Small and medium enterprises are the typical business model of the

By Mark Simpson,2014-11-25 23:57
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Small and medium enterprises are the typical business model of the

    University of Chieti “G. d’Annunzio”

    Faculty of Economy and Management

    Department of Business Studies

SVILOPIM -Project INTERREG Development and

    promotion of local systems to support innovative

    S.M.E. in Albania, Bosnia and Serbia.

    Tuzla Belgrade

Daniela Di Berardino

    Researcher in Economy and Management of the Enterprises Department of Business Studies

    University of Pescara Chieti

    Tel number: +39 085 4537609



    Daniela Di Berardino


    Small and medium enterprises are the typical business model of the Italian entrepreneurial system and a lot of these SME are family business. In Italy the 80% of working people are into SME, instead in the UK the 55%, in France the 67%, in Germany the 60%, in Spain the 79%. More than 95% of all European enterprises belong to the SME size. The 55% of these SME in Europe was born between 1951 and 1970 years, the economic boom period, and a lot of them became medium firms.

    The Sme’s features are: narrow management (one o few persons); small task environment; resources, equity and human capital assigned by propriety.

    The Italian’s experience shows that the SME:

    - can obtain relevant competitive advantage into the bound task environment;

    - can make success into the large market by the focus or niche strategy or by the partnership

    with other firms (big o small);

    The competitive advantage that SME can obtain in the large markets requires these conditions:

    - No economy of scale;

    - High flexibility;

    - few big company;

    - fragmented market.

    During the last ten years many events threatened the SME: globalisation, outsourcing, enterprises’trust, brief product life cycle, consecutive innovation.

    However, the SME are able to change their organizations, manufactoring and process with more flexibility than global players and during the last years many SME opened their market to the foreign customers, specially in the country in growth. The tools used for this purpose are the relationship with foreign partner and internet, thought that the Italian SME doing e-commerce, e-procurement, global promotion and market penetration into the foreign markets. A lot of them have an internet web site where presents their product, their history, their distribution system, the price and other but few of SME, in Italy too, use internet channel for value generation. The main relationship built with big enterprises are franchising and supply chain relations (to support the growth and the market penetration), licensing and joint venture (to support the innovation, the product development, the leaning organization, to receive financial resources), and other concracts. Greater cooperativeness, sense of community, innovation, strategic flexibility and core competence are necessary to SME’s growth and competitiveness. We can try these features into the network systems, where economic exchange is embedded inside a network of social and trust relations. Trust is necessary to create cooperation and value by the relations. The economic effects, largely, are low cost, learning, market penetration and growth of management competencies. The main objectives of european SME, usually, are the sales growth and hight return on equity. The Italian core industry is the mechanical, specially in the North East. This industry is composed by tools and machinery for other industry, while textile industry, clothing factory, leather industry, shoe factory, and only the 9% of these SME has the 20% of sales by one client. These SME have make a lot of relations with suppliers and retalires to support their growth.

    The Italian SME are much focused and produce speciality goods for the consumer market. These SME prefere niche strategies, focus on core competencies, differentiated goods and service, support more quality than price competition.


    The 55% of Italian SME situated in the North-East prefer foreign market, the 37% of their sales come from export, from global niche market. The main market are in the East Europe and Mediterranean, but this is a domestic market of the European Union.

    But the Italian SME needs more competencies, because the new value generation activities are the Research and Development and Marketing and no more the manufactoring activities. Management competencies are essential to sound business practices; SME, generally, have severe limitation and lack of resource, thus they must rely heavily on developing suitable and appropriate competencies specially for marketing and strategy. What competencies are appropriate for SME marketing and strategy activities? How do SMEs develop such competencies?


    Into the SME the marketing and strategic competencies may be determined by the entrepreneur/ owner manager and by the size an stage of the develompment of the enterprises. SME marketing is often haphazard and informal, spontaneus, structured around industry norms an reactive, because the manager makes most decisions independent of others, responding to current opportunities and circumstances and so decision making occurs in an chaotic way, according to personal and business priorities at any given point in time.

    The scope and variety of the decisions needed in running the SME business are more generalists than specialists in any one area, with the exception of a technical competence. The SME owners/managers is unlikely to take decisions on marketing issues in isolation from other aspect of the business. Marketing decisions have to consider other aspect of the business. For example, decisions on aspects of pricing may be taken because of a need to clear stocks, to relieve pressure on cash flows, rather than being marketing related. SME decision making is characterised by the other aspects of the business whenever taking decision and these are different from conventional marketing competencies required for large companies. Specific competencies have a life cycle in the context of organisational change and in the different business environments passed by SME, so SME needs to adjust their competencies, resurces and product to their ever changing external environment.

