Supply chain strategy and its impacts on product and market growth strategies: A case study of SMEs

Int. J. Production Economics ∎ (∎∎∎∎) ∎∎∎–∎∎∎

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Supply chain strategy and its impacts on product and market growth strategies: A case study of SMEs Hossein Sharifi a,n, Hossam S Ismail a,1, Jun Qiu a, Saeed Najafi Tavani b a b

The University of Liverpool Management School, Chatham Building, P.O. Box 147, Liverpool L69 7ZH, UK Management division, Institute for Management and Planning Studies, Tehran, Iran

art ic l e i nf o

a b s t r a c t

Article history: Received 13 July 2011 Accepted 6 May 2013

In today’s uncertain and complex business environment, supply chain strategy is playing an important role in the success of a firm’s product and market growth strategy. In this paper, we present a framework depicting interactions between supply chain strategy and design, product design and development, and market strategy. Using the framework we undertake case studies of SMEs to better understand the importance of an integrated product-market-supply chain strategy. We empirically examine what decisions were made for market-entry and product innovations with regard to supply chain design, how they were implemented, and what the implications were for the firms’ product success. It is revealed that SMEs do not typically consider their supply chain strategy before product introduction, and consequently experience supply chain problems that are likely to be detrimental to the firms’ growth potentials. The results also support the theoretical proposition that proactive and pre-emptive involvement of suppliers and supply chain strategy would lead to a more robust strategic direction for growth, and contribute to extending the literature on the role and impact of supply chain and suppliers in product and market-entry innovations, with a focus on SMEs. & 2013 Elsevier B.V. All rights reserved.

Keywords: Supply chain strategy Growth strategy Product development strategy Market strategy Market driven growth

1. Introduction A continuous review of growth potential and change is critical to a firm’s competitiveness. This particularly proves to be critical considering the ever increasing levels of change and uncertainty in the business environment, and the emerging shifts in principles of competition in markets. Against this new competitive background, selecting the direction and focus of the growth strategy will be a critical decision that entails a degree of risk, and consequently the firm’s competitive position (Nath et al., 2010; Chang and Thomas, 1989). Identifying alternatives for business growth have predominantly been based on forecasting and assessing the business environment. With the emergence of new circumstances in economic competition and in particular concepts such as outsourcing, vertical disintegration, co-operative networks, and eventually the conceptualisation of supply chain (SC) (Lamming et al., 2000; Harland et al., 1999) the need to revisit the approach to growth strategy is all the more critical. This paper addresses concerns over how decisions on strategic growth direction should be made with regard to the firm’s SC in n

Corresponding author. Tel.: +44 151 7953 622; fax: +44 151 795 3001. E-mail addresses: h.sharifi@liverpool.ac.uk (H. Sharifi), [email protected] (H. Ismail), [email protected] (J. Qiu), [email protected] (S. Najafi Tavani). 1 Tel.: +44 151 7953 605; fax: +44 151 7953 001.

terms of strategy, operations and relationship. Strategic intent to proactively bring SC strategy and design into the process of making decisions about market entry or product innovation is a main concern here. In the same context aspects such as supplier assessment and selection, and product design and development, which are often carried out with little regard to strategic fit to the market and firm’s capabilities are taken on. Strategic growth, according to Kulatilaka and Perotti (1998), is the acquisition of growth opportunities relative to competitors, which will be exercised if market conditions are favourable. Traditional market oriented approaches to determine the direction for growth can be typified with the well known Ansoff’s (1965) product-market growth strategy matrix, which suggests four archetype strategies along the lines of market penetration, market development, product development, and diversification. A pressing question will be how these approaches may be impacted if SC structure and operations are proactively considered in making decisions on the firm’s strategic growth direction. The question highlights other issues, such as effectiveness of the devised SC strategy to support a firm’s growth strategy. When considered in the context of SME’s, as the sector in the economy known for being more reactive to changes than proactive, and also less proficient in strategic thinking and planning (Ismail et al., 2011) this issue becomes more critical. Despite extensive advances in the research and practice of SC management, the influence that growth strategy, as a pre-emptive

0925-5273/$ - see front matter & 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.ijpe.2013.05.005

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decision, may receive from SC strategy and design, has not received a prominent position in the research literature. This research is therefore set to explore, through case study of SMEs, how the three dimensions, market-product-SC, are interrelated and hence interact to determine the growth direction and position of the firm, examine and demonstrate if and how proactive/preemptive strategic involvement of SC dimension (design and management) may work to support the firm’s growth, and identify and explore the issues critical in making balanced and aligned decision on market-product-SC for firms’ growth. The key research contributions here include identification of the issues and challenges in integrating SC strategy and design with product and market strategies, SC design issues to support growth of the firm, and critical factors which firms should include in devising their growth strategy.

2. Strategic growth in the modern economic environment Traditional strategic fit models emphasised alignment between a market’s winning criteria and an organisation’s abilities and qualifications (see Ansoff, 1965; Porter, 1996). Fundamental changes in the global economy and industrial competition have led to an increasing level of uncertainty and turbulence in the global economy, leading to the emergence of new theories largely emphasising the importance of considering interrelationships, interactions, and networking while developing a strategy. As a result, innovation strategies for developing new products to succeed should be led through strengthening internal capabilities, including strong coordination between internal functions such as R&D, operations, marketing and engineering (Montoya-Weiss and Calantone, 1994; Nonaka and Takeuchi, 1995; Alegre-Vidal et al., 2004), and also collaboration and integration with external parties and partners (Fine, 2000; Faems et al., 2005; Nieto and Santamaria, 2007). The traditional approach to growth via market and product dimensions is, as a result, replaced by a more integrated view of growth as demonstrated in Fig. 1. In this integrated view, the growth strategy decisions fall in the intersection of a firm’s strategies for market, product and SC. This theoretically implies that strategies for growth would succeed if devised and developed as the synthesis of the three interrelating dimensions. How and when in the process of strategy development this integration should take place, and how decisions on each of the dimensions impact other aspects, are questions to address for this purpose. Growth strategy follows the Ansoff’s

Fig. 1. A hybrid view of growth strategy.

