Strategic Planning, Implementing Strategic Planning in Small Business

“The vast majority of small business owners do not plan”, reviewing studies that conducted in the strategic planning field leads to the conclusion, that we can regard this statement as a ruling. But why is it so? And is there something that can be done? The fifth article in the series tries to answer these questions.

The status in which the vast majority of small business owners do not engage in any sort of strategic planning can be attribute to two different factors: First, the lack of time that every small business owner face, which exists mainly because of the centrality of the small business owner in the day-to-day management tasks that are crucial for the maintenance of the small business. Second, the skills, or lack of skills, to establish a profound strategic planning process that will evolve into strategic plan that will lay out the small business goals and objectives and the necessary resources needed to achieve those objectives. Such skills are not as common even for large business top managers, but contrary to small business owners large business top managers do have the access to professionals in the field of strategic planning and the necessary resources to hire them.

In light of this it needs to be asked; do all small business owners sentenced to lag behind their corporate colleagues regarding strategic planning? Is there something that the small business owner can do in order to narrow the gap?
Small business owners will never have the necessary resources needed to close the gap with large businesses regarding strategic planning process and implementation. But frankly I don’t think that they should put neither their time nor their money in the elusive quest to narrow this gap. Small business owners should understand that small businesses are not large businesses as for their abilities and resources and adopt different approach toward strategic planning that can be implemented not only in a rigid form which dictate an exact formula that delineate for the small business what to do and how to act at every possible situation, such approach opens a whole new set of alternatives to engage in some sort of strategic planning, from which the owner and its small business will be the main beneficiaries.

My suggestion for a different approach toward planning based on differential sophistication and time length of planning.
A five stages ordinal scale defines planning sophistication: 1. Defining objectives and goals. 2. Selection of strategies required for achieving objectives. 3. Assessment of resources required for implementation of strategies. 4. Procedures for identifying and preventing failure of the plan implementation on a continuing basis. 5. Attempt to account for factors outside the immediate environment of the firm.When a decision is made by the small business owner to set the planning bar on one of the five stages, the commitment than is for the chosen stage and all stages beneath it. Now that the decision about planning sophistication is behind us, it’s the time to define the time length that will be covered by the planning process. Three possible time lengths – one year, two years, and three years – define an increasing level of commitment to the scope of planning. It’s important to understand that no matter which combination of planning – sophistication, time length – is been chosen, the plans must be written in order to acquire the needed commitment for achieving the full impact.

Strategic Planning, Do Strategic Planning Implementation in Small Businesses Affect the Level of Performance

The fourth article in the series deals with the assumption, that strategic planning implementation in small businesses raises the level of performance. A presentation of empirical studies from the past five decades will be used to clarify that issue.

Mayer and Goldstein (1961) studied the survival rate at the first two years of operation of eighty-one firms from service and retail industries. Underlie firms’ failure were lack of planning and coherent decision-making. Chigha and Julien (1979) conducted a longitudinal study on ninety industrial firms throughout the years 1968-1978 in which they examined the correlation between strategic planning and performance. Firms that implemented strategic planning at the highest level available showed significant increase in number of employees, sales and assets. Robinson (1979) examined the effect of strategic planning implementation on business performance in forty-two small businesses from the service industry. Results showed that strategic planning enhanced decision-making that led to significant increase in sales and profits, and significant decrease in debt to capital ratio. Robinson (1982) studied two groups of small firms; a first group that includes small businesses that implemented strategic planning using outside assistance (counselors, lowers, accountants, bankers) and a second benchmark group of small businesses that did not implemented strategic planning. The first group showed a significantly higher level of profitability, sales, return on sales (ROS) and number of full-time employees.




With the development of the research in that field, the classification of firms changed from dichotomous criterion to layers, when a layer of strategic planning was defined through the time length and sophistication in which the planning is conducted. Bracker and Pearson (1986) examined planning and financial performance of small firms, they sampled 188 small dry cleaning businesses, and defined four levels of strategic planning: 1. Unstructured plans – no measurable structured planning in the firm. 2. Intuitive plans – these informal plans are developed and implemented based on the experience and intuition of the owner of the firm. These plans are not written and are stored in the memory of the firm’s owner. They are of a short-term duration (no longer then one year) and based on the owner’s objectives and the firm’s present environment. 3. Structured operational plans – written short-range operation budgets and plans of action for current fiscal period. 4. Structured strategic plans – formalized, written, long-range (three to fifteen years) plans covering the process of determining major outside interests focused on the organization; expectations of dominant inside interests; information about past, current, and future performance; environmental analysis; and determination of strength and weaknesses of the firm feedback. Findings suggest for significant increase in revenue growth and in entrepreneurial compensation growth for firms that conducted structured strategic plans compare to the others. No significant differences found for the measure – labor expense/revenue growth. Rue and Ibrahim (1998) examined strategic planning and performance in 253 small businesses. Three levels of strategic planning were defined: 1. No written planning. 2. Basic written planning – consideration of external factors, quantitative objectives, budget. 3. Sophisticated written planning – in addition to paragraph 2, procedures for inspecting planning versus execution. Results suggested for significant difference between small businesses that implemented basic and sophisticate written planning compared to the others for the rate of increase in sales. No significant difference found for return on investment (ROI). Perry (2001) studied the effect of planning on firms’ failure using a sample of 152 pairs of small businesses, which resembled in age, size, location and industry. The distinction between the pairs of businesses was that one of each pair file for bankruptcy while the other was still in operation. Level of planning sophistication measured using five questions in ordinal scale; each question represents a single planning unit. Findings supported a significant difference at the level of planning between small businesses that file for bankruptcy and these that didn’t. Wijewardena et al. (2004) defined three levels of strategic planning – No written planning. Basic planning. Sophisticated planning. They found that the level of planning correlate positively with the level of sales growth. Yusuf and Saffu (2005) defined three levels of strategic planning – Low. Marginal. High. Unexpectedly, sales growth correlates to low level of strategic planning. No correlation was found between strategic planning and market share growth and growth in profitability.