    SME marketing related decision making will inherently consist of knowledge, experience, judgment and communication according to their industry.

    Networking is used by managers to make sense of what happens in complicated markets and support the competitiveness against strong competitors. Networking is also a useful way for SME’s

    managers to expand marketing expertise and knowledge and it can help SME’s managers to use

    their limited resources and compete more effectively with more powerful companies In a competitive environment managers have network contracts that consist of people who have potential to provide some specific service or support or from whom the might expect service or support. networking can include the product decisions, promotional activity, innovation, distribution, marketing activities and other.

    The access to profitable markets and the customer satisfaction are the key factors which determines the longterm success for all business. For SME, however, various factors limits this access, such as inadequate technology, geographic isolation, lack of financial and marketing resources, limited research and development activities. Marketing play an essential role in developing the business of SME, supporting the access to profitable and international markets, .increasing SME’s effectiveness

    and investiment growth.



    There are many definitions of marketing. The better definitions are focused upon customer orientation and satisfaction of customer needs. The following definition is a most common description of marketing:

    Marketing is the social process by which individuals and groups obtain what they need

    and want through creating and exchanging products and value with others (Kotler)

    There is a more recent and very realistic definition that considers the economic and social aspects of marketing.

    Marketing is the process whereby society, to supply its consumption needs, evolves

    distributive systems composed of participants, who, interacting under constraints -

    technical (economic) and ethical (social) - create the transactions or flows which

    resolve market separations and result in exchange and consumption. (Bartles).

    The marketing concept is a philosophy that makes the customer, and the satisfaction of his or her needs, the focal point of all business activities. The important elements contained into marketing definitions are:

    Marketing focuses on the satisfaction of customer needs, wants and requirements. The philosophy of marketing needs to be owned by everyone from within the organization. Future needs have to be identified and anticipated.

    There is normally a focus upon profitability, especially in the corporate sector. However, as public sector organizations and not-for-profit organizations adopt the concept of marketing, this need not always be the case.

    More recent definitions recognize the influence of marketing upon society

Marketing process includes these phases: analytic; strategic; tactics.

    The first one includes the analysis concerning the internal and external environment of marketing and the marketing research. These phases support the marketing planning and the marketing tactics development.

3.1. The strategic planning process

In the organizations there are two planning process: strategic and marketing.

    Strategic planning is the process by the organization defines its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis and PEST analysis.

    The outcome is normally a strategic plan which is used as guidance to define functional and divisional plans, including technology, marketing, manufactoring, etc.

    Strategic Planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions:

    1. "What do we do?"

    2. "For whom do we do it?"

    3. "How do we excel?" or "How can we beat or avoid competition?"

    The strategic planning is viewed as a process for determining where an organization is going over the next year or more -typically 3 to 5 years, although some extend their vision to 20 years. In order to determine where it is going, the organization needs to know exactly where it stands, then determines where it wants to go and how it will get there. The resulting document is called the "strategic plan".


    It is also true that strategic planning may be a tool for effectively plotting the direction of a company; however, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface in the coming days in order to plan your organizational strategy. Therefore, the 'strategic plan' presents the strategy for an organization to survive the turbulent business climate. The first section of the strategic plan concerning the description of the vision, mission and values Vision defines where the organization wants to be in the future. It reflects the optimistic view of the organization's future.

    Mission defines where the organization is going now, basically describing the purpose, why this organization exists.

    Values reflect the organization's culture and priorities.

    There are many approaches to strategic planning but typically a three-step process may be used:

SITUATION - evaluate the current situation and how it came about.

    TARGET - define goals and/or objectives (sometimes called ideal state)

    PATH - map a possible route to the goals/objectives

One alternative approach is called Draw-See-Think

DRAW - what is the ideal image or the desired end state?

    SEE - what is today's situation? What is the gap from ideal and why?

    THINK - what specific actions must be taken to close the gap between today's situation and the ideal state?

    PLAN - what resources are required to execute the activities?

An alternative to the Draw-See-Think approach is called See-Think-Draw

    SEE - what is today's situation?