Fig. 2. Extended Ansoff Matrix (after Ismail and Sharifi, 2006).

model which is further extended by Ismail and Sharifi (2006) as shown in Fig. 2. The model presents two stages for product strategy and nine alternative positions for growth direction, and maps out a number of shifts a company can undergo from an existing market position while considering the role of SC. Market dimension spans from existing to new markets, and product innovation includes aspects ranging from simple modification of current products and processes to designing and developing radically new products. In view of an increasingly uncertain business environment, and the fact that a great portion of firms, particularly SMEs, struggle to achieve success for their offerings in markets (Ismail et al., 2011) whether businesses do really recognise these dimensions with strategic importance, and how proactive and simultaneous consideration of them in devising the growth strategy would contribute to their success or otherwise, remains a concern.

3. A supply chain focused approach to growth strategy The concept of SC, defined as a set of organisations directly involved in the upstream and downstream flow of products, services, finances, and/or information from a source to a customer (Mentzer et al., 2001), was conceived as a result of the globalisation of the economy. Since its formation, the concept has influenced theories and practices of strategy development, and strategic positioning of firms (Harland et al., 1999). Supply chain management is now broadly recognised as a concept to describe the strategic re-organisation of processes among networks of involved companies (Frohlich and Westbrook, 2001; Rudberg and Olhager, 2003; Cigolini et al., 2004). Integrating SC as a strategic enabler in a firm’s strategy development and deployment, and in particular this approach to product innovation, has precedence in more recent literature. Scholars have given attention to the role of suppliers in the process of product development for over two decades, tending to give it a strategic orientation. Some extensive literature has emerged on the subject (see Imai et al., 1985; Clark and Fujimoto, 1991; Gupta and Wilemon, 1990; Bonaccorsi and Lipparini, 1994; Swink et al., 1996; Ragatz et al., 1997; Fine, 1998, 2000; Jayaram, 2008). Fine’s (2000) influential work focused on the product development process, and introduced a three dimensional concurrent engineering model, in which the traditional approach was extended by incorporating SC strategy as a critical component for success in the market. The implications of re-orientating a company’s strategies, in light of working within a SC structure, are extensive. Understanding the cross impacts of SC design and management, market orientation (strategy), and product strategy (design), would lead to new dynamics in determining and developing growth strategies. A problem with the existing literature is the increasing inconsistencies in the views projected by researchers regarding effectiveness of suppliers’ integration in company’s activities, and in particular

i Please cite this article as: Sharifi, H., et al., Supply chain strategy and its impacts on product and market growth strategies: A case study of SMEs. International Journal of Production Economics (2013), http://dx.doi.org/10.1016/j.ijpe.2013.05.005

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product development. As reports, findings from this stream of research are paradoxical which may be attributed to many issues, including contingencies, complexities and multidimensionality involved in SC integration in product development. However, it is not the intention of this research to attend to this debate, but instead extend the literature on the strategic integration of the three dimensions in the process of devising strategy for growth. From the literature review, we can arrive at three important understandings which will be central to addressing our research questions in the field study stage:

requirements are translated into operational requirements, and presented as competitive priorities, or in practical terms, performance criteria such as cost, quality, delivery, performance, innovation, flexibility and service level. These priorities will define the direction and position in the market that the company could consider for market development. This has an impact on operational decisions at strategic and infrastructural levels. Priorities will be particularly reflected in the products and services offered to market, and shall be the reference point for aligning the SC (Vonderembse et al., 2006).

1 SC strategy and design are critical in making decisions for growth, and should be considered as a strategic dimension when developing growth strategies. This perspective is supported by various researchers studying the role of suppliers in market and product development as reported by Vonderembse et al. (2006) and In particular, the seminal work of Fine (1998, 2000) has highlighted the critical role of suppliers in designing and developing new products. 2 Devising SC strategy, and designing and developing SC should be approached with regards to the firm’s market strategies and priorities as well as innovation strategies, and consequently internal capabilities of the firm (see Christopher et al., 2006; Kehoe et al., 2007; Tamas, 2000). 3 SMEs, despite having some advantages, typically do not approach strategic decisions (i.e. including SC in the firm’s growth strategy) in a proactive manner, and are more likely to be owner-centric, rely more on informal routines and methods, and often focus on day-to-day operations at the expense of longer-term growth (Woods and Joyce, 2003; Ekanem and Smallbone, 2005; Ismail et al., 2011).

3.1.2. Product design and development Decisions will be made for the type and level of innovation in the product (from modifying the existing product to developing a totally innovative product) and its process as the next dimension in developing growth strategy. Fine (2000) considers two developmental areas related to products, including product development, subdivided into architectural choices and detailed design choices (i.e. performance and functional specifications), and process development, which mainly refers to the production process activities. Seuring (2009) includes three stages for product development in the context of SC strategies, including product design and related issues, production/operations and logistics, and product returns for unwanted products, recycling, or disposal. Sharifi et al. (2006) discussed that common product development strategy in a market oriented business competition is recognised as initially discovering product features to satisfy all or most market needs. The design will then be put into action by developing the network required for achieving the objectives from internal and external resources which are able and available (i.e. the SC). During the development process, emerging resource and capability limitations are dealt with through forgoing certain market requirements, investing in new resources, or searching for new external sources to meet those needs. The new product development process goes through a costly and time consuming iterative process which could entail wasted effort due to repeat activities for redesigning and redefining products features. Problems including network limitations, fairness of value appropriation and cost distribution, burden of responsiveness, changing market circumstances and demand dynamics, and integration of the entire process are challenges in this process.

