...or, in unstable times, small-to-mid-sized firms have the right stuff

In unstable environments, there is no sustainable competitive advantage, only multiple temporary competitive advantages (Cavanagh, 1991; Fiol, 2001). If this is true, small-to-mid-sized firms may be the big earners of our time.

Why?

If they've succeeded beyond start up stage while holding onto their entrepreneurial spirits, then chances are good they've developed a workforce of individuals who identify with the firm's values and desired outcomes.

At the same time, they probably haven't yet coalesced into an entrenched culture with set reactions to external stimuli. This means they are agile in the face of new opportunities. An unstable environment requires quick reflexes to respond on a dime, impossible in large, top-down organizations steeped in bureaucracy.

Tom Peters, in "Rethinking Scale" (1992) presents the work of both Gunnar Hedlund and David Rogers, who pointed out the need, in unstable economies, to move away from an agricultural model ("A" mode) of strategy and toward a hunter-gather ("H" mode) outlook on competitive advantage. "A" mode seeks to render the environment predictable by fighting against threats to crop yields, through weather predictions, technology, and amassing and defending larger and larger land parcels. "H" mode, on the other hand, is all about unpredictability: once plentiful herds migrate away and are replaced by another food source, requiring new hunting methods. Rather than making predictions, hunter-gatherers scan the horizon for opportunity, figure out what skills are needed to put food on the table, then act - quickly.

The connection to corporate strategy is obvious: stable environments call for long-term strategies and sources of sustainable competitive advantage. In large, established firms, size can equate to greater resources, one way to edge out competition. They have had the time to develop distinct corporate cultures that become impossible for competition to duplicate - another advantage.

Unstable conditions, like the ones we face today (and will, most probably, for a long time to come) require flexibility and a willingness to cannibalize current advantages in the face of their inevitable demise. Entrepreneurial firms are best poised to survive in these times. Most advantaged of all are entrepreneurial ventures that have survived start-up and entered into a professionally managed, small-to-mid-sized success. Here are some reasons why:

1. At such a point in their organizational development, these firms have defined (whether they know it or not) core values and have amassed a work force of folks who identify with those values. The firm is small enough to have maintained a focused goal, or desired outcome for it's products/services.

The glue that holds them together may not always be a stable, fully elaborated culture, since this can lead to core rigidities. Rather, organizational members' eep identification with what they value and with the outcomes they wish to produce may bring coherence to multiple temporary advantages (Fiol, 2001).

This seems to be the identity "sweet spot" that allows teams to pull together toward a common goal without getting bogged down in too many rigid norms prescribing "how we do it here." This group has stability in the face of change as well as flexibility. They identify deeply with their company, but adapt and change for the company's greater good.

2. These companies are less compartmentalized than the big monsters, allowing a freer interaction flow between work disciplines. This allows for unplanned connections, increasing the possibility of "ah has" - moments of inspiration and creation. Additionally, the company's manageable size allows it to take action on that "ah ha," rather than getting bogged down in endless chains of command.

3. Less bureaucracy = better information = quicker response time. Smaller firms can easily gather information from many sources - suppliers, consumers, middle managers, etc., with fewer filters in the way. In turn, that information can be quickly absorbed and put to use for process, pricing and production improvements.

4. Ability to respond to new niche markets: "H"-mode strategy is about moving, searching for new opportunities and developing new methods of responding to them. Hedlund uses the analogy of going over the mountain to another region and inventing a new kind of fishing net. According to Hedlund, "in today's mercurial business environment, rapid product development and niche-creation are the most likely paths to survival."

We seem to worship the big, insisting that size really does matter. But consider: all firms today are coping with shifts in the environment, and attempts at future predictions and environmental controls are futile. Business owners and business consultants alike must embrace the new reign of the mid-sized firm. Together, we can focus our energies on making these firms the power-house producers of tomorrow. Not so that we can grow new, gigantic Fortune 200 behemoths, but so that we can create a world rich with creative companies ready, willing and able to bring to market those goods and services of real use and delight. Maybe it's time to forget about large, established corporate cultures of entrenched norms, and embrace flexible business identities of shared values and desired outcomes.

Rather than seeking to grow to the next level in size, try growing to the next level in capacity to change, in development of skills and on the creation of knowledge gathering and sharing. This could prove to be the best competitive advantage of all.

References:
Fiol, M.C. (2001). Revisiting an identity-based view of sustainable competitive advantage. Journal of Management, 27, 691-699.
Hedlund, G. (1987). Milking cows versus going hunting: Conceptions of corporate strategies. Unpublished paper.
Peters, T. (1992). Rethinking scale. California Management Review, Fall, 7-29.
Rogers, D. (1988). Ride a small horse: The business wisdom of Gehghis Khan. Success, 16.
O'Toole, J. (1991). Big or small. Unpublished paper.

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Biography Julia Fischer Baumgartner, PsyD

Julia is an expert in divergent thinking and creativity coaching. Her background in the fine arts affords her particular respect for the creative aspirations of business leaders. Working with them, she digs through and questions absolutely everything in order to get to the heart of their vision. Then she helps make their vision ubiquitous, resonating at every level of the organization. She understands the kinds of thinking and management approaches that drive organizations to sustainable competitive advantage when innovation counts. Doctor of Psychology in Organizational Consulting, Julia has more than 20 years of experience in both management and the arts. She's a former free-lance director (she holds a MFA degree in Directing), and served as the co-artistic director of the critically acclaimed 15 Head - a theatre lab, in Minneapolis, MN.

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