A resource based view of micro-firm management practice

Journal of Small Business and Enterprise Development
Emerald Article: A resource-based view of micro-firm management practice
Felicity Kelliher, Leana Reinl

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POINTS OF VIEW Micro-firm
management
A resource-based view of practice
micro-firm management practice
521
Felicity Kelliher
School of Business, Waterford Institute of Technology,
Waterford, Ireland, and
Leana Reinl
´
Failte Ireland Tourism Learning Network South and Southeast Support Office,
School of Business, Waterford Institute of Technology, Waterford, Ireland

Abstract
Purpose – The purpose of this paper is to discuss a resource-based approach for exploring micro-firm
management practice, as informed by the relevant literature. Specifically, the paper analyses available
literature and catalogues micro-firm and managerial competence criteria in pursuit of managerial
insights in this environment.
Design/methodology/approach – A comprehensive literature review precedes the
conceptualisation of micro-firm management practice.
Findings – Literary findings suggest that, considering micro-firms’ internal resource constraints,
minimal environmental power, and owner-centred culture, it is vital for these organisations to embed
their valuable resource in their core business strategy, to ensure survival in the longer term.
Furthermore, there is an assumption that knowledge must be used optimally within the micro-firm by
developing the analytical and critical skills of individuals, groups and the entire organisation so as to
sustain and grow these firms’ competitive advantage. Having identified and catalogued a range of
factors that impact micro-firms, the authors propose a “resource taxonomy of micro-firm management
practice”, which establishes factor interaction and the interrelationships between each resource in this
environment. The purpose of this taxonomy is to assist in the analysis of management practices in the
micro-firm milieu.
Research limitations/implications – The authors go on to discuss taxonomy implications for
micro-firm training policy and propose further exploration of micro-firm management practice and
resource-based research in this environment.
Originality/value – Academic research, which focuses specifically on the micro-firm, has historically
been rare, despite multiple calls to study these firms in their own right. By proffering a “resource
taxonomy of micro-firm management practice”, the authors seek to inform this neglected research area.
Keywords Resource management, Management activities, Small enterprises
Paper type Conceptual paper

Introduction
Despite multiple calls to study micro-firms in their own right (Devins et al., 2005;
Matlay, 1999; Roberts and Wood, 2001), academic research, which focuses specifically
on the micro-firm, has historically been rare. From a resource perspective, calls for
Journal of Small Business and
small firm research are also forthcoming, as articulated by Barney et al. (2001, p. 634): Enterprise Development
Vol. 16 No. 3, 2009
[. . .] much of the focus of [Resource-based View] RBV research has been on larger firms, yet pp. 521-532
q Emerald Group Publishing Limited
smaller firms also face the need to acquire critical resources to create a sustainable 1462-6004
competitive advantage. DOI 10.1108/14626000910977206

JSBED The research that has been done, while fragmented, has found that micro-firms are
16,3 intrinsically different in their organisational characteristics and approach to business
problems and that these differences render many of the theories derived from studies of
larger businesses inappropriate when applied to micro-firms. Specifically, management
processes within a micro-firm are unique and micro-firms’ behavioural responses to
issues that impact upon them differ fundamentally from those of larger firms (Kelliher
522 and Henderson, 2006; Whaley, 2003), and should therefore be studied separately.
As a relatively new research genre, recent literature has explored specific aspects of
the micro-firm, including underlying resource poverty (Phillipson et al., 2004; Raley and
Moxey, 2000), internal characteristics (Kelliher and Henderson, 2006), the competitive
environment (Dutta and Evrard, 1999; Wyer, 1997), and their broad environmental
influencers (Cook and Barry, 1995; Kuratko et al., 1999). Considering the growing
interest in micro-firm research, the authors contend that there is a value in reviewing
micro-firm literature as a collective, in order to catalogue these criteria for the purposes
of exploring micro-firm management practice. It is these criteria that are the focus of this
paper, as the authors discuss a resource-based approach for exploring micro-firm
management, before proposing a resource taxonomy of micro-firm management
practice, which establishes factor interaction and the interrelationships between each
resource in this environment. The purpose of this taxonomy is to assist in the analysis of
management practices in the micro-firm milieu. The authors go on to discuss taxonomy
implications for micro-firm policy and propose further exploration of micro-firm
management practice and resource-based research in this environment.

