Abstract
AbstractThis article presents a realistic view of the strategic process in small and medium-sized enterprises (SMEs). The study integrates prospect theory and strategic reference point theory: strategic choices depend on how the decision maker perceives the situation in relation to the reference and the risk being taken. Applying Rasch models to a sample of firms in the Canary Islands (Spain), the results show that SMEs that are more influenced by external references take higher risks. These enterprises differ in their strategic choices from those that do not focus on external references in the greater importance they attach to market diversification. This study is pioneer in considering the internal and external dimension of references that SME managers have in mind and linking them, via prospect theory (Kahneman, Tversky 1979), to the risk they take in their strategic choices. It also has the added value of applying Rasch Measurement Theory.For managers, the study of the SRPs shows a large number of ent...
Highlights
This study describes how firms make strategic decisions, emphasizing the role of managers and their perceptions and cognition
This work aims to: (1) identify strategic reference point (SRP)’ influence on small and medium-sized enterprises (SMEs) and classify them according to their level of influence, (2) assess the strategic risk level taken by these enterprises according to SRP influence, and (3) identify the strategic choices of the enterprises to determine if they agree with the risks the decision makers’ take according to these influences
The measurements provided by such a model on SRPs allow us to classify enterprises according to the influence they perceive from their internal and external references in the following, not mutually exclusive, groups: 1) Enterprises according to the influence of internal SRPs (Group 1I and Group 2I): firms that perceive higher influence of internal references (Group 1I) and lower influence of internal references (Group 2I ) on the management of the firms, considering zero in measurement to split the sample into the two groups
Summary
This study describes how firms make strategic decisions, emphasizing the role of managers and their perceptions and cognition (for example, Das, Teng 1999; Helfat, Peteraf 2014). A reference can be any psychologically important specific point of comparison (Heath et al 1999) Based on this approach, SRP theory (Fiegenbaum et al 1996) analyses SRPs’ nature and defines them as the references firms use to evaluate decisions or make their strategic decisions (Bamberger, Fiegenbaum 1996). SRP theory (Fiegenbaum et al 1996) analyses SRPs’ nature and defines them as the references firms use to evaluate decisions or make their strategic decisions (Bamberger, Fiegenbaum 1996) This line of thought increases understanding of why organizations under identical circumstances adopt different strategic behaviours. The justification for that is that those companies with different strategic behaviours and under identical circumstances tend to: focus their attention on different SRP groups and/or perceive their situation differently with respect to these SRPs (Bamberger, Fiegenbaum 1996)
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