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ICOMEP 2016 | International Congress of Management Economy and Policy | Proceedings Book
2477
STRATEGY FORMATION PROCESS IN SOFTWARE
ENTERPRISES CASE OF ISTANBUL
Assoc. Prof. İzzet Kılınç
Duzce University, Business Faculty, Department of Management Information Systems
Aslıhan Ünal
Duzce University, Institute of Social Sciences, Department of Business Administration
Asst. Prof. Mustafa Yanartaş
Duzce University, Business Faculty, Department of Management Information Systems
ABSTRACT: Business world met with the term “strategy” that is originally a military term, after
World War II, and since then it has been mentioned with magnificent organizations. The small ones
neglected till late 1990s. The hidden power of them has been unearthed by researchers thenceforth and
this research was conducted to contribute these efforts. The purpose of this study is to investigate the
strategy formation process of SMEs in software sector. An exploratory approach was followed and
semi structured interviews were carried out with 12 SME owner managers. Qualitative content
analysis was applied to the data, and thus, 5 themes were obtained: owner’s contribution, management
style, strategy, strategic tools, and obstacles.
Key Words: strategy formation process, SMEs, software sector, qualitative content analysis
YAZILIM İŞLETMELERİNDE STRATEJİ GELİŞTİRME SÜRECİ
İSTANBUL ÖRNEĞİ
ÖZET: İş dünyası, aslen askeri bir terim olan “strateji” ile 2. Dünya Savaşından sonra tanışmıştır ve o
zamandan beri “strateji” terimi büyük işletmelerle birlikte anılmıştır. Küçük işletmeler 1990’ların
sonuna kadar göz ardı edilmiştir. O zamandan itibaren küçük işletmelerin saklı gücü araştırmacılar
tarafından gün yüzüne çıkartılmaya başlanmıştır ve bu araştırma bu çabalara katkıda bulunmak
amacıyla gerçekleştirilmiştir. Bu araştırmanın amacı, yazılım sektöründe faaliyet gösteren KOBİ’lerin
strateji oluşturma süreçlerini incelmektir. Keşfedici bir yaklaşım izlenmiş, 12 KOBİ sahibi yönetici ile
yarı biçimlendirilmiş mülakatlar gerçekleştirilmiştir. Veriye içerik analizi uygulanmış ve sonuç olarak
5 tema elde edilmiştir: İşletme sahibinin katkısı, yönetim şekli, strateji, stratejik araçlar ve engeller.
Anahtar Kelimeler: strateji oluşturma süreci, KOBİ, yazılım sektörü, nitel içerik analizi
INTRODUCTION
“What strategy is” a concept that cannot be met on a common ground. As Hambrick and
Fredericson (2001:48) mentioned “strategy has become a catchall term used to mean whatever
one wants it to mean”, and Mintzberg (1978:935) “The term strategy has been defined in a
variety of ways, but almost always with a common theme, that of a deliberate conscious set of
guidelines that determines decisions into the future”. The founder of the field of strategic
management Ansoff (1965:106) describes strategy as “a rule for making decisions”,
ICOMEP 2016 | 26-27 November | İstanbul, Turkey
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emphasizing its difference from policy-“a contingent decision”, and the more typical
definition - Chandler’s (1962:13) “Strategy is the determination of the basic long-term goals
of an enterprise, and the adoption of courses of action and the allocation of resources
necessary for carrying out these goals”, and the most revolutionary – Hamel (1996:70)
emphasized on revolutionary aspect of strategy as, “Strategy is revolution; everything else is
tactics!”, emphasizing the difference of planning and strategizing, where planning is
programming not discovering. For sure, Chandler’s and Hamel’s definitions seem as the two
edges of a continuum related to their period of time, and between the two, Mintzberg (1978)
introduced a new point of view to the strategy literature “a pattern in stream of decisions” and
called the usual definitions “intended strategy” so as Chandler’s. As Mintzberg identified
strategies as intended and realized (as patterns), three kind of strategy emerged from
combination of two: Deliberate strategies (intended and realized), unrealized strategies
(intended, not realized), and emergent strategies (not intended but realized along the way), the
real-world strategies are the ones between deliberate and emergent. As a pure deliberate
strategy is almost impossible, a pure emergent strategy is too, strategy formation needs “both
of them” (Mintzberg & Waters, 1985), and for adopting the true mixture in true timing and
establishing this culture in organization is the mission of a strategic leader. Mintzberg (1987b)
asserts that strategy is not just a way of dealing with a set of competitors in a market that are
defined as “enemies” referring to its military roots “strategos-the art of army general”. His
purpose by this statement is to take attention on different aspects of strategy as fundamental
issues and an understanding of collective perceptions through the organization. His point of
view on strategy steps forward especially in “Crafting Strategy” (1987a) where he identified a
“strategic leader” with a “craftsman” where he defined craft as “dedication, experience,
involvement with the material, the personal touch, mastery of detail, a sense of harmony and
integration”. Hambrick & Frederickson (2001) also adopted a similar approach in terms of
using metaphor while emphasizing the essence of strategy formation as “magnificent pictures
require far more than choosing colors. Most importantly, great paintings depend on artful
combinations of all these elements”. Beside these different aspects of strategy, there are
considerable amount of researches defining today’s concept of competition as “war” and
matching today’s competitive strategies with principles of Sun Tzu’s “The Art of War” (Lo et.