    THINK - define goals/objectives

    DRAW - map a route to achieving the goals/objectives

In other terms strategic planning can be as follows:

Vision - Define the vision and set a mission statement with hierarchy of goals

    Strategic Analysis - According to the desired goals conduct analysis

    Formulate - Formulate actions and processes to be taken to attain these goals

    Implement - Implementation of the agreed upon processes

    Control - Monitor and get feedback from implemented processes to fully control the operation

    When developing strategies, analysis of the organization and its environment as it is at the moment and how it may develop in the future, is important. The analysis has to be executed at an internal level as well as an external level to identify all opportunities and threats of the new strategy. There are several factors to assess in the external situation analysis: Markets (customers), competition, Technology, Supplier markets, Labor markets, The economy, The regulatory environment. SWOT and PEST are the tools used for this purpose.

    Analysis of the external environment normally focuses on the customer. Management should be visionary in formulating customer strategy, and should do so by thinking about market environment shifts, how these could impact customer sets, and whether those customer sets are the ones the company wishes to serve.

    Analysis of the competitive environment is also performed, many times based on the framework suggested by Michael Porter: the five forces analysis.


    Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve those objectives. The following terms have been used in Strategic Planning: desired end states, plans, policies, goals, objectives, strategies, tactics and actions. Definitions vary, overlap and fail to achieve clarity. The most common of these concepts are specific, time bound statements of intended future results and general and continuing statements of intended future results, which most models refer to as either goals or objectives (sometimes interchangeably).

3.1.1. The mission statement and the objectives

    One model of organizing objectives uses hierarchies. The items listed above may be organized in a hierarchy of means and ends and numbered as follows: Top Rank Objective (TRO), Second Rank Objective, Third Rank Objective, etc.

    From any rank, the objective in a lower rank answers to the question "How?" and the objective in a higher rank answers to the question "Why?" The exception is the Top Rank Objective (TRO): there is no answer to the "Why?" question. That is how the TRO is defined.

    People typically have several goals at the same time. "Goal congruency" refers to how well the goals combine with each other. Does goal A appear compatible with goal B? Do they fit together to

    form a unified strategy? "Goal hierarchy" consists of the nesting of one or more goals within other goal(s).

    One approach recommends having short-term goals, medium-term goals, and long-term goals. In this model, one can expect to attain short-term goals fairly easily: they stand just slightly above one's reach. At the other extreme, long-term goals appear very difficult, almost impossible to attain. Using one goal as a stepping-stone to the next involves goal sequencing. A person or group starts by attaining the easy short-term goals, then steps up to the medium-term, then to the long-term goals. Goal sequencing can create a "goal stairway". In an organizational setting, the organization may co-ordinate goals so that they do not conflict with each other. The goals of one part of the organization should mesh compatibly with those of other parts of the organization. Organizations sometimes summarize goals and objectives into a mission statement and/or a vision


    While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here.

    • A Mission statement: tells you what the company is now. It concentrates on present; it defines the customer(s), critical processes and it informs you about the desired level of performance. • A Vision statement: outlines what a company wants to be. It concentrates on future; it is a source of inspiration; it provides clear decision-making criteria.

    Many people mistake vision statement for mission statement.

    The Vision describes a future identity and the Mission describes why it will be achieved. A Mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future state. Vision is related to some form of achievement if successful.

    A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The vision statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided the vision is SMART (Specific, Measurable, Achievable, Relevant and Timebound). A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottomline and success of the organization.

    This `corporate mission' can be thought of as a definition of what the organization is; of what it does: 'Our business is …'. This definition should not be too narrow, or it will constrict the development of the organization; a too rigorous concentration on the view. Someone suggested that


    the definition should cover three dimensions: 'customer groups' to be served, 'customer needs' to be served, and 'technologies' to be utilized.

    Thus, the definition of IBM's `corporate mission' in the 1940s might well have been:

    `We are in the business of handling accounting information [customer need] for the larger US organizations [customer group] by means of punched cards [technology].'

    If the organization in general, and its chief executive in particular, has a strong vision of where its future lies, then there is a good chance that the organization will achieve a strong position in its markets (and attain that future). This will be not least because its strategies will be consistent; and will be supported by its staff at all levels.

    Henry Mintzberg explained: "... in some cases, in addition to the mission there is the `sense of mission', that is, a feeling that the group has banded together to create something new and exciting. This is common in new organizations".

