesion of
company resources and achieve the established objectives. Unconsciousness, and
cultural biases and barriers may explain their low usage rates. The final
objective is to set aside from competition and build unattainable competitive
advantages.
This is a qualitative
investigation, and the research design is not experimental and transversal.
Keywords: Strategic
Analysis Tools (SAT); Formulation; SME; Competitiveness; Value; Strategy.
1. INTRODUCTION
This study is complementary of prior
ones made for Ecuador (PERALTA; VILTARD, 2016; PERALTA; VILTARD 2015A; PERALTA;
VILTARD, 2015B), in which it was indicated, that consulting executives at SMEs
do not opt for relevant tools to support their strategic decisions and/or when
there is a need to outperform competition. In addition, (PERALTA; VILTARD,
2016; PERALTA; VILTARD, 2015B) assert that the Strategic Analysis Tools (SAT)
that are analyzed in the theoretical framework of those studies[3]
–and are approached in this one, too- are: Porter’s five competitive forces,
PEST Analysis, Swot Analysis, BCG Matrix, Ansoff’s Matrix, The Value Chain
Analysis (VCA), and The Activity System Mapping (ASM).
In this work, these tools are not
analyzed in detail, but a summary of their main applications is introduced as
follows:
|
Strategic Analysis tools |
Applications |
|
Porter´s five forces |
·
Identifying relevant factors in the industry that ease reach
profitability and those that limit it. ·
Benchmarking the competitive position with rivals |
|
PEST analysis |
·
Assessing political and legal variables to identifying opportunities,
costs and constraints in the business environment to make strategic choices. ·
Evaluating the correlation between economic variables and performance
of firms in their respective sector. ·
Taking advantage of socio-demographic to go in depth insights over
segmentation or micro-segmentation ·
Assessing the impact of technology through the value chain |
|
SWOT |
·
Applying methodology to measure competitiveness of the firm compared
with their competitors. |
|
Ansoff´s Matrix |
·
To outline generic actions to preserve, develop or conquer markets |
|
VCA |
·
Benchmarking the efficiency with competitors when using resources ·
Optimizing the execution of activities through scenarios of new
combination or suppression of them. |
|
ASM |
·
Assessing complementarities or inconsistencies of activities ·
Evaluating requirements to suppress, reinforce, patching or creating
new competencies and activities ·
Evaluating the capability of firms to respond to changes in the
environment´s configuration ·
Optimizing the activity system through simulation of its
reconfiguration |
Table 1:
Applications of strategic analysis tools
Source:
Álvarez Peralta and Viltard (2015b)
As a result, the
general idea of this study refers to apply the same approach indifferent
realities in order to find out if there exist other SAT usability patterns at
SMEs.
But SMEs are very
important for the economy of many countries, specifically Argentina, which is
studied in this paper. In this sense, Martino (2018) asserts that SMEs have a
huge impact in the Argentinean economy as they are “the engine, the growth and
the roots of the country”. Their relevance resides on the following specific
matters: 8 out of 10 employees are hired in SMEs; half of what is billed
belongs to these firms, being the ones where innovation investments are mainly
done; and –finally- they help to develop the geographic realities where they
are settled. In addition, Martino, the CEO of HSBC, says that global banks must
help these companies to be global and to have better and more technology,
inserting them into the world and into the capital markets. Additionally,
Álvarez Peralta and Viltard (2015b) highlight that competitiveness and
strategic management constitute key elements to keep them sustainable in time.
Also, a strategic analysis process
is needed in order to develop a business strategy, taking into consideration
the business itself and the environment in which it operates. In this sense,
Gartenstein (2018) suggests that it is needed to understand where you are in
order to get where you want to go. That is the reason why SAT are used to map
the current firm’s position and its future direction and growth. The author
insists that the future direction is composed of Strengths, Weaknesses,
Opportunities and Threats SWOT analysis, expanded in (PERALTA; VILTARD, 2016A;
PERALTA; VILTARD, 2016b), and because many tools are subjective
managers/executives need to be as honest and as at the point as possible.
Moreover, Lessard (2003) proposes
that national and international firms must approach -at two different levels-
the opportunities at each location: geographic scope and competitiveness. This
analysis requires strategic thinking to develop an adequate framework and to be
identified the course of action that is applicable to the organization. The
author insists that in many cases -where tools are not necessarily valid-
intuition or a non-formalized assessment may be applicable.