al., 1998; Ilıcak & Özgül; 2005; Kılınç et.al., 2012). The findings are remarkably shows that
the principles of sun Tzu are highly associated with developing and implementing
competition strategies in today’s business words. Especially Kılınç et al. (2012)’s
determination of the main philosophy of strategy that was based on Tao thought and
principles of Sun Tzu is striking: “Deep knowledge, strong action”.
Literature review lays out the fact that strategy is a multidimensional concept that cannot be
defined with certain words. Different definitions reflect different worldviews and point of
views. However, it is a fact that without a strategy whether intended or emergent, a firm is
like “an unattached flag in a stormy weather”. As big armies have strong enemies, big firms
have strong competitors. Hence, they should adopt strategies, but what about the small ones?
Do small firms not require strategies?
ICOMEP 2016 | International Congress of Management Economy and Policy | Proceedings Book
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As the field of strategic management commonly associated with large, powerful firms and
prominent strategy textbooks includes cases of IBM, Honda, Ford etc.; the Small and Medium
Enterprises (SMEs) were ignored in academic environment. The reason of this fact was
associated with that small firms regarded as lack of challenge and large firms as intellectually
fascinating and attractive for their complexity. (McCharty, 1997). By the late 1990s, as the
importance of SMEs in economic development realized, researchers start conducting
researches on in SMEs strategy. The subjects of the researches mostly center on ‘type of
strategies SMEs adopted’, ‘growth strategies for SMEs’, ‘obstacles on strategic planning’,
‘strategic planning and firm performance’, ‘strategic tools they used’, etc. (Scott & Bruce,
1987; Lyles et. al., 1993; Balasundaram, 2009; Adendorff et. al., 2011; Kalkan & Bozkurt,
2013). The studies mostly dealt with the content of the strategy, and the process side still
needs in-depth research - as McCarty asserted in 1997. In recent years, the “strategy
formation process” gain importance in research field, various researches on this subject
carried out by researches (McCarthy & Leavy, 2000; Barnes, 2002; Karami, 2007; Leitner,
2014), but it a fact that more in depth researches are required. For this purpose, this research
aims to examine the strategy formation process of SMEs in IT Sector in Turkey. An
exploratory approach was followed and data was gathered by semi-structured interviews
conducted with managers of 10 SMEs in Istanbul. In this context, at first the concept of
“SME” and its importance in economic development will be expressed. Then, literature
review of SMEs strategy formation process and research questions will be presented. At third
section; research methodology and findings of analyze will take part, and at the last section
results of study will be discussed and recommendations for further researches will be
provided.
1. LITERATURE REVIEW
1.1. The Concept of SME
Though their driving force almost ignored till the late 1900s, SMEs have great influence in
economies in terms of being a key force in of dynamism, innovation, and flexibility in both
advance industrialized, developing and emerging economies (OECD, 2005). As the
importance of that neglected phenomenon recognized by academicians, governments, unions
there is still not a globally accepted certain definition of “SME”. Although the criterions are
close each other, the concept of SMEs varies across different regions, and countries. For sure
the sociologic, economic and cultural structures of countries obstacles this common ground.