3.1. Decisions for growth—involving supply chain Entering SC as a complementary dimension to decisions for growth will have certain impacts on the direction and position of the firm (Ismail and Sharifi, 2006). With reference to the extended Ansoff’s matrix (Fig. 2), we can see impacts on the shifts and positions firms can take. According to the strategic positions suggested by Ismail and Sharifi (2006), companies traditionally extended the sales of their existing products by moving from sector 1 to sectors 2 and 3, through cost and operational efficiencies, and where possible, align their existing SC to meet this new shift. Extending the product range through a shift from sector 1 to sectors 4, 5 and 6 involves a redesign or modularisation of the product to capitalise on new opportunities through customisation and product families. A redesign of the SC is often required with a shift of emphasis from cost to flexibility. A new product introduction strategy, represented by a shift from sector 1 to sectors 7, 8 and 9, is the most risky, but offers the company the opportunity to fundamentally redesign the SC to meet the new product needs. However, in this case, it is critical to identify the subsequent growth strategy of the proposed new product at an early stage. For example, a shift from sectors 1 to 7 will involve partnering with innovative suppliers. However, if the subsequent strategy is to move to sector 5 then it is important that selected suppliers are also capable of flexibility. Strategies for growth should therefore be decisions made on three dimensions, namely market priorities, product design & development, and supply chain design. 3.1.1. Market priorities Market or strategic/competitive priorities (performance criteria or frontier) mainly refer to the firms’ choice of competitive capabilities (Hayes and Wheelwright, 1984). The customer

3.1.3. Supply chain design As part of the firm’s SC strategy, the design of SC will be undertaken, which takes place with a view of market, type of product, internal capabilities and available external resources as critical constructs (see Fisher, 1997; Seuring, 2009). Decisions on SC design involve a number of strategic and operational factors. Fine (2000) refers to SC design as a core competency of an organisation to establish and develop required capabilities, and suggests SC architecture decisions and logistics/coordination system decisions as two subdimensions of SC design. From an operations strategy perspective, Seuring (2009) presents two aspects for SC strategy, including configuration of SC, and operation of SC. The configuration phase is about selection of suppliers and design of physical networks for sourcing the operations, and the operational side aspects related to materials and information flows are established. To support the market and product dimensions of the firm’s growth strategy, SC design is traditionally carried out in a number of steps. Sharifi et al. (2006) have summarised the steps in SC design process, starting from understanding of market requirements and the current situation of the SC, up to designing and examining all the components and aspects of the desired SC against the market requirement and current situation. The synthesis of the three interacting decision areas supports the formulation of a growth strategy for success. A summary of the three decision areas related to growth strategy is shown in Fig. 3.

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Fig. 3. Three inter-related decision areas related to growth strategy.

4. Research aim and questions The overall aim of the study is to examine how the three dimensions, market-product-SC, are interrelated and hence interact to determine the growth direction and position of the firm. The approach to growth strategy development in firms, in light of supplier involvement or integration is particularly a concern here. We aim to identify if firms’ pre-emptive consideration of suppliers’ involvement in decisions on market entry, or product innovation, would have made a difference in their competitive position. To address these issues the following questions were developed to direct the study: 1. Do SME firms consider their SC strategy (i.e. early engagement with suppliers) in the process of deciding their growth strategy? If not: a. What causes can be found behind this attitude? b. What are the resulting problems in the SC, and what are the effects on market and product growth? 2. If the SC strategy was considered, how did this influence the market and product growth strategy? 3. What are the typical issues and challenges of an integrated approach to growth strategy in SME firms?

5. Empirical study 5.1. Method Case study was utilised as the method to conduct this study as, according to Eisenhardt and Graebner (2007), it suits areas where existing theory is unable to fully explain the empirical phenomena. According to Yin (2009, p. 17) a case study is in an attempt to “illuminate a decision or set of decisions: why they were taken,

how they were implemented, and with what result”. On the other hand, as Gerring (2006) suggested, a key benefit of case study is the depth of analysis that it offers, as well as the possibility of providing causal analysis. Here it is used for examining real life events as well as the experiences of industrial companies in regard to the research concerns. The study falls within the frame of the multiple case study method which, according to Yin (2009), can be substantial when there are two or more cases. The selection of cases was done based on replication logic (Voss et al., 2002), and with consideration of the possibility to insert control over the study. For this purpose the selected cases were innovative SMEs developing new technical products with a high degree of outsourcing, hence controlling a few factors. The innovativeness of the cases was determined based on the fact that three of them were primarily formed out of introducing radical innovations, which were also taken as the focus of the study, and were affiliated with technology and innovation led parent groups. The fourth case had a high rate of introduction of new products to market since its inception in 1995 and considerable spending on R&D (around 20% of annual turnover on average) which has made the company a global contender in its field. The products the study focused on in companies ranged relatively widely. Since the main concern was the approach and attitude of the company to growth, the research team did not find the variance in products to bear negative effects on the findings. Despite a relatively wide range of firms available to the study team for the research, certain factors limited the choices. These factors included control criteria (i.e. innovativeness, outsourcing) as explained before, size of the firms, and contextual situations to provide extreme indications of decision making. The four selected SMEs included two which were identified through a collaborative educational programme involving regional companies, and another two from the research group had had previous research collaboration with. One main product was identified in each case on which the