Finally, it was evidenced -in the
sample of 40 SMEs analyzed and in the 6 interviews made with specialists- that
SAT are barely utilized and with no formalization.
The field analysis was focused on
inquiring if there were used other instruments or specific actions in order to
improve competitiveness, and if there may be found other approaches that may
challenge conventional theories. It was found that these firms are not prone to
allocate resources to take advantage of these tools, missing important elements
or valuable connections among them.
As a result, the hypothesis of this
paper states that SAT application and their formalization allow management’s teams
to identify discussion areas that will lead to a better competitive
positioning. In addition, they are important to extract insights from
inside/outside information.
The
objective of this study is to verify the level of awareness regarding SAT applicability
and solvency in NABAA; specifically, its ability to create better strategic
options and relevant choices in the competitive and organizational arenas.
1.1.
Design:
Methodology and analysis
This
is an explorative and descriptive study, with a qualitative methodology. The research design is not experimental and
-among them- transversal.
It was performed in Buenos Aires,
Argentina, and the information was gathered at a moment in time
(February-September, 2018).
The analysis unit corresponds to
SMEs settled in the North area of Buenos Aires, Argentina (NABAA).
Data collection involved the
following tasks: a) instrument’ configuration, b) instrument’ application, and
c) data available analysis.
The samples were intentional,
directed and not probabilistic, and –as a qualitative study- their sizes do not
imply to arrive to adequate conclusions.
As it is explained afterwards, this
investigation is based on a field study composed by:
·
A survey sent to 200 SMEs’ owners/executives/managers
of the NABAA. The final sample is composed by 40 positive replies (20% of the
total forms sent), that although they may be considered a small quantity of
firms participating in the survey, it is understood that this low reply level
was because these firms were not known to the researchers and also because
their executives were very sensible to give information on their activities, as
it was said by different specialists during our interviews. Anyway and to
better support this investigation, the sample was complemented with interviews
to different specialists who provided the information that is shown in this
study.
As a qualitative research and with
the purpose to select a not statistical sample, the focus was on studying firms
that were representative of their industrial sectors, in accordance to what it
was known in the area and what different articles and magazines referred.
These 40 firms
had a local ownership and they included a diverse number of industrial sectors,
as it is shown in the following Table:
Table 2: SMEs
sample´s industrial sectors
Source:
Own
Additionally, most of these companies[4]
did not exceed one hundred employees, as it is shown in the following Table:
Table 3: SMEs
sample´s quantity of employees
Source:
Own
The
survey had 23 closed questions and 1 open (final comments). It also included
the objective, and some definitions/clarifications to help on a better
comprehension of the research and to enhance the probability in obtaining
replies the more accurate as possible.
·
Interviews were done with specialists and firm’s
owners/executives /managers in order to expand and complement the
investigation, and to better support the survey results. The interviews were
held in their offices in order to allow the interviewees to be comfortable in
the place they chose, with the following specialists:
o
Dr. Claudio O. Méndez, President of the Professional
Council of Economic Sciences–San Isidro Delegation (PCES). This institution
covered the studied area, and -in addition- he is the owner of a firm that
offers consulting services to SMEs (organization, taxes and accounting).
The interview
was performed in the PCES’ offices on 07/17/2018.
The PCES has
organized their own sectors of interest in which they had special teams created
for assessing them. The classification of sectors used in this study included a
similar criteria to the one used by this organization.
o
Isidoro Barrera, entrepreneur and owner of Nala Media,
firm that offers consulting
and support services for companies (services, management advice, accounting,
brands and patents, advertising and design). Previously, he worked for IBM
Argentina and a private own consultancy firm.
The interview
was carried out through Skype on 07/20/2018.
o
Federico Fernández, Miljugadas.com CEO, gaming
company.
The interview
was held on 08/01/2018 in his office.
o
Horacio Etchegoyen, owner of San Doménico S.A., firm
that is focused on agricultural livestock.
The interview
was kept on 09/07/2018 by telephone.
o
José Ganora, Human Talent Manager at Educar S.R.L.,
company that is focused on education, and advisory services, management and
business management. Interview held on 09/12/2018.
o
Carlos Oubina, accountant at DBG S.R.L., firm that
offers storage and warehouse services. Interview carried out on 09/18/2018.