For instance, the European Union (EU) definition considers three criterions: Staff headcount,
annual turnover, and annual balance sheet total and defines as; “The category of micro, small,
and medium sized enterprises (SMEs)is made up of enterprises which employ fewer than 250
persons and which have an annual turnover not exceeding EUR 50 million, and /or an annual
balance sheet total not exceeding EUR 43 million” (EU Commission, 2003). The employment
threshold in USA is fewer than 500 employees (US International Trade Commission, 2010),
in Russia 250 or fewer employees (European Investment Bank, 2013), in Japan 300 and fewer
ICOMEP 2016 | 26-27 November | İstanbul, Turkey
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employees for manufacturing, 100 and fewer employees for wholesale, and 50 and fewer
employees for retail, and the extreme number (Ministry of Economy, Trade and Industry,
2013), in China an SME employs 1000 and fewer employees (ESD China Limited, 2012). The
number of employees of related countries varies from 250-1000. Chinese may be excepted as
an extreme sample related most likely to its population. The financial thresholds are also do
not meet on a common ground. SMEs in Turkey- adopted the definition of enterprise
suggested by EU until Government of Republic of Turkey revised this definition by a
regulation (number of decision: 2012/3834) was printed on Official Gazette on November 4,
2012 with the number of 28457. According to the new regulation SMEs in Turkey were
defined as “SME is an economic unit or an enterprise that employs less than 250 employees,
and any of its annual net sells revenue or its financial balance sheet do not exceed 40 million
Turkish Liras, and classified as micro-sized, small-sized and medium sized enterprise in this
regulation” (T.C. Resmi Gazete, 2012). Turkey’s receiving the formal status of candidacy to
EU, and entering in an adjustment process has influenced the understanding of reaching a
consensus on a uniform SME definition in Turkey However it was observed that in transition
period the former pre-EU definitions of SMEs were virtually adopted by institutions (Ozar,
2003). Consequently a need of a revision was recognized and executed by government of
Turkish Republic. As of today according to the statistics presented by Turkish Statistical
Institute (TUIK) in 2011, SMEs in Turkey comprises 99.8 % of total enterprises, 75.8 % of
employment.
1.2. Strategy Formation Process in SMEs
As the importance of SMEs and their contribution to economies was realized in 1990s, an
interest was aroused in strategic management field, especially to strategic content SMEs
adopted, the strategic tools they used, the relationship between, strategic decision and firm
performance etc., but still there was a lack of attention on “the nature of strategic process in
SMEs”, and besides empirical analysis in depth and exploratory researches were required to
define the strategy process. Researches that recognized this requirement carried out researches
in various countries utilizing qualitative and quantities research methods. Some prominent
researches in this field are presented on Table 2.
Table 1: Researches on strategy formation process of SMEs
Author(s) Aim Methodology Conclusions
McCarthy
(1997)
To examine the
process of strategy
formation through
a
comparative
analysis of nine
Irish SMEs, and to
Longitudinal-
processual approach
Case Studies
Two types of entrepreneurs was
identified: pragmatic and charismatic
A “Phase model” of strategy formation
was introduced (interaction among three
elements: entrepreneur, context and
history.
ICOMEP 2016 | International Congress of Management Economy and Policy | Proceedings Book
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make sense of the
company’s
realized strategy,
9 Irish SMEs As this study has shown, at certain times
in a firm’s history, the opportunistic,
learning and emergent mode of strategy
formation seems beneficial, at other
times, undertaking a more planned
approach seems the safer route to follow
for the SME.
Harris,
Forbes &
Fletcher
(2000)
To examine the
strategy process of
graduate
entrepreneurs
(Graduate
Enterprise
Program)
In-depth interviews
with 21 newly
graduated
entrepreneurs.
Survey and Case
Research
The emergent approach was used more
overall.
The elements of planning approach as
“The use of objectives, for planning and
control” and “maintenance of formality in
some strategy discussions” were strongly
associated with growth.
Entrepreneurs should retain some key
elements of planning approach and of
learning from experience elements of
emergent approach to strategy
formulation.
McCarthy
& Leavy
(2000)
To examine how
strategies form and
evolve in SMEs
Intensive,
longitudinal,
inductive and
comparative case-
based approach was
adopted
9 case studies on
Irish SMEs
Personality of the entrepreneur, the type
of business, and business context are
mostly influential factors in the degree of
planning.
The strategy process was planned but also
emergent in nature.
The strategy process appeared to follow a
phase pattern over time, from an early
fluid phase to a more defined phase,
usually triggered by a crisis or defining
episode.
Barnes
(2002)
To examine the
process of strategy
formation in 6
small
manufacturing
companies.
Two-staged
methodology
3 companies studied
in-depth and 3 as
supplementary cases.