The empirical studies’ review indicates for inconclusive findings regarding the correlation between strategic planning and small business performance. Moreover, including studies from several decades that examining different industries and using different measures both for strategic planning as well as performance; reinforce the conclusion that strategic planning implementation in small businesses does not guarantee higher level of performance. It’s not obvious that the more sophisticated and for long-term the strategic planning is the higher the level of performance is.

Strategic Planning, Analyzing the Differences between Small and Large Businesses

Through a discussion about why and how strategic planning in small businesses is different then in large businesses, this third article in the series is been used as a passage from an overall discussion regarding strategic planning to a targeted analysis focusing at strategic planning in small business.
Till the mid seventies a small business was considered as a large business regarding the managerial skills needed for its success. From the mid seventies we can note that scholars make the distinction between small and large businesses in terms of the level of sophistication and the scope of strategic planning.

Hofer (1975); Lindsy and Rue (1980) argue that the size of the firm is a significant indicator needed to take into consideration for designing an affective strategic planning. Furthermore, strategic planning as implemented in large firms doesn’t guarantee a similar results for small businesses and it may be inadequate for them. Welsh and White (1981) claimed that despite the common assumption among managers that small business can be regard as large business – except for smaller sales, assets, employees – here is that small businesses need a specific guidance for operating its managerial skills. Thurston (1983) wrote that managers in small businesses could adopt several approaches, starting from non-formal planning without written plans and ending with a fully formal planning that includes written plans.

Reviewing the way strategic planning is implemented in small businesses strengthen the notion about the need for unique approach toward strategic planning in small businesses. Hestings (1961) studied planning difficulties and implementation in 106 manufacturing firms. He found that in most firms planning was not formal. Moving forward the planning process caused major difficulties, likewise to allocate the necessary time for it. Still (1974) investigate the approach toward strategic planning in ninety-two firms from manufacturing and construction industries. His findings were: 1. Strategic planning was implemented in irregular and incomprehensive way. 2. The planning was not methodical. 3. Few people took part of the planning process. 4. Very occasionally the firm’s goals were taking into account. 5. The search for alternatives was with no inspiration and the tendency was to limit the search for more alternatives as soon as a good alternative was located. Cohn and Lindberg (1972) studied 106 small businesses and ninety-one large businesses in order to locate and define the differences concerning managerial aspects, findings reveled: 1. Planning was the hardest procedure for implementation. 2. Setting goals was the weakest procedure in small business planning. 3. Planning in small business consumed considerable amount of time. Shuman (1975) examine long-range planning in forty-one manufacturing firms, findings were: 1. Planning was informal, inconsistence and unstructured. 2. The planning based on insufficient and inadequate data. Robinson and Pearce (1984) ascribe the lack of strategic planning in small businesses to a limited knowledge in the planning process, lack of time, expertise and trust. Sexton and Van Auken (1985) reported that only a minority of the small businesses engaged in strategic planning, these that did plan showed instability and inconsistency with keeping the planning process over time.

To summarize the above, small businesses have a problem with the implementation of strategic planning due to lack of time, knowledge and expertise. When planning do carried out its output is insufficient and incomplete. Strategic planning in small businesses should take into consideration the strengths and weaknesses, competencies and disabilities of the small business.
The forthcoming articles in this series will enhance the discussion about strategic planning in small businesses in two aspects: 1. Do the implementation of strategic planning in small businesses affect the level of performance. 2. Tailor made step-by-step strategic planning for small businesses, an operative suggestion.

Strategic Planning, Definitions Used at the Empirical research

In continuance with the first article that presented a theoretical overview of strategic planning, the second article in the series has focused on the different definitions used by scholars while implementing the empirical research of strategic planning.

Researches at the early seventies classified firms according to dichotomous criterion – whether the firm implementing strategic planning. Thune and House (1970); Herold (1972) defined strategic planning as the definition of goals and strategies for a period of at least three years and the preparation of operation plan and procedures for achieving the goals. Rue and Fulmer (1973) argue that firm can be regard as strategic planner if it possess written plans that includes goals and long term strategies for a period of at least three years. Karger and Malik (1975) determine that firm can be regards as conducting strategic planning if it implementing a general five years plan and a detailed two years plan for the organization and its subsidiaries.

