Strategic Comparisons of Very Large Firms to Smaller Firms in a Financial Service Industry

ABSTRACT The paper presents an empirical investigation comparing strategic profiles of very large enterprises (VLEs) to small and medium sized firms (SMEs) in the financial services industry, collecting data from a sample of executives at credit unions. In particular, the authors find VLEs to be larger, more structurally integrated, centralized and complex, more market oriented, and to be more aggressive firms in general when compared to SMEs. The VLEs also show higher levels of perceived relative profitability and relative adaptability than SMEs. However, no differences are found between VLEs and SMEs regarding profitability when considering accounting returns. It appears that size is a critical factor to be considered in the financial services industry. INTRODUCTION The purpose of this paper is to examine empirically the relationship of organizational size to the strategic profiles of firms in the financial services industry. In particular, very large firms (VLEs) are compared to small and medium size firms (SMEs) across a range of performance, structural, and strategy constructs. The size of an organization often is viewed as a surrogate for the many detailed dimensions of an organization's structure and related decision making patterns (e.g., Dalton et al. 1980, Pugh et al. 1968). Therefore, we may expect important strategic profile differences between VLE and SME firms, which in turn may provide guidance to managers and other interested parties for future strategy decisions. It is important to note that a precise determination of a strategic profile in any firm is not easily accomplished. Inconsistencies in the findings from empirical studies point to a conclusion that an acceptable strategy will depend on the situation (Provan 1989). But, the question of how the size of firms relate to strategy has seen renewed interest in the past decade, as the globalization patterns of large corporations impacts the survival of smaller firms in various countries around the world (Hutchinson et al 2005, Pan and Li 2000). This is especially relevant since the trend in a variety of industries is to fewer but larger firms (Daniels et al 1988). Additionally, many recent works have shown that small firms exhibit differences from larger firms on a variety of factors, which may or may not influence performance (c.f. Bhaskaran 2006, Taymaz 2005, Pompe and Bilderbeek 2005, Acar et al 2005, Biesenbroeck 2005, Smith et al 1986). Thus, the current study attempts to determine whether company size differences across a profile of strategic constructs is evident in firms in the financial services sector. The majority of studies related to size and strategic decisions appear to investigate manufacturing firms (Van Biesenbroek 2005, Bommer and Jalajas 2002, Schuh and Triest 2000). Thus, this study adds to those in the minority which address non-manufacturing sectors of business (Wernz 2002, Hutchinson et al 2005, Daniels et al 1988). This paper begins with a review of the relevant literature, which is followed by a description of the sample, the measures, the analysis and results, and concludes with a discussion of the findings from the research. VLES AND SMES Organizational size is a characteristic of the firm representing how large or small a firm might be. It is measured in a variety of ways depending on the industry under study, including the total sales, number of employees, or asset-holdings of firms (Calof 1993, Dalton et al. 1980, Joaquin and Khanna 2001). Size is an important research variable as it often exhibits an association with the major characteristic descriptors of decision making outcomes: organizational structure, strategy, and performance. In particular, it is widely accepted nowadays that small and large firms differ in many ways, not limited to the availability of funds for activities and management styles and objectives (Beaver 2003). These differences may result in divergent paths to success or failure in many industries. …