Manufacturing strategy formation is
defined as a complex process involving a
combination of deliberate and emergent
actions and decisions, influenced by
organizational culture, politics and
powerful individuals
Verreynne
(2006)
To offer a
typology of
different strategy
making modes that
An empirical study
on 477 small firms
less than 100
employees.
4 types of strategy making form was
defined in related SMEs: simplistic,
adaptive, intrapreneurial, and
participative
ICOMEP 2016 | 26-27 November | İstanbul, Turkey
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exists most likely
in small firms.
The simplistic mode exhibits the
strongest relationship with firm
performance.
Small firms are heavily reliant on internal
and external stakeholders and not as
much on the owner-man
A reciprocal relationship between
strategy-making and firm performance
was found.
Gibbons &
O'Connor
(2005)
To investigate the
effect of
organizational and
individual
influences on
strategy formation
understanding of
SMEs in Ireland.
Quantitative
Research
A Questionnaire was
applied to 359 SMEs.
Organization
structure,
management
ownership, and Chief
Executive Officer
(CEO) experience
were measured.
Three models of predicting strategy
formation approaches were explored:
•Organizational Model
•A Model about the characteristics of
CEO and top management team
• Integrative Model
Entrepreneurial firms tend to adopt more
formal strategic planning approaches,
Conservative firms adopt more
incremental approaches.
Management shareholding and CEO
experience are negatively related to
formal strategic planning activities
Jama &
Jin (2012)
To examine the
strategy formation
process of SMEs.
Grounded Theory
Strategy formation in entrepreneurial
SMEs is a combination of “systematic
planning-improvisation”, and
“proactivity-reactivity”
Finding is in accordance with
Mintzberg’s “strategy as a pattern” and
“strategic thinking”
Beside owner’s cognitive level, families,
friends, board of directors, accountants,
consultants are the influential factors are
also influential in strategy formation
process.
Adobi
(2012)
To examine the
strategic focus of
SMEs in Nigeria
Empirical research
on 72 SMEs in Delta
State.
SMEs adopt emergent strategies more
than planned ones. Besides, they react to
problems and difficulties at the time they
occur, rather than exhibit a Planned
Pattern Behavior. They prefer adopting
ICOMEP 2016 | International Congress of Management Economy and Policy | Proceedings Book
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methods as cost reduction,
increasing/decreasing production volume,
and staff retrenchment rather than
following long-termed targets.
Wiesner &
Millett
(2012)
To determine
whether Australian
SMEs could be
characterized as
‘deliberate’ or
‘emergent’ in their
strategic
approaches
Empirical Research
1230 Australian
SMEs
Australian SMEs adopt a deliberate
strategy approach.
Medium enterprises are more likely than
small enterprises to adopt a deliberate
strategy approach.
Bozkurt &
Kalkan
(2013)
To examine the
existing strategies
of SMEs in
Turkey, and define
whether they adopt
unconscious
actions or
deliberately
planned patterned
behavior.
Empirical study on
192 SMEs in
Antalya, Turkey.
A positive relationship was defined
between deliberate strategies and
mechanistic structure of SMEs.
A positive relationship was defined
between firm age, firm scale and
organizational structure.
Organic structural attributes should be
matched with emergent strategy-
formation processes,
Mechanistic structural attributes should
be matched with deliberate strategy-
formation processes.
Elshamly
(2013)
To understand the
strategy process
within SMEs; and
generate a strategy
framework.
Unique Case Study
8 Interviews and
observations.
A 3 Phased Model was introduced:
•The environmental Anlyses Phase
•The Strategy Forming Phase
•The Implementation Phase
There is not a constant strategy process
that the firm adopted. Actions are
performed in an ad-hoc manner.
Leitner
(2014)
To examine the
nature of the
strategy formation
and its impact on
firm performance
in relation to
market
development and
product innovation
Empirical study
A questionnaire
covering their
strategy content and
process was applied
to 91 Austrian SMEs
No direct relationship was found between
strategy formation and performance.
Emergent strategists had less often a
growth orientation.
Contrary to expectations companies that
adopted an emergent market development
strategy achieved higher sales growth in
stable than in dynamic industries.
Both, informal and formal strategy
ICOMEP 2016 | 26-27 November | İstanbul, Turkey
2484
Longitudinal
Research (1995-
2003)
making are equally important for product
innovation as well as market development
in this process.