Literature review
There is no universal definition of a micro-firm, with many writers offering various
criteria including size, number of employees and financial turnover per annum (Devins
et al., 2005; Greenbank, 2000; Roberts and Wood, 2001). In spite of these various criteria,
definitions are usually based on employment, particularly in the European context. The
European Commission defines a micro-enterprise as one who employs no more than ten
full-time employees (Sheikh et al., 2002), and this definition is applied in the context of
this paper. This definition is also taken as the baseline in terms of comparative literature,
and where writers define “small firms” in the context of this definition, their findings are
assumed to relate to the micro-firm milieu despite the small firm label.

Factors that impact micro-firm management practices
Considering the pre-defined business entity and recorded differential between this and
other organisations, it is relevant to investigate the factors that impact micro-firm
management practices. These are found to encapsulate the firm’s business strategy, its
organisational structure and the owner/manager’s decision process, the underlying
business culture (incorporating internal communications and the owner’s pivotal role in
a micro-firm), and finally, the organisation’s relationship with its business environment:
The micro-firm business strategy. From a strategic perspective, micro enterprises
tend to be more conservative than larger firms and are likely to change incrementally
(Storey and Cressy, 1996) as a result. In fact, formal strategic planning is not common
in small firms (Hall, 1995), a distinct disadvantage from Lyles et al.’s (1993) perspective.
However, the view that micro-firms in particular do not plan at all may be a misnomer
as there may still be clear mental frameworks of future plans regardless of whether

they are formally written down (Kuratko et al., 1999; Wyer, 1997). In fact, there is a Micro-firm
prevalence of personal and subjective business objectives in micro-firms (Simpson, management
2001), although the owner often holds these tacitly (Phillipson et al., 2004) without
explicitly communicating them to either the firm participants or the business practice
stakeholders at large. As micro-firm competitive advantage is often built on localised
and tacit knowledge that can respond quickly to market signals (Wickham, 2001), an
intuitive strategic approach is understandable in this milieu. Specifically, flexible 523
specialisation offers a unique advantage to these organisations and the
owner/manager’s direct contact with customers, suppliers and employees presents a
distinct advantage in the informal strategic planning process described above.
Organisational structure and decision process. Mintzberg (1983) defines the simple or
non-structure (in the context of organisational structure) as comprising of direct
supervision as the prime coordinating mechanism with centralisation as the main design
parameter, resulting in all major decisions emulating from the structure’s centre. The
merging of ownership and management in the micro-firm setting creates a one-person
centred organisational structure (Dutta and Evrard, 1999; Palvia et al., 1994; Simpson,
2001), which is flat or horizontal, with centralised authority, minimal internal
management levels and a wide span of control. Therefore, the micro-firm is the epitome
of a simple structure, wherein the owner and employees are found to be closer to their
customers due to the lack of management layers (Brady and Voss, 1995). Furthermore,
these organisations encourage team and cross-functional orientations (Down, 1999) due
to their size and informal communication structure. Notably, this structure presents
greater flexibility and is therefore faster to respond and adapt to change.
The micro-firm owner is usually responsible for all decision roles within the firm and
has a pivotal role in the organisation (Palvia et al., 1994). As a result, these firms are often
less dependent on formal decision models (Rice and Hamilton, 1979), relying instead on
the owner’s intuition. Size is the prevailing influencer in this regard, as the smaller the
firm, the more power resides at the centre. Unfortunately, there is a resultant pressure on
the owner/manager to be an expert in all fields of management, and he or she is often
conceived as the only one who can make management decisions as a result (Kelliher and
Henderson, 2006). Ideally, it is the owner/manager who nurtures employee cooperation
in the context of these paternalistic influences. However, the owner/manager’s pivotal
role in the organisational structure and culture can result in dominance of top-down
communication, an issue that can impede the owner’s business aspirations.
Micro-firm business culture. The micro-firm culture is, to a large extent, an extension
of the owner’s personality, as the owner plays a pivotal role in the organisation’s focus
and ultimate success. Specifically, in cases where there is no divorce of ownership and
control, a micro-firm’s culture is often reflected in the motivations, values, attitudes and
abilities of the owner/manager (Greenbank, 2000). The micro-firm’s culture lends itself to
informal narrative modes of communication (Penn et al., 1998), which have been found to
be inherently collaborative (Matlay, 1999). Notably, there is less internal uncertainty in
this environment as the owner is aware of conditions and sentiment through regular
contact with workers (Storey and Cressy, 1996), creating a link between the micro-firms’
small size and more effective communications. However, a potential drawback is the fact
that organisational messages are heard in the context of employee’s history as
organisational members, and may therefore be impacted by previously experienced
events within the organisational setting.