With the development of the research in that field, the classification of firms changed from dichotomous criterion to layers, when a layer of strategic planning was defined through the time length and sophistication in which the planning is conducted. Kallman and Shapiro (1978) ranked firms according to five categories based on the firm’s level of commitment to long term planning (more then one year), starting with firms that didn’t implemented any form of strategic planning to firms that implemented a detailed and written plans. Wood and LaForge (1979) ranked firms according to three categories based on the scope of long-term planning. Sapp and Seiler (1981) classify firms according to the wholeness of their planning posture. Four levels have been examined: 1. Not planning. 2. Beginner planners. 3. Moderate planners. 4. Sophisticated planners. Robinson and Pearce (1983) classify firms according to three levels: 1. No written plans. 2. Moderate sophisticated written plans for a period of at least three years, includes; goals and objectives, strategies, future resources analysis. 3. Highly sophisticated written plans, includes in addition to “moderate sophisticated”; procedures for reviewing planning versus execution, business environment analysis. Rhyne (1986) characterized five levels of strategic planning: 1. Short term forecast – definition of the short run operation outcomes (less then one year). 2. Budget – financial check-up on the planning outcomes (one year). 3. Yearly planning – identification of threats and opportunities in order to maximize the current year’s outcome (one year). 4. Long range planning - identification of threats and opportunities in order to maximize outcomes from operation for a longer period of time (five to fifteen years). 5. Strategic planning – identify Opportunities within the firm’s existing market or within new markets as well as identify potential threats to the current operation of the firm (five to fifteen years).

Another issue that rises from the literature and needs clarification is why scholars uses the concept “formal strategic planning” and when strategic planning becomes formal? Perry (2001) identified strategic planning using five levels ordinal scale, and an evaluation at each level whether the planning process end with a written outcome. This sort of evaluation is based on the assumption that planning becomes formal when it’s written.

Strategic Planning, Theoretical Discussion

Since the mid sixties when strategic planning as a concept was introduced to the business and academic world, it’s repeatedly appears at academic literature. A theoretical discussion on how to conduct strategic planning evolve into empirical research, which mostly deals with strategic planning in large businesses and in part with small businesses. Significant share of the empirical research on strategic planning, both on large and small business, deals with the effect of strategic planning on the level of business performance. This article is the first in a series of articles covering variety of aspects of strategic planning and its goal is to enhance the ability to understand, what is strategic planning? This will be done through a literature review of books and articles, from the early decades in which the theoretical and practicable discussion on the concept of strategic planning has developed.

Drucker (1973) define the major role of planning in his book – “planning of, what is our business? What it will be? And what should it be? Must be combined …. Everything that we plan turns immediately into action and commitment”. Kallman and Shapiro (1978) define an array of processes which consolidate into strategic planning – analyzing the organization, setting its goals, understanding its abilities, define alternatives for implementing and achieving the goals, assessing the effectiveness of the alternatives, choose the preferable alternative, engage with the necessary operation in order to implement the alternative, keeping constant watch on the organization in order to reach optimal ratio between planning and implementation. Van de Ven (1980) claims that planning is a process or an array of operations used for developing a new product or service. Kudla (1980) argue that strategic planning is a systematic process underlie the decision about the firm goals and objectives for at least three years ahead and strategies’ development that control the resources usage for achieving these goals. Pearce, Freeman and Robinson (1987) define strategic planning as a process that determine – mission, goals, strategies, and the policy for acquiring and allocating the resources for achieving the organization goals. Ansoff (1991) argue that planning usually result in a better economic outcomes then learning through trial and error. Mintzberg (1994) wrote that the expectation from strategic planning at the first years it become a common concept was to create the best strategies coincident with specific step by step instructions of how to implement these strategies so the firm managers wont be mistaken. Mintzberg claims that planning could be implemented in a manner of exaggeration, inaccuracy and inefficiency. Miller and Cardinal (1994) note that despite the common agreement that strategic planning brings a better outcomes then coincidental managerial processes that don’t based on planning, some scholars claims that strategic planning could lead to dysfunction or irrelevance, in part due to overly rigid implementation.

Performance Measurement, The Importance of Multidimensional Structure

The fourth article in the series discuss the need for constructing a multidimensional structure of business performance in order to achieve the best possible results when conducting performance measurement.

Business performance is a complex multidimensional variable what makes its measurement a difficult task (Brush and Vanderwerf, 1992). Venkatraman and Ramanujam (1985) suggest that measures such as sales growth, net income growth and return on investment indicate for different dimensions. In order to overcome that hurdle scholars used several different measures in order to achieve more accurate estimation of the differences between key dimensions of business performance (Zahra, 1996). Later studies supported such arguments, Brush and Vanderwerf (1992) and Tsai, Macmillan and low (1991) discuss the need for using both profitability and growth dimensions – both dimensions can be defined as financial performance - because it is possible that these two dimensions are polling in opposite directions, it’s means that even if we’re focusing on financial performance measurement a uni-dimensional measurement approach could be inadequate and cause for inconclusive findings. As for Venkatraman and Ramanujam (1986) such arguments reinforced the notion that financial performance measurement is insufficient and operational performance measurement is an important supplemental ingredient for business performance measurement.

Two empirical studies support the need for multidimensional measurement approach. Woo and Willard (1983) statistical analysis indicates that fourteen financial and operational measures grouped into four dimensions – profitability/cash flow, relative market position, change in profitability/cash flow, and revenue growth. A statistical analysis of nineteen financial performance measures conducted by Murphy, Trailer and Hill (1996) results in nine different dimensions, none of these dimensions explain more then fourteen percent of the variance of business performance.