Table 1 indicates that researches mostly preferred to follow an explorative Qualitative
Research Methodology as Case Study. The nature of process study requires in depth
examination as interview and observation, more a longitudinal study. Although, Leitner’s
research is an empirical study, he steps forward with the preference of approach he adopted -
Longitudinal Research. The nature of this method is in accordance with the process research,
as Mintzberg (1978) defined strategy as a pattern. As Longitudinal research is an exhausted
and a long period for a researcher that wants to achieve his goal as soon as possible, this kind
of researches are mostly not preferred by researchers. Leitner (2014) achieved the findings
after a long period of research, indicate that both formal and informal strategy making is
equally important in strategy formation process. Findings of the researches center on two
main results 1) SMEs are tend to behave emergent more than deliberate (Harris et al. 2000;
Adobi, 2012; Elshamly, 2013); though the owners educated on formal planning process as
emphasized in Harris and et. al (2000)’s research. 2) They adopt both emergent and
deliberate strategies in different conditions (MacCharty, 1997; Jama & Jin, 2012; Bozkurt &
Kalkan, 2013), and Wiesner & Millett (2012)’s finding is totally unexpected, SMEs adopt
deliberate strategy approach in Australia.
The literature review shows that more in depth researches are required in order to explore the
strategy formation process of SMEs. Especially, in Turkey, there is a lack of exploratory in-
depth research in this field. For this purpose, the answer of the following research question is
searched in this research:
RQ: What is the nature of strategy formation process of SMEs operating in software
enterprises in Turkey?
2. METHODOLOGY
2.1. Research Goal
The aim of this research is to examine and identify the strategy formation process of SMEs in
IT sector. For this purpose, qualitative methodology was followed, and semi-structured
interviews were conducted with the owner-managers of 12 SMEs.
2.2. Sample
ICOMEP 2016 | International Congress of Management Economy and Policy | Proceedings Book
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According to the data of The Scientific and Technological Research Council of Turkey-
Marmara Research Center (TUBITAK-MAM), there are approximately 1.600 domestic
software enterprises in Turkey, and majority of them is SMEs (51% employ less than 10
staffs, 35.7% employ between 10-50 staffs, 9.8% employs between 50-250 staffs, and merely
3% employs more than 250 staffs). The data from International Data Corporation (2010)
indicate that Turkish IT market is 8.549 billion US Dollars, and 6.944 US Dollars is hardware,
0,909 billion US Dollars for services, 0,696 billion US Dollars for software. As it is
understood from the data Turkey’s IT market is based on hardware industry-merely 19% of
market share is software and services. Turkey has a young population and there is a capacity
of utilizing more information technologies by SMEs. This fact can be interpreted as Turkey
has a considerable internal potential. Turkey’s geopolitical position, Customs Union (CU)
membership, and its relationships with European, Turkic Republics and Middle East markets
provides external advantage to Turkey. However, software and services not achieved to the
place as it is expected yet. The hardware intensive IT sector in Turkey should shift to software
and services improved sector, develop its own strategic framework and determine a road map.
For this purpose, in 10thTransportation Council turkey’s vision and goals about IT Sector for
2023 was defined and it was aimed to achieve 160 billion US Dollars, and increase its share in
Gross Domestic Product to 8% and in total exports to 2% (Tıpançeker, 2012).
The sample was selected from software SMEs operating in Istanbul in 2016 by following
snowball sampling. Interviews requests were sent via e-mail and telephone. Semi-structured
interviews were conducted with 12 owner-managers that accepted our requests. Descriptive
features of SMEs and owner managers are presented on Table 2.
Table 2: Descriptive features of the sample
SMEs Number
of Staff
Scale Experience
of
Managers
Average
Length of
Strategic Plans
Formal
Control
System
Position in
Sector
SME-1 9 Micro 20 years Maximum 2 or
3 years
No Below the
average
SME-2 35-40 Small 29 years 1,5-2 years Milestone
method
Measurement
Leader
SME-3 7 Micro 14 years Not mentioned
a specific
period.
No Not mentioned
SME-4 14 Small 21 years 1 year Evaluation Not mentioned
SME-5 9 Micro 21 years 1 year No Above the
average
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SME-6 4 Micro 15 years 2-3 years No Above the
average
SME-7 18 Small 20 years 3-6 months
6-12 months
2 years
Program Above the
average
SME-8 12 Small 20 years 3-5 years No Above the
average
SME-9 15 Small 4 years 3 years for
Turkey
10 years for US
Web based
process
management
system
Not mentioned
SME-10 30-35 Small 15 years Minimum 3
years
Assessment
forms
Not mentioned
SME-11 3 Micro 17 years 3 years Financial
inputs,
Increases in
customer
number
Not mentioned
SME-12 20 Small 20 years Changes related
to conditions
No Not mentioned
As displayed on Table 1 majority of owner-managers are highly experienced in their field.
