title: The Relationship between Resources, Strategy and Firm Performance : Factors that Influence the Growth of SMEs
Creators: name: Price, David Paul
Publisher: name: Griffith University
Year: 2010
Subjects: subject: resources
subject: strategy
subject: enterprises
subject: entrepreneurship
subject: leveraging

description: This original research seeks to identify unique relationships between the resources and strategy utilized by Small and Medium-sized Enterprises (SMEs) in Australia and the United States. It adds to the current understanding of SME performance and has led to further knowledge and development of a strategic influence called resource leveraging. The purpose of this research is to investigate the important issue of how SMEs grow. Specifically, this research will examine what resources are critical to the growth of SMEs, develop and refine the concept of resource leveraging; and investigate if there is a strategic influence of resource leveraging on SME performance. Entrepreneurship research is commonly associated with the economic benefits of smaller firms and their value to society. As most businesses make some economic impact in their communities, increases in small business performance is welcomed by local, regional and national economies. Thus, understanding how SMEs achieve high performance has significant implications for owners, managers, employees and overall wealth creation. Alternatively, low performance can lead to lack of growth or worse firm failure, which contribute to various negative economic and social effects. As many smaller firms tend to lack the resource availability of larger firms, they must develop strategies that can exploit their existing resource base. As high failure rates continue, it is important for SMEs to develop strategies based on their resource base in order for them to gain competitive advantage. Additionally, SMEs are often the dominant type of firm in many countries, thus acting strategically with respect to their resources is critical. Research suggests that successful firms in these environments are often not superior because of a greater resource base, but because of a superior strategy. Entrepreneurship research has emerged through a variety of academic and business disciplines, and is in an early stage of development. The combination of entrepreneurship and strategy is gaining recognition as a legitimate field of inquiry, however, research on strategic entrepreneurship – often referred to as the intersection of entrepreneurship and strategy – remains at an early stage. While benefits of entrepreneurship and strategy are well known, the underlying concepts within the discipline are not fully formed, and models of strategic entrepreneurship are limited in number, conceptual in nature, and many do not have empirical support. In order to address this issue, this research has identified a resource strategy as central to strategic entrepreneurship for SMEs: specifically within the framework of the Resource-Based View (RBV) of the firm. The RBV of the firm contends that a firms‟ resource base leads to competitive advantage, and this study seeks to understand which resources are most critical to firm performance. Additionally, this research did not limit the analysis of one resource on firm performance; rather, it analyses the effect of a number of firm-level resources. Therefore, this study incorporates within the framework of strategic entrepreneurship the immediate discipline of the resource-based view (RBV) to develop a conceptual model explaining firm growth in SMEs. Research suggests that firm resources must be effectively managed or „leveraged‟ in order for a firm to fully exploit its resources. This research attempts to empirically investigate the concept of „resource leveraging‟. As an extension of the RBV, resource leveraging has been described as an approach towards resources that may help determine the survival and ultimate success of small and emerging firms. Therefore, while the resources of a firm may be important to performance, these resources need to leveraged effectively through strategic orientation. As smaller firms often cannot stop other similar companies from entering their competitive space, it is more difficult for these firms to compete based on resources alone. Thus a firms‟ strategy in the management of its resources is critical. The findings of this research suggest that firm strategy should not be independent of the resources at its disposal; rather, it is the close relationship between firm strategy and internal factors, such as resources, that lead to competitive advantage. This research also examines the concept of resource leveraging in detail. This is described as the process involved for a firm to leverage its resources. In order to achieve this, a research design was developed that includes an exploratory qualitative phase in conjunction with a quantitative study. Using this triangulated research approach, in-depth interviews with entrepreneurs and a cross-sectional survey of 430 SMEs in Australia and the Unites States were conducted to further understand and develop the concept; and to examine its relationship with firm resources and performance. Statistical tests were conducted including hierarchical regression with five resource categories: human, organizational, social, knowledge-based resources and entrepreneurial orientation (EO). In contrast to many previous studies, this research takes the position that EO is a firm-specific resource. Moderation and mediation tests were conducted to investigate the resource-performance relationship with resource leveraging and test the construct quantitatively. Hence, the model was theoretically and empirically based. Findings indicate that the resource dimensions of EO and knowledge-based resources are more critical to SMEs. EO in particular was significant in Australia and knowledge-based resources in the US. In contrast to previous research, a lack of support was shown for social capital, indicating managers and owners should choose wisely in investments in this particular resource. These findings not only offer important implications for business practice, but also offer valuable insight for academics. This research lends support for the RBV as a foundation for understanding the elements that comprise strategic entrepreneurship. The development of strategic entrepreneurship research beginning with the RBV and encompassing an examination of individual resources and strategic intent, provides the opportunity for research on strategic entrepreneurship to progress beyond the general notion of being the intersection of entrepreneurship and strategy. The concept of resource leveraging, and the examination of this concept through qualitative and quantitative methods revealed a definition that is supported through a triangulation of methods and shows consistent results in both Australia and the United States. Results indicated a lack of a moderating effect but a consistent mediating influence of resource leveraging on the resource-performance relationship, suggesting that the foundation for strategic entrepreneurship may lie with the co-alignment of strategy and a firm‟s current resource stocks. Although this research is not exhaustive, it is hoped that it improves understanding of the complex phenomena involved with intangible resources and the strategic management of these resources. Small businesses face enormous challenges and policymakers will need to address issues presented in this research to maintain and develop a strong economic presence. These findings have implications for managers and entrepreneurs alike in their quest to grow their businesses in the absence of resources enjoyed by larger firms.