Performance Measurement, Difficulties in Measuring Small Business Performance

Trying to measure performance, in general, is a difficult task for scholars; the difficulties intensify when the subject is the measurement of small business performance. In this article, which is the third in the series, an overview of the major obstacles for measuring small business performance is presented.

Time is a substantial factor that needs to be taken into consideration when trying to measure performance in small business, because measuring the profitability of small businesses in their first years of operation can be misleading. Mcdougall, Robinson and denisi (1992) state, that small businesses are usually not expected to generate any profit in their early years of operation. Biggadike (1979) define a milestone of eight years in operation, in average, before new venture is expecting to generate profits.

Growth rate is not equal in all businesses; moreover it varies substantially between businesses and across industries. Cooper (1979) has related to the potential influence of rapid growth, and noted that operational losses or poor profits in small businesses with growth orientation can’t be used as an indicator for management failure, if the cause for the result is heavy investments in new markets or products. If at different industries we’re expecting different growth rate, then as Miller and Tolouse (1986) states, the industry in which the business is operating in is affecting the level of business performance in general as well as the small business performance.

Accounting measures consider as objective and more accurate then nonobjective measures, but even if such objective measures can be obtain it is very hard to interpret them in small businesses (Covin and Slevin, 1989, 1990). This statement reinforced by Rappaport (1981) and Stewart (1991) findings of weak correlation between accounting measures related to small business performance and the small business value. Dess and Robinson (1984) argue that the reason for the difficulty in interpreting objective data such as accounting measures may be due to different accounting rules for different types of corporation like proprietary limited company and partnership. Covin and Slevin (1990) relate to the small business owners’ salaries as another potential cause for problem, which is unique for small businesses. In many of the small businesses the owner salaries takes substantial share of the business profitability.

Performance Measurement, Operational and Financial Performance

Empirical studies in business management repeatedly use business performance as dependent variable in order to predict the potential effect of managerial, operational and behavioral activities within the firm. This second article in the series concerns of financial and operational performance; through the summarization of two seminal papers written by Venkatraman and Ramanujam (1986) and Kaplan and Norton (1992).

Venkatraman and Ramanujam (1986) study consider as an important document for the theoretical discussion regarding the evaluation of the measurement of business performance. One of the key issues addressed by this study is the attempt to delineate the performance concept. More specifically, whether business performance should be differentiated from the overall discussion on organizational effectiveness. The view taken by Venkatraman and Ramanujam (1986) was that business performance, which reflects the perspective of strategic management, is a subset of the overall concept of organizational effectiveness. The narrowest conception of business performance centers on the use of simple outcome based financial indicators that are assumed to reflect the fulfillment of the economic goals of the firm. Venkatraman and Ramanujam (1986) refer to this concept as financial performance. Financial performance measurement is a multi-dimensional one. Sample of financial measures, group into dimensions can be presented as follow: Profitability – return on investment (ROI), earning before interest and tax (EBIT), gross profit margins. Growth - market share growth, Sales Growth. Efficiency – return on sales (ROS), return on equity (ROE). Analyses made by using single financial measure or several measures relating to only one dimension may lead to misleading conclusions. According to Venkatraman and Ramanujam (1986) a border conceptualization of business performance would include emphasis on measures of operational performance, which consists of those key parameters which may lead to an improvement in financial performance. Venkatraman and Ramanujam (1986) note that it would be logical to treat operational performance measures such as market-share, new product introduction, product quality, marketing effectiveness, manufacturing value-added, within the domain of business performance.

Kaplan and Norton (1992) have presented another seminal paper regarding the measurement of business performance. Its name, “The Balanced Scorecard – measures that drive performance” could suggest for the way they approach the issue. According to the writers, since there is increasing need, both for large and small businesses, to master a variety of capabilities in different fields, the traditional measures of financial performance gives inadequate, or in some cases inaccurate, perspective for the status of the business and its ability to keep improving. The balanced scorecard tries to overcome these difficulties through the completion of financial measures, which reflect for actions that already have been taken, with those of operational performance measures, which consists of parameters that may drive the forthcoming financial performance. Operational measures according to the balanced scorecard constructed from three dimensions – How do customers see us? (Customer perspective), What must we excel at? (Internal perspective), Can we continue to improve and create value? (Innovation and learning perspective).

Performance Measurement, Organization Theory

Business performance is probably one of the must widespread dependent variable used by scholars, while at the same time its remains one of the most vague variables (Rogers and Wright, 1998). In order to minimize the level of ambiguity regarding the construction and definition of business performance, as well as to suggest for performance measurement alternatives in a way to provide with the most accurate and effective measurement, both for small business and large business, I present a series of articles focusing on seminal papers discussing the issue of performance measurement and a literature review of studies using business performance as dependent variable.

The first article presents a discussion on organization theory by Murphy, Trailer and Hill (1996), which argue that much of the research on performance has come from organization theory and strategic management. The view taken by Venkatraman and Ramanujam (1986) in their paper was that business performance, which reflects the perspective of strategic management, is a subset of the overall concept of organizational effectiveness.

