An investigation of the strategic decision making process in SMEs

Abstract

Changes in the environment are a major area of concern to any firm in its strategic decision making process (SDMP). SDMP is considered to be an important component in the success of firms in the strategic management literature. This includes small and medium-sized enterprises (SMEs) operating in the electronic, telecom and information technology (IT) sector which are subjected to frequent and extremely dynamic environments both internally and externally, unlike many other industries. A lack of prior studies supporting an understanding of the SDMP in SMEs is evident, and coupled with the extremely volatile environmental conditions that compound the problem, makes SMES dealing in electronic, telecom and IT products and services highly vulnerable to closure. An immediate investigation into the SDMP in SMEs is needed and long overdue. This research seeks to address this gap in the knowledge. In order to address the gap this research used synoptic formalism and incrementalism to develop an understanding on how SMEs in the electronic, telecom and IT sector make decisions and what is the nature of these decisions. A Strategic Decision Making Process (SDMP) model was developed based on prior research. Decision magnitude of impact acted as the input to the SDMP, rationality and intuition acted as the process component, and decision process output as the output component. Thus these three concepts acted as the three components of a process (input-process-output) configuration. The model facilitated the development of an understanding of the functioning of decision magnitude of impact as a decision characteristic factor, its relationship to SDMP and process dimensions (rationality in decision making and intuition) as an antecedent (and hence as a predictor) of decision output variables (decision process effectiveness, quality of the decision process output through the mediation of decision dimensions. In line with the need to understand the SDMP in SMEs data were collected from managers of a large number of SMEs belonging to electronic, telecom and IT sector. The territory chosen was the Gulf Cooperation Council countries (Kingdom of Bahrain, Kingdom of Saudi Arabia, Kuwait and United Arab Emirates) as this region provides a rich source of such SMEs and the environment is highly dynamic. A self-administered questionnaire was developed by adapting previously validated questionnaire scales. Pre-testing and pilot surveys were used to ensure that the contents, format and scales were appropriate. A range of decision makers in those SMEs were targeted. 464 valid questionnaires were returned, representing a response rate of over 50%. The data was coded and analysed using SPSS/AMOS, two widely used statistical software tools. The data analysis steps included reliability and validity testing (Cronbach’s alpha and Confirmatory Factor Analysis, respectively). The entire model was tested using Structural Equation Modelling (SEM). Using SEM it was possible to identify the model, test the parsimonious nature of the model, determine whether the identified model makes theoretical sense and examine the fitness of the model to the data. The predictability of decision process output by decision magnitude of impact was analysed using path analysis as part of the SEM. The research outcome showed that in the electronic, telecommunication and information technology sector, where the environment is dynamic, decision magnitude as an important independent variable influences rationality in decision making directly and decision effectiveness, quality of decision process output and firm commitment indirectly. Rationality in decision making was found act as an important medicating variable in the strategic decision making process. In the same vein it was found that intuition is not affected by decision magnitude of impact. Further, dynamism in the industry and firm performance were also seen to influence decision effectiveness, quality of decision process output and firm commitment although the influence of dynamism in the industry on firm commitment was found to be very low. Thus the main contribution of this research is the development of an understanding of the relationship between decision magnitude of impact as input to the SDMP and hence as predictor of decision process output and the SDMP process output. Furthermore, the research has advanced current knowledge on the influence of rationality in decision making and intuition as mediators between decision magnitude of impact and decision process output variables. These two aspects have been tested in an SME sector that is affected seriously by dynamism in the industry and with varying firm performance as a contextual feature. The comprehensive research outcome can be of benefit to the SMEs in the electronic, telecom and IT sector and support them in overcoming potential vulnerabilities by making strategic decisions whose magnitude of impact on the firms is high and a decision process that is rational. In addition from the point of view of methodology this research has used SEM in understanding the nature and functioning of the model as well as the operationalisation of the variables. The outcome of this research is expected to benefit the SMEs in the electronic, telecom and IT sector in their SDMP and has opened up a new area of research for other researchers and academics.