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study was focused. As stated above, all cases were found very relevant to the research topics and proved highly informative to the objectives of the study, however, only one case was found to present a more proactive attitude towards early consideration of SC in the process of product development and growth direction. All four case studies were carried out over a period of three to four months from January 2011, which provided sufficient time to accomplish in-depth and reliable insight into the cases and analysis of results. Our previous relations with the case companies and knowledge we had from them (mainly around the companies’ business circumstances and their business models), were helpful both in selecting appropriate cases for the purpose of the research, and also in planning, initiating and conducting the study within the timeframe and expectations of the research. The data collection was undertaken using various sources of information, including observations (e.g. research lab and production line of all case companies, a half day suppliers meeting for case company 3, and an initial group meeting with the project team in cases 1 and 2 that last between 1 and 2 hours each), examination of the available documents, and qualitative semi-structured interviews with informants involved in the company’s product innovation/ development process. Interviews with the informants, who were mainly at managerial positions, including the roles of managing director, SC manager, and operations manager, took between 1 and 1.5 hours each. The data gathering aimed to identify the growth strategy directions and decisions made by the companies, regarding the focal product, and how suppliers were involved in the design of the new product. Data collection also involved interviewing a representative of at least one key supplier for three of the cases. A supplier of key parts to each of the case companies 2 and 4 were visited. For the case company 4, the visit to the supplier was for a project review session between the two parties in which the company director was present too. One of the authors also attended and observed a suppliers event arranged by the case company 3, during which in addition to witnessing the interactions between the two sides, some of the suppliers were informally met and issues were discussed with them. Data analysis was carried out by extracting information from interviews (notes and transcriptions), interpreting the information, and triangulating them with other information collected and the observations made. The outcome sought from the data and analysis was primarily insight into how the three areas related to

decisions on growth have developed in the cases, and the implications they have had for the firms. Based on the research model, the study protocol was designed to include the elements of data the research was concerned with. A brief account of the interview protocol is shown in the Appendix 2. Data collected from the cases included the company’s general profile, the firm’s strategy and growth direction and how they are made, products type and specification, market and customer base information, internal capabilities for developing and producing products, supply base, and suppliers’ information and relationships with them. Interviews with suppliers of the case companies were typically conducted in an informal manner (i.e. meeting and discussing issues during occasions such as an event, a project review session at the case company site, or a visit to the supplier’s site). The informal approach was preferred in interviewing the suppliers due to the type or level of relationships that existed between the case companies and their suppliers (in three cases, the relationship was in progress between parties in the process of product development and launch). Also, the information from suppliers was primarily sought for further clarification, cross examination of issues, and confirmation of situations. During these interviews, the suppliers’ views and experiences of working with the case companies were discussed, or the issues raised in the study of the case company were cross examined according to the research protocol. To assure the reliability of the research, the protocols were sent in advance to the company contact for preparing the required information. In this process, telephone conversation was used to check if the respondents were happy with the format and type of questions projected in the document. Also, the results of analyses were discussed with the companies, using follow-up visits and telephone discussion, and feedback was requested to support the validity of the findings. In particular, the results and extracts from the analyses indicating the firm’s attitude and strategic position were presented to seek the views from the companies. Details of the study and interviews undertaken are summarised in Table 1. Also case companies’ background is shown in the Appendix 1.

5.2. Case analysis and results The findings are presented in the following, organised in accordance with the research questions, where the data from case studies are analysed throughout.

Table 1 Details of the study and interviews undertaken. Case Industry Type Study

Data collection

No of interviews

Subjects and issues discussed

1 Director (and innovator) 1 Parent company 1 Project manager (acting director) 1 Supply chain manager (parent Co.) 1 supplier 2 Engineering and operations managers 2 suppliers (during a suppliers event) 1 Director 1 Designer 1 Supplier

In companies: General company information, strategies, markets, products development and design, growth directions, sourcing strategy, suppliers selection and relationship management, production plans With the parent Co.: venture and innovation strategies, future growth routes, their roles in the product/project development and future growth With suppliers: potential for partnership, involvement in the product innovation process, relationships with the company

Observation Documents Interview 1

Electrical and Electronics

+

+

+

2

Energy and heating technology

+

+

+

3

Physical vapour deposition

+

+

+

4

Energy and heating technology

+

+

+

5

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5.2.1. Growth strategy and pre-emptive involvement of suppliers In this part, we address the first research question: whether SMEs consider their SC strategy in the process of deciding their growth strategy. The findings supported our initial view of the SMEs attitude, and the hypothesis that SMEs typically do not consider SC in their growth strategy and direction, and deal with SC issues reactively at an operational level according to changes faced in the process (see Section 3). Case 1, which was a small start-up company affiliated with a technology company specialised in developing innovative energy saving products, had developed a new energy saving product, with Intellectual Property (IP) right, aimed at the domestic market. The technology for the product was described as advanced, and mainly developed in house (40% R&D, 55% acquired from market). Design consultants supplied only 5% of the product design, however, considering no manufacturing capabilities, the operation of design for manufacture was outsourced. The CEO confirmed: “we have had to engage with outside providers relatively from the beginning and we appreciate that relationships with supplier is strategic to us, however we, including bosses in the parent company do not see how the supply chain would be able to provide a vehicle for growth of this product at this time”. In general, however, the company had found working with suppliers beneficial as new technology/knowledge was introduced to the company and it allowed the company to improve its product design. In case 2, an SME which had a similar structure to case 1, the relatively complex product was mainly developed internally (60% in house R&D, 30% acquired from the market) with about 10% of the final outcome resulting from working with suppliers or customers. Since the patented technology (combined heat and power) had to be embedded into domestic heating appliances, the company had to work closely with manufacturers of domestic heating appliances as the product was customised to fit the specification of each appliance. The company (project) manager suggested: “there was little consideration in regards of product manufacture or assembly when the product was originally designed. We ended up with 45% of the product cost in pipes and metal work, something we did not have expertise in at all”. Interestingly, the SC manager (from the parent company) commented differently that: “we had to take steps with boiler manufacturers, and consequently, some of the suppliers, to build relations with in the process of product design and production, but we do not seem to have benefited from our partners’ capabilities”. He was of the belief that: “we have a solid practice and good experience of setting up supply chain for our products, and to my view, the design team would be distracted if they had to get too much involved with supply chain issues.” After interviews and observation of the situation, it was evident that the company did not have a short or long-term SC strategy. The SC manager was only involved in procurement, and lacked an understanding of SC strategy when it came to SC strategy. They took for granted that the SC would evolve smoothly. The conversation with the supplier was quite revealing too. The contact person suggested that their involvement in product design occurred late in the day, and only after the case company had met difficulties in its product design, which he described it as a “pity”. Case 3, a manufacturer and supplier of sputter-based advanced technical solutions to the vacuum thin film deposition industry, works on a make-to-order small batch basis. It operates in a moderately competitive environment, is a typical market-follower, and outsources most of the manufacture of its product components, with final assembly and testing done in-house. The company, which is in evolution from small-to-medium size company, has a considerable expenditure of around 20% of turnover on R&D, and a large supplier base of close to 100. Despite the realisation within the management team that taking on competitors takes more R&D, and closer working with suppliers, it is not a direction