Murphy et al., (1996) argue that in organization theory, three fundamental theoretical approaches to measuring organizational effectiveness have evolved: The goal-based approach – suggests that an organization be evaluated by the goals that it sets for itself Etzioni (1964). However, organizations have varied and sometimes contradictory goals, making cross-firm comparisons difficult. Reinforcement for the notion that organization are varied in various aspects is that scholars often restricted their study sample to definite industries in order to control the disparities between the various industries with respect to performance and the firm's profitability (Beard and Dess, 1981; Miller and Tolouse, 1986). The systems approach – this approach partially compensates for the weakness of the goal-based approach by considering the simultaneous achievement of multiple, generic performance aspects (Georgopolous and Tannenbaum, 1957; Yuchtman and Seashore, 1967; Steers, 1975). Both the goal and system approaches fail to adequately account for differences between stakeholder groups perspectives on performance. The multiple constituency approach – this approach factors in these differences in perspectives and examines the extant to which the agenda of various stakeholders groups are satisfied (Thompson, 1967; Pennings and Goodman, 1977; Pfeffer and Salancik, 1978; Connolly, Conlon and Deutsch, 1980).

Venkatraman and Ramanujam (1986), which discuss organizational performance measurement in terms of three hierarchically construct (i.e., organizational effectiveness, operational performance, financial performance) argue that these three organization theoretic perspectives are reflecting the writings on organizational effectiveness construct. The coming articles discuss about the other two constructs – operational performance and financial performance.

Characteristics of Small Business Definition

A literature review of 23 papers, which have been published from 1958 to 2002, revealed an inconsistency regarding both characterization and definition of small business. The current article objective is to suggest some guidelines that can help reduce the level of ambiguity. The method to reach that objective is through the analysis of five significant parameters that have been used by different scholars to define small business. Each of these parameters is being characterized and analyze in order to clarify the existing status and for suggesting the less ambiguous alternative for using that parameter.

First, the business must be independent: For that matter, a subsidiary or a branch can’t be considering as independent business.

Second, the business is not dominant in the industry it’s operating in: Part of ‘Monopolistic Competition’ definition can be used to characterize the parameter - There are many sellers and they believe that their actions will not materially affect their competitors.

Third, firm size (number of employees): This parameter is obviously the most popular among scholars for defining small business; nonetheless its use varies dramatically. If you’re in U.S. then an employer of up to 500 employees will still be consider as small business, contrary to U.S. in Europe most countries use the limit of 50 employees to define business as small. Taking into account that across the world ninety percent of the operating businesses are employing less then 20 employees, it seems that 50 employees is a more suitable limit. Moreover, business with more than 50 employees is employing operational and managerial techniques, which become more and more similar to those of large businesses. Characterize the upper limit brings us half way; in order for us to go all the way, lower limit should be characterize as well. A rule of thumb in that regard is that business with less then five-to-ten employees don’t even have the minimum operational and managerial structure, which can be treated as small business, any business with less then five employees is inadequate for any analysis, and should be named micro-business.

Fourth, firm age: The use of firm age by scholars meant to characterize the minimal period of time needed for a business in order to form some operational and managerial backbone, otherwise, there was a risk that data collected for statistical analysis wont be suitable. Biggadike (1979), supported by Miller and Camp (1985), conclude that a new venture needs in average eight years for achieving profitability. The barrier of eight years should be analyzed depending on several factors, such as the industry that the firm operates in or the initial capital raise for starting the new venture. Moreover, Biggadike based his definition on the basis of the period needed to generate profitability, which is only one among numerous measures of performance. Taking all into account, a conservative estimation will be that business can be still considering as new if the period from establishment is two-to-five years.

Fifth, annual revenue: What can be considering as acceptable annual revenue for small business? In order to be able to characterize this parameter, a preliminary step of defining the industry that the business relates to must be taken. There is a substantial difference regarding the revenue in different industries. For example - Annual sales of five million dollars generate by a car dealer must be treated entirely different then when this same revenue produces by any type of consulting firm. The source of revenue is of great importance; revenue from selling goods can’t be treated as revenue from selling knowledge or labor. Subject to that remark, and for the vast majority of small businesses that operates in either manufacturing or trade (retail, wholesale) industries, annual revenue of ten million dollars can be used as proximity for characterize the upper limit. This annual revenue correlate with the upper limit of 50 employees used as characteristic for firm size.

The Ambiguity of Small Business Definition

When different people are using the phrase ‘small business’, do they refer to a common set of definitions? Like, how many employees are listed in the payroll? Or, the number of years it’s operative? A literature review of 23 papers, which have been published from 1958 to 2002, tries to shed light on this issue. The review revealed an inconsistency regarding both characterization and definition of small business. The variety of definition used in these papers unable to set an agreeable format for small business definition. Mayer and Goldstein (1961) define small business as an employer of less then 200 employees. Potts (1977) set the barrier on 20 employees in addition to a minimum eight years that the business is operative. Robinson (1982) define firm as small if the number of employees is less then 50, the annual sales is under three million dollars and it’s operate as sole ownership. Covin and Slevin (1989) define small business according to number of employees - more then five or less then 500, as well as a minimum of five years that the business is operative. Rue and Ibrahim (1998) define small firm as an employer of more then 15 employees. Perry (2001) set an upper limit of 500 employees as a sole identifier for business to be regard as small. The review clarify that the ambiguity is stable over time. The lack of uniform definition in the sixtieth continued throughout the decades into the millennium. The industries targeted by the different scholars do have one common base; the focus was on industries with low to average economic growth such as manufacturing, trade (retail, wholesale) and service.