JSBED Micro-firm relationship with its business environment. Research suggests that
16,3 micro-firms have framed relations with the outside environment (Dutta and Evrard,
1999), wherein these firms have limited competitive influence, operating from their
position in a perfectly competitive market (Simpson, 2001; Storey and Cressy, 1996). As
internal and external interaction is paramount due to the more limited ability of
micro-firms to shape their external environment (Smallbone et al., 1999; Kelliher, 2007),
524 these firms combine internal and external perspectives to build an image of the
individual firm from a competitive viewpoint on an ongoing basis. Unfortunately, this
perspective can lead to micro-firm over-sensitivity to market changes (Whaley, 2003),
and often results in a short-range management perspective on the part of the
micro-firm. On a broader scale, government policy has an important impact on a
micro-firm’s ability to compete in the marketplace. Specifically, public policy has been
found to have a negative effect on micro-firms (Cook and Barry, 1995; Kuratko et al.,
1999), as these firms have been found to lack influence at government level. Negative
policies can include price, cost inequities, legislative compliance, regulatory
liberalisation, competition restriction, paperwork burden, managerial restriction and
mental burden (Bannock and Peacock, 1990; Kuratko et al., 1999).
Based on the reviewed literature, modern external environments are sufficiently
competitive such that, in order to survive, an organisation’s rate of learning must be
faster than the rate of change in their environment (Barney et al., 2001; Hamel and
Prahalad, 1994). Specifically, micro-firms feel heavy pressure from rapid changes in
their environment as to customer demands, product life cycle and government
regulation and legislation (Alstrup, 2000). Thus, while significant knowledge may
already be present in the micro-firm, external impulses are sometimes needed in order to
trigger off internal development, and stimulate a learning dynamic within the firm.
Consequently, an external impulse brought about by a new industry standard or
regulation, or by dominant customer and supplier demands may challenge the
organisation’s learning environment, at least in the short-term (Kelliher, 2007). However,
when successfully incorporated into the micro-firm’s strategy, structure and culture,
these external impulses should result in the emergence of a more competitive
micro-business in the longer-term.

Categorising the micro-firm
The authors have explored specific research aspects of the micro-firm, including
micro-firms’ internal characteristics, the micro-firm’s competitive environment, and
their broad environmental influencers. By investigating micro-firm characteristics,
the authors offer a visual representation of strategy, structure, culture and competitive
setting from the micro-firm perspective. Considering the reviewed literature, the
micro-firm environment has numerous criteria that can benefit from being catalogued
(Table I).
Research has found that these person-centred organisations depend on the
owner/manager to make decisions, present organic strategic plans, which can easily
adapt to pre-defined market dynamics and operate an organisation within the confines
of a restricted pool of resource. A micro-firm’s success is therefore largely dependent on
the owner/manager’s competence in successfully channelling these resources toward the
development of organisational capabilities (a view supported by O’Dwyer and Ryan,
2000). Following categorisation of the micro-firm characteristics, the authors