the company has selected in their path to growth. As the manager described in the interview: “Our direction of growth is really looking for new applications, perhaps for new markets and for different ways to consume the product, where I see great potential there, but so far we have not seen reasons or looked at how suppliers can help us in there”. The operation manager did not view the SC as a possible means for growth either. The manager, however, asserted that ‘if we do more radical R&D, which is distinctive different design, it will be a beneficial approach to involve the suppliers into design process. Currently there are not many issues in the design for supplier to contribute to”. The comments from the management team evidenced that SC is dealt with more as a potential barrier to the possible growth, rather than a support. Case 4, a small spin out of a leading UK technology innovation, was developing an innovative radio frequency based oven for defrosting frozen food, affordable by small commercial units. This case, in comparison with the other three companies, presents a proactive case of approach to SC as a factor in their growth journey. The company manager had led similar ventures in the past, and carried experience of dealing with similar situations. Despite a slow early start, extra support from the parent company, in resourcing the technology and development process, allowed the team to take some steps in considering suppliers, but only after they had passed the design stage and had entered into product development. The director confirmed: “The product idea and its development, for me from the very start was about being market led and strategically thought through. I was lucky to find the sponsor/partner supporting the team. Soon we realised that despite having a highly innovative product, our offering is highly cost sensitive, and that was where we set to make sure that we see all that can help us to find our position in the market, and suppliers were definitely one major element”. In a way, design of the SC proved critical to the company both in terms of product development and innovations, and also market penetration and entry. The product and the establishment of the business case have been carefully driven along a concurrent engineering similar to the 3-D approach described by Fine (2000).

5.2.2. Causes behind non pre-emptive suppliers involvement A disconnection between thinking about the SC and actually operating it is considered in literature to be the case for most SMEs, as typically, they react to changes occurring during the implementation of growth strategy instead of proactively thinking about it during the formulation process. The results discussed before were evidence of this understanding. Short term thinking, and limitations in accessing required resources, including information about market and suppliers, are observed as major reasons for our case companies’ views. At the same time, the authors were of the view that if firms were aware of the benefits from SC inclusion, and had the intention to take SC issues more strategically and proactively, they would achieve better results. While this view was somehow supported in the examination of companies’ attitudes, the issue was put to examination using the following cross examination question in the interview protocol: “If knowing the SC impacts on the growth strategy, why would you not consider different growth strategies (if the SC was known in advance) …”. Answers from the informants included: “It was quite hard for me to project supply chain problems until they emerged. Suppliers give us overoptimistic lead time promises, which we rely on, but they let us down” (operation manager of case 3”). “We can manage suppliers well and quickly respond to and overcome issues raised from them, we have done this for years!” (SC manager of case 2);

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“Honestly, our people have no clue how to think positively about suppliers and take advantage of their benefits to our growth” (Manager of case 2). SMEs seem to be well aware of the importance of SC management at an operational level, acknowledging that they would achieve a smoother execution of growth strategy if they could handle the SC better. However, there was a gap between their knowledge about the benefits of supplier engagement and their ability to use suppliers in formulation of strategies.

5.2.3. The lack of strategic assessment of suppliers’ roles; effect on the growth strategy Case companies 1, 2 and 3 showed little consideration of suppliers in their product and market growth, leading to some considerable consequences in the process. Interestingly, in all three cases suppliers were referred to as source of many of the company’s problems, and in case 3 the SC was seen (by the operations manager) as a possible barrier for future growth. In case 1, where part of the design, and all components and their assembly were considered for outsourcing, the late engagement with suppliers led to some major issues and delays. The vendors had refused to accommodate the size feature of the product (designed by the company) and consequently, they had to compromise on that feature, and hire designers to compensate for the limitations of suppliers’ capabilities. At the same time, their relations with consultants did not go well, leading to conflicts with them, and consequently delays in the product finalisation. In case 2, raw material and components were a main part of the product cost, and hence, the suppliers’ role was crucial to achieving production economies. At the same time, the innovativeness and uniqueness of the design had to be accommodated by the suppliers’ capability, responsiveness, and flexibility, which put the case in a paradoxical situation in terms of how to design the SC. Lack of belief in engaging with suppliers from an earlier stage, as well as the company’s structure and management style, led to poor management of the SC design, evident in the single supply sourcing, long lead times, and low performing suppliers brought on board. The case company 2 ended up struggling for the product to kick off for reasons including high cost of the product/technology, and slow response and low flexibility from the SC. Balancing suppliers’ functionality and reliability with cost efficiency proved difficult for the company to manage. The company’s original idea of making the micro-CHP (Combined Heat and Power) technology to be integrated into most boilers was at risk of failure. An actual prototype design on display was about half the size of the boiler itself. As the project manager confirmed on the situation with the pipe and metal work (accounted for 45% of the total product cost): “If we could find a design partner who had the necessary expertise in such work then it would be a totally different story”. Relationships with suppliers, as a result, did not go in the expected direction and led to minimal levels of control for the company losing power to some suppliers. The case company could not control costs, technology or upstream suppliers as they thought they would. As one example, a component called PCBA had to be outsourced for design and manufacture by the supplier, on which, under the time and cost pressure, the company had to lose the product’s IP rights, except for the software used. Consequently, for any changes and new technology requirements it had to rely on the supplier who on occasion showed reluctance to carry out the company’s required changes. Similar situations existed in its relationship with other suppliers because of the bespoke nature of some of the components. In case 3, the company has had a traditional bidding system for working with suppliers, leading to a supplier base of around 100

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which was blamed for most of operational and lead time issues in the production. While the company was highly committed to the customers due to the customised nature of the product, the approach to SC caused issues with achieving expectations and hindered extending into new markets. Also, despite considerable expenditure on R&D, the company was struggling to catch up with the competition, despite a limited level of rivalry in the market. A major issue raised by suppliers (in the suppliers event) was the level of communication and the stage at which they became engaged with the company. Suppliers projected new possibilities resulting from working closer with the company, both in terms of more efficient delivery of parts, and possible innovations to contribute to new and improved products.

