THE INFLUENCE OF THE SMALL TECHNOLOGY-BASED FIRM CHARACTERISTICS ON ITS STRATEGY FORMULATION PROCESS

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1 THE INFLUENCE OF THE SMALL TECHNOLOGY-BASED FIRM CHARACTERISTICS ON ITS STRATEGY FORMULATION PROCESS ERICA CRISTIANE O. P. BERTE Business Administration Department School of Economics and Business Administration/University of Sao Paulo/ Brazil LEONEL CEZAR RODRIGUES Business Administration Department Nine of July University Center / Sao Paulo/ Brazil [email protected] MARTINHO ISNARD ALMEIDA Business Administration Department School of Economics and Business Administration /University of Sao Paulo/Brazil [email protected] Abstract: The small technology-based firms (STBF) have unique characteristics, differing from medium and large firms and from traditional sectors of the economy. It is possible to list, as an example, the flexible and adaptable process structures and the scientific knowledge application in developing new technologies as distinguishing. Effective strategies would position these firms to leverage from internal capabilities, aligned with structure and processes, to better compete. The combination of internal capabilities, structure and processes - their internal characteristics - are unique to each firm and clearly influence the way strategies are formulated. STBF characteristics therefore will likely influence its strategy formulation, regarding to which there are few studies and specific models to support these firms. The goal of this study is to identify how the characteristics of the small technology-based firms influence their strategy formulation process. The methodology was designed as a qualitative research, based on a multiple case study approach, supported by semi-structured interviews and content analysis. The main results indicate firstly that the technical expertise of the founder affects the shape of the business and impinge on the mission and vision orientation. Secondly, the lack of financial and human resources in such a firm allows only a partial use of the activities involved in the strategy formulation process. These facts lead to singular conclusions. One is that in these firms there is almost no matching capabilities analysis and benchmarking studies to formulate strategies. Another is that, in the strategy formulation process, STBF privilege almost exclusively the competition analysis of its sector, not considering other methods such as SWOT or scenario analysis, to develop market positioning strategy. Keywords: strategy, formulation, process, characteristics, small technology-based firms. 1917

2 Introduction The small technology-based firms (STBF) are able to leverage and support the process of industrialization, competitive gains and development in a country. This is due to the strong research & development efforts of these organizations which therefore result in innovative products and new technologies available in the market. Along with other specific characteristics, the STBF distinguish themselves from other organizations by the small size and the technology based industry where they belong. Overtime, the technology developed by the STBF matures, reducing the competitiveness capacity of these firms. This demands a continuous investment and focus on R&D to search for new technologies. To avoid breaking the cycle of producing new technologies, the formulation of strategies to guide these organization are necessary. According to Berry (1998) & Bhide (1996), the strategy formulation for STBF is an important activity, if not fundamental, for their long term success and development. For their continuous development, they need to choose a growth plan by taking into account the combination of product & market, size they expect to achieve, know-how, and organization structure to support the expansion and diversification. These factors must be accommodated through strategies that will impact the direction and the market placement of the firm. The strategy formulation may occur through different processes and several phases and activities. It requires a set of information about the environment and niche of the firm which once recorded and analyzed result in strategies. This process presents a high level of complexity and is influenced by several factors. The internal characteristics of the STBF, which distinguish them from other organizations, are certainly one of the factors that influence the process of strategy formulation. However, it is not clear how this occur due to the lack of studies in the area. The studies developed in STBF are more focused on which strategies are successful, not how the process is established and how the process can be influenced. Therefore, the research presented in this paper aim to identify how the internal characteristics of the STBFs influence in their process of strategy formulation. With the comprehension on how it occurs, we would be able to better understand the strategy process formulation of these firms, contributing to evolve the business science. To meet the goal proposed on the literature review, the STBF characteristics were studied and the Strategic Planning Model from Almeida (2003) phases contemplating strategy formulation was described. This model was applied in the development of the mechanism for data collection in the interviews. The research execution form was described in the method and field procedures. The data analysis is presented following it, where the influences of the STBF characteristics in the strategy formulation process are identified. Finally, in the last considerations are the conclusions. 1918

