Trust and strong ties in the selection and evaluation of business advisors by small firms

Principal Topic A small firm is unlikely to possess internally the full range of knowledge and skills that it requires or could benefit from for the development of its business. The ability to acquire suitable external expertise - defined as knowledge or competence that is rare in the firm and acquired from the outside - when needed thus becomes a competitive factor in itself. Access to external expertise enables the firm to focus on its core competencies and removes the necessity to internalize every skill and competence. However, research on how small firms access external expertise is still scarce. The present study contributes to this under-developed discussion by analysing the role of trust and strong ties in the small firm's selection and evaluation of sources of external expertise (henceforth referred to as the 'business advisor' or 'advisor'). Granovetter (1973, 1361) defines the strength of a network tie as 'a (probably linear) combination of the amount of time, the emotional intensity, the intimacy (mutual confiding) and the reciprocal services which characterize the tie'. Strong ties in the context of the present investigation refer to sources of external expertise who are well known to the owner-manager, and who may be either informal (e.g., family, friends) or professional advisors (e.g., consultants, enterprise support officers, accountants or solicitors). Previous research has suggested that strong and weak ties have different fortes and the choice of business advisors could thus be critical to business performance) While previous research results suggest that small businesses favour previously well known business advisors, prior studies have also pointed out that an excessive reliance on a network of well known actors might hamper business development, as the range of expertise available through strong ties is limited. But are owner-managers of small businesses aware of this limitation and does it matter to them? Or does working with a well-known advisor compensate for it? Hence, our research model first examines the impact of the strength of tie on the business advisor's perceived performance. Next, we ask what encourages a small business owner-manager to seek advice from a strong tie. A recent exploratory study by Welter and Kautonen (2005) drew attention to the central role of trust in this context. However, while their study found support for the general proposition that trust plays an important role in the choice of advisors, how trust and its different dimensions actually affect this choice remained ambiguous. The present paper develops this discussion by considering the impact of the different dimensions of perceived trustworthiness, defined as benevolence, integrity and ability, on the strength of tie. Further, we suggest that the dimensions of perceived trustworthiness relevant in the choice of a strong tie vary between professional and informal advisors. Methodology/Key Propositions Our propositions are examined empirically based on survey data comprising 153 Finnish small businesses. The data are analysed utilizing the partial least squares (PLS) approach to structural equation modelling with SmartPLS 2.0. Being non-parametric, the PLS algorithm is particularly well-suited to analysing small datasets with non-normally distributed variables. Results and Implications The path model shows that the stronger the tie, the more positively the advisor's performance is perceived. Hypothesis 1, that strong ties will be associated with higher perceptions of performance is clearly supported. Benevolence is clearly the most significant predictor of the choice of a strong tie for external expertise. While ability also reaches a moderate level of statistical significance, integrity does not have a statistically significant impact on the choice of a strong tie. Hence, we found support for two out of three independent variables included in Hypothesis 2. Path coefficients differed between the professional and informal advisor subsamples. The results of the exploratory group comparison show that Hypothesis 3a regarding ability being associated with strong ties more pronouncedly when choosing a professional advisor was not supported. Hypothesis 3b arguing that benevolence is more strongly associated with strong ties in the context of choosing an informal advisor received some support because the path coefficient in the informal advisor subsample was much larger than in the professional advisor subsample. Hypothesis 3c postulating that integrity would be more strongly associated with strong ties in the choice of a professional advisor was supported. Integrity is the most important dimension of trustworthiness in this context. However, integrity is of no concern, or even negative, when using strong ties to choose an informal advisor. The findings of this study have practical relevance to the enterprise support community. First of all, given that the strength of tie has a significant positive impact on the advisor's perceived performance, this implies that small business owners appreciate working with advisors in long-term relationships. Therefore, advisors are well advised to invest into relationship building and maintenance in their work with small firms. Secondly, the results show that, especially in the context of professional advisors, the advisor's perceived integrity and benevolence weigh more than ability. This again emphasizes the need to invest time and effort into building a personal relationship with the owner-manager, rather than merely maintaining a professional image and credentials. Finally, this study demonstrates that the dimensions of perceived trustworthiness are orthogonal with different effects on the strength of tie and ultimately perceived performance. This means that entrepreneurs and advisors should consider the specific dimensions of ability, benevolence and integrity, rather than rely on general perceptions of trustworthiness in their advice relationships.