investigated the micro-firms’ underlying resource constraints in pursuit of the paper’s Micro-firm
objective: “to establish a resource-based taxonomy of micro-firm management practice”. management
Micro-firm management practice – a resource-based view practice
Before addressing the micro-firm’s resource criteria, it is of benefit to define resource and
related terms in this context. Resources are those tangible and intangible assets linked to
a firm in a semi-permanent way, while capabilities are a way of accomplishing different 525
activities, depending on available resources (Grant, 1991). Separately, competencies are
the integration of firm-specific assets into clusters spanning individuals and groups so
that they enable distinctive abilities (Teece et al., 1997). Thus, organisational
performance is a consequence of firm-specific resources and capabilities enabled by
management competencies, as internal resource availability places a fundamental limit
on an organisation’s plans, regardless of those resources obtainable on the open market
(O’Regan and Ghobadian, 2004; Chandler and Hanks, 1994).
The resource-based view is of particular relevance in the micro-firm context, as it
contends that long-term firm survival is contingent on a business’ unique offerings,
and the development of this uniqueness over time through nurturing the firm’s core
competencies. The crux of the resource-based view is that companies have a mixed bag
of resources, so those that are valuable should be embedded in a set of functional
policies and activities to maximise a business’s potential success.
It is widely accepted that micro-firms face “resource poverty”, which forces them to
operate under severe time, financial and expertise constraints. Specifically, Phillipson
et al. (2004) and Raley and Moxey (2000) both cite inadequate internal resource as a factor
in the vulnerability of micro-firms and an inhibitor in their development, operation and
exploitation of opportunities. This issue can often manifest itself as a form of
“short-termism” whereby these organisations may focus on short-term goals to the
detriment of long-term business objectives. Learning new capabilities can therefore be
quite problematic in the micro-firm milieu, due to both employee capacity and
the underlying need for efficiency scale and growth in this environment (Pil and Holweg,
2003). Thus, the resource perspective offers an opportunity to analyse micro-firm
management practice from an internal and external perspective.

Key internal resource constraints
Owing to the limited number of staff in this environment, significant pressure is placed
on micro-firm employees to keep up a frenetic pace of activity (Dutta and Evrard, 1999)
while being capable of performing multiple functions, often in multiple functional areas,

Environmental influencers Internal characteristics (micro-firm) Owner/manager

Power relationship Small size Paternalistic management style
Diseconomies of scale Niche strategy Central control and authority
Externally enforced change Incremental change Key decision maker
Perfect competition Prone to short-term perspective Informal strategic planner
Negative regulatory impact Non/simple-structure Stakeholder proximity
Resource poor Owner-centred culture Table I.
Informal communications Micro-firm criteria
On-the-job learning catalogue

JSBED within the organisational context (Dutta and Evrard, 1999; Floren, 2003). In reality, it is
16,3 unlikely that micro-firms will have the resources to employ specialists, tending instead
to employ staff with generalist skill sets (Simpson, 2001). There can also be a lack of
career path for specialists in this type of organisation, and these firms often experience
marginal labour markets (Curran, 1988) as a result. Time or lack thereof, is a particular
concern in the micro-firm environment, where the owner is likely to be responsible for all
526 aspects of the business operation. This time constraint often manifests itself in owners
who are primarily interested in immediately applicable performance (Freel, 1999) as they
are mainly concerned with the day-to-day demands of running their own business
(Storey and Cressy, 1996), often to the detriment of long-term planning. Finally, the
micro-firm has restricted access to funds (Freel, 1999), and is often reliant on personal
sources of finance as a result. Unfortunately, limited financial access may restrict larger
investments that require a longer payback period, creating a growth barrier in these
organisational settings.

External resource perspective
There is an obligation on the part of micro-firms to ensure knowledge is used optimally
within the firm by developing the analytical and critical skills of individuals, groups
and the entire organisation so as to sustain and grow the firm’s competitive advantage.
This focus is primarily rooted in the resource-based theory of organisational
competitiveness, suggesting that the micro-firm’s underlying unique competitive
advantage is centred on their capacity to learn (Barney et al., 2001; Ruiz-Mercader et al.,
2006). Unfortunately, micro-firm resource poverty can lead to information deficits that
hamper the propensity of micro-firms to be aware of, and respond to, environmental
opportunities and threats (North et al., 2001, as cited in Phillipson et al., 2004), which in
turn may restrict growth in these organisations. This issue can result in diseconomies
of scale when competing in the marketplace, creating a cycle of decay on the part of the
individual micro-firm.

Developing managerial competence
In addition to a firm’s accessibility to resources, Chandler and Hanks (1994) argue that
business performance is also a function of managerial competence. This view is
supported by O’Dwyer and Ryan (2000), Down (1999), Kelliher and Henderson (2006)
and Greenbank (2000) in the micro-firm context. These writers acknowledge that the
micro-firm owner’s experiences, skills and competencies are key influencers upon
business survival and development, and each describes the owner/manager as a
central resource of a business, providing resources that they have acquired through
education and experience. Owner/manager attributes and capabilities can therefore
impact positively or negatively upon business performance, as catalogued in Table II.
The owner/manager’s attributes can drive motivation, positively impact
communication and ultimately support an adaptive organisation. However, these
findings are tempered with the reality that such people may also suffer from a
short-term perspective, and promote centralised authority to the detriment of
individual empowerment within the firm, potentially constricting future business
success. Finally, the noted managerial competencies relate primarily to soft skills,
wherein human development and learning potential are key criteria in the development
of organisational capabilities in this environment.