In this field study, it was also
targeted to know complementary objectives aimed at keeping or generating
sustainable competitive advantage.
1.2.
Research
limitations/clarifications
·
This is not a bibliographical investigation and it
complements prior researches made on the matter for SMEs of Quito, Ecuador (PERALTA;
VILTARD, 2015A, 2015B, 2016a, 2016b). That is why it is a field study which
aims to analyze a different location –the NABAA- to see if diverse results may
arise. As a result, this paper is concentrated on
the results showed by the reply to the survey, applied to firm’s
owners/executives/managers established in the studied area, and on 6 interviews
held with specialists.
·
As the objective of the survey was to have as many
answers as possible, the final sample of 40 cases is the best representation of
the work done and of the firms that are settled in the NABAA.
·
The interviews with specialists (6 in total) were the
ones that were retained to be useful in order to complement the survey.
·
Conclusions of this study are based on the information
gathered. As a qualitative study, results cannot be generalized but they can be
used to take decisions on the matter. Basically, they are useful to avoid
misconceptions and biases that may prevent managers of using these instruments
properly.
1.3.
Findings
As
in prior studies, in SMEs it was found a lack of consciousness about potential
benefits of SAT application and a majority of owners/executives /managers that
are tied up to cultural factors/biases. Specifically, they were immerse in a
daily-operation solving oriented mind frame that may cause a general low
utilization rate of the analyzed tools in this firms’ category.
Also,
it was found that consideration of owners/managers/executives of value
perception when using these tools could contribute to either assessing their
competitive position or creating their own approaches to outperform
competitors.
1.4.
Originality
and Value
As
there are no other known studies of this matter in NABAA, this research may be
considered a first attempt to explore SAT utilization in this geographic area.
Results may help to develop a better competitive perspective and positioning of
the SMEs located in NABAA.
2. SURVEY TO SMEs’ OWNERS/EXECUTIVES/MANAGERS
2.1.
The
survey approach
As it was said before, the analysis
unit corresponds to SMEs located in NABAA included in the sample.
The
reply unit was the owners/executives/managers to whom the survey was directed.
The
survey included SMEs with some characteristics in common: eager to grow, little
access to credit facilities, flexibility to adapt to changes and with some
communication difficulties with final customers.
The
questions that were considered in the sample were mainly addressed to know: a)
if SAT was used and which functions were in charge of this activity; b) how
were evaluated competitors’ actions; c) produce a list of SAT that were
utilized and if there was any particular order of application, and d) if there
was any impact/improvement on the firm after SAT application.
2.2.
The
survey results
The general results of
the 40 replies obtained can be summarized as follows:
·
The whole set of firms’ owners/executives/managers
included in the sample understood that SAT utilization could reinforce their
competitive position, but 73% did not use these instruments, giving the
following reasons: small organization, urgencies and scarce objectives/business
direction delimitation. As a result, only the 27% utilized some of these tools.
·
Where SAT were applied:
o
The following functions participated: General
Management (61%), Marketing (13%), and Finance, Sales and Production the rest.
o
To formulate strategy, these tools were mostly
utilized: SWOT analysis (40%), PEST Analysis (17%), Product-Market Matrix (13%)
and Value Chain Analysis (10%).
o
The order in which these tools were utilized was: SWOT
Analysis (35%), PEST Analysis (20%), Value Chain Analysis (20%), Product-Market
Matrix (10%) and Growth-Market Share Participation Matrix (10%).
·
The most important external aspects that influenced in
their firms were economic (52%), politic (19%), social (18%) and technological
(8%).
·
The strategy was formulated and reviewed each six
months (53%), once a year (40%) and in variable terms (7%).
·
The resources that were mostly utilized to evaluate
competition included: connections with clients and vendors; sales force;
consultants; employees that worked before for competitors; and specialized
reports.
·
The most important areas of excellence in which the
companies invested in order to maintain their competitive position were:
Technology (27%), Production (23%), Design (17%) and Marketing (17%).
·
A total of 80% of the firms didn’t use key indicators
which showed their competitive position in their markets. The 20% of the firms
that used these metrics mostly used sales volumes; sales prices and prices
variations; quality and volume of the most important competitors in the most
relevant customers; and revenue per customer.