Enterprises have the characteristics of micro (<10) and small (<50) enterprises according to
their number of staff. Strategic plans are arranged generally medium-termed as 10 participants
stated a period between 1 and 3 years. There is not a common control system that SMEs
follow, even 6 participants mentioned that they do not use a specific control system.
3.3. Data
A qualitative approach was followed for gathering data, and semi-structural interviews were
conducted with participants. 10 open ended questions with probes and two demographic
questions (number of staff, experience) were defined in accordance with our research
question. The planning school’s strategy formation process was considered while arranging
the questions. The question form was presented to 2 academicians studied on “strategy
formation” and asked their opinions. After the review process completed a pilot study was
carried out with an owner-manager of a software enterprise, then the interview process
started. During the interviews audio recorder was used with the permission of the participants,
to prevent data loss. Although we arranged 10 open ended questions, the interviewer did not
strictly adhere to the text, an exploratory approach was adopted allowing improvisational
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dialogs. After the interviews, audio records were deciphered in to Word documents and sent
to the participants to get their approval. As the first document approved, the coding analyze
was started.
3.4. Analyses and Results
A qualitative content analysis was applied to the data following 4 phases of theme
development proposed by Vaismoradi et.al. (2016). The phases and stages of analysis is
presented on Table 3.
Table 3: Phases and stages of theme development in qualitative content analysis
Phases Stages
Initialization Reading transcriptions and highlighting meaning units;
Coding and looking for abstractions in participants’
accounts;
Writing reflecting notes.
Construction Classifying;
Comparing;
Labeling;
Translating and transliterating;
Defining and describing.
Rectification Immersion and distancing;
Relating themes to established knowledge;
Stabilizing.
Finalization Developing the story line.
Source: Vaismoradi, M., Jones, J., Turunen, H. and Snelgrove, S. (2016:103).
As a result of content analysis, following the 4 steps presented on Table 3, 5 themes were
obtained: Owner’s contribution, management style, strategy, strategic tools, and obstacles.
The first 2 themes and their components represent the factors were effective in strategy
formation process. The 3rd theme “strategy” is about what kind of strategies did SMEs adopt,
the following theme classifies the strategic tools they apply, and the last theme “obstacles”
defines the difficulties that SMEs confront in defining and implementing strategies. The
components of 4 themes (codes), definitions and quotes from participants are introduced on
Table 4.
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Table 4: Themes and the components
Themes and Codes SMEs Definitions Quotes
1.OWNER’S
CONTRIBUTION
Intuitions S-
1,2,3,4,5,6,7,9,10,11,12
Managers mostly
rely on their
intuitions in decision
making.
“… Actually, intuitions
are always important.
It should put an end to
decision making, but
not alone. Intuitions
should be supported by
some measurements
and formats
theoretically.
Unfortunately, small
firms -including us- do
not adopt this
approach…”
Failures S-1,2,3,5,6,7,8
Managers accept the
former wrong
decisions that led the
organization to crisis
as an opportunity in
gaining experience
in the market.
“… After this failure,
with a new strategic
decision we changed
our working style.
Thereby, we added a
good deal of innovation
and supremacy to our
project, and welfare for
approximately 5
years…”
Experience S-2,3,4,5,6,8,10,11
Most of the
participants have an
experience of being
manager more than
10 years. They take
the advantage of this
in decision making.
“… We act with our
intuitions, but as today
with the experience of
29 years, we do not
need to use any specific
scientific
measurements….”
2.MANAGEMENT
STYLE
Participative
management S-2,3,5,6,7,10
Mangers consider
their staff’s opinions
and
recommendations.
“… My staff knows the
leader of this
organization is me, and
respect me but all of
them stand ready
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around the table and
contribute to strategic
decision making…”
Flat hierarchy S-2,3,5,8,10
Depending on the
fact that the number
of staff is fewer in
SMEs, a warm and
friendly culture is
observed.
“… A warm family
environment, fewer
staff number, and
knowing each other are
the effective factors in
ensuring harmony
between strategies and
structure of
organization…”
Leader-based
decision-making S-1,6,7,11,12
Although most of the
participants stated
that they adopt a
participative
management style,
the owner manager
says the last word in
decision-making.
