Big Decisions in Small Business Ecosystems:Stakeholder Priority

In an increasingly competitive environment,engaging with stakeholders is no longer an option but anecessity to ensure short-term and long-term success. This is particularly true in small business, yet little is known about how small business managers make those decisions, often under uncertainty and time pressure. Small businesses operate in networks of interdependent entities (ecosystems) where individuals are known to each other. This supports building of relationships, trust and reputation and removes the separation between ‘business’and ‘ethics’ by promoting a long-term focus. Yet, limited resources and conflicting demands result in a need to prioritise some stakeholder demands. As suggested by Stakeholder Salience, decision makers may prioritise stakeholder claims based on perceived levels of power, legitimacy and urgency. The key decision makers of nine Australian small businesses were asked about their relationships with important stakeholders, how decisions regarding the priority of various stakeholders and their expectations were made and what factors may affect such decisions. Relationships with stakeholders were identified as dynamic and strategic resources, interviewees invested considerable time and effort to build and maintain positive relationships. Consistent with Stakeholder Salience model, decisions were affected by perceptions of stakeholders’ level of power, legitimacy and urgency. This research also found that intuitive perceptions about the stakeholder affected the decision-making process, and identified the following additional factors: commitment, dependence and potential exit costs as well as the decision maker’s perception of alignment with own values, thereby introducing a moral and ethical consideration that would sometimes take priority over other considerations

Managing complex business relationships: small business and stakeholder salience

All business depends on the environment in which it operates and the existence of suppliers, customers and owners. Collectively, these and other groups which interact with the organisation, and whose needs and concerns must be considered, are known as stakeholders. Most research on stakeholder relationships has focused on large, publicly-owned corporations, and little appeared to be known about identity, dynamics, motivation and operations of stakeholder relationships in small business. Stakeholder theory, although mainly focused on large publicly owned corporations, is also highly relevant for small business and is the focus of this study. Two research questions were developed; “Who are the stakeholders in Australian small business?” (RQ1) and “How can relationships between Australian small business and stakeholders be defined?” (RQ2). A multiple-case study approach, where the same process of investigation is repeated in each case, was used to facilitate the understanding of ‘who’ and ‘how’ of stakeholder relationships in context and to allow cross-case comparison, analytical generalisation and formulation of theory. Cases were purposively selected according to potential for yielding insights and understanding into the identity of stakeholders in Australian small business. The interviewees were the key decision maker of a small business with fewer than 20 employees. In six of the eight cases, the interviewee was the owner-manager of the business. All cases were located in the state of New South Wales, Australia. Data collection was by way of face-to-face, interviews that followed a semi-structured interview instrument. It was found that stakeholders of small business can be readily identified and typically include owner-managers, customers, employees, suppliers, family, community and government. These stakeholders can also be ranked and measured in terms of their salience (the combination of urgency, legitimacy and power). In small business, where the key decision maker is typically the owner-manager, the interests of the manager thus align that of the owner, putting into play a mutuality principle and encouraging responsiveness to stakeholders as a strategy to enhance financial performance. This sets small business apart from large business and therefore has implications for policy that aims to support the economically and socially important small business sector

Big Decisions in Small Business: Stakeholder Priority

In an increasingly competitive environment, engaging with stakeholders is no longer an option but a necessity to ensure short-term success and long-term survival (Gibson & Myurnighan, 2010; McVea & Freeman, 2005; Porter, 1985; Freeman, 1984). This is particularly the case in small business, yet little is known about how small business owner-managers negotiate and make those decisions, often under uncertainty and time pressure. Small businesses operate in networks of interdependent entities (ecosystem) where individuals are known to each other (McVea & Freeman, 2005). Such interdependence support relationship building, trust and reputation building thereby removing the separation between ‘business’ and ‘ethics’ and promoting a long-term focus (Clifton & Amran, 2011). Limited resources and conflicting demands result in a need to prioritise some stakeholder demands over others. As suggested by Mitchell, Agle and Wood (1997), decision makers may priorities stakeholder’s perceived as more ‘salient’ than others. Stakeholder salience (Mitchell et al, 1997) is the combined effect of perceived levels of power, legitimacy and urgency. Although confirmed as a viable method used by managers to prioritise stakeholders (Agle, Mitchell & Sonnenfeld, 1999), in small business other factors may also be important for understanding how decisions regarding which stakeholder claim should be given immediate attention and which can be disregarded are made. The key decision makers of nine Australian small businesses were asked about their relationships with important stakeholders, how decisions regarding the priority of various stakeholders and their expectations were made and what factors may affect such decisions. Relationships with stakeholders were identified as dynamic and strategic resources and considerable time and effort was invested by the interviewees to build and maintain positive relationships. Consistent with Mitchell et al’s (1997) model of stakeholder salience, decisions were affected by perceptions of power, legitimacy and urgency. This research also found that intuitive perceptions about the stakeholder affected the decision-making process. These factors included level of commitment, dependence and potential exit costs as well as the decision maker’s perception of alignment with own values, thereby introducing a moral and ethical consideration that would sometimes take priority over other considerations