icomep 2016 strategy formation process in software enterprises

ICOMEP 2016 | International Congress of Management Economy and Policy | Proceedings Book

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STRATEGY FORMATION PROCESS IN SOFTWARE

ENTERPRISES CASE OF ISTANBUL

Assoc. Prof. İzzet Kılınç

Duzce University, Business Faculty, Department of Management Information Systems

[email protected]

Aslıhan Ünal

Duzce University, Institute of Social Sciences, Department of Business Administration

[email protected]

Asst. Prof. Mustafa Yanartaş

Duzce University, Business Faculty, Department of Management Information Systems

[email protected]

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?


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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


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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.


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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


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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


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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


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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


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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


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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