Supporting agencies and small and micro enterprises in South Africa could be endowed with an integrated model that outlines the characterisation and patterns of strategic decision-making in the small and micro service sector that will assist in understanding and improving decision-making to enhance business sustainability and competitiveness.
To assess the strategic decision-making process in small and micro service enterprises in South Africa.
This study was motivated by the factors affecting small and micro enterprise sustainability which included deficiencies in the strategic decision-making process.
This study adopted a qualitative approach that captured the social realities of the decision-making process. The data collection techniques include semi-structured interviews of ten (10) respondents, four focus groups with five (5) respondents per group and five (5) businesses chosen for observation. Content analysis was used to analyse the data with the aid of NVIVO data analysis software. The data analysis software was used to organise data and identify themes.
The process of strategic decision-making is pivoted on the intuitive decision-making tendencies of the business owners which reveal iterative and concurrent characteristics.
The effect of strategic decision-making is identified as a major challenge among small and micro enterprises leading to business failure. The implications of this research relate to identifying the most practical ways in which such decisions are formulated and devising mechanisms to enhance the decision-making process.
The pattern of strategic decision-making exhibited a greater tendency towards intuitive decision formulation as opposed to procedural rationality and that those businesses that attempted some form of methodological environmental scan as an influencing factor in the decision-making process adopted more of an assimilated approach in the intuitive-rational decision-making continuum rather than a completely procedural rational mode.
Small, medium and micro enterprises (SMMEs) are the backbone of the South African economy with a goal that at least 90% of new jobs will be created from small and expanding enterprises by 2030 (Groepe
Given the importance of SMMEs to the economy of South Africa, strategic decision-making in small and micro enterprises is relevant to the efficacious advancement of these businesses. Notwithstanding such significance, the definition of strategic decision-making fluctuates in practice and theory. The diverse notions of strategic decision-making are due to the consideration of the context and the various activities and cognitive approaches that constitute the process in formulating a decision (Elbanna & Fadol
In the context of this article, the strategic decision-making process consists of diagnosing the stimulus demands that signify possible influences on the company, the consideration of alternative courses of action and then the selection of the most appropriate response to the situational stimuli. The article is not concerned with the actual implementation or measurement of the decision, but only on the process involved in the formulation of strategic decisions. The topic provokes a fundamental inquiry into the generation of decisions that impact the sustainability of small and micro enterprises in this specific sector. In considering the process of strategic decision-making, the study must deliberate on the contextual factors that influence such a process. This study contributed to the stock of knowledge on the process of decision-making pertaining to SMMEs in South Africa from the perspective of an intuitive-rational continuum.
Since 1994, the structure of businesses in South Africa has evolved significantly as SMMEs are given more priority in the government’s national agenda through the conveyance of policies and the establishment of distinctive agencies directed at supporting the interests of SMMEs’ growth and survival. This is due to the South African government’s recognition that SMMEs serve a fundamental role in the progress of South Africa’s national economy and its international competitiveness (South Africa SONA
In South Africa, the strategic decision-making process is influenced by factors internal and external to the SMMEs which impact the firms’ responses to opportunities and sustainability. Olawale and Garwe (
Hang and Wang (
Other researchers dispute the existence of such a relationship between the formality of strategic decisions and the firm’s performance (Honig & Samuelsson
Although there are multiple strategic decision-making models in the academic literature, the rational model and the intuitive decision-making model are the foremost decision-making approaches pertaining to the study of small businesses in the context of South Africa (Van Scheers & Makhitha
In South Africa, SMME decision-making processes are characterised by high levels of flexibility and informality and motivated by intuitive tendencies due to unsophisticated structures, informal information sources and a lack of management skills (Ayandibu & Houghton
Different researchers have interpreted and modelled decision formulation from many different perspectives.
While the list of perspectives and literature is exhaustive and impractical to reproduce in this current study, the main thinkers on strategic decision-making are presented in order to better appreciate the distinct modes of decision formulation. From the genesis of research into strategic decision formulation, as previously indicated, there has been the debate on whether strategy adopts a rational, formal deliberate process approach as advocated by the design school of thought or whether strategy is more informal and adaptive as it evolves through a series of patterns as advocated by the emergent school of thought and the cognitive mode. Although other approaches were also proposed in an attempt to explain the process of strategic decision-making, these two modes dominate the literature.