3 Literature Review Characteristics of the small technology-based firm According to ANPROTEC (Associação Nacional de Entidades Promotoras de Empreendimentos de Tecnologias Avançadas, 2002, p. 47), the technology based firm is [...] an entrepreneurship that fundaments its production activity on the development of new products and processes, based on the systematic application of scientific knowledge and utilization of advanced and pioneered techniques. The technological innovation for these firms is a strategy to create barriers to competitors and build competitive differentiation. The risk of innovative activities is one of the differences from STBF and other nontechnologic content firms. Products that generate new markets imply uncertainty since the speed of the new technology dissemination, the technological standards customers are going to adopt, and the changes of the customer needs are all unknown (CARVALHO et al., 2000). According to these authors, there are also uncertainties associated to the technology performance: doubts about the workability of the new product, effect of existing technologies obsolescence, processing time of the research and development (R&D), quality and final price, and unforeseen effects of the technology. To minimize these effects, the STBFs in general have a strong relationship with institutes of research and universities to help them develop, test and validate their new products. Table 1 presents the characteristics of the STBFs, according to several authors, which facilitates the understanding and a more complete view of this type of organization. It is possible to summarize the characteristics listed by Pearce, Chapman e David (1982), D Ambroise, (1989), Gélinas e Bigras (2004) e Gupta (1988), all appointing to a flexible and agile organization, where the information flows and the decision making process is fast and informal. These individualities place the STBFs with advantages in relation to other types of firms by leveraging a faster response to market demands and customer needs. Filion (1991), Bamberger (1986), Gélinas & Bigras (2004) and Winston & Heiko (1990) point the entrepreneur as the main and central character that creates the vision of the organization and makes the decisions. This represents the power centralization in the hands of the entrepreneur on STBFs. Furthermore, as shown in table 1, for Santos & Pereira (1989) the STBFs use a workforce with high level of technical, scientific and engineering expertise, which affects the payrolls and results in a high R&D expense. In the other side, according to Santos (1987), these organizations do not have financial resources available, so it demands a financial strategy to deal with this weakness. Other characteristics of the STBFs that can be highlighted are the lack of managerial knowledge and the difficulty in obtaining it, appointed by Santos (1987), Pinho et al. (2002), Bizzotto et al. (2002) and Pereira & Sbragia (2004). This negatively impacts the managerial/strategic performance of these organizations, which in general focus more in the operational activities. 1919

4 Authors (Pearce II, Chapman; David, 1982) (D Ambroise, 1989) Table 1- Main Characteristics of the Small Firms Characteristics Small number of hierarchy levels. Organization structure and processes are flexible, simple and adaptable. The decision process is less complex versus bigger organizations, focusing on immediate and less formal actions. Gupta (1988) Information transfer among the administrative and operational levels tend to be informal. Responsibility division is less precise, since there are fewer managers. (Fourcade, 1991) Their network contacts bring them significant information for a low price. (Gélinas; Bigras, 2004) The administrative units tend to rely on the entrepreneur expertise in terms of decision making. They are not concerned with the information technology management and as a result they sub-utilize their information systems. The strategic planning has a short term horizon, in general two or less years. The production lines and the levels of activities are small Strategy planning relies on the entrepreneur vision. (Winston; Heiko 1990) (Filion, 1991) The entrepreneur is the key person in the operation of the small organization. He creates and develops the business vision and translates into objectives. (Bamberger, The power and the decision making process are in the hands of the entrepreneur. 1986) (Santos; Pereira, Employment of workers with high technical and scientific qualification. 1989) Invest constantly in research & development. (Rodrigues et al., Technology development can be described by a technology maturation model in phases 2004) that combine the technology and the organization life cycle. (Leite, 2002) Tend to create a technology and push to the market technology push - instead of identifying a market need and satisfy it demand pull. (Pinho et al., Lack of managerial capacity of the entrepreneur. 2002) (Santos, 1987) Lack of financial resources. Difficulties in obtaining management knowledge/expertise. (Berte; Almeida, Seeks for new markets by adapting the technology to new products. 2006) In response to internal market limitations, seeks for exports and internationalization. (Bizzotto et al., Lack of business experience, poor project and innovation management, difficulties in 2002), technical and market penetration. (Pereira; Sbragia, 2004) (Rothwell; Zegveld, 1978) Source: Research data, Issues in dealing with partners. Lack of Partners managerial formation/development. Strong scientific-technical-academic background of the entrepreneurs. Difficulties in product development speed project/product lead time. Close relationship with costumers. Finally, other points to be highlighted from Table 1 are the fact that STBFs search for new markets by adapting existing technology to new products and, in response to internal market limitations, export or internationalize their operations (Berte; Almeida, 2006). Furthermore, they 1920

