Business Planning in Small Firms

Business planning's effect on the success of small businesses is contingent on factors like uncertainty, prior information, and planning structures. A dynamic approach, combining planning, learning, and action, is often more effective than a rigid plan.

Situational elements, such as uncertainty, limited prior information, and absence of formal planning, that can affect the effectiveness of business planning.

Different approaches to business planning. The planning school emphasizes formal plans, while the learning school stresses adaptability and learning from experience.

Formal planning involves written plans, while sophisticated planning involves detailed analysis and procedures. Both can result in better firm performance.

High-uncertainty avoidance cultures might benefit less from rigid business plans than cultures with lower uncertainty avoidance, where more flexibility might be better.

Specific activities related to creating and using business plans. The process itself, not just the final plan, influences business success.

A formal document outlining a business's goals and strategies. Studies show outcomes of these documents are positively correlated to business performance.

A cultural characteristic that measures the society's level of tolerance for uncertainty and ambiguity.

A strategic approach where entrepreneurs build on their existing resources and opportunities, rather than predicting the future and planning for it.

A strategic approach where entrepreneurs predict the future and plan accordingly.

Expanding a business's operations to different countries.

A model explaining the non-linear relationship between internationalization and firm performance – a curve with an initial slow phase, acceleration, and eventual plateauing.

Non-physical assets like technology, brand reputation, and managerial skills that contribute to a firm's value.

Challenges faced by international firms due to operating in unfamiliar environments.

Expenses associated with managing activities across different countries.

Output (e.g. profitability, growth) of a business.

The relationship between geographic diversification and company performance isn't linear; it follows an S-curve. Performance initially drops with increasing internationalization, then rises at moderate levels, and finally falls again at very high levels.

Advantages include: economies of scale, risk spreading, increased market power, cost arbitrage, and access to unique resources and location-specific advantages.

Internationalization has three phases: the initial phase with declining performance, causing high co-ordination costs vs benefits; The middle phase with increasing performance as benefits outweigh co-ordination challenge; and a maturity phase, which again, leads to declining performance.

Assets like technology, brand names, and managerial skills are essential for internationalization. They provide advantages in foreign markets and drive geographic diversification because they require hefty investments in a broad market.

The stage where the costs of international expansion (liability of newness and foreignness) outweigh the benefits, resulting in a decline in performance.

The stage where experience and economies of scale lead to increasing performance, indicating the benefits of internationalization are outweighing the co-ordination challenges.

The decision a company makes when starting a foreign operation, either through a greenfield investment (setting up a new entity) or an acquisition (buying an existing entity).

A theory arguing that valuable, rare, inimitable, and non-substitutable resources are crucial for companies to achieve sustainable competitive advantages.

Company resources related to technology, marketing, and other similar fields.

Resources stemming from international experience, including experience within the host country and experience with FDI.

The difference in shared norms and values between countries. This difference can lead to insufficient information for investors.

Companies with plentiful knowledge-based resources are more likely to favor greenfield investments because they can better utilize and protect these resources.

A research method that combines the results of multiple studies to draw a stronger conclusion.

Companies with strong knowledge bases are more likely to choose greenfield investments, as they are better positioned to use and protect these resources in a new entity.

A system where customers perform services independently, like self-checkout or online banking, minimizing human interaction.

People who are highly aware of social evaluation, are more cautious about how they appear to others, and strive to demonstrate competence.

The process of resolving issues that arise when customers use self-service technologies, like fixing self-checkout errors.

How customers react and behave when encountering problems while using self-service, including how they try to resolve issues and maintain a sense of competence.

The likelihood that a customer will switch from a self-service option to a full-service option, like moving from self-checkout to a cashier.

The likelihood that a customer will abandon the service provider entirely due to a negative self-service experience, like leaving a store because of a bad self-checkout experience.

A firm's strategy to expand its operations into new product or market areas.

Non-physical resources that contribute to a firm's value, such as brand reputation, intellectual property, and human capital.

The idea that individuals' pursuit of self-interest is limited by norms of fairness and reciprocity. They strive for their well-being but are also guided by ethical considerations.

Reciprocity emphasizes returning fairness, rewarding those seen as fair and punishing unfair actions. This differs from simple self-interest, focusing solely on personal gain.

Economics often assumes people act solely on self-interest, with theories like rational choice, game theory, and efficient market hypothesis.

Fairness encompasses three aspects: (1) Material Fairness (fair distribution of resources), (2) Procedural Fairness (fair processes used to make decisions), and (3) Interactional Fairness (respectful treatment during interactions).

Akerlof's theory explains that even in an impersonal market, workers are more productive when given non-monetary rewards, as a gesture of kindness. This shows that fairness and reciprocity are powerful drivers of value creation.

When companies use unjust procedures in interactions with suppliers, it can create negative feelings leading to lower quality products, higher prices, or a lack of trust, harming the relationship.

Fairness perceptions are shaped by how various stakeholders perceive the company’s past actions. This can influence their attitude toward future interactions and decisions.

Companies can create more value by distributing surplus (resources, fairness) to stakeholders instead of keeping it all. This encourages reciprocal behavior, fostering trust and long-term value creation for everyone.