·
After the implementation of a strategy formulation
process in the last years, indicators showed improvements in less than 10% (29%
of the cases), from 10% to 20% (29%), from 21% to 30% (24%), from 31% and 40%
(14%), and the rest (4%) in more than 41%.
·
In order to increase the gap on prices, there were
mostly used product differentiation (33% of the cases), scale (17%), activities
reconfiguration (13%) and influence on customer’s bargaining power (10%). A
total of 10% didn’t do anything on the matter.
·
In the last three years and in the 67% of the cases,
it was possible to implement improvements in processes, marketing, and product
and service design.
·
Firms that participated in the sample proposed either
radical or incremental changes in their business. In front of radical changes
and in the 63% of the cases, they had a positive impact, from 10% to 40%. A
total of 14% had no impact on their operations.
·
SMEs that did not implement improvements pointed out
that it was because of costs and market drops.
Some of the most relevant general
comments that were provided by the owners/executives/managers who participated
in the survey are summarized, as follows:
2.3.
Negative/Neutral
comments
·
Although these tools are important to have a better
understanding and control of our business, Argentina is a difficult country as
a short term view is installed. I suggest using these tools twice a year.
·
In SMEs it is more difficult to perform a thorough and
continued strategic plan as their structures are not stabilized in each
area/process.
·
In my opinion, it is extremely important to use these
tools but they depend on available resources and on means to achieve
objectives.
·
We have a small firm. That is why our strategy is the
result of our experiences in the last years without great statements.
·
Volume drops do not help to think about strategy.
·
We do not use these tools.
2.4.
Positive
comments
·
As we are facing dynamic markets, SAT are important to
take advantage of opportunities. This is an exercise that should be done every
6 months. We are a small firm; fortunately we perform meetings every week to be
updated on changes, costs, customers’ preferences, possibilities of expansion
and new distribution channels.
·
In SMEs, it is relevant to set up objectives and
strategies to achieve them.
·
Strategies are present in everything we do; basically,
when products, customers and vendors are searched.
·
To use different tools becomes a huge contribution to
company growth. We should utilize them more regularly in order to widen our
points of view and make the necessary adjustments.
·
Very helpful to have a better differentiation from
competition, mostly because we are facing a very voracious rivalry in our
market.
·
As markets are saturated and very dynamic, strategies
are helpful in order to make the necessary company’s transformations.
Addtionally, periodic controls and reviews are key elements to correct the
course of action.
·
As the health market is going through a profound
transformation, strategies are necessary to compete and add new customers. In
this context, excellence is a must and our objective is to improve the
performance of our professionals through scholarships, training, technology and
better tools.
·
Apart from these tools, the Commercial area must have
adequate skills in order to react to economic changes. The exchange rate
devaluation that we went through these last weeks, obliged to review our short
and medium term strategies.
3. INTERVIEWS WITH SPECIALISTS
The outcomes of the survey were
complemented with interviews with specialists who are listed in the
Introduction of this study. In the following paragraphs are summarized the
results of these meetings:
·
As SMEs are untrained, SAT are not commonly known and
used.
·
Some firms are utilizing one or two tools. For
example, one of them was using Value Chain Analysis and Growth Matrix (Ansoff);
another PEST analysis, and a third one the SWAT analysis.
·
The main benefit perceived of using SAT was to know
where the firm stands in connection with the market, objectives and goals in
order to understand the business from a more strategic vision and perform
processes with higher efficiency levels. An adequate set of Key Performance Indicators
(KPI) may help to improve the different company areas.
·
Many SME are focused on accounting in order to reduce
the tax burden.
·
Claudio Méndez referred that SAT are in practice
intuitively -not formally- in every SME of 20 to 80 employees where resources
must be coordinated and decisions are made. The SAT mostly used and in the
following sequence are: 1) FODA Analysis, 2) PEST Analysis, 3) Value Chain
Analysis, 4) Porter’s Five Competitive Forces and 5) Growth Matrix (Ansoff). In
the smallest firms SAT are under strict owner’s utilization, and in bigger ones
the intermediate management is who apply them but under strict owner’s
supervision. After their utilization there are seen capabilities’ improvements
and better firm’s positioning.
