Environmental Contacts and Financial Performances of the Small Firm

Abstract

The idea behind any successful business is a strategy which is product of entrepreneurial mind. Entrepreneurial strategy is embodied in the patterns of decisions in a company that determine and reveal its objectives, purposes or goals, produce policies and plans for achieving those goals, and define range of business company is to pursue. These activities include identifying market opportunities, marshalling firm's resources in accordance with entrepreneur's personal values and aspirations, and engaging in transactions with customers, suppliers and other organizations to implement plan. This is especially true for entrepreneur of small business. In large organiztions entrepreneurial strategy is likely to evolve into a complex administrative strategy, but in smaller firm entrepreneur is commander of organizational strategy, balancing interests of firm with constraints imposed by environment. This entrepreneurial balancing act was examined by author by focusing on nature of environmental contact and relationship between environmental contact and performance. The subjects for this study were owner/operators of over eighty small businesses. (Brockhaus has noted that most researchers have considered owner/operators of small businesses as entrepreneurs.) The advantages of studying strategy-performance relationship in small business are that most small busineses have simple goals, a clear proximate environment, and a direct chain of command between goal formulation and implementation. This provides near-laboratory condictions (in comparison to large complex organizations) for study of strategic management. The disadvantages are that entrepreneur may not have an explicity stated strategy or a conscious awareness of goals and objectives. But if entrepreneurs behave purposefully, entrepreneurial strategy is revealed in actions taken and decisions made by them. One can thus circumvent problem of inexplicit goals and strategies by identifying set of activities performed by entrepreneur which can be considered strategic. In this study, entrepreneur's contacts with environment are considered as a set of strategic activities. Contact with environment (sometimes referred to as boundary spanning activity) is goal-directed behavior performed by a member of an organization in interaction with individuals or members of other organizatoins. Five types of environmental contact are distinguished: filtering, transacting, buffering, representing, and protecting. These contacts occur with a wide variety of people in environment, including customers, suppliers, competitors, and regulatory organizations. Other contacts involve consultants, creditors and stockholders, and financial institutions. These contacts supply information required for strategic planning. In order to plan, entrepreneur must understand climate in which he or she operates by monitoring customers, competitors, current technology, new products or services, and financial sources. Furthermore, owner/operator usually executes plan personally, as key player in firm. The hypothesis is that entrepreneur's environmental contacts tend to improve firm's performance. The organization's ability to adapt to environment depends on entrepreneur's ability to select, transmit, and interpret information. The entrepreneur must achieve a compromise between organizational policy and environmental constraints, and then choose strategic manuevers to overcome constraints or minimize challenges to organization's autonomy. The alert owner/operator seeks firsthand knowledge and exposure to intelligence sources and formulates strategic plans based on this information. HYPOTHESIS AND METHODS The general hypothesis of study is that a positive relationship exists between entrepreneur's contact with environment and financial performance of firm for all of following nine categories of contact: 1. …

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