5.2.4. Results of pre-emptive SC strategy In reflection on the cases’ strategies for product and market, when suppliers’ effects are considered as suggested in Fig. 3, results indicate considerable missed opportunities, or occurred cost to projects. In case 1, early engagement with suppliers and a thorough check of their capabilities would have prevented process urgency and fire fighting, and consequently major delays in the development process. Switching to an alternative supplier after the first production model which proved costly was avoidable. The routes into the market for the company were unique and favourable. However, considering the involvement of large energy companies and public interest in the business model, the situation was very sensitive to timely and efficient introduction of the product. Six months delay in one step of finalising the product could be avoided if suppliers were considered in advance. In case 2, the company faced a major setback when it ended with up to three times of expected finished cost, and a delay of product launch of about two years longer than expected. Time and cost pressures forced the company to compromise the deals with potential suppliers leading to the loss of control over its SC, and one case of giving away IP rights to a component designing partner (PCBA). The study was particularly indicative that the total risk to the growth strategy for the company was real and high, and that an important part of it was related to suppliers’ side and the company’s approach to SC, and its timing, which could be avoided. In this case the interview with one of the suppliers showed that the story could have been very different if earlier engagement with suppliers, and better communication in the SC was considered. As suggested by the supplier, the outcome could have been beneficial not only in terms of project time and cost, but for furthering the innovation to match a wider range of appliance manufacturers beyond the national market. Case 3, which faced issues with suppliers in terms of nonconformance of component, and unreliable delivery time causing obstacles in company’s growth plans, could have benefited from closer relations with suppliers, and involving them more in product design process in line with the integrated model (Fig. 3). Both company management (SC manager), and suppliers, were seeking this to open opportunities for a new product range, as well as improvement of the current production line. For case 4, SC design was critical for the cost and quality of a metal body and the six main electronic modules, and also a crucial factor in establishing relationships geared towards improving the product design. Future routes for market penetration, while highly attractive, were closely dependent on the UK market success which is tied to the success in supplier and SC development. The strategic approach adopted by the company put them in a more powerful position in terms of source availability. On the other hand potential suppliers that are geographically close could improve the potential for running the business within the cost structure. For the company, expected finished cost is achievable,

i Please cite this article as: Sharifi, H., et al., Supply chain strategy and its impacts on product and market growth strategies: A case study of SMEs. International Journal of Production Economics (2013), http://dx.doi.org/10.1016/j.ijpe.2013.05.005

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however, further pressure is required for reducing it. Although some delays had occurred in launching the product due to some initial resources, the growth strategy followed is realistic and a potentially unfavourable situation has been turned around. We can project a state of growth position and direction from stage one (product introduction), into stage two (product extension), and also when in stage two, the suppliers’ influence are considered too. We use the growth strategy matrix (Ismail and Sharifi, 2006) to reflect on the current and extended position of the cases’ growth when introducing SC issues. Fig. 4 presents this map showing the difference the inclusion of suppliers would bring to the directions a firm may take from a projected current position. Data to support the projection of a firms’ position on the grid came from observations and interviews, which are summarised in Table 2 for the market information of the cases and the resulting routes to extend company’s market for each case, and Table 3 for the products design and the involved process as well the changes needed to include in stage 2. Firms 1 and 2 expect to enter European and other international markets in future stages, which means a provisional move to sectors 2, 3 and 5 (and a possible sector 6 for case 2) in the second phase of the matrix, respectively. Case 3 has the potential to move to sectors 2 and 3, and subsequently sector 5, and ideally sector 6. Finally, case 4 can be expected to be settled in the second stage directed from its current position to sectors 2 and 3. Sectors 5 & 6 are future targets for European market and USA licence based penetration. As is evident, the growth strategy direction in all cases will be influenced by the SC design and issues to considerable extents. 5.3. Challenges of pro-active integrated strategy Adopting a proactive approach to considering SC, as presented in Fig. 3, is the main issue in the adoption of integrated approach to growth strategy, as supported by the study. Most managers initially did not think of suppliers and SC design as a factor to be considered when a new product is undertaken for development. However, when the facts from the cases were discussed and clarified, almost all informers, showed to be in agreement that such an attitude is not in the interest of the company, and that the product success and the company’s growth could have been further enhanced and sustained if suppliers were considered and involved. Such conclusions were also confirmed in our discussions with suppliers too. This initial attitude is not unexpected in general from SMEs. Literature shows that strategic planning is not a strong feature in SME management (O’Regan et al., 2006). They tend to behave reactively as opposed to proactively, and can be driven to strategic thinking and planning if facing a threat of losses or an identified need to expand the business (Frizelle, 2001). Ismail et al. (2011) suggest that one reason for this is that ownermanagers of SMEs tend to be technically minded rather than

