WEAK FROM SIGNALS TO DECISION MAKING: INFORMATION ACQUISITION AND USE AS THE ENTREPRENEUR'S SOURCE OF OPPORTUNITIES Pierre-Andr Julien and Ivan Vaghely Institut de recherche en PME
Universit du Qubec Trois-Rivires
ABSTRACT A survey of the literature on information reveals gaps in the process of information acquisition and strategy use. The gaps are of a theoretical nature, due to the lack of a unifying conceptual framework for the process, and of a practical nature by the areas that require empirical research to further the understanding of the different steps in the registration of the information from the environment. We propose a framework that attempts to shed light on this process. It links six steps in the entrepreneur's information acquisition: sources of information, such as data, market signals and cues (1), information networks (2), information filters such as cognitive biases and the entrepreneur's ability to absorb information (3) the small organization's information treatment per se (4) and its input into strategic management (5). Also parts of the framework are informational boundary spanners and technological gatekeepers (6) who bypass the small organization's usual contacts with the marketplace. As a first step in our research, we test the general validity of our model using a case study of 52 high growth SMEs located in Quebec. They are complex and participative organizations that provide fertile ground to observe the registration of signals and cues and their transformation into information and ultimately into knowledge and opportunity. Weak signals and market cues are sources of real time information that the entrepreneurial organization can use on a day-to-day basis. They are reinforced by strong signals from personal and business networks and can be transformed into information by an experienced and communicative management so that they may shape perceptions of the environment, provide essential inputs into organizational sense making and help uncover opportunities.
INTRODUCTION Opportunity recognition as the result of a systematic search effort relies on the quality and timeliness of the information and on the information source's trustworthiness. Information alters the entrepreneur's mental representation of opportunity. Opportunity recognition as a cognitive skill takes advantage of disequilibrium profit opportunities (Julien, 1989; Kaish and Gilad, 1991) and requires a "unique preparedness" by the entrepreneur to recognize sources of rich information. Opportunity recognition as the result of communication or of the influence from contingency factors requires social networking of the environment so that "weak ties" (Granovetter, 1973) can "bridge" the entrepreneur to information sources not within the comfort zone of his "strong ties". Information forms the basis of the entrepreneur's perception and recognition of opportunity. Initially, the entrepreneur recognizes information as weak signals and market cues, either in a boundary-spanning role or through his social network. These signals are registered and become data that the entrepreneur combines with other data in a creative way so that representation-altering information emerges through a construction of creative and intuitively improvised process. The process of perceiving an equivocal stimulus such as a cue or a weak signal, evaluating the strategic process of its acquisition, registration and use, discussing it and coming to a resolution is the main focus of our research. It is posited that information is a trigger for opportunity recognition. This paper is of an exploratory nature; we thus review the pertinent literature on information acquisition and use from a strategic process perspective and propose a tentative framework as a guide for field research. An initial representation of the model establishes boundaries and links the acquisition process of information from the environment to the individual and his cognitive information filters, on to the organization and finally to strategy use. This initial representation becomes the foundation for the synthesis of extant research and the construction of a more encompassing conceptual framework taking into account recent cognitive research developments. As a first step we test the general validity of this model using a case study of 52 high growth SMEs located in Quebec, discuss the methodology and the study's findings and conclude on the model's validity. Areas for future research are also identified. LITERATURE REVIEW From a strategic process perspective, information acquisition and use are not researched and a literature review reveals the gaps in this process. These gaps are of a practical as well as of a theoretical nature. Not one discipline provides a