5 seek for small and specific markets, by having, as product positioning strategy, market niches focus. According to Mendes et al. (2004) they are highly concentrated in four activities: medical equipments, automation and precision instruments, information technology, electronic and communication equipments and chemical industry. Next, the Almeida s (2003) process of strategy formulation, used to frame this study on how strategy formulation in the selected small technology-based firms occurs is discussed. Almeida s strategy formulation process Almeida (2003) proposed a model of Strategic Planning Process. The model involves the formulation of strategies in the three initial phases of the process: orientation, diagnosis and direction. The first phase of the model orientation is composed of superior directives, mission, vocation and vision. In the first activity of superior directives, a verification whether the firm receives or not orientation from corporate offices or Mother company is necessary. The other activities are mission discussion and formulation, identification of vocation and the organization vision definition. The next phase is the diagnosis, encompassing four activities: internal aspects, environment analysis, field of activity and current strategy. For internal aspects analysis, the critical success factors (CSF) in the firm s field of activity needs to be identified. Following, the analysis of how the company is performing compared to competitors in terms of CSF, the identification of strengths and weaknesses is necessary. Also, the establishment of a strategy capable to leverage the company from its strengths and a strategy to minimize the weaknesses can be highlighted in this phase. For the environment analysis, the region, sector and organization environment are analyzed. In the first one, the conditions of the region where the firm is established is compared to other possibilities of locations. Evaluating factors entails infra-structure and public services, fiscal/tax cost, market, labor availability, life quality, security and others. In the sector analysis, the competitive advantage analysis of the industry by Porter (1989) (the power of buyers and suppliers; competition saturation levels; competition entry barriers, product and service substitutes barriers, plus the level of government interference) is used. The analysis of complementors was added to the model. This analysis means to look for the basic research under development by the scientists that might impact in the future product development of STBFs. Lastly, the analysis of the firm s environment, which involves the macro environment (variables from political power: inflation, GDP growth, legislation and variables of the future population by region, by income distribution, by gender), operational (variables from operations: competition, suppliers, direct customers) and internal environment (values and aspirations of the relevant employees). From the collection of these variables, one can build a contextual narrative, including an analysis of the potential impacts in the future of the company, and definition of strategies to leverage opportunities and minimize threats. The next step is the comparison of the mission of the firm to the field of activity and verification whether they are aligned or not. Then, the new strategies are analyzed under the current strategy, and determined if they drive the company to a different direction from current 1921