The rational mode of decision-making infers that organisations approach the formulation of decisions from a formal systems perspective which constitutes a rigorous and technical procedural design to intelligence gathering, environmental analysis and response to environmental conditions (Pina
Previous research conducted on the rationality of decision-making, including formal planning which is indicative of rational decision-making (Zacca, Dayan & Elbanna
Environmental information captured and analysed through systematic means equips SMMEs with a vital awareness of internal and external conditions in order to effectively manage heterogeneous uncertainties. A rational approach to small businesses strategic decisions provides a logical response to enhancing the firms’ competitive position because it provides the diligently assembled information and procedural courses of action in order to achieve intended objectives (Zacca et al.
However, studies on the consequence of a formal approach to decision formulation on the performance of SMMEs remain inconclusive (Williams et al.
Notwithstanding the inconclusive relationship between a formalised and rational approach to decision formulations and performance, SMMEs in South Africa tend to gravitate towards an approach that is informal rather than a formal orientation due to lack of knowledge in applying a rational and formalised system (Sandada et al.
Consequently, SMMEs rely on experience, casual information sources and intuition in the decision-making process.
As discussed earlier, SMMEs in South Africa face tremendous resource constraints which include deficient market research, inadequate business skills and lack of access to funding resulting in unsystematic decisions based on imperfect information (Ayandibu & Houghton
Exploratory research into the process of strategic decision-making in small enterprises revealed that intuitive decision-making propensities and subjectivity were prevalent in the approach towards decision formation (Jocumsen
This signifies that the decision-making process does not necessarily follow a particular sequence or formality, as argued in the rational mode, but can assume flexibility and environmental adaptability as described in the intuitive decision-making approach. A singular prescribed approach to the decision-making process is impractical due to the contextual changes and complexities that remain ill defined. Any attempt at effecting relevant intervention to improve the process of strategic decision-making among SMMEs in South Africa necessitates an assessment of their current practices pertaining to decision formulation.
The study employed a qualitative methodology consistent with the exploratory character of the research and the requirement for content rich data. The seminal work of Mintzberg, Raisinghani and Theoret (
For this study, the researchers selected the small and micro services sector because few studies have focused on decision-making and strategy formulation in this particular business segment in South Africa. The researchers used the database of the Riversand Incubator Hub, the Commonwealth Business Women Forum, the Women Entrepreneurs 300 and the Gauteng Enterprise Propeller in order to obtain a list of small and micro enterprises within the services sector operating in Gauteng, South Africa. These enterprises were registered companies and satisfied the criteria of small and micro enterprises which have fewer than 50 employees, an annual turnover of less than R19 million and total gross assets of less than R3 million.
Another essential criterion is that each person identified as part of the sample must own and manage the business. A purposive sampling technique was used to select the participants based on these criteria (Etikan, Musa & Alkassim
Data collection techniques included semi-structured interviews, focus groups and observations. Ten respondents participated in the semi-structured interviews, four focus groups were held consisting of five respondents per group and five businesses were selected for observation. The sample sizes for each respective data collection technique was deemed appropriate for a qualitative study because it afforded the prospect of extracting rich data with a view to data saturation (Asiamah, Mensah & Oteng-Abayie
Data were captured electronically and then transcribed into a Word document. NVIVO was used to generate documents from the data gathered, edit the data appropriately, explore the data content, search for associations and data relationships, and create nodes of the discovered concepts within the data. The data were assessed using content analysis which allowed the researcher to gather novel perspectives on emerging and noteworthy themes and sub-themes (Liberman-Yaconi et al.
The results of the data collected from the semi-structured interviews and focus groups indicated patterns of intuitive orientation in the decision-making process as demonstrated in the selected evidence provided in
Semi-structured interview samples of the strategic decision-making process.