    What a worthwhile vision consists of is, however, usually open to debate; hence the reason why such visions tend to be associated with strong, charismatic leaders. But the vision must be relevant. The message for the marketer is that, to be most effective, the marketing strategies must be converted into a powerful long-term vision; if such a vision does not already exist. If you have a new start up business, new program or plan to re engineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan.

    Either way, you need to know where you are, your current resources, your current obstacles, and where you want to go - the vision for the future.

    Features of an effective vision statement may include:

    ; Clarity and lack of ambiguity

    ; Paint a vivid and clear picture, not ambiguous

    ; Describing a bright future (hope)

    ; Memorable and engaging expression

    ; Realistic aspirations, achievable

    ; Alignment with organizational values and culture, Rational

    ; Time bound if it talks of achieving any goal or objective

    To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision.

3.2. The marketing planning process

    In most organizations, strategic planning is an annual process, typically covering just the year ahead. Occasionally, a few organizations may look at a practical plan which stretches three or more years ahead.To be most effective, the plan has to be formalized, usually in written form, as a formal `marketing plan'. The essence of the process is that it moves from the general to the specific; from the overall objectives of the organization down to the individual action plan for a part of one marketing programme. It is also an interactive process, so that the draft output of each stage is checked to see what impact it has on the earlier stages - and is amended accordingly. A marketing plan is a document that details the necessary actions to achieve one or more

    marketing objectives. It can be for a product or service, a brand, or a product line. It can cover one year (referred to as an annual marketing plan), or cover up to 5 (sometimes referred to as five) years.


    Marketing plans are vital to marketing success. They help to focus the mind of companies and marketing teams on the process of marketing (what is going to be achieved and how we intend to do it). There are many approaches to marketing plans. The marketing planning process includes these elements: analysis; objectives; strategies; tactics; control.

    A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use.

    The first phase include the results of environment’s analysis, carried out by the SWOT, PEST

    approach, five force or marketing audit.

    The second stage include the objectives development. These objectives have to be:

    ; Specific - Be precise about what you are going to achieve.

    ; Measurable - Quantify you objectives.

    ; Achievable - Are you attempting too much?

    ; Realistic - Do you have the resource to make the objective happen (men, money,machines,

    materials, minutes)?

    ; Timed - State when you will achieve the objective (within a month? By February 2010?). The rest of the plan hinges on the objective. If it is not correct, the plan may fail. Behind the corporate objectives, which in themselves offer the main context for the marketing plan, will lie the 'corporate mission'; which in turn provides the context for these corporate objectives. The first formal step in the marketing planning process is that of conducting the marketing audit. Ideally, at the time of producing the marketing plan, this should only involve bringing together the source material which has already been collected throughout the year - as part of the normal work of the marketing department.

    The emphasis at this stage is on obtaining a complete and accurate picture. In a single organization, however, it is likely that only a few aspects will be sufficiently important to have any significant impact on the marketing plan; but all may need to be reviewed to determine just which 'are' the few. In this context some factors related to the customer, which should be included in the material collected for the audit, may be:

• Who are the customers? What are their key characteristics?

    • What differentiates them from other members of the population?

    • What are their needs and wants? What do they expect the `product' to do?

    • What are their special requirements and perceptions? What do they think of the organization and

    its products or services?

    • What are their attitudes? What are their buying intentions?

3.2.1. The marketing audit

    This audit is conducted not only at the beginning of the process, but also at a series of points during the implementation of the plan. The marketing audit considers both internal and external influences on marketing planning, as well as a review of the plan itself. There are a number of tools and audits that can be used, for example SWOT analysis for the internal environment, as well as the external environment. Other examples include PEST and Five Forces Analysis, which focus solely on the external environment.

    In many ways the marketing audit clarifies opportunities and threats, and allows the marketing manager to make alterations to the plan if necessary. We consider the marketing audit under three key headings:

    • The Internal Marketing Environment.

    • The External Marketing Environment.


    • A Review of Our Current Marketing Plan.

    3.1.2. The analysis of marketing environment

    To analyse the internal marketing environment we can use a check list as follows:

    ; What resources do we have at hand? MEN (Labor/Labour). MONEY (Finances).

    MACHINERY (Equipment). MINUTES (Time). (Factors of Production).

    ; What competences do we have at hand? (

    ; How is our marketing team organised? How efficient/effective is our marketing team? ; How does our marketing team interface with other organisations and internal functions? ; What is the state of our marketing planning process? Is our marketing planning information

    current and accurate?