multidimensional or robust enough framework to explain the full process; but some fields of study such as economics provide useful dialectical insights. For instance substantive and procedural rationalities do not treat information in the same light (Simon, 1976; Favereau, 1989). Substantive rationality views the "classical" marketplace as perfectly informed and the "neo-classical" firm solves its information asymmetries trough information search and its inherent transaction or agency costs (Eisenhardt, 1989a); entrepreneurial opportunities depend on asymmetries of information and beliefs, (Shane and Venkataraman, 2000) and marketplace inefficiencies create disequilibrium profit opportunities (Kirzner, 1979; Julien, 1989; Kaish and Gilad, 1991), meanwhile under procedural rationality information is arbitraged through conventions (Gomez, 1997). Procedural rationality reflects the real world "messiness" of organizational research, and substantive rationality teaches us that information has a price and that "successful entrepreneurs are those individuals who are capable of foreseeing disequilibrium profit opportunities when they come across them." (Kaish and Gilad 1991: p. 48, authors' italics.) Management, more particularly strategy, also provides some interesting viewpoints for the entrepreneur on the use and misuse of "soft" and "hard" data (Mintzberg, 1989; 1994), the place of analysis and rationality with intuition, "creative insight" and synthesis in strategy use. Interestingly "...Managers seem to cherish "soft" information, especially gossip, hearsay, and speculation..."(Mintzberg, 1989: p.13, author's quote.) Nonaka and Takeuchi (1995) and Choo (1998) provide a comprehensive attempt at synthesis using a strategic process perspective on how organizations apply information to construct meaning, create knowledge, and make decisions. Nonaka and Takeuchi's model distinguishes two philosophical dimensions in the treatment of information. The first, an ontological dimension, is a dialogical process of exchange between the individual as knowledge creator and the group as knowledge amplifier and disseminator and the second, an epistemological dimension, inspired by Polnyi's work (1966), distinguishes between tacit and explicit knowledge. Choo takes this information use a step further, combining Weick's (1995) sense making work with management decision-making theory to complete the process of the organization's information use. This process of knowledge creation applies the same cognitive process as our model's opportunity recognition. Social networks (Granovetter, 1973, 1982) and informational boundary spanning (Tushman and Scanlan, 1981) help explain how data is conveyed to the entrepreneur. Cognitive psychology and the study of social cognition reveal a rich field that allows cognition "intentions-based modeling" of how opportunities emerge (Krueger, 2000). From the environment to the individual into the organization and the decision makers, information undergoes elimination or filtering by the individual's
absorptive capacity (Cohen and Levinthal, 1990), trust in the source of information (Creed and Miles, 1996), biases, and resistance to information to name but the most common filters. At the organization level, contributions in areas of interest such as sense making, knowledge creation and decision making, come from many fields: sociology and psychology (Weick, 1979, 1995; Daft and Weick, 1984; Gioia, 1986)), management (March and Simon, 1958; Polnyi, 1962; Mintzberg, 1994, 1998; Nonaka, 1994) economics (Simon, 1957, 1976) and information systems (Choo, 1998). Gaps of a practical nature also exist in the literature. Some specific areas require empirical research to reveal the total information acquisition process from weak signals to strategy use. The most intriguing areas relate to the recognition of weak signals in the environment and the different steps in their registration by the entrepreneur. Signal recognition is a source of rich information (Julien, 2000). No theoretical framework exists to help fieldwork in this area and very little research (Ansoff, 1975) has been done to explain its acquisition process. SMEs provide fertile ground for such research as they exhibit good capacity to understand the information process due to their smaller size. Finally, the literature review shows that very little strategy process based research is done on the acquisition and use of information. We note the absence of an integrative and holistic framework of the information acquisition process, that existing empirical and theoretical research are fragmented and come from multiple fields of study, and that no divergent points of view exist, other than in economics, to afford a dialectic appreciation of the subject. We conclude that existing research does not show how opportunities are recognized based on information acquisition and that its fragmented nature cannot guide us in our fieldwork. Our model attempts to fill some of these gaps with answers to the following questions: How does an entrepreneur recognize business opportunities? What constitutes his process of information acquisition? How does he apprehend his environment using networks with strong and weak ties to overcome resource limitations? THE INITIAL MODEL The initial model, presented on the next page (Vaghely, 2000), is used as a starting point to establish conceptual relationships and boundaries between five process components of information acquisition: the environment, the information networks, the individual, the organization and strategy use. Sources of signals, noise and networks make up the environment, which is linked to but distinguished from the entrepreneur. This is not to say that the networks are directed only towards the entrepreneur, the latter merely uses his strong and weak ties to acquire and register fragments of information, or data that he assembles in a creative or opportunistic manner. This process is bi-directional.
The individual and not the environment nor the organization constructs opportunities and synthesizes knowledge from information. It is also the individual who constructs information from data filtered through his cognitive biases. The individual forms part of the registration and social processing of information thus synthesized.