6 strategies. This could lead to discontinuity of the firm activities, to a loss of synergy, and the definition if they should be implemented or not. By the end of these analyses, a summary of the strategies are made. The similar strategies are classified, the complementing and diverging needs identified and finally the ones more adequate to the reality of the firm are chosen. The Analyzed Cases: Method and Results Method and field procedures The methodology in order to identify how the characteristics of the small technologybased firms influence their strategy formulation process was designed as a qualitative research, based on a multiple case study approach. Six firms were chosen based on fulfillment of the following prerequisites: i. being a small firm, according to the BNDES (Banco de Desenvolvimento Econômico e Social (2002)) definition: Gross operational sales between USD 500,000 and USD 5,000,000. ii. being a technology based firm, from ANPROTEC (2002) definition. iii. being legally structured as a private company. iv. having existed for at least ten years. v. operating in the markets normally. vi. sales growth from 2000 to These requirements were necessary to identify companies with success, so as to enable valid evaluation. The six firms meeting the requirements that were researched were Reason, Cebra, Reivax, Cianet, Directa and Brasystem. Research was done in 2006 through a semi-structured interview based on a questionnaire, applied face-to-face to one of the main partners of each one of the firms. The questionnaire was based on the Almeida s Strategic Plan Model (2003), considering the strategy formulation phases: orientation and diagnosis. This model was chosen by having being developed for small companies and being tested in STBFs. Moreover, the first part of the questionnaire was used to gather data to outline a profile of the companies studied. The questionnaire was divided in the following parts: i. profile of the firms. ii. orientation (if and how it occurs) a. identification of the superior directives. b. mission formulation. c. vocation identification. d. vision formulation. iii. diagnosis (if and how it occurs): a. analysis of internal aspects b. environment analysis i. environment analysis of the region. ii. environment analysis of the activity sector. 1922

7 iii. firm environment analysis. c. field of activity. d. current strategy. Content analysis was used as the research analysis method. The description of the data researched and the analysis are presented next. Initially the profile of each company is described and then the strategy formulation process that they use, according to the phases from Almeida s model (2003): orientation and diagnosis previously described. Furthermore, the relationship of the characteristics of the STBFs and their influence to the phases of the process is also described. Profile of the firms Table 2 presents a summary of the data gathered from the researched companies which compose their profile. The objective was to gather historical data like company starting date; market data, like product lines, technological capacity, number of patents, and quantitative data, as number of employees. Based on the company starting date, all the six companies are between 12 and 19 years old, so they are already over the initial maturation period, according to the organization life cycle by Adizes (1996). This means they already overcome the initial difficulties and they have defined and formalized norms and processes. This is also supported by the fact that five of them are already ISO certified, which supports the process formalization, and three of the six already developed strategic planning, a way of planning and structuring the firm. All STBFs started in incubators and all graduated from the process already. Reason and Cianet are public companies and the other four are Ltd - limited partnership responsibility. Based on Santos e Pereira (1989) one of the characteristics of the STBFs is the demand for major investments in R&D. On the other hand it is the lack of financial resources available to them (Santos 1987) see table 1. As a result, many of these firms, as they grow, they opt to go public and increase the financial capacity, exactly what evolved at Reason and Cianet. According to table 2, all partners have at least a technical degree, except two of them with a business degree. These may imply a lack of management capabilities of the entrepreneurs, one of the characteristics of the STBFs presented at table 1, by Santos (1987), Pinho et al. (2002), Bizzotto et al. (2002) and Pereira & Sbragia (2004). Reivax and Cianet are exporting, which corroborate to the characteristics of the STBFs presented at table 1, from Berte & Almeida (2006), and two of them have patents. Three firms developed strategic planning and one of them would initiate in the year the research was performed. This fact contradicts one of the characteristics of the STBFs pointed by Gélinas e Bigras (2004) that they only develop short term plans. 1923