Respondent | Initiation | Analysis | Option selection for implementation |
---|---|---|---|
Respondent 1 | ‘It’s mainly about following the money trends and conducive environments that are conducive to business.’ | ‘Really network far and wide to have our ears on the ground to a lot of conversations and relationships in the markets.’ | ‘We started with our passions and what we really had a drive and a heart for. So it’s not primarily a market driven endeavour in that sense.’ |
Respondent 2 | ‘That kind of decision comes from the client.’ | ‘It is almost intrinsic where we don’t follow the step by step methodology.’ | ‘I use my own creative ability and intuition.’ |
Respondent 3 | ‘I rely a lot on social media because people are so influenced by what bloggers are doing. It’s shocking.’ | ‘I think social media determines what we do.’ |
‘We are always trying new things. Regularly on a weekly basis we do try new things. We try to launch one new thing every two to three months. Only because you need that market share. It works.’ |
Respondent 4 | ‘It comes about out of a client’s relationship.’ | ‘I don’t know if I’ve ever been that deliberate about it.’ |
‘It just occurred to me that this is something that people might need.’ |
Respondent 5 | ‘It’s usually by discussions that happen, like, without planning.’ |
‘I am always looking around and trying to following trends in the industry. I see what others are doing … based on our experience.’ | ‘It’s not about reinventing the wheel. It’s about re-position to see how the travel industry can be revolutionised.’ |
Respondent 6 | ‘I talk to the customers to find out. Look, it is important to find out what customers prefer rather than lose that customer.’ | ‘We must be aware of what competitors are offering and how prices are affected … I talk to the customers to find out.’ | ‘Our only escape is innovation and our innovation is selling green to our customers.’ |
Respondent 7 | ‘I am trying to see what the changes are and what it relates to.’ | ‘Sometimes clients would request a certain service that you don’t have. Then, I look into that.’ | ‘So, I am always looking at different marketing opportunities.’ |
Respondent 8 | ‘I try my best to pay attention to changes or anticipate changes.’ |
‘So, I continued to monitor the competition to see how to undercut this guy. So, you monitor and then decide what is best in a situation like this.’ | ‘Maybe drive around and see what people do and what people don’t do.’ |
Respondent 9 | ‘I definitely do look at what the customers and competitors are doing, what the trends are, what standards they are providing to the client.’ | ‘I talk to my customers or follow the news.’ |
‘By knowing the market, I am able to know what the clients from this area would prefer compared to people from the other side.’ ‘This positions us to tailor make our services to their liking.’ |
Respondent 10 | ‘I find out what the customers think.’ | ‘For me personally, building that relationship and finding out if everything is fine.’ | ‘Having a relationship with customers positions us to tailor-make our services to what they want so it is not always the same.’ |
Focus group samples of the strategic decision-making process in the context of the market.
Process | Focus group |
---|---|
Participants admitted that not much deliberate thought is put into devising marketing plans. Some even said that no marketing was done because of a lack of skills. Some owners determine the conditions of the market based on trends in sales and customer buying patterns. All owners admitted the need to know the competitors in order to compete in terms of prices and quality. One business owner said that these sources are not formal but based on everyday observation and just simple understanding of the market. Other owners adjusted prices based on competitors’ prices and feedback from customers. Some owners said that their decisions are based on faith and trusting in a higher being. | Focus Group 1 |
A few participants said that they don’t advertise their businesses but depend on word of mouth in order to grow sales and determine what the market wants. Focus on giving each client special attention was a popular marketing tool used by the owners. One owner admitted to visiting competitors businesses to determine what services they offer in order to improve their own services. | Focus Group 2 |
The majority of businesses admitted to the lack of a formal method of gathering information about and analysing competitors. Casually scanning social media was a popular method of knowing what the competitors are doing and what customers want. | Focus Group 3 |
The business owners depend on customer feedback through close customer relations as the most important factor in getting information on the market and competitors’ offerings. This information is used to decide what services to offer and prices to set. The owners emphasised the value of experience in dealing with customers and knowing what to expect. | Focus Group 4 |
As such, decisions were not taken on the basis of premeditated considerations aimed at impacting the market context. The data also reveal that such initiation of the decision-making process is activated ‘without planning’ because ‘it cannot always be formal’ thereby indicating an informal and unintentional dimension to decision formulation among these business owners.
The second aspect of the decision-making process relates to the interpretation of information emanating from the market. Despite the reactive tendencies of the respondents towards market conditions that triggered the decision-making process, the significance of an analysis of the market environment was apparent in the expressions of the participants. According to Cowling et al. (
The sources of information, upon which the analysis is based were derived passively using unstructured approaches in the data gathering method. Five of the semi-structured interview respondents identified social relationships with their customers as essential sources of information used in analysing and interpreting the conditions of the market. Such relationships involved inertly assessing what the customers are doing or simply ‘talk[ing] to the customers to find out’ or casually ‘monitor[ing] the competitor’ in order to determine the best strategy.