Scholars have addressed the problematicalness regarding the inconsistency of small business definition for quite time, Golde (1964) which examine small manufacturing employers with less then 500 employees, argue that it’s an arbitrarily definition which can adequately feet non manufacturing firms. Welsh and White (1981) claims that small business tend to group in certain industries, such as – wholesalers, retailers, service and manufacturing. Peterson et al., (1986) note that the most common definition is the one that used by the Small Business Administration (SBA), in part, that definition state that small business can be define as one if both its ownership and operation conducted independently, and it’s not dominant at the industry which is operate in. D'amboise and Muldowney (1988) write about the complexity of small business definition, which can be a result of the variety and different types of firms this phrase try to encompass. Pickle and Abrahamson (1990) address the question, what is a small business? There answer is that some will regard small business as such if it’s employ certain number of employees, others will claim that small business is one that limits his operation to local market, and part will classify business as small according to it’s nature (e.g., local pharmacy, clothing store, jewelry store).

Defining Firm Level Entrepreneurship

According to Zhara et al., (1999) different scholars use different expressions to describe entrepreneurship (e.g., Entrepreneurship, Corporate Entrepreneurship, Intrapreneurship, Entrepreneurship Posture, Entrepreneurial Orientation), but contrary to the variety of expressions used to describe entrepreneurship, there is consistency regarding entrepreneurship’s definition and measurement.
Generally speaking, entrepreneurship based research usually focus on either Traits or Behavior. Since the nineties, behavior underlie the vast majority of entrepreneurship’s research, the main reason for this is a limited success of scholars to reinforce the existence of common traits that characterize entrepreneurs (Smart and Conant, 1994). Gartner (1988) argues that the focus should be on “what the entrepreneur does” and not “who is the entrepreneur”. Behavior based research focus on the entrepreneurship process through the entrepreneur activities, that instead of referring to personal specific traits (Smart and Conant, 1994). Behavior based entrepreneurship’s research is usually conducted at entrepreneur level; nonetheless, scholars claim that entrepreneurship is implemented at the firm level as well (Carland et. al., 1984; Naman and Slevin, 1993; Lumpkin and Dess, 1996; Wiklund, 1999).

This article tries to establish a common base for defining firm level entrepreneurship. Naman and Slevin (1993) states that organization can be characterized and measured based on the level of entrepreneurship demonstrate by the firm’s management. According to Covin and Slevin (1986), top managers at entrepreneurship’s firm possess an entrepreneurship style of management, which affect the firm’s strategic decisions and management philosophy.
In order to establish definition for the firm level entrepreneurship, it is necessary to present the characteristics of management behavior used by scholars for that matter. Schumpeter (1934) states that innovativeness is the only entrepreneurship behavior that separates between entrepreneurship’s activities to non-entrepreneurship’s activities. Innovation relates to the pursuit after creative solutions through the development and improvement of services and products as well as administrative and technological techniques (Davis et al., 1991). Innovation reflects the firm’s tendency to support new ideas and procedures, which can end as new products or services Lumpkin and Dess (1996).
In his book “Essai sur la Nature Commerce en General”, Richard Cantillon (1755) argues that the essence of entrepreneurship is a risk-taking behavior. According to Lumpkin and Dess (1996), risk-taking can range from relatively “safe” risk as deposit money to the bank to quite risky actions like investing in untested technologies or launching new product to the market. In their research, Miller and Friesen (1982) define an entrepreneurial model of innovativeness, this model regards firm that innovate audacity and regularly while taking substantial risks in their strategy.
Third dimension, which can be added to innovation and risk-taking, is Proactive. According to Davis et al., (1991) proactive associates with an aggressive posture, relatively to competitors, while trying to achieve firm’s objectives by all rational needed means. Lumpkin and Dess (2001) mention that proactive relate to the way the firm associates to business opportunities through acquisition of initiatives in the market it’s operate in.
Although other dimensions are used to define firm level entrepreneurship, the vast majority of scholars use these three dimensions - Innovation, Risk-taking and Proactive (e.g., Miller and Friesen, 1978; Covin and Slevin, 1986, 1989; Naman and Slevin, 1993; Knight, 1993; Wiklund, 1999).

What is Market Orientation, and Does It Help Your Small Business Performance?

Since market orientation is not such common notion, let us first define what market orientation stands for. According to Dalgic (1998) market orientation express a marketing perception which put the customer’s needs in the center of all firm’s activities. Berkowitz, Kerin and Rudelius (1989) states that already in the year 1952 General Electric (GE) embedded there marketing personal at the beginning of the assembly line and not in its end, while combining marketing into all firm activities. Practically, General Electric (GE) was the first firm that formally accepts marketing perception as a management philosophy, while at the same time defining itself as a market oriented firm (Dalgic, 1998). Narver and Slater (1990) and Kohli and Jaworski (1990) wrote seminal papers regarding market orientation. By learning about organization and management characteristics of market-oriented firms, they have tried to define market orientation structure as well as preliminary conditions to it, from the firm perspective. According to Narver and Slater (1990) market orientation composed of three behavioral characteristics: Customer Orientation: understanding the potential customer needs in order to create an added value for him on a continuance basis. Competitor Orientation: knowing the strength and weaknesses as well as capabilities and strategies of key competitors. Inter Functional Coordination: coordinating use of the firm resources for creating high added value to target customers.