8 Table 2: Profile of the firms studied Reason Cebra Reivax Cianet Directa Brasystem Date of establishment Start as Incubator Yes Yes Yes Yes Yes Yes Legal structure Public Limited company Limited company Public Limited company Limited company Experience and educational background of the partners One electric engineer and one business. System analysis. Field of activity Two electric engineers with worked experience in energy companies. Others are not involved in management. Products and services to monitor and control electricity temporal sync. Main product line Oscilography; energy quality; temporal sync and information systems. All electronic engineers with master degree. Three previously worked for competitors. Make to order energy sources and special static converters. Static converters, energy sources. All electric engineers, with master degree and worked experience on energy generation companies. Electricity generation control equipment. Speed and tension regulators. Two electric engineers, one automation control and one business. Others are not involved in management. Digital data communication and broadband equipment. Ethernet and HPN lines for broadband internet. Manufacturing automation. Hardware e software to collect, analyze and control fabric production. Commercial automation. Fast food, supermarkets, restaurants and night clubs managing system. Exports No No Since Since No No ISO Certification NBR ISO NBR ISO NBR ISO NBR ISO None. 9001: : : :2000. NBR ISO 9001:2000. NBR ISO # of employees Patents None. 1 national None. 1 international None. None. Strategic Planning No In 2005 and In In Would start in No Source: Research data, Orientation The superior directives as the first activity in the orientation phase of the strategy formulation process by Almeida (2003) propose that the business units, subsidiaries or departments follow strategic orientations defined by the superior units corporate orientations. The research revealed that none of the six STBFs have subsidiaries; as a result there is no strategic orientation to be followed. The influence that the characteristics of the STBFs have in 1924

9 this context is the fact that the size of the STBFs is small and in general the small organizations do not have affiliates or subsidiaries. This fact may facilitate the strategy formulation process at STBFs, since they do not need to be concerned about strategic directives coming from other business units. In terms of the departments following the strategic orientations defined by the top management of the company, it was found that certain characteristics of the STBFs influence in a positive way this activity and facilitate the process. First, in terms of departmental organization structures, the STBFs researched vary from three to five managers, and from four to five hierarchical levels. This fact confirms the affirmative that STBFs have smaller number of hierarchy levels and leaner organizational structures as described by Pearce II, Chapman & David (1982), D Ambroise (1989) and Gupta (1988). In departmental organization structures with low complexity levels, the communication process between employees is facilitated, which corroborates to the communication of the strategic orientations in a firm. Secondly, in all case studies, the partners participate in all decisions in the process of strategy formulation of the firms. This corroborates with the Bamberger (1986), Winston and Heiko (1990) and Gélinas & Bigras (2004) vision that the entrepreneur is the one who makes the decisions in small companies. Moreover, these partners likely exercise presidential or management level jobs and they are responsible to spread the strategic decisions to the departments that they manage. Since who elaborates the strategies is the same that coordinate the execution, there is no difficulty in following the strategic orientations and it is easy to execute and work according to the superior directives. The other activities in the strategy formulation process by Almeida (2003), orientation phase, are the mission and vision elaboration, and the vocation identification of the entrepreneurs or partners. Out of the six companies studied, one of them does not have the mission nor the vision formalized. In the other five STBFs, the process of elaborating the mission and vision was supported by external consultants. According to the interviewees, this occurred due to the lack of expertise of the partners in the strategy field. This fact corroborates Pereira & Sbragia (2004) affirmative that entrepreneurs of STBFs lack management knowledge, in this case in the specific area of strategy. In the other hand, one of the characteristics of the entrepreneurs of technology based firms is their strong technical background, due to the need of utilization of scientific knowledge to develop innovative products (ANPROTEC, 2002; Pereira and Sbragia, 2004). Their technical background may be mixed up with the vocation of the entrepreneur and the firm, being determinant for the definition of the mission and vision and for the delimitation of the firm s activity field. The entrepreneurs choose a field of activity based on the knowledge they have in the technology they are able to develop. By analyzing table 2, there is a high correlation between the field of activity of the firms and the academic background of their entrepreneurs. However, the entrepreneur of technology based firms should not take into account only their vocation and the technology they are able to develop, but take also into account the market. This fact occurred in 50% of the STBFs studied, resulting in a redefinition of their field of activity in their initial years of existence. According to these companies, this was necessary to adequate them to the market needs, enabling sales growth leverage. These firms, in the initial 1925

