EDUCATION OF SME OWNERS / MANAGERS IN STRATEGIC THINKING Jozef Simuth, VSM, Bratislava, Slovakia Alena Hanzelková, Mendel University of Brno, Czech Republic

This project has been funded with support from the European Commission. This article reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

Abstract Small and medium sized firms (SMEs) are the backbone of the EU economy, representing over 90 % of all registered companies, creating more than 65 % of jobs in the private sector and over 54 % of the overall value added (see Eurostat). Research (Beaver,2002, Mazzarol, 2004) shows that SMEs manager/owners do not manage their companies strategically which negatively impacts their long-term competitiveness. Therefore, it is important to find the ways in which the SME owners/managers could be trained in the skills necessary for strategic decision making. This contribution describes the LEONARDO DA VINCI TRANSFER OF INNOVATION PROJECT Under the Lifelong Learning Programme with the project title: Education in Strategic Management for SMEs managers/owners is attempting to find a solution to this issue through creating an e-learning format.

Key words: Small and Medium enterprises, strategic decision making, e-learning Foreword Small and medium sized firms (SMEs) are the backbone of the EU economy, representing over 90 % of all registered companies, creating more than 65 % of jobs in the private sector and over 54 % of the overall value added (see Eurostat). Their sustainable development, competitiveness and growth are therefore one of the EU’s economic priorities (see the Small Business Act of the EC, 2008). According to Enterprise and Industry SLOVAKIA SBA Fact Sheet 2012 of European commission Slovakia’s SME sector is characterized by a high proportion of small and medium-sized enterprises, albeit to the detriment of micro-firms. The medium sized group in particular makes above-average contributions to employment (23.3% compared to 17.2% in the EU) and value-added (22.3% as against 18.3 %). Overall, however, the SME sector contributes less to value-added and employment than do its European counterparts on average. This may be the result of the Slovak economy’s industrial structure. In terms of sectoral distribution, the trade sector is dominant, accounting for 39 % of SMEs, compared with only 30 % in the EU. The remaining SMEs are distributed among services (40 %), manufacturing (13 %) and construction (8%). The Slovak SME sector is still struggling with continued sluggish growth. Analyzing the trends over time, the figures show that employment in SMEs stabilized in 2010-2011, while numbers continued to growth, indicating that average enterprise size in Slovakia is falling. The value added produced by the SME sector is now on a very modest growth path, but still well below the 2008 peak (see the Small Business Act fact sheet, 2012 ) Research (Beaver,2002, Mazzarol, 2004) also indicates, that SMEs do have an inborn weakness, that negatively impacts their long-term competitiveness - their managers and/or owners do not manage their firms strategically. 256 LIFELONG LEARNING PROGRAMME - LEONARDO DA VINCI MULTILATERAL PROJECTS - TRANSFER OF INNOVATION 2012. GRANT AGREEMENT n° CZ/12/LLP-LdV/TOI/134004. PROJECT n° 2012-1-CZ1-LE005-09677

One of the key reasons for this is that the SMEs owners and/or managers lack the necessary knowledge to be able to do so.

Supporting strategic management in SMEs via Czech-Swedish-Slovak project By transferring know-how from a L. da V. project "Business Transfer Project II; BTP II" of Jonchoping International Business School (Sweden; JIBS), focused onto online education of managers in the business transfer, we would like to create also an educational portal, that would allow the SMEs owners/managers to acquire new, practically focused, knowledge in strategic management of their firms, to overcome the above mentioned weakness. The transfer of innovation would, apart from other, lie in adopting the so-called online scoring approach (in the BTP II project called online screening tool) that would, apart from other, allow to identify the individual educational needs of the users and offer personalized online courses. The platform would be available in four languages: ENG, CZE, SK and SW to make it available to the SMEs managers/owners in the Czech Republic, Slovakia, and Sweden and, thanks to English, also in the UK and elsewhere in the EU. The LEONARDO DA VINCI, TRANSFER OF INNOVATION PROJECT Under the Lifelong Learning Programme with the project title: Education in Strategic Management for SMEs managers/owners consortium is composed of Mendel University, Brno (Czech republic), Jonchoping International Business School (Sweden), that would provide the transferred know-how, School of Management / City University of Seattle (Slovakia), the Association of SMEs and the POPAI association (Czech republic). Tangible outcomes of the project would be: • • • • • •

the business transfer screening tool adjusted for the purpose of scoring and benchmarking in the area of strategic management, unique benchmarking data on SMEs strategic management from four EU countries, e-learning (curricula and teaching materials), an on-line scoring/benchmarking and e-learning platform, reports on qualitative and quantitative research phase, dissemination materials,

The intangible outcome of the proposed project would be improving the availability of vocational education, tailored to the specific needs of SMEs managers and owners (lack of time, need for strongly praxes-driven education etc.)