Logically, the second step should focus in the effort to show some evidence for an existing effect of market orientation on small business performance. In this regard, numerous studies inspect many possible direction of the market orientation performance connection. Among those who focused on small businesses as for characterizing their research sample we can find the following studies: Shun-Ching and Cheng-Hsui Chen (1998) sample seventy-six small businesses that are members at the national union for small medium enterprise in Taiwan. They found significant positive relation between market orientation and performance. Pelham (2000) sample 235 small businesses from eight different industries in the United States. He found significant positive relation between market orientation and sales efficiency, growth to market share ratio and profitability. Homburg, Hoyer and Fassnacht (2002) conducted their study at two disparate geographic zones – United States and Germany. Research population included 441 retail stores. Here also a significant positive relation between market orientation and performance was found.

If you are a small or medium size business owner, then you are probably wondering, now when I know that a higher level of market orientation cause for a higher level of performance at my firm, how will I know if I’m implementing market orientation in my own business? And how can I figure out if what I’m regarding as market orientation can indeed consider as one? Based on earlier questionnaires, such as Pelham (2000), let me suggest for a seven-item questionnaire that each business owner or CEO can take in order to evaluate the level of market orientation in his\her business.

Market Orientation Scale:
For each of the following seven sentences there are five options anchored by descriptive phrases, you need to circle only one option in order to complete the sentence in a way that describe what is going on in your business.

1. Our firm gives a (moderate 1 2 3 4 5 extreme) amount of attention to after sales service.
2. Our firm is (somewhat slow 1 2 3 4 5 very fast) in detecting fundamental changes in customer preferences, competitive strategies, and other major changes in our industry.
3. Our firm responds (somewhat slowly 1 2 3 4 5 very fast) to negative customer satisfaction information.
4. Our firm measures customer satisfaction (occasionally 1 2 3 4 5 frequently).
5. Our salespeople (occasionally 1 2 3 4 5 frequently) share competitor information with all of the other departments of the company.
6. We (occasionally 1 2 3 4 5 frequently) take advantage of targeted opportunities to take advantage of competitors’ weaknesses.
7. In our firm we understands how the entire business can contribute to creating customer value (disagree 1 2 3 4 5 agree).

After you have completed all questions you need to aggregate the scores of all the sentences. The higher the score you achieve the higher the market orientation level implemented by your firm is.

Public Assistance Programs and Small Business Performance

Shapiro et al.'s (1996) states, that assistance programs implementation begins by transferring inputs from the assistance program to the client, then through a series of intermediate steps, actions are taken by the client that subsequently lead to business and economic development outcomes. It is therefore possible to regard the assistance program (i.e. the consultant), its gist and input, as one party, where the other party includes the client (i.e., the firm), its capabilities, aspirations and willingness. The assistance program’s effectiveness relies on both parties as well as the quality of interaction between them.

The Program and Performance
A number of studies examined the assistance program’s effect on firm performance while noting, in general, that the only difference between small businesses that receive assistance and those that don’t is the assistance itself (Felsenstien et al., 1999; Chrisman, 1999; Chrisman and Mcmullan, 2000). Chrisman (1999) found that performance in firms that received assistance from the Small Business Development Center (SBDC) in the US was significantly better than performance in firms that were part of the control group that did not participate in any kind of assistance program.
Several Studies examined the components of assistance provided by the assistance program. Jang and Lee (1998) have indicated the consultant’s capacities, and the manner of consultation: defined objectives; and structural procedures. Kaplan et al. (2000) examined the following: full seminar days a business was allotted; the number of workshops; visits accorded to the firm and the number of formal and informal consultations. Rice (2002) examined the following: nature of instruction; amount of time allotted to assistance; intensity of assistance (i.e. its frequency and each encounter’s length); range of implemented assistance operations; and whether consultation was reactive or proactive. Wren and Story (2002) found that of three assistance components – the grant rate available to the firm; the cost of consultation per day; and number of consultation days – the last had a significant effect on performance. Chrisman and Mcmullan (2004) found significant positive correlation between the number of consultation hours provided to small businesses during the initial phases of their foundation, and their capacity for survival. Chrisman et al. (2005) found a positive, low-significance correlation between the number of consultation hours provided and performance.
Some studies examine the differentiation between various types of assistance course. Ehlen (2001) presents three feasible courses of assistance program: business activity consultation; technical consultation centering on new products and procedures; and staff instruction. Assistance components utilized within the framework of various assistance courses included: improvement of procedure; improvement of quality; financial planning; and the implementation of electronic commerce. Luria and Wiarda (1996) note that improvement in performance achieved by firms, which participated in consultation assistance course (three were examined), but here also statistic significance was low.
The studies surveyed enable to differentiate between technical and material characteristics. Technical characteristic can be define as a list of tasks detailing the type of assistance. Such tasks may generate from the firm’s own framework of activity, alternately they may result from the incorporation of the assistance program, for example - loan assistance, tax consultation, insurance consultation, consultation regarding government offices. Material characteristic can be define as such, if it is capable of indicating at the manner in which assistance is given, for example - the period of time allotted to assistance, the intensity of assistance, the range of implemented assistance activities, the consultant’s capabilities.
The possible effect an assistance program has on firm performance is more evident where there are differences in the material characteristics of assistance components from one course to another. It is possible that the fact that previous studies’ findings are not conclusive stems from examinations of the various courses of assistance that have not been detailed enough so as to determine the comprehensive nature of those parameters that affect firm performance.
The assistance program’s material characteristics can be distinguished in accordance with two dimensions. Quantitative assistance components - evaluates the extent of assistance components, such as: number of days allotted to assistance; intensity of assistance; and the range of activities covered by the assistance program. Qualitative assistance components - evaluates the quality of assistance, such as: consultant’s capabilities; manner of consultation; location of consultation.
It is possible to predict that the extent of quantitative assistance components will have a positive effect on the firm’s performance. More means of external assistance to strengthen those aspects in which the small business lacks will raise the level of performance. Moreover, It is probable that there is a positive relation between the level of qualitative assistance components and the small business’ performance. The higher the quality of the consultant and the consultation process is more precise, ordered, well-defined and active, the higher will be the level of performance.