10 stages of life, defined their field of activity and their products from the technology they have developed, without paying attention to the market needs, based only in the vocation. This is related to the characteristics of the STBFs according to Leite (2002) that they tend more to create a technology and push to the market technologic push, instead of demand pull. As a consequence, these firms were not having success in reaching the market, demanding a redefinition of their field of activity. In the other side, the other companies studied, since the beginning of operations, were close to the market and as a result need no changes to the field of activity and thus their mission. In relation to the definition of the vision, Filion (1991) state that the entrepreneur is the central figure that creates the vision of the company. This was evident in the STBFs studied since in all of the firms, the partners effective participated in its definition. As a result they brought their personal vision, discussing what they desired for the future of the company and what would be the challenges to be faced by the companies. Diagnosis The diagnosis phase in Almeida s model (2003) contemplates the activities of internal aspects, environmental analysis, field of activity and current strategy. In the internal aspects activity the first step is the identification of the critical success factors. Therefore the company will need to identify what the customer perceives as indispensable in the product. Then the company compares the product performance to competition product performance to identify strengths and weaknesses. To perform this activity the STBFs studied have invested in the relationship with customers. In all of them they have one of the partners as responsible to the direct customer contact. According to Rothwell and Zegveld (1978) the STBFs are able to have a close relationship with customers, enabling them to better understand customer needs. Among their actions to obtain information on what customer values in a product and how they evaluate the company and the competition, we can highlight: regular visits to customers, frequent contact by phone or , participation in events with customers and even customer satisfaction surveys. Furthermore, the STBFs also search for information about the competition which helps them to compare their performance and competitor performance in relation to the CSF (critical success factors). This information is also obtained from customers, from common suppliers, from internet, in events and several other activities from associations in the technology area. According to Fourcade (1991) the STBFs obtain a lot of information from the network of contacts that they develop. We can also highlight a practice from Cebra in this regard, which is the request of an evaluation of their competitors in their satisfaction customer survey. The second diagnosis activity is the environment analysis, compounded of region environment, activity sector, and organization environment. In the environmental analysis of the region, the important factors of a region for the success of the company should be determined and compared to the characteristics of the region the company is current located and other potential locations. It was observed that the STBFs studied do not make, in a structured form, the region analysis. They did not mention any specific technique for data collection or registering 1926

11 and analyzing data on this respect. Even though, they were able to list several factors when questioned about what would be important in an environment for the company, probably by empirical analysis. The factors listed were: i. Personal (quality of life). ii. Human Resources (cost of labor, qualification of labor and labor qualification capacity in the region). iii. Market (location of customers, suppliers, proximity to other technology companies, and formation of network of cooperation). iv. Fiscal/Legal (Tax benefits). v. Infra-structure (restaurants, public transportation, banks and others). vi. Political and Institutional (good relationship with union, easy access to local governmental organizations city and state). The personal factors related to human resources are based on the characteristics of the STBFs to employ highly qualified technical-scientific workforce (Santos & Pereira, 1989). This fact implies that the workforce is very demanding in terms of place to live, seeking for more quality of life. Moreover, there is the need of continuing professional development, which makes a region with University and research centers ideal. It is possible also to highlight the need for participating in network of cooperation. The STBFs usually form a network benefiting from the relationships developed with the companies that participate (Fourcade, 1991). It was verified that the STBFs studied do not perform in a structured and detailed (deep) way the analysis of the sector of activity, or the comparison of the sector that the company acts to other potential sectors. The interviewees did not list the use of any specific technique to collect, register and analyze data in this respect. Even though, when questioned about their sector of activity, they were able to make an evaluation, probably by empirical analysis. This analysis is presented in table 3. Table 3 Analysis of the Environment in the Sector of Activity Company Buyer Power Supplier Power Competitiv e Rivalry Threat of new entry Threat of substitution Government interference Complementores Reason High Low Medium Low Low High Low Cebra High High Medium Medium Medium High High Reivax High Medium Low Low Low High High Cianet Medium Medium Low Low Medium High High Directa High Medium Low Medium Low High High Brasystem Low Low Low Medium Medium High High Source: Primary data, It is noted in table 3 that the power of buyers for 83% of the companies is high and medium, since they are major customers in size, having more power in negotiations. In the other side the power of suppliers in 83% of the STBFs is between medium and low, since the raw material used is low in aggregated value and easy to substitute. The competition rivalry in 100% of the companies studied was evaluated as medium and low, probably due to the fact that the 1927