The envisaged impact is represented by better real knowledge and capabilities of SMEs owners/managers to improve strategic management in their firms, and their higher motivation for further education in strategic management. Specific nature of strategizing in SMEs The first step in the project was an expert panel which met at the end of February 2013. The aim of this expert panel, comprised of representatives from Czech, Swedish, Slovak and Finnish universities and Czech entrepreneurs, was to identify how small and medium-sized businesses should be strategically managed, so that the strategic management would strengthen competitiveness, without creating excessive bureaucratization and limiting flexibility. 257 LIFELONG LEARNING PROGRAMME - LEONARDO DA VINCI MULTILATERAL PROJECTS - TRANSFER OF INNOVATION 2012. GRANT AGREEMENT n° CZ/12/LLP-LdV/TOI/134004. PROJECT n° 2012-1-CZ1-LE005-09677

One of the main conclusions was that small and medium-sized businesses need to implement structural managerial approaches that will not replace but supplement traditional management techniques, in order to maintain competitiveness. Traditional techniques, based on improvisation and naturalness, are essential for searching for and creating new market opportunities. The panel responded to the preconceived myths: - That structural managerial approaches do not apply to small and medium-sized businesses and that -An improvisational management technique of small and medium-sized businesses is a sign of unprofessionalism. Summary of the Expert Panel’s main findings were: a) General conclusions regarding strategic management of small and medium-sized businesses. It is necessary to establish and support strategic management of small and medium-sized businesses, as it significantly contributes to the enhancement of their competitiveness. Despite this, small and medium-sized businesses fail to use these strategies, which negatively impact their competitive edge! Strategic management is mostly based on systematic and structured managerial approaches, and is therefore associated with the functionality of large businesses. The panel agrees with Prof. Matti Koiranen, from the Finnish University of Jyväskylä, in that “Even in small and medium-sized businesses, structural strategic management is crucial, though its specifications need to be respected. Specifically, the naturalness on which small and medium-sized businesses operate is necessary for research, selection and utilization of business opportunities and for creating new ones, experimenting, constant improvement and learning from mistakes, as well as accepting the risks that come with experimenting, more so than in larger, systematically managed businesses.” In practice, small and medium-sized businesses usually struggle between “entrepreneurialism” and “managerialism”. If possible, it is ideal to combine both “isms”. Organic and unstructured “entrepreneurialism” must aid in finding new opportunities and in sustaining development. On the other hand, businesses need “managerialism”, including classic approaches, for strategic management. This approach is necessary for the effective realization and utilization of opportunities or for constant progress and for assuring the company’s competitive edge in the long run. b) Suggestions for effective strategic management of small and medium-sized businesses. Regarding the structural approach of the strategic management of small and medium-sized businesses, the panel recommended that small and medium-sized companies take into account the following criteria: 1. For effective management, it is necessary to clarify and define long-term developmental objectives. Defining these objectives leads to a discussion, in which the objectives are gradually reduced, resulting in more realistic aims. This prevents the risk of depleting the company’s resources due to overly ambitious goal-setting. It is equally important for the company to define how the objectives will be met, which also increases the success rate and efficiency of company operations. 2. Objectives should be easily measurable – the company should be able to assess whether or not the goals are being met or not. A company that is capable of measuring goals and identifying their success rate early on, can get a head start on problem solving and hone in on their competitive edge. 3. For the company’s competitiveness, it is necessary to systematically analyze key areas which can impact business- of the company itself as well as trends and influences of the market in which it operates. It can then react to main trends using its strategy. Compared with a nonsystematic and strictly intuitive approach, the structural approach reduces the probability that certain important trends or areas that impact the business will be neglected (including positive trends that suggest opportunity and negative trends, such as threats). The analysis 258 LIFELONG LEARNING PROGRAMME - LEONARDO DA VINCI MULTILATERAL PROJECTS - TRANSFER OF INNOVATION 2012. GRANT AGREEMENT n° CZ/12/LLP-LdV/TOI/134004. PROJECT n° 2012-1-CZ1-LE005-09677

