Differentiation strategies in mature small firms – the impact of uncertain environments

Abstract

Mature small firms often struggle to grow profits as more competitors enter the market. These firms are also less likely to exhibit those entrepreneurial behaviours which underpin sustained performance. The use of differentiation strategies is one such approach which mature firms may be able to sustain – providing them with means to deal with uncertain environments. This article examines this supposition in a sample of firms employing fewer than 100 workers. Four hypotheses relating the business strategies of small firms to performance and age, organisational structure and environmental uncertainty are tested in an empirical study of 320 small firms. Structural equation analyses of the data indicate that innovative differentiation is significantly associated with performance, especially for firms operating in dynamic environments. However, it is found that mature firms are less likely to use differentiation strategies to nurture performance in such environments. These findings and their implications are elaborated in this article.