Board members’ contribution to strategic decision-making in small firms

This article explores how the boards of small firms actually undertake to perform strategic tasks. Board strategic involvement has seldom been investigated in the context of small firms. We seek to make a contribution by investigating antecedents of board strategic involvement. The antecedents are “board working style” and “board quality attributes”, which go beyond the board composition features of board size, CEO duality, the ratio of non-executive to executive directors and ownership. Hypotheses were tested on a sample of 497 Norwegian firms (from 5 to 30 employees). Our results show that board working style and board quality attributes rather than board composition features enhance board strategic involvement. Moreover, board quality attributes outperform board working style in fostering board strategic involvement

Project-based organization as adaptation to risk and opportunity in small firms

Recent years have seen a rapid increase in SMEs working collaboratively in inter-organizational projects. But what drives the emergence of such projects, and what types of industries breed them the most? To address these questions, this paper extends the long running literature on the firm and industry antecedents of new venturing and alliance formation to the domain of project-based organization by SMEs. Based on survey data collected among 1,725 small and medium sized organizations and longitudinal industry data, we find an overall pattern that indicates that IOPV participation is primarily determined by a focal SME’s scope of innovative activities, and the munificence, dynamism and complexity of its environment. Unexpectedly, these variables have different effects on whether SMEs are likely to engage in IOPVs, compared to with how many there are in their portfolio at a time. Implications for theory development are discussed.

Small firms and the challenge of equality, diversity and difference

Purpose The purpose of this paper is to introduce the papers contributing to this special issue and to locate them within the broader questions about the role of small firms in enabling or alleviating issues of equality, diversity, and difference for various groups in society. Design/methodology/approach The literature dealing with the issues of equality, diversity, and difference pertaining to the operation of and/or working in smaller firms was reviewed prior to drawing out the key points from the submitted papers and considering the contribution they make to this literature. Findings Overall, one's these five papers contribute to one's understanding of the issues facing those in business or self‐employment, working in small business or wanting to pursue enterprise. Originality/value Rarely are questions asked about the assumed role small firms play in mitigating social exclusion for a range of groups in society. By addressing questions which explore the challenge of equality, diversity, and difference for small business in their establishment, management, and effective operation using interdisciplinary frameworks and different methodologies, a better understanding of the role of small business in society can be developed.

Small firms and health and safety harmonisation : potential regulatory effects of a dominant narrative

Small firms are popularly viewed as resistant to complying with regulation. Harmonisation of Australia’s state-based work health and safety regimes is a significant regulatory change. In this article, we consider the likely responses of small firms to work health and safety harmonisation and argue that a range of choices are open to small firm owner-managers. These choices are shaped by individuals’ world views and are influenced by elements in the firms’ context. A significant element is the public narrative of work health and safety harmonisation, which can be understood by using discourse and sense-making concepts. Our analysis of small firm owner-manager choices takes into account small firms’ embeddedness in their regulatory context and the influence on organisational decision-making of the narrative of work health and safety harmonisation. The dominant narrative is arguably silent on the benefits of the work health and safety regulatory change and therefore the response of small firms is likely to be avoidance or minimalism. Non-compliance could be the result due to poor awareness of opportunities arising from this regulatory change.