Micro-firm
Owner/manager Strength/
attribute effective Weakness/ineffective Managerial competencies management
Strong willed Drive and Openness to suggestions and Learning and improving
practice
motivation less absorptive capacity
Paternalistic Close Short-termism Leadership and direction
managerial style communication 527
Intuitive Tacit Ideas are not tested Idea and opportunity
knowledge generation
Lack of reflection Organisational Incomplete learning transfer/ Development of human
learning process resources
Informal planner Adaptive Employees lacking objectives, Identification of short and Table II.
responsibility and vision of the longer term learning needs Micro-firm managerial
future competence catalogue

Resource taxonomy of micro-firm management practice
While cataloguing was a valuable means of identification of micro-firm criteria and
managerial competence (Tables I and II), the problem of effectively cataloguing and
retrieving unstructured information is eternal (Palmer and Frappaolo, 2004). Therefore,
taxonomy offers conceptual organisational structure when applied to business content
and managerial competence (Figure 1). The taxonomy construction and classification
seeks to identify micro-firm criteria in the context of component interrelationships,
facilitated by owner/manager competence. Thus, the taxonomy aids in the
identification of sub-topics to focus on in the first instance, offering insight into the
micro-firm’s resource-based management practices.
The proposed taxonomy seeks to establish the resource criteria and
inter-relationships in micro-firm management practice. It is therefore important to
look at the micro-firm’s overriding strategy in the context of resource availability,
internal capabilities and organisational competencies. The micro-firm strategy must
operate in a resource-based framework, and each contributing factor, specifically the
micro-firm’s strategy, structure, culture and leadership should facilitate the pursuit of
an optimum competitive stance in this environment. Thus, considering the micro-firm
resource constraints, it is vital for these organisations to embed their valuable resource
in their core business strategy, to ensure survival in the longer term. Notably,
micro-firms in their individual capacity lack power in the marketplace and are likely to
be beholden to the dominant partner’s requirements as a result. This suggests that
external influencers rather than core internal capability requirements dictate strategic
worth. However, the benefits of dynamic management competency development,
which might lead to improved management practice and business performance in the
micro-firm, have not previously been looked at in any detail. This is the underlying
purpose of this paper.
In Figure 1, the authors identify key micro-firm management competencies, which
are relationship management when interacting with the firm’s business environment,
opportunity (resource) management at organisational level, the owner/manager’s
leadership and communication skills within the firm, and the promotion of individual
learning underlying human resource development (HRD). By focusing on developing
management competence within this taxonomy, the owner/manager may focus on
those activities that contribute to the firm’s development and success in the long run.

JSBED M-F criteria (table I) Managerial
competence
16,3 (table II)
Diseconomies of scale
Relationship
Environment Resource
Power relationship (information)
criteria
management
Regulatory impact
528
Externally enforced
change

Non-structure
Opportunity
Organisation Resource
Resource Poor (resource)
criteria
management
Niche strategy

Owner-centred
culture

Stakeholder proximity Inclusive
Owner/manager Resource
Informal planner (adaptive)
criteria
leadership
Key decision maker

Central
authority

Figure 1.
Resource taxonomy Marginal labour market HRD
Individual Resource
of micro-firm management Generalists (individual
criteria
practice learning)
Restricted career path

Specifically, considering the resource constraints mentioned earlier, the micro-firm
owner/manger may be able to tap into valuable resources within a learning network
environment by developing relationships, which could result in the development of
dynamic internal management competencies. Within the organisation, an
inclusive/adaptive leadership approach coupled with a primary focus on HRD
should help hone employees’ specialist skills, and provide a wider career path for these
individuals, ultimately contributing to organisational productivity. Notably,
promoting internal communication and individual learning has been found to
facilitate organisational learning over time in the micro-firm milieu, creating the
potential for perpetual improvement in context. At an organisational level,
resource-based opportunity management should help channel limited resource and
individual learning into “value” strategies, strengthening capabilities despite resource
constraints, and ultimately impacting competitive advantage. As the taxonomy is an
inter-relational representation of the micro-firm management practice, each action
results in reaction, creating a synergy of worth over time.

