Core Capabilities as Predictors of Growth Potential in Small Manufacturing Firms

Abstract

An extensive body of academic literature is concerned with the factors influencing the performance of small firms. Gibbs and Davies (1990) suggested that the majority of this research can be classified under four major headings: entrepreneurial personality, organization development, functional management skills, and sectoral economics. While each of these areas of research have provided useful insight into the successful operation of small firms, each is limited in the ability to provide an accurate predictive model of small firm performance. The research on entrepreneurial personality, by building on McClelland and Winter's (1969) achievement model, seeks to link the personal characteristics of the owner/manager with the performance of the company. Research by Kets de Vries (1977) and Gupta (1984) showed a correlation between owner/manager personality and strategic decision-making. Unfortunately, although various typologies have evolved for classifying the entrepreneur, none of them have been convincingly correlated to the observed performance of the business (Brockhaus 1982). A common element in the research concerned with organization development is an examination of the relationship between the goals of the entrepreneur and the objectives of the organization (Steinmetz 1969). In many instances, this research assumes the need for a move from an entrepreneurial to a professional management style. This research often recommends actions in relation to the firm's current position on a stages of model (Greiner 1972). However, given the current debate on the needs of larger organizations to become more entrepreneurial (Slevin and Covin 1990), some doubts must exist about whether the growth stage model should be offered as a normative theory for the activities of SME owner/managers. Research on functional management usually emphasizes the need for the smaller firm to adopt a more formalized approach to such activities as strategic planning and the installation of effective control systems (Brock and Evans 1989). Although this decision-making approach has received extensive coverage in the literature, there is still only limited evidence to support the view that clear links exist between these activities and the subsequent growth rate of the firm (Carland, Carland, and Abbey 1989). Sectoral studies usually seek to identify influential factors within an industrial system as the basis for predicting potential for growth. They have been able to demonstrate clear relationships between the performance of original equipment manufacturers and the growth rates of small business sub-contractors in such sectors as the car, computer, and consumer electronics industries (Storey et al. 1987). Overall, however, these studies do not appear to provide the basis for a generalized predictive model for the management of SME organizations (Doctor, Van der Haorst, and Stokman 1989). These four areas of research on the growth of small firms have all made significant contributions to our understanding of management processes within these smaller firms. Unfortunately, it is difficult to use any of these various concepts to develop a generalized technique for predicting the growth potential of the small firm with any degree of consistency (Gibb and Davies 1990). Hence it does seem there is a need to examine other approaches to this specific problem. Method Identifying Characteristics Exhibited by Growth Firms In the search for performance predictors, one possibility is to adopt the holistic view that key characteristics exhibited by growth firms are a reflection of the internal capabilities of the organization. If this is true, then an evaluation of the current capabilities of a firm can be used to define appropriate actions for enhancing the firm's future performance. To identify the key characteristics of growth firms, the input of four different studies was synthesized: Coopers & Lybrand 1994; Burns 1994; Brickau 1994; and Tradenz 1990. …

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