4. CONCLUSIONS
Although some
authors remark that some tools are not necessarily valid and a non-formalized
approach may be applicable, it is adverted that SAT are barely and, at the
most, intuitively applied in SMEs. Its formalization may help to deepen the
analysis, and perform better interrelationships among different and complex
internal and external variables where the businesses are struggling. In fact
and in the survey, there were identified important external factors influencing
company’s environment such as economic, politic, social and technological.
Also, it was recognized SAT ability
to create better strategic options and relevant choices in the competitive and
organizational arenas but, because of different reasons -such as Argentina’s
short term view, costs, market drops and daily urgencies- were not adequately
considered. Expanding the idea of strategic options creation, the survey
revealed that:
·
Strategy had been formulated and reviewed basically
each six or twelve months.
·
The most common resources used to evaluate competition
had been the connection with clients and vendors, sales force, consultants,
employees that worked before for competitors and specialized reports.
·
The most important areas of excellence where the firms
had invested were technology, production, design and marketing
Moreover and where SAT had been
applied, the main functions that used them were General Management, Marketing,
Finance, Sales and Production. Also, the most utilized to formulate strategy
and the order in which they were used was: 1) SWOT Analysis, 2) PEST Analysis,
3) Value Chain Analysis, 4) Product-Market Matrix and 5) Growth-Market Share
Participation Matrix.
The field
analysis was pursued to know if there were utilized other tools or specific
actions to improve competitiveness or if there were found other approaches that
could challenge conventional theories. For instance, some surveyed and
interviewees pointed out the lack of resources in SMEs, but when speaking about
strategic options and access to additional resources it didn’t come out the
importance of strategic alliances or if they were working on building
additional capabilities in other ways. In addition and in more demanding
markets like health, it brought out that a few SAT were in practice, showing
that it seemed that their applicability only depended on SMEs’ external and not
on internal factors, such as growth needs, or access to new capabilities and
skills.
Basically, it
was found that these firms were not prone to allocate resources to take
advantage of these tools, missing important elements or valuable
interconnections among them.
Since this paper
aims to approach SAT applicability and its formalization in order to identify
review areas that will lead to a better competitive positioning, it is remarked
the importance of extracting insights from inside/outside information.
In this sense,
it was found that 80% of the surveyed firms were not using KPIs that showed
their competitive position in their markets. The ones that utilized these
metrics were mostly using sales volumes; sales prices and prices variations;
quality and volume of the most important competitors in the most relevant
customers; and revenue per customer. It is highlighted that after the
implementation of a strategy formulation process, indicators showed
improvements -which didn't exceed 40%- in most of the cases (96%).
Out of what
authors and the field analysis show, there are remarked some benefits of SAT
utilization: a) better business positioning through understanding of where it
stands, the economic changes that are faced and approaching business from a
more strategic vision; b) take advantage of opportunities and establish a
better differentiation from competition, c) set up clear objectives and
strategies, d) contribution to firm transformation and growth; e) people’s
performance improvement and processes direction to higher efficiency levels; f)
company improvement and follow-up
through an adequate set of KPIs.
As in prior
studies, it was found evidence that SMEs’ owners/executives/managers had a lack
of consciousness about potential benefits of SAT application, and the majority
of them were bound to cultural factors and biases. In this sense, the survey
showed impacting elements: a) in Argentina, a short-term view and a
daily-operation solving oriented mind frame were common; b) there were no
firms’ stable structures; c) markets were being mainly approached with
available resources; d) strategies had been the result of experience, and e)
volume instability was not helping to make a better reflection on strategy.
Finally,
SAT and their related KPIs should be considered in SMEs in order to improve
strategy formulation and find better ways to implement it. Their formalization
–not leaving aside intuition- become a key issue as documenting this process
appears vital when analyzing strategic options and performing better
interrelations among different elements that may be identified. An improvement
in strategic analysis may help also to have a better cohesion of company
resources and achieve the established objectives.
Unconsciousness,
and cultural biases and barriers may explain their low usage rates. The final
purpose is to set aside from competition and build unattainable competitive
advantages.
It
must be highlighted that, as a consequence of what is stated in these
conclusions, the hypothesis of this study was corroborated and the objective.
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