Semi-structured interview respondent 9 relied on gaining information from the ‘news’ in order to determine the conditions of the business environment. Therefore, the gathering of data was not conducted in a programmed manner nor was the information subjected to a formal systematic analysis. A similar reflection was noted in observation session 2 in which case the analysis of a situational context was conducted on the basis of feelings and experiences. In other cases, the focus group respondents expressed dependence on feelings, personal thoughts and past experiences in the analysis of market information. This is consistent with the findings of Malewska (
Most of the semi-structured interview respondents profoundly stated that market assessment did not conform to a systematic analysis but was rather significantly influenced by the business owners’ personal experiences and in a non-sequential manner. Semi-structured interview respondent 2 was explicit in the indication that they ‘don’t follow a step-by-step methodology’ whereas another respondent based their analysis by having ‘ears on the ground’. Semi-structured interview respondent 5 based their interpretation of the situational context on past experiences. It was therefore common among the semi-structured interview respondents to rely on ‘trusting yourself in business’. This is further evidenced by the regular use of phrases such as ‘for me personally’, ‘always looking around’ and ‘still trying to see the trends’ and deciding ‘what is best in a situation like this’. It was also noted by the focus group participants that trends remained a key factor in the generation of possible information in an attempt to influence the product and service offerings as well as looking at competitors by monitoring their market offerings. As such, the sources of information and interpretation techniques used in the decision-making process were informal and generally depended on social relationships and the personal skills of the owner in gathering market intelligence. As in the case of observation session 2, staff were reminded of the importance of engaging with and listening to customers in order to identify opportunities and understand trends in a fast-changing environment. This suggests that the main sources of information were informal and interpreted casually based on social relationships as opposed to the use of formal research mechanisms as the means of market data capture. Small, medium and micro enterprises face market and economic volatility and uncertainties due to the rapidity of changes which are usually beyond the control of the business owners. Studies reveal that high levels of uncertainty, ominous environmental factors and the lack of external control reduce the extent of rationality in the decision-making process (Eisenhardt & Zbaracki
It was evident from the data narratives that the process of gathering and interpreting environmental market information from the varying sources was also iterative. For example, semi-structured interview respondent 7 was ‘always looking at different marketing opportunities’ which involved a recurrent monitoring of the market in order to inform their strategic decisions. This was also inferred by the respondents in focus group 4 who mentioned that market information gathering is not a preconceived sequential rationale; they stated that the information source for the decision-making process was based on continuous discussions with clients that informed the options generated. Focus group 2 respondents based their market interpretation and option generation on continuously monitoring competitors’ businesses thereby indicating a fluid and cyclical approach to decision formulation. The fashion in which the market environment is monitored and construed is non-sequential and usually involves an iterative style in its approach towards information gathering and interpretation which confirms the findings of Malewska (
The third aspect of the decision-making process relates to the generation of options for implementation. The strategic options of niche marketing, product re-positioning, product improvement, product development and differentiated features were some of the key differentiated factors discussed by the respondents. Gao and Hafsi (
Semi-structured interview respondent 2 acknowledged that option generation encompasses ‘innovation and creativity’ in formulating new service offerings for client consumption. An intuitive approach to the generation of options was also noted in observation session 2 during a staff meeting. During the observation, the business owner urged staff to use their ‘creative faculties’ in order to suggest new ideas and opportunities.
Such option generating creativity in new service formulation was also adopted by a focus group 2 participant who expressed the need to ‘offer things they don’t’. Semi-structured interview respondent 5 stated that the process for option formation did not seek innovation as a possibility but rather relied on repositioning the same product in the same market. On the other hand, semi-structured interview respondent 3 was willing to incrementally adjust with the market changes.
For example, semi-structured interview respondent 10 explored decision options such as new service development based on discussions with clients. Besides market penetration and service development options, other forms of strategic options were also explored. Focus group 2 based their strategic option on what competitors are doing resulting in the development of distinguishable features by offering something different. During one observation session, staff were encouraged to constantly seek ‘new avenues’ to ‘offer services that exceed’ clients’ expectations.