strategists, which may lead to undervaluing strategic thought, and ultimately, a vicious circle of too little time to plan strategically because of the need to fire-fight the effects of turbulence, which ultimately is a result of not thinking and behaving strategically in the first place. The case studies show that, even in the presence of attractive market opportunities and reasonable level of capability of the company, sustainability of firms’ growth can be compromised if opportunities to engage the SC early in the process are not realised and acted upon. This general understanding, which is in line with the literature of the subject, can be attributed to some issues deducted in the following from the case studies undertaken. 5.3.1. Strategic assessment of suppliers’ roles, impacts and abilities The case studies show that companies spend little time and effort strategically assessing suppliers when selecting them, and also during the operations process. Consideration of issues, such as market priorities and strategies, attractiveness of product and its features (product strategy) to suppliers, and suppliers’ capabilities as well as flexibility, are rarely found as parts of the supplier selection and management process and criteria. Consequently, the impacts of suppliers on strategies adopted for market and product, positive or negative, are not assessed when those strategies are developed, which can lead to risking the success of the growth strategy. This situation was evident in all cases except for the case company 4, which started the process late, but avoided surprises by carrying out fruitful negotiations with logistically viable sources in the region over which the company has engineering advantage. The result of this approach in case 4 has proven supportive to the product introduction process, and strengthening to the chances of its success. On the opposite side falls case 2 which faced a risk of losing IP ownership and control when issues arose during the process of setting up the SC. 5.3.2. Sufficient internal capabilities and capacities Lack of internal resources and capabilities to absorb external resources (absorptive capacity) is reported as a barrier to achieve sustainable growth and tipping point (Phelps et al., 2007). It was already mentioned that lack of strategic thinking in SMEs is partly due to shortage of resources. It can be said that lack of capability to manage processes, drive negotiation, and absorb technology and knowledge, contributes to firms missing the opportunity of early involvement of suppliers in devising the growth strategy for the firm. This situation was clearly evident in cases 1, 2 & 3, and with less effect in case 4 where the technical advantage and past experience enabled a more successful negotiation process. 5.3.3. Risks and implications A number of risks were identified from the cases related to lack of pre-emptive involvement of suppliers in the process of growth strategy development. Market failure was a risk that case

Fig. 4. A comparative view of the cases’ growth direction and moves—from stage 1 to stage 2, and when supply chain design is considered.

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Table 2 Market information of the cases and the routes to extend companies’ market. Path to extending the market

Case Market status

1

2

    

Three paths to the consumer: utility companies, direct marketing, & via retailers

First in the market Topical public and government concerns Secured support from environmental agencies. Weaknesses: need for a qualified technician to install and a payback of 5 years Competitive Priorities: Cost, quality, innovation

 Offering the technology at lower cost and shorter time to market  The main priorities for competition are cost and quality  The case company’s offering is however different in the sense that it is a new and innovative

Enter to market via existing customer channels (power utilities and heating appliances producers)

technology but with the cost of the product to be the winner factor for them

3

 Limited competition. Few competitors in the market in Europe, USA, and Fareast Asia  The main search is for new applications of the base product and new markets

4

UK market is tested and but only success in this market  A new technology attractive to businesses if produced affordable can open the new channels (EU, USA)  The main priorities for competition are cost and quality at almost same level of importance  The product is innovative however it is the cost of the product which will make it attractive to

Some growth opportunities from the new industry sectors

customers

Table 3 Products design issues in the cases and the changes needed to include in stage 2. Changes and new design

Case Product status and its design issues

1

 Commercialising a domestic version design in house  IP centred

Potential changes needed for new markets (esp. USA), with IP implications Changes in design with implications for the product cost and manufacturability

2

 Design and produce IP  Outsourcing production & delegating assembly to up to 80% of customers  Future need for volume & components mass production and logistics during the product design and sourcing process

 Market/customer attractiveness: the size of market is medium attractive and the 3



competitive nature of the marketplace is highly attractive Limited input from suppliers

Opportunities for product redesign along a modular structure to reduce variety caused by product customisation

 A replicable product despite the IP, hence innovative design is strategic issue for the New innovations are possible as the result of improving efficiency, cost 4

company

companies 1 and 2 were facing to some degree. In case 1, the situation of their relationships with suppliers had led the company to compromise on product’s features, and also to experience major delay in product finalisation and introduction to market. This was more critical in case 2, where the company was struggling to launch the product, putting its success in risk against other competitors. In case 1, the risk of operational and process management responsibility conflicts with suppliers was evident—this contributed to delays in product finalisation and delays in its launch. The risk of losing IP ownership, which was damaging to the sustained success of the product, was observed in case company 2. Case 3 had faced risk of losing their customers confidence in the company, as the company had become less responsive to customers’ demands and less able to manage customisation disruptions. The risk of design and production misalignment was another aspect which was present in case companies 1, 2 and 3. This had and could have further effects on the products success in the market and customer satisfaction. Finally, the lack of proactive engagement with suppliers had caused unnecessary dependence on suppliers, consequently exposing the products to cost and time risk factors, which was seen to be the case in case companies 1 and 2 in particular.

and size of the product within the supply chain

6. Conclusion This paper intended to explore the way decisions on strategic growth direction are taken in SMEs in relation with the dynamics of the SC. Future proofing the growth strategy, by proactively engaging suppliers in the growth decisions, was therefore the main concern here. Research questions were addressed satisfactorily: Firstly, it is shown that entry to new market, or extending existing market as well as product innovations including determining product design features, are often followed with no clear view of availability and suitability of SC design required. As a result of this disconnect, companies can face serious risks, making them vulnerable to market changes and unable to realise their growth objectives. The causes for such attitudes are found in the perceptions and approach to decision making by managers in SMEs, as well as resource availability, and organisational issues such as structure and culture. Our investigation also confirmed the notions present in the literature, such as that supplier assessment and selection are seldom related to strategic fit to the firm’s strategies in the medium to long term (Ismail and Sharifi, 2006), and are dealt with mainly at an operational level (Fine et al., 2005; Ismail and Sharifi, 2006). Moreover, our study shows that SMEs can