BOUNDARIES IN THE INFORMATION ACQUISITION PROCESS
Sources of signals Networks Strong Weak Signals Networks 2 Ties 1 ENVIRONMENT
Information registration and processing Strategic management INDIVIDUAL ORGANIZATION Strategic management retains hard data, rejecting weak signals and market cues which are complex but rich in information 5 Filtered information STRATEGY USE
Individual's Filters Cognition 3 4 Action ACTION
The organization processes information to interpret and integrate ambiguous signals from the environment. Communication with different individuals in a sensemaking and sensegiving effort helps to interpret the environment and to "enact" it. Strategy use under this model rejects weak signals and market cues because high levels of cognitive filters block out the opportunity recognition or because there is a lack of cognitive predisposition to identify the opportunity or simply because there is no one around to recognize and to exploit the entrepreneurial opportunity. The information necessary to recognize the opportunity may have been too specialized (Shane and Venkataraman, 2000) or beyond the firm's "absorptive capacity"(Cohen and Levinthal, 1990). Cognitive filters and "absorptive capacity" are examined in more detail in the following information acquisition and use model. A TENTATIVE MODEL OF INFORMATION ACQUISITION Information acquisition from the environment is usually done by repeated contacts with customers, suppliers, social and informational networks1 and other such sources with which an organization's personnel or the entrepreneur are in contact within their boundary spanning roles. We have identified the key elements of this acquisition process in the diagram presented on the next page (Vaghely, 2001). The numbered elements represent the sequential acquisition steps of signals, data and information, its treatment and use by the individual and the organization. Whereas the first graphic representation of the information acquisition process provided the boundaries of the key elements and their relation to one another in
the makeup of the process, this diagram gives the details of the conceptual framework by providing a visual representation of the information flow.
CONCEPTUAL MODEL OF INFORMATION ACQUISITION AND USE Sources of signals Networks Data Weak Strong Signals 2 Networks 1 Cues Trust 6 Ties Information registration and processing Knowledge sharing Socialization Internalization Combination Externalization Strategic management
Filtered information Absorptive capacity Data
Heuristics, Biases
Individual's
Implicit theories
4
Filters
Symbols
Action ACTION
3 Decision making Knowledge Creation Sensemaking Prior related knowledge and organizational flexibility
Cognition
Schemata, Scripts
Boundary Spanners & Gatekeepers
Strategic management using weak signals and market cues which are complex but rich in information, and are linked to and reinforced by strong ties 5
Sources of information from the environment come in a continuum from strong to weak signals that can be acquired by the entrepreneur or boundary spanners. Informational network sources may provide weak or strong signals, data and partial or complete information, and less frequently specialized information. Six steps provide a description of information acquisition and use as a basis for opportunity recognition and knowledge creation:
O
O
O
O O
O
Signal acquisition is carried out by the entrepreneur in a boundary spanning role or by his informational networks or by boundary spanning employees or their social or informational networks Signal, data or information is conveyed trough social and informational networks with strong or weak ties to the entrepreneur or to other boundary spanners Signal, data or information use and the individual shows the impact of filters, facilitators, information synthesis, opportunity identification and knowledge creation Information use and the organization shows the importance of information in sense making, knowledge creation and decision making Strategy use stores information for use in "fast paced" real time decisions or accumulates and stores information to enhance absorptive capacity and long term planning Boundary spanners and gatekeepers' roles are information acquisition, interpretation, decoding and translation for organizational use
ANALYSIS AND INTERPRETATION The process of information acquisition can be described as follows:
o o o o o
It uses multiple and parallel pathways with multiple feedback loops It is cumulative and therefore evolves incrementally It is regulated by the individual's filters and absorptive capacity and by the organization's dissemination and amplification It is iterative and conjoined with links between each step It is a cognitive activity which converges towards opportunity and knowledge construction
Each of the six steps in the process of information acquisition and use can be further clarified and researched. These six steps make up as many potential areas of empirical research that would clarify and contribute significantly to new knowledge about information processes. For our purposes we will give a short description of each step. Step one: Signal, data or information acquisition presupposes that the entrepreneur is "uniquely prepared" and is actively looking or at least listening for specialized information. This proactive attitude towards information seeking implies an active "maintenance" of an information network through regular face-to-face "rich" communications. "The ability to exploit external knowledge is a critical component of innovative capabilities" (Cohen and Levinthal, 1990: p. 128 ) Step two: This step consists in the proactive use of an informational network to establish "bridges" to weak signals from the basis of "strong ties". According to Julien et al. (1999) the entrepreneur has on average 8.2 people with such strong ties in his personal network and there is empirical evidence (Granovetter, 1982: p.108) that "the stronger the tie connecting two individuals, the more similar they are in various ways." The figure below, adapted from Johannisson, (1989) illustrates these network relationships:
Weak signal network
Strong signal network
Strong and weak signal network Weak signal network
Personal network
Management Colleagues, friends, partners, .. C u s t o m e r s , s u p p l ie r s , t r a n s p o r t e r s , d i s t r ib u t o r s Complex information contacts
Step three: Cognitive predisposition and contingency factors make up the elements of step three and determine the level of the entrepreneur's ability to recognize and exploit opportunities: o The individual's cognitive makeup conditions his ability to read market cues and weak signals. Cognitive filters such as biases, heuristics, symbols, conventions, habits, schemata which form scripts and shape the individual's receptivity toward certain signals, help him or prevent him from detecting information on certain opportunities
O
Certain environmental and contingency factors impede or help discovering information on opportunities. They are: trust, resistance to change, absorptive capacity and creative ability to assemble signals, data or information on certain opportunities
Step four: Three groups of elements determine the final registration, processing and use of information by the organization: sense making, knowledge creation and decision-making. Information is used to reduce uncertainty, to create knowledge and to identify entrepreneurial opportunities. Information also feeds communication to integrate ambiguity in the sense making process.
O
Interpretation, sense making, sense giving and enactment (Weick, 1995) which integrate the environmental ambiguity through communication by individuals within the organization, a process by which the organization socializes and takes possession of information Knowledge creation where information is synthesized by the individual, transformed and used in context through a process of socialization, externalization, combination and internalization (Nonaka and Takeuchi, 1995) Decision-making, entrepreneurial or otherwise uses information to reduce uncertainty and integrate ambiguity. It is a well-researched area of management.
o
o
With low uncertainty and low ambiguity Simon's (1957) limited rationality and problemsolving model is used for the decision making process; with high uncertainty and high ambiguity, Cohen, March and Olson's Garbage Can Model of Organizational Choice (1972) is used as reference; with high ambiguity and low uncertainty Allison's (1971) political model of organizational choice is used for decision making; and in high uncertainty with low ambiguity Mintzberg, Raisinghani and Thort's (1976) process model is used as reference for the decision making process. These models (Daft and Lengel, 1986, Choo, 1998) all rely on communication of information to be able to function properly. Step five: This is the locus of the organization's decision maker and that of its memory where information is stored for real time use in fast paced environments (Eisenhardt, 1989b) to enhance information absorptive capacity or recorded for longer term
planning use. According to Bower and Hilgard (1981) on learning "...memory development is self-reinforcing in that the more objects, patterns and concepts that are stored in memory, the more readily is new information about these constructs acquired and the more facile is the individual in using them in new settings." Suffice it to say that again we come to an area that is well researched, but not integrated with information use, combining social cognition2, contextual creativity, intuition, memory development, pattern recognition and learning. Almost any study linking this research to strategy use and information acquisition would contribute significantly to new knowledge about opportunity identification. Step six: Boundary spanners and technological gatekeepers have the advantage of understanding market cues, technological development trajectories and specialized information signals that they interpret according to their own schemata or script3. "They are typically proficient processors of information and creative architects of meaningful experience. They engage in active attempts to make sense of the myriad of information cues that surround them." (Goia and Sims, 1986: p.2) They communicate this interpretation to the organization that they relate to by encoding the information to fit the context. METHODOLOGY AND SAMPLE As a first step in the testing of the general validity of our model we use a case study of 52 high growth SMEs located in Qubec that formed part of an international study carried out under the aegis of the OECD (1998a; 1999)4. High growth SMEs are defined as having doubled their number of employees in a set period. The 52 firms were drawn from a list of 282 high growth businesses in a statistical databank used in phase one of the study5. The firms were selected from seven different regions in Qubec, located in urban, rural and