The data narratives in this particular context imply the generation of options followed conventional models of identifying and exploiting differentiated strategies in the services offered in order to gain competitive advantage. However, the process involved in developing these options was less defined and reactive. This implies that the respondents adopted passive techniques towards decision-making that characterised the market environmental analysis and the preferred source of market information.
Overall, the data narratives indicate that the strategic decision-making process generally assumed three stages which are information gathering, information interpretation and option generation. The focus group participants and the semi-structured interview participants shared a similar approach toward the gathering of data, sourcing information from informal or casual sources. The observation sessions also yielded a consistent approach whereby the main sources of information were word of mouth and social relations. The manner of information interpretation from the data sources among the interview participants was highly informal and unstructured. This was also reflected among the focus group participants where the analysis of environmental information was associated with personal feelings and experiences as was the case among the companies observed. The generation of options for eventual implementation did not differ in formality from the previous stages of information gathering and interpretation. The three data-gathering techniques displayed parallel notions of flexibility and concurrency in formulating options for implementation. The intuitive orientation of the strategic decision-making process outlined herein is coherent with the literature in terms of the process of strategic decision formulation among the small business sector (Cant & Wiid
A consequence of environmental dynamism and concentration of responsibility on the owners of small and micro enterprises in South Africa is that there is an orientation towards making decisions based on those significant facets of intuitive orientation which are the owners’ reliance on personal judgement, past experiences and personal feelings. Such business owners therefore benefit from substantial autonomy in utilising flexibility, discernment and experience in generating important decisions without the constraints of rigid formal procedures.
The study indicated that the strategic decision-making found in the small and micro enterprises had few phases and less complexity with regard to the decision formation procedures, which is dissimilar to the sequential rational approaches featured in much of the literature on the decision-making process. The decision-making process possessed an intuitive orientation which determined the cyclical and flexible character of the process as opposed to procedural and distinct phases. As such, it was important to illustrate the process of strategic decision-making from the perspective of small and micro enterprises thereby adding a model to the literature stock that is reflective of the small business sector in South Africa.
The integrated theoretical model of the strategic decision-making process, as proposed in
Integrated model of the strategic decision-making process in small and micro enterprises in South Africa.
The strategic decision-making process model illustrates the contextual variables that influence the decision formation within small and micro enterprises in South Africa. The external forces depicted in the model are the peripheral environmental factors that affect small and micro businesses within the services industry in South Africa. From the business owner’s perspective, the model can be used to provoke a more meaningful analysis of the external forces that potentially impact the small business services sector.
Each factor identified in the external environment, as found in the model but not limited to the model, can be analysed by individual small businesses or specific sectors in order to determine the specific forces and influences this environment can have on the business or sector. Therefore, the model can provide a guide to business practitioners and policymakers for identifying external forces relevant to each business or specific sector. Thus, more detailed and focused analysis of current and possible external factors will assist businesses in anticipating external environmental changes to which small and micro business are found to be subjugated, as depicted by the arrows in
Users of the model can benefit from identifying and understanding the internal forces that can affect decision-making or be affected by the decisions as indicated by the two-way arrows. The model can help identify the internal resource capital available to the firm that can be leveraged in order to achieve its objectives. The model helps the user identify certain internal resource capabilities, which will vary from one business to another, that form the basis of the small business’s response to the external environmental pressures.
Therefore, the model can act as an archetype to decision-makers in deciphering the internal resources unique to their business and how those resources can be effectively exploited.
In devising training and development programmes for small and micro enterprises, or business owners attempting to understand the process of decision formation, the model depicts the decision-making process as alternating and iterative in its mode, as seen by the circular effect of the arrows depicting the internal environment.
Consequently, in guiding decision-makers on strategic decision formulation, training programmes and literature must consider the non-sequential order of the decision formation process rather than impose a method that is irregular on the small and micro business owners. Also, the model can help users in understanding the simplicity of the phases and the overlapping nature of each aspect in the decision-making process. This will therefore provide a flexible framework that can be used as a benchmark in order to demonstrate a possible approach to decision-making that is not necessarily procedural.
Finally, the model demonstrates the significant dependency on intuitive tendencies to shape the decision-making process. Although business owners and policymakers may introduce the concept of analytical rationality to the decision-making process among small and micro business owners, the model can help the users to appreciate the important role that intuition performs in forging the overall direction of the business.