“… Of course, I
counsel with
shareholders and my
staff while making a
decision but then I
make the final
decision…”
3. STRATEGY
Stability S-3,4,5,9,11,12
Catching a trend and
keeping the position
in the market,
namely
sustainability, is one
of the priorities of
SMEs, and some of
them consider
stability more than
growth.
“… We formulate our
strategies to sustain
our position at current
economic
conditions…”
Stay up to date S-1,2,10,11,12
Following recent
economic, social,
technologic,
political, sectoral
developments and
trying to keep up
with them.
“… Staying up to date
continuously, even
predicting about future
are crucial points for
us…”
Benefit-oriented S-1,6,7,8,9,10,11
SMEs generally
invest on products,
services and projects
that are expected to
“…. I formulate
strategy for the
projects I believe, not
for the others. I
consider its benefit for
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be successful. our organization…”
Growth-oriented S-1,2,7,10
Besides the ones
care for stability,
there are also SMEs
that give priority to
growth in terms of
turnover, especially
in their strategic
plans.
“… Growth is one of
our important targets.
Therefore, our
strategic plans
absolutely involve
growth. Growing is an
important target for
us…”
Swift S-2,5,7,10,11
Especially in times
of opportunity and
threat, acting swiftly
and having
capability in
adapting to the new
situation provide
advantage for SMEs.
“… If it is a marketing-
oriented issue, we can
shift decision
immediately. Even at
the time of situation
emerged, with an
effective meeting; have
chance to alter the
direction of the
organization, but this is
not always possible for
project-based
works…”
Customer satisfaction S-2,3,6,10
Customer
satisfaction is one of
the important factor
in SMEs decision
making and strategy
formulation.
“… Thus, we achieved
our current position
but if you ask “How
did you achieve this?”
We based everything
on customer
satisfaction…”
4.STRATEGIC
TOOLS
Observation
and research S-1,3,4,5,6,7,8,9,10,11
Observing and
researching the
market, competitors,
current
developments in
world and country
are almost the most
applied methods
adopted by SMEs in
strategy formulation.
“… Condition of
market and opponents
affect our strategy very
much. We try to build a
structure that features
our products’ strengths
and formulate a
strategy regarding
these conditions…”
Evaluation S-1,2,4,5,6,7,10 When things go
wrong and to control
“… We define specific
milestones about the
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meetings whether strategic
decisions are
implemented in
organization, SMEs
generally
projects, and evaluate
our position in
meetings for certain
times, whether we act
in accordance with our
strategy and how we
draw near our
goals…”
Customer
feedback S-2,3,4,5,6,8
Customer feedback
is a common method
adopted by SMEs in
improving
product/service,
decision making and
gaining competitive
advantage.
“… While making
strategic decisions we
absolutely consider our
customer’s opinions,
especially the ones that
use our products…”
Consulting S-1,2,3
Some owner-
managers refer to
experts, consultants,
associations, and
academicians to be
aware of condition
of market, politics
and developments in
country and world.
“… In some cases we
refer to consultancy.
For instance, in
improving some
products we benefit
from academicians, for
adapting our
organization to
strategic shift, we refer
to internal training and
consultancy
services…”
Low price S-4,5
Low-price is one of
the strategic tools
that SMEs adopt in
gaining competitive
advantage.
“… In competition,
especially great deal of
organizations adopts
low-price. Therefore,
profitability in sales is
low…”
Training S-2,4
For provide harmony
between strategy and
implementation
some SMEs support
their staff with
trainings about new
product/services.
“… After defining our
strategy, we announce
it through
organization, and
besides if there is a
necessity of training
about our new product,
firstly we address the
lack of our staff…”
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Tracking the
competent
S-4,7,9 Some SMEs follow
their competitors’
attitudes,
“… Our competitors’
behaviors in market
provide
reactions and moves
to interpret the
market’s condition.
us the ultimate
information. We alter
the plans that come to
an end and start to
implement the B
Plan…”
5. OBSTACLES
Lack of
financial fund S-4,5,6,8,9,11,12
Financial inadequacy
is one of the vital
obstacles that SMEs
come across in
achieving their
goals.
“… When we come
across with unexpected
developments, we try to
revise the decisions,
but it is not always
possible to be
successful. The most
important reason is
that we are obliged to
work with limited
sources…”
Lack of
competent staff S-2,3,4,5
Software sector
needs capable and
competent staff.