semi-rural areas. Of the firms that responded 46 were in the manufacturing sector, with only 4 SMEs from two high technological sectors, namely electronics and pharmaceutical products; others were from medium-high or medium-low technological sectors6, and six were from the services sector7. We used four types of instruments, including two questionnaires. The first questionnaire contained questions exclusively for management and covered factual elements such as the age of the firm, the number and type of employees, location, the type of products and services offered, the technologies used, and so on. There were a total of 36 closed or semi-closed questions, including five ordinal scales. The second questionnaire contained more open questions and was completed in the course of an interview. It examined the main characteristics of the owner-manager, such as experience, training, interests in various tasks, etc., the owner-manager's personal goals and intentions, the origins of the firm and its management, and the firm's success factors. This second questionnaire was followed by a long interview lasting approximately two hours, and by a tour of the firm. The interview was based on a grid of functional activities and management practices, including the general strategy and functional strategies, the firm's history, management's motivations, the type of organization and participation level, and the factors favourable or unfavourable to growth. For the last instrument, we used another
grid to interview different private and public consultants who work or have worked with the firm on different occasions8. Completed questionnaires were analyzed using SAS to obtain a range of descriptive data and statistical tests were carried out in order to identify the most discriminant variables. For the semi-open questions, we took into account the order of importance ascribed by the respondents. The interviews were analyzed in three stages. First, a summary sheet was produced for each firm or consultant, based on the interview recordings. Variables were then compiled and grouped under different headings. Variables not previously ranked by respondents were placed in order of importance, according to whether they promoted or limited growth. The rankings were then used for further statistical analyses. The main characteristics of the respondent firms are as follows (Table 1): 1. Different growth paths. The sample firms exhibited a variety of growth paths. For example, three firms had an average annual job growth rate in excess of 100%, and a further twelve had a rate in excess of 50%, plus one firm whose sales grew by more than 50%. Table 1. Some Characteristics of the Sample
(49 completed questions) Variables Ownership Independent 37 (76 %) Size 11 to 50 emp. 17 (35 %) Number of hierarchical levels 2 levels or less 12 (26 %) Average age of ownermanager Managerial seniority Av. 46.8 years Av. 13.3 years Subsidiary 5 (10 %) 51 to 100 emp. 14 (29 %) 3 levels 11 (24 %) Min. 30 years Min. 2 years Head office 7 (14 %) 101 to 200 emp. 14 (29 %) 4 levels 16 (35 %) Max. 55 years Max. 30 years 201 and over 4 (8 %) 5 levels or more 10 (22 %)
A further 19 firms had a job growth rate of between 20% and 50%, leaving just 19 firms with a rate below 20%. Three firms in this latter group had zero (or almost) job growth rates, but sales growth rates of around 20% per year. Twenty firms recorded sales growth rates far in excess of their job growth rates (1.75 to 3 times higher), while the reverse was true for five firms (1.66 to more than 3 times higher). In addition, the job and sales growth rates were more or less identical in 17 firms. In ten cases, the data were insufficient to make a comparison. 2. Average size. The average size of the sample firms was 98 employees, with a minimum of 16 and a maximum of 531, at the end of the referenced period. They were divided fairly evenly, with about a third in each size category except for the largest, and had a fairly complex structure in terms of functional task sharing. The firms had an average of 6.7 managers, including 3.6 engineers, and a sales team of 5.9. They had
an average of 6.3 office workers and 75 production employees. Obviously, the higher the number of employees, the more hierarchical levels the firms had. The average was around three levels, but ten firms had five or more. Finally, the entrepreneurs had an average age of 47. SOME RESULTS In relation to information acquisition and use by SMEs, the results can be summarized by four characteristics. The first characteristic relates to the special role of the entrepreneur that gives general direction to the information search and analysis, encourages that concomitant knowledge sharing and that maintains consistency in its translation into strategy. The second characteristic is the close proximity of the high growth SMEs to their customers in order to obtain quick, direct and explicit as well as implicit information and an interpretation of their general sense. The third characteristic is the importance of a complex, decentralized and participative organization to share and disseminate information and thus reduce different informational resistance and biases. This also increases the individuals' and the organization's long term absorptive capacity. Finally the fourth characteristic relates to privileged ties to the environment, on the one hand, with the use of many private and public consultants and, on the other hand, with extensive strong and weak signal networks. The first two characteristics are well known variables for SMEs; the last two require more explanation. 