The Client and Performance
A theoretical study by Jang and Lee (1998) enumerates three fundamental parameters, which affect the success of the management of consultation: consultants’ capabilities; manner of consultation; and organizational characteristics of the client. According to Fleming (1989), key to a successful consultation process is the successful implementation of the outcomes of the consultation process, and the abilities of the client. Shapiro et al. (1993) assert that successful implementation of the assistance program depends on the level of cooperation between consultant and client. Rice (2002) found that entrepreneurs that evinced a greater willingness to cooperate were more influenced than others in the process of business support.
The client’s objective is the success of the consultation process and as derived from it, contributing to a higher level of performance. The quality of consultation management is the means to that end.

Program–Client Interaction and Performance
According to Rice (2002), an interaction between client and consultant is the result of the quantitative and qualitative contents contributed by each of the parties participating in the process of the assistance program. It is therefore to be asked whether an examination of those quantitative and qualitative contents is enough for the purpose of learning about the effectiveness of the assistance process?
An answer to this question may be found in psychological and sociological research centering on the interaction between consultant and client. Luborskt et al. (1997) found that a measurement of the intensity of interaction depends on an analysis of both the interaction and its outcomes. It is impossible to learn of the intensity of interaction by means of measuring only the contents provided to it by the participating parties (Smith and Glass, 1977; Garfield, 1988; Shapiro, Firth-Cozens and Stiles, 1989).
How does one measure an interaction? Sharpley at al. (2000) resorted to the level of rapport that the client experienced. The basis for choosing this estimation is a wide agreement in literature, where therapeutic alliance is of paramount importance in the client’s assessment of the consultation as successful.
Horvath and Greenberg (1989) disassembled the therapeutic alliance into three components: Bond is one of them - level of trust and emotional closeness experienced by both client and consultant.
As the subject under discussion is a relationship motivated by human parameters, there is considerable importance to the intensity of that relationship, derived from both affinity and friction between the participants in the assistance process, The greater the intensity of relationship, the better becomes the assessment of the quality and intensity of the interaction in process.

Limitation for Measuring the Effect of Public Assistance Programs on a Country-Level Economy

Are there benefits in trying to measure public assistance effect at the country-level economy? Literature suggest two main approaches, Wood (1994) ; Blizzard (1995) ; Wood (1999) claims that an economic approach which represent each change as a result of macro economic status is the one with the upper hand. Chrisman (1995) ; Chrisman and Mcmullan (1996) ; Chrisman and Mcmullan (2002) represent an opposite approach, they claim that even though measurement has significant difficulties, it’s can be argued that improving the management level in a firm using assistance of outside help can lead to an improvement at the firm’s performance level. Such improvement at the firm level could suggest that changes will exist at country-level economy as well.

Analyzing the different ways scholars tried to cope with measuring the effect of public assistance programs on country-level economy, raise several questions regarding the possible accuracy that can be achieved based on the existing models:
1. There is objective difficulty in gathering data from public assistance programs that can be used for analysis at the country-level economy.
2. Measuring effects at country-level economy is based on measurement at the firm level. Using different models scholars “transform” data from firm level to country-level. The “transformation” process doesn’t take into account significant measures at country-level economy (e.g. GDP growth, Unemployment).
3. Luukkonen (1998) argue that the difficulties to assess the effect of public assistance programs comes from the problematicalness to “transform” the analyze data from the firm level to country-level.
4. Measures, like Sales growth and employment growth, which have been used to assess the effect of public assistance programs at country-level represent performance measurement which relate to “growth”. Other measures, such as, profitability, efficiency, liquidity, which relate to other dimensions of the overall performance structure, could in fact pull to other as well as opposite direction.
5. Sale growth and market share growth measures represent opposite directions. Sales growths that follow market share growth by a given firm suggest that the particular sale growth comes on the account of other firms in the industry, and it’s not represent genuine growth. Most scholars doesn’t coupe with this issue.