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benefit from early supplier involvement or integration when making growth strategy decisions. For this to happen, of course, there needs to be a strategic approach to decision making on firm’s growth to integrate all three interrelated dimensions, which in practice carries challenges for SMEs. Such challenges include lack of pre-emptive and early consideration of suppliers in making decisions for growth, which may not be unexpected in SMEs, weak practices in design and management of SC, limitations in resources and capabilities, and finally, SMEs’ ability to identify and deal with risks arising from involving suppliers. The research presented here supported and furthered previous works such as Fine’s 3D-CE, and the original concept of Ansoff’s growth strategy. The case studies assisted in examining and proving the proposition of the research, and highlighted a number of critical issues and risks that typically take place in firms, particularly SMEs, as a result of an imbalance of needs. Results supported that problems in companies could have been avoided if the balance of the three involved dimensions had been considered in making decisions. In particular, the study, which also examined the perceptions of SME managers regarding the research concerns, revealed that managers would appreciate the research’s point of view and its proposed approach. However since they are typically restricted to the issues SMEs are faced with, mainly related to lack of resources, most companies were not following such strategic

considerations, leading to numerous risks for the products success and hence the growth of the company. The research has had its limitations which mainly relate to the approach to the study. Despite taking required measures to minimise the problems with the field study, we still can refer to some issues which may have limited our findings and justify further research. While the chosen cases represent relatively extreme cases of growing firms with pressing SC issues, they do not cover all areas and options of market-product growth. Also, only one case showed intention and attempt to act pre-emptively in engaging with suppliers for the benefit of its growth strategy. While such a characteristic is seldom found among SMEs, study of more extreme cases could add to further understanding of the issues related to the role of SC in firms’ growth. Further research can therefore be encouraged to examine the situation in larger size companies from the SME sector, specific industries, geographical areas, and also in large size firms. Future studies of additional cases to include a broader range of companies, in terms of their position within the Ansoff Matrix and their approach to SC design, are also recommended. This type of research would hopefully support our findings and expand upon our understanding of how SMEs can better integrate their product-market-supply chain strategies. SMEs can also use practical frameworks, as the result of this and similar studies, to support them with solutions for an

Table A1 Case companies’ background information. Case Industry

Business and status

Chosen product

Prod. Spec. & complexity

Turnover/Employees 1

2

Competition

Electrical and Electronics Turnover (of the parent Co.): 23m£ Employees No: 13

 Start-up/Spin-out of a

Energy and heating technology Turnover (of the parent Co.): 23m£ Employees No: 15

 Start-up/Spin-out of a

 

   

3

Physical vapour deposition Turnover: 4.2m£ Employees No: 23

Energy and heating technology

  

SME Combined heat and power saving solutions Subsidiary of a medium company No manufacturing capability Has assembly and testing facilities for prototype designs

 

 Low maintenance energy  

saving device Needs installation Secured EU certification

 Energy saving device embedded in domestic heating appliances to generate power

 Sputter based technical solutions

serving industries Moderate level of competitive advantage Market-follower R&D, design and manufacturing Small firm transforming to medium size

 Spin out of a leading 

T.O: N/A Employees No: 5

SME Electricity energy saving No manufacturing capability

 Manufacturing firm



4

Market/Users

UK technology innovation company Heating solutions and devices Innovative product No manufacturing capability

 Standard components plus 

Domestic residences Relatively low

 Highly technological  Needs major outsourcing

Domestic users through heating appliance manufacturers Low with exclusive position (not for long though)

 Engineered to customer

Semiconductor, precision optics, rapid metalizing companies Medium, but stable



 Radio frequency based oven

more specifically designed subassemblies Complexity: Medium-tohigh

specification in small batches Medium complexity

 Success dependent on  

timely launch to market Complex product Outsource all manufacturing

 Small commercial units of 

catering sector and pastry market Cost sensitive Low

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integrated approach to growth strategy. The attempt in introducing the growth matrix in this paper has been a first step which the authors are currently undertaking, and recommend further research in this direction.

Acknowledgement The authors would like to thank two anonymous reviewers whose comments and many suggestions helped to improve the quality of the paper.

Appendix A See Table A1.

Appendix B. Outline of semi-structured interview main questions used in the case study Strategy & Growth 1. What have been the focus and direction in the company’s “product development” and “Market growth” strategies over the last three year and currently? Product [Focus on existing products; extended products; new product] Market [Existing customer; new customers in existing markets; new market] 2. What obstacles have concerned you regarding your supply chain during the implementation of the growth strategy? Existing Suppliers (i.e. Capability; Reliability; Trust; etc.) New Suppliers: (i.e. Availability; Capability; Reliability; Trust; etc.) Suppliers/supply chain issues 3. How often and to what extent have you involved your main suppliers in:

 Product design process;  Marketing planning;  Business and strategy planning 4. To what extent does capability of suppliers become one of your considerations when you make the decision about the new product features? 5. Indicate and explain changes in suppliers during the past year (or the life of the product in question)

 How many (or percentage) of them?  The reasons for change (i.e. Capability/capacity of current 

suppliers; technology availability; new material issues; trust; performance, etc.) Relationships (type, quality, need for partnership; possibility of partnership, etc.)

6. How do you perceive the benefits to your market position resulting from working with suppliers?

   

Opening up new marketplaces Catching up the market opportunities swiftly Sharing market risks Better competing with competitors

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7. How do you perceive the benefits on company’s internal capability resulting from working with suppliers?

   

Introducing new technology/knowledge Improving design and innovation capabilities Opening up a new product range Complementing company’s manufacturing capabilities

8. If you had known the current supply chain situation in advance, would have been there any better growth strategy options to follow in past three year?

 Product: If No Why If Yes, What?  Market: If No Why If Yes, What? 9. If knowing the supply chain impacts on the growth strategy, why would you not consider different growth strategies (if the supply chain was known in advance) than what you are following now? 10. If you were to rethink your current pursuing of growth strategy with more considerations of supply chain involvement and impact, what extent of benefits could you expect for each factor of performance?

      

Cost Speed Smooth implementation Flexibility Product visibility Market penetration New technologies and product (or features) [Innovation]

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