1. The entrepreneur shapes the organization as sense maker and culture builder Many studies show the key role of the entrepreneur as the direction provider to his firm (Kirzner, 1980; Sandberg and Hoffer, 1987), particularly in fast growing businesses (Davidsson, 1989; Siegel, et al., 1993). He gives consistency to the systematic changes made in the firm and then constructs sense and provides direction for strategy and any necessary improvisation. One source of leadership comes from the perception held by staff and employees of the entrepreneur's level of competency and capacity to achieve motivation to successfully meet the challenge of change generated by high growth. The owner-managers of the sample firms were better educated than the average for SMEs; 57% had university degrees and 22% had college diplomas. Only 17% had high school education and 4% had a secondary level. Management science (46% of the sample owner-managers had degrees in administration, finance or marketing) and engineering (25%) were the main academic backgrounds. They were also experienced as owner-managers, and have led their firms for an average of 13 years. Some 59% worked in the same sector before becoming owner-managers, and thus have
an average of 23.6 years of experience. More than two-thirds have taken some form of training in recent years, in fields such as human resources management, exporting and management techniques. Training varied between 31 and 70 hours a year. The owner-managers we studied gave high importance to communication with their personnel in order to share their enthusiasm. The results show that the entrepreneur's motivating factors are in descending order: profit, job satisfaction and sharing the challenge with their coworkers. Sense making and consistency are also important as we analyse the underlying factors: staff motivation, mentioned by 53% of the firms, is ranked in the top 5 factors by 33% of surveyed owner-managers. 2. Close proximity to customers helps acquire information in the form of market cues and other sources of opportunities. Many researchers (Kim and Mauborgne, 1997; Barringer, et al., 1998) emphasize the small, fast growing firms' strong relationship with its customers. This relationship is a powerful source of market cues and of rough information regarding market tendencies and change The study results show that these SMEs have in essence a differentiation strategy based on a customized production approach and on a direct communication system with clients (in 76% of cases). Direct contact takes the form of direct market sales to consumers, retailers, institutions or manufacturing firms. This is illustrated by the fact that the sample firms tend to favour direct relations with a large percentage of their customers (in 80% of cases) even if they use distributors, agents and representatives. They also have significant after-sales activities (in 48% of cases); more than 40% deal directly with complaints to use the information to improve their products. Close customer relations are maintained by product innovation, which 68% of the firms say they do on a systematic basis. Generally speaking, they spend 4.6% of their sales on R&D, which is significantly more than the general SME average of less than 1% (cs and Audretsch, 1988; Bernard and Torre, 1994) 9. To support their R&D, 68% of the sample firms carry out fairly formal technology watch activities to find ideas, compare their products with existing ones and understand the development of new technologies and processes. Here, too, the extent of the technology watch is well above average (around 25%, as measured by Julien et al., 1999). They use a range of techniques for this purpose, including the distributors' networks. 3. Complex, decentralized and participative organizational practices help screen, transform and shape information for strategy and decision A way to obtain, develop and analyse information and to increase the information treatment and cognitive ability of the firm, is to share internal and external information as a learning organization. To do this, an organization must be complex, decentralized and participative, as Cohn (1979), and more recently Tarondeau (1999) have shown.
Concerning complexity: management personnel in our study are made up of specialists in administrative sciences in 98% of the sample. The most common areas are accounting (90%) and management (96%) of which marketing and/or finance (20%) and human resources (16%). Some 63% of the firms also have one or more engineers. In all, nearly 90% of the firms have at least two specialized staff managers from different fields in addition to the owner-manager, and 35% have four or more. The firms help their specialists by providing continuous training (for staff managers in 59% of the firms and for sales staff in 44% of the firms) to systematically improve their ability to search, treat and analyze information. Concerning decentralization: the decisions in these firms are usually taken by consensus, after discussion with members of the management team (8.4 tasks out of 13, in 86% of firms). The CEO holds slightly more responsibility for tasks related to opportunity recognition and analysis of threats to growth. He delegates some of the tasks related to technology information gathering, staff supervision; customer needs identification and product development, depending on the firm.