Understanding the process by which small and micro enterprises make strategic decisions possesses the proclivity for significant contribution to the small business sector in South Africa. The study offers both theoretical and practical sensitivities into the apparatuses used by small and micro decision-makers and policy-makers during their decision formation.
The first theoretical contribution addresses the gap in the literature regarding the mode of decision-making among small and micro businesses in South Africa. The study also offers a deeper notional understanding of the macro and micro situational variables affecting the decision-making capacity of the enterprises.
The second theoretical contribution addresses the intuition-rational decision-making continuum. The findings of the study challenge the notion of procedural rationality and its applicability to the strategic decision-making process in the context of small and micro enterprises in the services sector in South Africa. The findings showed that the preferential mode of decision-making was inclined towards intuitive tendencies on the intuition-rational decision-making continuum rather than analytical proficiencies.
The third theoretical contribution addresses the steps in the decision-making process. The study indicated that the phases of the strategic decision-making process were uncomplicated among the business owners.
The process constituted information gathering, interpretation and options for implementation. However, these phases in the process were non-sequential and allowed overlaps and interconnectivity in the phases of decision formation rather than a step-by-step approach to making decisions. Therefore, the theoretical implication is that decision strategies emerged in an iterative and informal style among the small and micro enterprises as opposed to a procedural rational style.
From a practical perspective, understanding the character of the strategic decision-making process contributes by aiding government agencies and policymakers in designing appropriate programmes for the development of small and micro enterprises. Developmental programmes should include specific training courses in strategic decision-making which unequivocally target the largest category of business, that is, small and micro enterprises. In other words, interventionists must copiously comprehend the existing decision processes and accept the uniqueness of the decision-making mode before designing a training programme on enhancing decision formation.
A second practical contribution of this study resides with the owners of these businesses. The owners are now challenged to reassess their decision-making process in order to identify areas of strengths and weaknesses in the manner of formulating strategic decisions in order to guide the owners towards improvement in sustainability and performance of the business. In so doing, the owners can better understand and develop each phase of the decision-making process in order to enhance its effectiveness.
In order to further enrich the insight and understanding of the strategic decision-making process, a few recommendations are proposed for consideration:
More research should be conducted about the strategic decision-making processes in different industries that can be utilised to compare and contrast understandings about the decision-making process in various contexts.
Future research can focus on the informal sector which is a large segment of the small and micro business sector in order to determine the character and process of their strategic decision formation.
Future studies can explore the competitiveness, growth and sustainability of strategic decision-making effectiveness on the businesses. Such a study may require a longitudinal, case study approach in order to completely assess the strategic decision-making process against measurable outcomes over a period of time.
Future studies can examine the personal characteristics and cognitive biases of the owners in the decision-making process. Such a study should include an assessment of each owner’s managerial experience, educational attainments and personality type in influencing the intuitive-rational decision-making continuum.
Future studies can conduct similar research on medium and large organisations to determine the relative similarities of the decision-making processes between the various sizes of firms in the same industry and in different industries.
The significance of the small and micro enterprises has been acknowledged globally because of their role in economic development. In recognising the importance of this particular sector, noticeable attention is given by governments and academics to the factors affecting the growth and sustainability of these enterprises. Although a considerable amount of study examined the strategic decision-making (SDM) process among medium and small enterprises, there is a deficiency of literature pertaining to SDM process in the small and micro enterprises in the service sector in South Africa. Through the utilization of a qualitative exploratory approach, this study has rendered practical and theoretical contributions by examining this under-researched area of study. Due to the ungenerous number of literature pertaining to strategic decision-making in small and micro enterprises generally, and the small and micro enterprises in the services sector specifically, the study provides a consequential conception to the mode of the strategic decision-making process among this particular sector. The main results signify an orientation towards an intuitive mode of strategic decision-making among the business owners. The integrated theoretical model presented in the study is a further theoretical contribution aimed to intensify the understanding of the strategic decision-making process in small and micro enterprises.
The authors declare that no competing interest exists.
All authors contributed equally to this work.
This article followed all ethical standards for research without direct contact with human or animal subjects.
The research received no specific grant.
New data has been created for this study.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any affiliated agency of the authors.