should however be relevant and should include only the areas and information which are valuable for the company, and should then not be unnecessarily detailed or complicated in a way that burdens the company. It is imperative that the company will systematically focus its attention on these trends. 4. For successful implementation, it is crucial that the corporate strategy is defined by those who have key influence. For the successful realization of the strategy, it is also important to ensure the support of all of the company’s key interest groups (owners, management, employees etc.). It is also important to consider the other extreme- an excessive desire for consensus and the risk of too many compromises, which can significantly dilute and weaken the strategy. 5. The strategy should be complete, that is, it should include all crucial aspects of company management, or the aspects of it that the strategy is aimed at. Neglecting certain integral aspects can lead to the collapse of the entire strategy. Small and medium-sized businesses can utilize practical models, for example the 7P model (an extensive marketing mix model), useful for defining the framework of the strategy for certain products etc. If it is necessary to have more sub-strategies in the company, it is imperative that they mutually reflect and support one another to ensure their functionality. 6. It is also essential that the strategy is systematically and clearly communicated across the entire company and is unanimously understood by everyone in the company. 7. The success of the strategy requires it to be in accordance with the corporate culture and the organizational structure, i.e. for it to be supported by these two aspects and not burdened by them. A change in corporate culture can also be a strategic goal. A change in the organizational structure would be a part of the plan implementation process. 8. If possible, it is useful for the company to continuously pay attention to various developmental key trends which influence the strategy, and to prepare alternative variations of the strategy. In the event that a trend significantly deviates from the forecasted development, the company must be prepared to immediately modify and update the strategy. 9. For the successful implementation of the strategy, it is also necessary to segment the strategy into a series of detailed short-term plans (for ex. by year) and to systematically realize them and monitor their fulfillment. 10. For long-term stability, it is necessary for the company to regularly evaluate their strategy fulfillment, and if any significant deviations emerge it should respond by mapping out causes and taking action to remedy the situation. The panel further commented that in the strategic management of small and medium-sized businesses it is necessary to address specific strategic areas which are not usually present in larger businesses: c) Specific areas of strategic management of small and medium-sized businesses in comparison to larger businesses. 1. Small and medium-sized businesses are highly influenced by the integration of family and business. Many related aspects must then be considered in the formulation of the company strategy – the financial needs of the family vs. reinvesting into the company, the succession politics for future generations, ownership politics and the settlement of company ownership for future generations, the politics of employing and rewarding family members in the company etc. 2. Planning and managing intergenerational handovers of the company- a long-term, strategic and high-risk stage for small and medium-sized family businesses. This is usually not handled well and results in bankruptcy. 259 LIFELONG LEARNING PROGRAMME - LEONARDO DA VINCI MULTILATERAL PROJECTS - TRANSFER OF INNOVATION 2012. GRANT AGREEMENT n° CZ/12/LLP-LdV/TOI/134004. PROJECT n° 2012-1-CZ1-LE005-09677

3. Company ownership – risk management on an ownership level, including its structure, which subsequently impacts company operations either positively or negatively. Some of the most common problems include the fragmentation of ownership, conflicts amongst owners, inadequate responsibility, and short-term focus on the owners’ profits etc. On the other hand, good owners increase the quality of company operations. The next stage of the project is a quantitative research focused on gaining quantitative data on strategic management in SMEs operating in the Czech Republic, Sweden, Slovakia and Finland. Based on the findings an e-learning portal will be created to support the development of strategic thinking of SME owners and managers in Czech Republic and Slovakia and also in other European countries. Conclusion Strategic management in SMEs is an important aspect that significantly contributes to their ability to compete, and it is therefore desirable to support strategic management in them. Nevertheless, the classical managerial approaches must be applied in SMEs in such a way, that they respect their specific nature – organic approaches to opportunity seeking and creation, and therefore need for retaining relatively high level of strategic, as well as tactical and operation flexibility, family firm character and interrelatedness of family, business and ownership issues, considerable time and other resource constraints SMEs have to face, etc.

Literature Beaver, G & Prin ce, C 2002, ‘Innovation, Entrepreneurship and Competitive Advantage in the Entrepreneurial Venture’, Journal of Small Business and Enterprise Development , 9 (1) , 8 – 37 Mazzarol, T. W. (2004). Industry Networks in the Australian Marine Complex: Strategic Networking within the Western Australian Maritime Engineering Sector. Centre for Entrepreneurial Management and Innovation, Graduate School of Management, University of Western Australia, Perth. Eurostat (2013) [online] dostupné na [online] dostupné na http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/237EN/EN/237EN-EN.PDF

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SBA fact sheet, (2012) [online] dostupné na http://www.sbagency.sk/sites/default/files/sba_fact_sheet-slovakia2012_en.pdf . [cit. 2014.03. 10] Small Business Act of the EC. (2008). [online] dostupné na http://ec.europa.eu/enterprise/policies/sme/smallbusiness-act/index_en.htm . [cit. 2014.03. 10]

260 LIFELONG LEARNING PROGRAMME - LEONARDO DA VINCI MULTILATERAL PROJECTS - TRANSFER OF INNOVATION 2012. GRANT AGREEMENT n° CZ/12/LLP-LdV/TOI/134004. PROJECT n° 2012-1-CZ1-LE005-09677