    ; What is the current state of New Product Development? (Product)• How profitable is our

    product portfolio? (Product)

    ; Are we pricing in the right way? (Price)

    ; How effective and efficient is distribution? (Place)

    ; Are we getting our marketing communications right? (Promotion)

    ; Do we have the right people facing our customers? (People)

    ; How effective are our customer facing processes? (Process)

    ; What is the state of our business's physical evidence? (Physical Evidence)

    To analyse the external environment we must start by asking - What is the nature of our customers?

    Such as:

    ; Their needs and how we satisfy them.

    ; Their buyer decision process and consumer behaviour.

    ; Their perception of our brand, and loyalty to it.

    ; The nature of segmentation, targeting and positioning in our markets. ; What customers 'value' and how we provide that 'value?

    ; What is the nature of competition in our target markets?

    ; Our competitors' level of profitability.Their number/concentration. The relative strengths

    and weaknesses of competition.

    ; The marketing plans and strategies of our competition.

    ; What is the cultural nature of the environment(s)? Beliefs and religions. The standards and

    average levels of education. The evolving lifestyles of our target consumers. ; The nature of consumerism in our target markets.

    ; What is the demography of our consumers? Such as average age, levels of population,

    gender make up, and so on. How does technology play a part?

    ; The level of adoption of mobile and Internet technologies. The way in which goods are

    manufactured. Information systems.

    ; Marketing communications uses of technology and media. What is the economic condition

    of our markets?

    ; Levels of average disposable income.Taxation policy in the target market. Economic

    indicators such as inflation levels, interest rates, exchange rates and unemployment. ; Is the political and legal landscape changing in any way?

    ; Laws, for example, copyright and patents. Levels of regulation such as quotas or tariffs. ; Labour/labor laws such as minimum wage legislation.


    It is apparent that a marketing audit can be a complex process, but the aim is simple: 'it is only to identify those existing (external and internal) factors which will have a significant impact on the future plans of the companies.

    It is clear that the basic material to be input to the marketing audit should be comprehensive. Accordingly, the best approach is to accumulate this material continuously, as and when it becomes available; since this avoids the otherwise heavy workload involved in collecting it as part of the regular, typically annual, planning process itself - when time is usually at a premium. Even so, the first task of this `annual' process should be to check that the material held in the current `facts book' or `facts files' actually 'is' comprehensive and accurate, and can form a sound basis for the marketing audit itself.

    The structure of the facts book will be designed to match the specific needs of the organization, but one simple format may be applicable in many cases. This splits the material into three groups: 1. 'Review of the marketing environment'. A study of the organization's markets, customers, competitors and the overall economic, political, cultural and technical environment; covering developing trends, as well as the current situation.

    2. 'Review of the detailed marketing activity'. A study of the company's marketing mix; in terms of the 4 Ps - product, price, promotion and place.

    3. 'Review of the marketing system'. A study of the marketing organization, marketing research systems and the current marketing objectives and strategies.

    The last of these is too frequently ignored. The marketing system itself needs to be regularly questioned, because the validity of the whole marketing plan is reliant upon the accuracy of the input from this system, and `garbage in, garbage out' applies with a vengeance.

    The analysis of this material will, no doubt, require significant effort. In the first instance it is a matter of selection, of sorting the wheat from the chaff. What is important, and will need to be taken into account in the marketing plan that will eventually emerge from the overall process, will be different for each product or service in each situation. One of the most important skills to be learned in marketing is that of being able to concentrate on just what is important.

    It is important to say not just what happened but why.

3.2.3. The analysis’ tools and approachs

Market research and marketing research are often confused. The first one is a survey into a specific

    market, but this is a very narrow concept. 'Marketing' research not only includes 'market' research,

    but also areas such as research into new products, or modes of distribution such as via the Internet. Here are a couple of definitions:

    "Marketing research is the function that links the consumer, customer, and public to the marketer through information - information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information required to address these issues, designs the methods for collecting information, manages and implements the data collection process, analyzes, and communicates the findings and their implications." (American Marketing Association - Official Definition of Marketing Research)

    Marketing research is gathered using a systematic approach. An example of one follows: 1. Define the problem that becomes the focus of the research. For example, why are sales falling in the domestic market?

    2. Define the methods of data collection: telephone survey, arrange a focus group, questionnaire

    3. Select a sampling method: for exemple a random sample, stratified sample, or cluster sample


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