Policy implications Micro-firm
The proposed resource-based taxonomy of micro-firm management practice offers management
policy insight in relation to the business environment and individual and
organisational learning. practice
The business environment
The resource perspective indicates that there should be apportioned responsibility by 529
size in relation to regulation (Martin, 2007). This approach has already been
implemented in Australia’s HR policy (Southley, 2007). Furthermore, as small and
micro-firms often face a power imbalance in interaction with dominant trading partners
(Kelliher, 2007), the resource perspective proffers micro-firm cooperative lobbying to
challenge competitive policy in pursuit of a more balanced business environment.

Organisational and individual learning
To date, criticism has been levied on small and micro-firm training programmes
(Greenbank, 2000), government initiatives (Matlay, 1999) and educational institutions
(Taylor and Thorpe, 2004) for failing to address the learning and resource needs of
these organisations. From a learning perspective, researchers appear unified in the
belief that generic training solutions originally designed for larger organisations fail to
address the needs of the micro-firm (Greenbank, 2000; Devins et al., 2005; Down, 1999,
among others). The authors’ therefore contend that learning initiatives ought to focus
on analytical and intuitive skill development on the part of the owner/manager, and the
development of staff through individualised learning programmes (Figure 1).
Considering less than 20 per cent of micro-firms survive longer than six years and
30 per cent last less than 18 months (Storey and Cressy, 1996), there is an evident value
in customising micro-firm managerial competence development and employee learning
initiatives in this manner. From a policy perspective, appropriate interventions
addressing specific training and learning requirements in the context of an individual
firm’s size, sector, structure and the owner/manager’s attributes (a view supported by
Johnson, 2002) are far more likely to reap sustainable competitive returns by:
. embedding the resource perspective in the design, development and
implementation of the micro-firm’s business strategy (Teece et al., 1997; Grant,
1991); and
.
by honing managerial competence, the value of available resource can be
enhanced in pursuit of sustainable commercial success (as advised by O’Regan
and Ghobadian, 2004).

Conclusion
This paper sought to establish a resource-based taxonomy of micro-firm management
practice. The purpose of this taxonomy is to assist in the analysis of management
practices in the micro-firm milieu. Assuming the micro-firm’s underlying unique
competitive advantage is centred on their capacity to learn at a faster rate than the rate of
change in their environment, this taxonomy seeks to hone management practice in
promoting and capturing individual and organisational learning in this environment.
Specifically, micro-firm management competencies are found to be relationship
management when interacting with the firm’s business environment, opportunity
(resource) management at organisational level, the owner/manager’s inclusive

JSBED leadership and communication skills within the firm, and the promotion of individual
16,3 learning underlying HRD.
The reviewed literature and extracted micro-firm taxonomy depicts a unique entity in
the organisational management context. Specifically, the organisation’s minute size,
paternalistic management style, intrinsic flexibility and informal culture should all
contribute to a contextual understanding of micro-firm management, at least in theory.
530 Unfortunately, underlying external and internal issues may curtail optimum
management practices in this environment. In particular, centralised decision-making
and control may create a constricted communication line within the micro-firm, resulting
in a stunted internal culture. External regulatory and competitive pressures may
produce a forced learning environment from the micro-firm perspective, creating
competitive constrictions and ultimately causing a negative impact on organisational
success. Pursuit and development of managerial competencies at each interaction point
is therefore worthy of further investigation and the authors recommend research in the
area of resource-based management practice and micro-firm managerial development in
this regard.

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About the authors
Felicity Kelliher is a Senior Lecturer in Management Studies at Waterford Institute of
Technology, Ireland. Research interests include small firm cooperative network activity,
management capability and individual learning in the small and micro-firm environment.
Felicity Kelliher is the corresponding author and can be contacted at: fkelliher@wit.ie
´
Leana Reinl is a Research Assistant working with the Failte Ireland Tourism Learning
Network South and Southeast support office at Waterford Institute of Technology, Ireland.
Her research interests include learning in a small and micro-firm network environments.

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