Concerning participation: management's motivation is derived from communication and also from profit sharing or stock ownership. In all, 76% of ownermanagers said they are very concerned about communications with staff, either formally (64%) at weekly or monthly meetings, or informally (56%). Participation for employees of all categories takes the form of bonuses (52%), profit sharing (20%) and stock ownership (12%). In 8% and 4% of cases respectively, management staff and other employee categories participate directly in the firm's profits. In all, three-quarters of the respondent firms offer some kind of financial participation to their managers and employees. In addition to financial participation, most of the firms (88%) give their employees some form of responsibility, in some cases going as far as to involve them in decisions concerning major changes in the firm, such as the purchase of new equipment (in 36% of cases) and the introduction of innovations. Finally, regarding the overarching ability to obtain, analyse and use information, staff training (for 88% of cases) is ongoing (72%) or provided immediately after hiring (48%). Employees receive training mainly when they are hired (44%) or as the need arises (32%). Office personnel are trained according to need (48%). In all, the training budget of the sample firms accounts for 2.4% of total sales, or between 5% and 7% of their payroll. 4. Systematic use of strong signal networks helps diminish uncertainty and use of weak signal networks helps identify opportunities The fourth major characteristic of the study sample is that high growth SMEs make much more than average use of networks and external resources to complement their own assets. They do so more systematically and often through
different types of partnerships. They use traditional "strong signal" business networks, but in a much more structured way than most SMEs. Table 2 shows that 36% of the sample firms have relatively formal agreements with clients and 33% with suppliers. This systematic cooperation through agreements is extended even to competitors in 15% of cases. Similarly, 26% of the firms have agreements with other companies, often through formal and particularly effective alliances. Interestingly, many agreements of cooperation concern customers and the sharing of advertising and transportation, followed closely by R&D.
Table 2. Types of Contacts with Business Networks and Main Purposes of the Contact
Types of contacts "Formal" partnership The most important shared goals of the agreements With customers 36 % Advertising/marketin g. 85% Transportation/distribution 46% R&D/technologies 46% With suppliers 33 % Purchase of raw materials. 70% Advertising/marketing 45 % With competitors 15 % Transportation/dist ribution 100% Advertising/marketing 100 % With other firms 26 % Advertising/marketing 53% R&D/technology 53 % Raw materials 40% Transportation/distribution 40%
Contacts with the environment involve the use of all kinds of services. Table 3 shows that the vast majority of the sample firms (80%) use more than three consultants a year, and 49% use six or more - a much higher percentage than among more traditional SMEs. This extensive use of outside consultants shows that high growth firms need additional, flexible resources to meet the organizational, operational and before all, informational needs arising as a result of their fast growth. Several researchers, including Dollinger and Kolchin (1986), Kent (1994) and Reijnders and Verjallen (1996), have identified the significant need for outside resources in high growth SMEs. Table 3. Number of Outside Specialists, Type of Specialty Area and Level of Satisfaction
Number of Specialists N and % of firms Types of speciality 0 4 (8 %) Consulting firms 1 to 3 6 (12 %) Bankers 4 9 (18 %) Government advisors 5 7 (14 %) Professional associations and business contacts 6 to 8 14 (27 %) Personal acquaintance s 9 and + 11 (22%) Scientific consultants
N and % of firms Level of satisfaction*
42 (82 %) 4,04
32 (63 %) 3,9
31 (61 %) 3,8
16 (31 %) 3,7
13 (25 %) 4,2
21 (41 %) 4
* Scale: 1: dissatisfied; 2: fairly dissatisfied; 3: satisfied; 4: fairly satisfied; 5: very satisfied.
The consultants most in demand are those from consulting firms, used by 82% of respondents. Next in line were special relations with the banker (63%), and then government advisors, sometimes from regional bodies. Satisfaction levels are relatively high (over 3.7 on a scale of 5), even for government advisors. Scientific consultants are discussed below. Table 4 shows as an example that relations with "weak-signal" networks such as higher educational institutions and research centres are particularly important to the sample firms, as 19% had formal agreements with the former and 13% had formal agreements with the latter. These percentages are much higher than the general SME average (OECD, 1993). As might have been expected, the relations are concerned mainly with staff training and R&D to support innovation. Combined with the level of scientific consultants of Table 3 these results highlight the interest of SMEs for "weaksignal" networks. Table 4. Types of Business Contacts with Weak Signal Networks and Purpose of Contacts
Types of contacts Formal partnership (networking or co-operation) Main shared goals With educational institutions 19 % Staff training 67; R&D/techno. 33% With research centres 13 % R&D/techno. 63%; production 27%
CONCLUSION The high-growth SMEs are able to reconfigure themselves to face continuous change and manage disorder (Schmitt, 1999). The entrepreneur shapes the organization by acquiring information from the environment through social, business and information networks. He uses networks to link up to weak ties that help bridge him to rich information sources, weak signals, not within the comfort zone of his strong ties. The entrepreneur shapes the organization by interpreting the information from the environment. A participatory and collective interpretation helps integrate ambiguity and encourages sense making through communication. Communication also helps to share internal and external information, to remove cognitive biases and shape the firm to become a learning organization.