12 technology are still new in the market, not having many competitors as of yet. Due to the technological component of the products, the threat of new entry and substitution was evaluated as 50% low and 50% medium, none evaluated as high. The level of interference from the government was evaluated as 100% high. For the complementores, or the importance of basic research development level in the sector, it was evaluated as high in 83% of the cases, mainly because the STBFs rely on them to develop their technologies. In terms of the analysis of the environment of the organization, or the analysis of macroenvironment, operational and internal environment, it was observed that only a few of them are performed by the STBFs. The macro-environment and the internal environment are not considered relevant by the STBFs, as a results they do not gather any data about it. In relation to the macro-environment, the information considered important were the availability of credit lines, tax rate, and foreign exchange rate. On this respect, the entrepreneurs seek to be informed about them, but they do not really use or work with them. It is in the operational environment, mainly in relation to the competition and their products, technologies available and arising in the market, information on suppliers and customers that the SBFs researched informed they gather, register and analyze a series of data. Even though from the companies studied, Cebra, Reivax, Cianet and Directa demonstrated they have more structured forms, mainly related to gathering and registering information, compared to Reason and Brasystem. This is because the first ones have specialized software available and an area responsible for gathering the information. To do so these companies perform visits and phone contacts with customers, competition, suppliers, governmental agencies; participate in seminars, fairs, training sessions, associations of their sector of activity; read specialized magazines; search in websites and others. The data is filtered and the information considered relevant is registered in specific software, analyzed in management meetings and, in the end, strategies are elaborated in order to benefit from opportunities and in order to minimize threats. In finalizing the description of the environment analysis it was noted that from the three activities; region, sector of activity, and organization analysis, only a few activities of the last are performed. The STBFs, according to Santos (1987) have lack of financial resources, impacting in the management of the company, making them to prioritize certain activities in detriment of others, even though they consider important. If for one side the network developed by the STBFs allow them to get information at low cost, in the other, they tend to sub-utilize the information and therefore not developing environment analysis in a conscious and continuous way (Fourcade, 1991; Pearce II, Chapman & David, 1982; Gélinas, Bigras, 2004). The research corroborate with the characteristics of the STBFs pointed by the authors. In relation to the field of activity the evidence is that the STBFs analyzed have being seeking if the sector they are acting is in accordance to the sector previously defined. In the same form from the current strategy they have compared the direction of the strategies that was being used so far to the path proposed by the new strategies formulated, trying to maintain in the same direction to avoid losing synergy. There was no relevant evidence of the STBFs characteristics in these two activities in their process of formulation according to the model by Almeida (2003). 1928