Small firms, the paid maternity leave debate in Australia and the business case

Purpose The purpose of this paper is to examine the management of maternity leave in small firms and particularly to explore the perceived costs and benefits of paid maternity leave (PML). PML is a universal right in some countries (i.e. the UK), but not in Australia where most private sector female employees only have access to 12 months unpaid maternity leave. It also aims to explore how the business case for (or against) PML is constructed in small firms. Design/methodology/approach The study was limited to smaller firms operating in the business services sector in the same regional area. Semi‐structured interviews were conducted with eight employers and female employees in six of these firms. Analysis by theme was undertaken within and across interview transcripts. Findings Not one of these small firm employers offered PML and the cost of doing so was not considered to outweigh the benefits already realised through the (legislated) unpaid maternity leave scheme. In these firms maternity leave was managed in an informal way with notions of flexibility – give and take – characterising what happens. Originality/value The paper addresses the lack of research on access to family‐related leave policies in small firms. Employer and employee views of the issue are drawn upon, the latter not often being heard. The paper contributes to understanding the construction of the business case for a specific issue in smaller firms and human resource management from a resource‐based view more generally in smaller firms.

The Formality and Informality of HRM Practices in Small Firms

The formality and informality of HRM practices in small firms Rowena Barrett and Susan Mayson Introduction The nature of human resource management in small firms is understood to be characterized by ad hoc and idiosyncratic practices. The liability of smallness (Heneman and Berkley, 1999) and resource poverty (Welsh and White, 1981) presents unique challenges to managing human resources in small firms. The inability to achieve economies of scale can mean that implementing formalized HRM practices is costly in terms of time and money for small firms (Sels et al., 2006a; 2006b). These, combined with small firm owner–managers’ lack of strategic capabilities and awareness (Hannon and Atherton, 1998) and a lack of managerial resources and expertise in HRM (Cardon and Stevens, 2004) can lead to informal and ad hoc HRM practices. For some this state of affairs is interpreted as problematic as the normative and formalized HRM practices in the areas of recruitment, selection, appraisal, training and rewards are not present (see Marlow, 2006 and Taylor, 2006 for a critique). However, a more nuanced analysis of the small firm and its practices in their context can tell a different story (Barrett and Rainnie, 2002; Harney and Dundon, 2006). In this chapter we contribute to our understanding of small firm management practices by investigating a series of questions in relation to HRM in small firms.

Board Effectiveness in Small Firms

Purpose: This study investigates boards of directors in small firms and explores the link between board effectiveness and the composition, roles and working styles of the boards. Design/methodology/approach: The study analyses data from a telephone survey of boards in 45 small firms. The survey included both the CEO and the chairperson of the board. Findings: The study identifies three groups of small firms: ‘paperboards’, ‘professional boards’, and ‘management lead’ boards. Results show that board composition, board roles and board working style influence board effectiveness in small firms. Research limitations/implications: Although the present study has found a link between board effectiveness and the role, composition and working style of boards of small firms, other potentially influential factors are also worthy of investigation; for example, the personal characteristics of the individuals involved, generational factors in family firms, and the situational circumstances of various firms. Practical implications: The study reveals that, in practice, the management team and the board are substantially intertwined in small firms. Originality/value: The main contributions are that the study explores how boards in small firms actually function and gives a detailed account of their composition and roles.More insight into this issue is important given the overemphasis within the governance literature on input-output studies using samples of large publiclylisted firms.

Strategic Complexity and Success - Small Firms Strategies in a Mature Market

his paper develops a typology of strategic options for small firms in the furniture industry and examines the extent to which firms are re-engineering their strategies in response to profit performance. Empirical analysis is based on data from 39 firms with between 10 and 100 employees in the Irish furniture industry. Three main results emerge from the analysis. First, firms in the Irish furniture industry predominantly adopt “simple” business development strategies. Secondly, in terms of profit performance, we find no evidence that simple strategies unambiguously outperform more complex approaches. Instead, the success of both simple and complex business strategies is directly related to the strength of firms’ resource base. Finally, systematic differences were found in firms’ ability or willingness to re-engineer their strategies in the light of their profit performance.