Three levels of information management make knowledge available within the organization, help reconfigure the structure to adapt to change and make sense of disorder:
o
First level: formalization of routines, that is making employees responsible for everyday activities through a range of relatively formal operational practices, computerized where possible, based on slow information change and linked to strong signals from business networks; Second level: organize internal semi-routine activities by making managers and employee groups responsible for minor changes and organize external links with strong signal networks to obtain and encode rich information; Third level: free management so that they can search for complex and rich information that indicate coming changes and hence manage the disorder produced by high growth, first by sharing challenges and developing a business culture, and second by monitoring relations with customers so as to be able to seize new opportunities supporting growth.
o
o
Edith Penrose (1959) found that the biggest growth-limiting element in an organization is it's inability to control information and hence growth. High-growth SMEs apply systemic analysis' principle of requisite variety. As highly complex firms they have been able to acquire, evaluate and use information very much according to our model. Information acquisition and use helped them to develop quickly and deal with the rapid changes in their environments. High growth SMEs are organizations in the true sense of the word, that is living organisms or open systems, with a capacity to search, analyse and transform information to change (Hofstede, 1994), and thus adapt themselves. Through the process of information acquisition and use the SMEs we studied accept regularly selected external influences and adjust systematically as they become involved in market changes through a process of operational closing (Verstraete, 1999) that refers to an organization's ability to intervene in change by changing itself. The SMEs we studied corroborate the proposed model of information acquisition and use we have outlined in this and previous work. NOTES
: See Julien (2000) for a more extensive discussion on information sources and the level of their use by entrepreneurs. We use the generic term informational network to designate such sources. 2: Goia and Sims (1986), define organizational social cognition as the study of human information processing (both conscious and unconscious) as it influences, and is influenced by, the complex social and structural phenomena within the modern organization. 3: Scripts impact on perception, memory and judgement by distorting information to fit their script or inferring additional events that did not occur to fill gaps implied by their scrip
4: The countries taking part in the research were Canada (Qubec), France, Germany, Greece, Italy, Netherlands, Spain and Sweden. The research project was coordinated by Marie-Florence Estim, Head Administrator, OECD, and Professor Philippe Mustar of the cole des Mines de Paris 5: Phase one of the international study used different data to measure the impact of high-growth SMEs on job creation (OECD, 1999). Phase two, for other countries, used a questionnaire mailed to a random sample, designed to obtain a range of information on the growth path of the firms, the major factors underlying that path, the development of relations with national and international markets, the importance and impact of alliances and other forms of growth-promoting partnerships, the main developmental elements of the firm and of its skills, and the impact on growth of interventions by public authorities (OECD, 1998a). 6: Food: 3 firms; plastic and rubber products: 5; clothing: 1; furniture: 4; wood products: 2; metal products: 6; electrical, electronic and communications products: 5; transportation equipment: 4; machinery and equipment: 5; chemical and pharmaceutical products: 4; petroleum products: 1; miscellaneous: 6 7: Two engineering firms, two computer firms, one accounting firm and two trucking firms. 8: For Yin (1989), a case study requires interviews with many different people in each organization. This was not done in the study described here. However, in the view of Huberman and Miles (1991), the use of a variety of instruments and interviews with other observers of the firms can replace additional interviews. In addition, it is worth noting that we have worked very closely over the last six years with two of the 46 manufacturing SMEs as part of the Bombardier network project. 9: Or 1.5% of GIP in average for all firm sizes in the 25 OECD countries (OECD, 1998b).
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