13 Conclusions This research targeted at identifying how the STBFs characteristics influence in their strategy formulation process. To meet this objective, a qualitative approach research was performed, in a multi-case study involving six STBFs. From the research it was possible to describe the process of strategy formulation of the companies based on the model by Almeida (2003) and identify how the STBFs characteristics influence the process of strategy formulation in these firms. Table 4 presents a summary of the results. It is divided according to the two phases of strategy formulation presented in the Almeida s Strategic Model (2003): orientation and diagnosis phases. Table 4 The characteristics of the STBFs and its influence in the process of strategy formulation Process of strategy formulation Orientation Superior Directives Mission, Vision and Vocation Diagnosis Internal Aspects Research Conclusions As independent small firms, there is no needs to follow Strategic Directives from Corporate central policies. Strategies originate in the founder which facilitates transmission within the STBF. Mission is not always formulated, transmitted and incorporated by members of the firm. Founder s technical expertise shapes the business, either the focus and the vision. Founder s expertise and vision drive firm s focus more on technology push than on market demand. CSF identification is facilitated by costumers proximity and competitors permanent monitoring. Environment Financial constraints restrict environmental analysis to competitors monitoring through Analysis entrepreneur s network. Field of Activity No relevant. and current Strategy Source: Research data, In the Orientation phase STBFs do not follow superior directives, for obvious reasons: they are independent units and are not attached to major corporate business. However, results indicate that entrepreneur s technical expertise is pivotal to the firm s field of operation and orientation as a whole. In terms of field of operation, 100% of the studied firms operate in the economic sector corresponding to the technical expertise of its founder. In terms of orientation, all firms studied show that technical expertise drives primarily the mission, the vision and the vocation of firm. In other words, one may say that entrepreneur s technical expertise is the main responsible factor for the conception of the STBF business. Obviously, this is key to the STBFs strategy formulation and competitive drive. As a corollary, one also may conclude that STBFs internal believes, values and entrepreneurial culture depend on that factor (entrepreneur s technical expertise), because the 1929

14 founder s principles transmitted to his/her employees are prioritized and incorporated in the firm through his/her understanding of what interests to the business and what does not. Finally, as founder s technical expertise is the main internal drive to shape the business, results also indicate that STBF tend to be in general more technology-pull oriented than market push or demand, oriented. In other words, STBFs products originate more commonly from the technical expertise of the entrepreneur than from an identified opportunity or from a market need. In the Diagnosis, the STBFs identify their critical success factor with their customers and evaluating their competitors. In terms of Environment Analysis their emphasis is on the competitors information, obtained through a network of contacts. Based on the analysis made in this study, some suggestions for the development of strategy formulation process to STBFs can be highlighted. These suggestions intend to be useful to entrepreneurs and to local government agents or Small Business Associations. The suggestions for entrepreneurs are: i. The identification of the technical formation of the entrepreneurs helps understand their vocation and support the definition of the field of activity of the company, its mission and vision. This can be the first step in the formulation strategy process by STBFs. If there are more than one partner it is necessary to know and discuss the vocation of each one. ii. The entrepreneurs should seek for the demand pull (identify market demand) rather than the technology push only (pushed technology developed to the market) in the companies field of activity definition. Meaning more investment in marketing information and its accurate analysis. iii. By investing in the managerial capability of the top management, STBFs can bring a more administrative and strategic view in this companies. It can be useful due to the entrepreneur s lack of strategy knowledge. The STBFs managers need to understand the importance of balancing technical and management employee s knowledge. iv. A consultant should be hired to help in this process of strategy formulation, due to entrepreneur s lack of experience on strategy formulation. v. Investing in information systems can help entrepreneurs to make better environment analyses, once they normally do not have capability to process and analyze the information they obtain. Suggestions to local government agents and Small Business Association: i. To focus on marketing research and other tools to provide information about the market for the STBFs in specific sectors of the economy. ii. Due to the importance of networking and data gathering for STBFs, their main resource of environment information, the Small Business Association can help these companies to develop their network contacts by promoting round tables and conferences, for example, among entrepreneurs. iii. The Small Business Association should support the development of the entrepreneur strategic knowledge by offering specific training in this area. Another possibility is to hire consultants in strategy and make them available to STBFs. iv. Helping STBFs to find simple solutions to improve their information systems. Offer training, consulting and promoting discussions in this area. 1930

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