Hence it is not easy
to employ such
person whenever an
employee needs, and
when a staff leaves
the job. Competent
staff is an effective
factor in
implementing
strategy and gaining
strategic advantage.
“… Actually, the only
difficulty in benefitting
from the opportunities
is about staff. We have
difficulty in finding
competent staff…”
Lack of
prediction S-1,5
Lack of prediction is
one of the
difficulties in
discovering
opportunities and
perceiving the
threads for SMEs.
“… The greatest threat
for us is lack of
prediction. In our
organization is not able
to predict direction of
sector and even the
life…”
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Lack of
demand S-4,6
Inadequate demand
from the market
discourages the staff
in achieving the
goals, and benefiting
from the
opportunities.
“… The greatest
difficulty for us in
terms of taking the
opportunities is not to
react rapidly. There
are two mains reasons
for me. One of them is
lack of financial
source, and the second
one is our customer’s
lack of perception in
terms of opportunity,
and passing it over as
“We’ll see it later” or
“It is not really
necessary”
As presented on Table 2, owner managers’ intuitions, experiences, and learning from failures
have significant role in strategy formation process. Participative management and flat
hierarchic management style due to the few number of staffs, allows warm relationships in
workplace, also encourages employees to suggest new ideas and participate in decision-
making process.
Maintaining the current position “stability”, investing on products and projects that are
strongly expected to be successful “benefit-oriented”, following the developments in sector,
economic and political situations of Turkey as well as through worldwide “stay-up-to-date”,
reacting quickly to the opportunities and threats in market and adapting to new conditions
“swift” are the major strategies that related SMEs adopted. “Customer satisfaction” is also an
important factor in decision-making. Besides SMEs that give priority to stability, some owner
managers define their enterprises as “grow-oriented” and stated that growth is one of their
primary targets.
Before deciding to invest on a new project, SMEs commonly apply to “observing and
research” as a strategic tool to search external environment and evaluate the market
conditions. In this process, some owner-managers refer to experts, academicians, and
consultants and get their opinions. “Evaluation meetings” are one of the common strategic
tools that SMEs apply in controlling the strategy implementation process. “Customer
feedbacks” also have an important role in strategy formation and decision-making processes.
These 3 strategic tools are on the forefront of the strategic tools that SMEs utilize in crafting
their strategies.
SMEs confront with some difficulties in achieving their strategic goals, and gaining a
competitive advantage that were classified under the theme “obstacles”. “Lack of financial
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2494
fund” and “lack-of competent staff” is the most important barrier that prevents SMEs from
utilizing market opportunities, achieving their strategic goals.
CONCLUSION
In this research strategy formation process of 12 software enterprises operating in Istanbul
was examined following a qualitative methodology. The data gathered from owner-managers
by conducting semi-structural interviews, and analyzed by content analysis. As a result, 5
themes, representing the contributions of owner-manager and management style to strategy
formation process; strategies that SMEs follow; strategic tools they refer, and obstacles that
SMEs confront in achieving their goals, were obtained. Accordingly, it was defined that
related SMEs in software sector do not follow a common and formal strategy formation
process. Intuitions and experiences of owner-managers are the primary effective factors in this
process. Participative and flat hierarchic management style that commonly adopted by SMEs
also allows employees to suggest opinions and participate in the process. Maintaining the
current market position and investing on products and projects that expected to be successful,
reacting swiftly to opportunities and threats in marketplace, adapting quickly to new
conditions, and taking in to account customer feedbacks in decision-making, are also
significant strategies that SMEs follow. Observing and researching external environmental
before investing on a new product or project, organizing evaluation meetings, and customer
feedbacks are the prominent strategic tools adopted by SMEs in strategy formation and
implementation processes. Lack of financial fund and lack of competent staff are main
difficulties that SMEs confront in evaluating opportunities and achieving strategic goals.
Research findings supports the previous researches as, personality of owner-managers are
effective in decision-making process (McCharty & Leavy, 2000). Strategy formation process
is deliberate and also emergent in nature (McCharty & Leavy, 2000; Barnes, 2002; Jama &
Jin, 2012) and SMEs react to problems at the time they occur (Adobi, 2012).
This research involves 12 software enterprises operating in Istanbul. Therefore, findings may
be unique for our sample. Future researches on SMEs involving a broader sample and from
different sectors will allow to compare our findings.
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