Governance and value-creation in SMEs in a service dominant-logic (GoSMEs)

This project has received funding from the European Union’s Horizon 2020 research and innovation programme under the Marie SkÅ‚odowska-Curie grant agreement No 748905.

Introduction

Small-and Medium-sized Enterprises (SMEs) form the bedrock of the European economy because of their substantial contribution to employment, job creation, and economic value-added. Their specific and diverse needs and conditions make the domain of knowledge about their inner workings important. It is well understood that SMEs differ from their large counterparts in terms of the resources and competences they command but that their flatter organisational structures can favour flexibility and adaptability2. Not surprisingly, the EU has made substantial and impactful investments to help SMEs overcome size-related barriers through programmes such as COSME or the Horizon 2020 SME Instrument. Yet, SMEs continually face new challenges arising from changing business practices, global volatility and digitalisation. Combined, these require fresh insights into factors that can enhance the competitiveness of SMEs, which in turn can open the way for novel policy interventions. In this project, we focus on an under-researched domain in SMEs – governance and the board of directors. Specifically, this project aims to investigate how boards in SMEs contribute to value creation in the context of a service dominant logic.

State-of-the-art research 

Traditional market rationality is underpinned by the idea that the good is the central unit of exchange, firms are profit maximisers that make and distribute goods that can be sold for profit and to do so, the good should offer superior value compared to competitors’ offerings whilst the firm needs to maximise production efficiency3. Under this goods-dominant logic (GDL), European SMEs are left with severe problems in competition with their international counterparts and large firms due to cost and legal differences. Yet, a number of European SMEs are flourishing as they are developing their business based on a service-dominant logic (SDL) focusing on networks, knowledge and competencies. SDL departs from the traditional GDL in that the potential development of competitive advantage is seen to reside in the knowledge and skills of a firm and values are expected to be co-created between firms and their customers. Goods are thus no longer ‘things’ but rather conveyors of services to be used by the customer to create value. Another important axiom in SDL is value creation occurs in networks of actors that integrate resources, sometimes also referred to as service ecosystems. Although not without its critics5, SDL has great potential in helping us identify new competitive logics for SMEs in the context of new markets and technological developments. But it requires SMEs to adjust and boards of directors are an important factor driving change as well as a resource that firms can activate. The vast majority of research on boards centres on their control role in large firms in an Anglo-Saxon context. The small but growing body of knowledge in an SME context suggests that boards benefit SMEs in relation to strategic outcomes by extending networks, discovering and exploiting new market opportunities and technologies, and building and facilitating organisational processes that support innovation, business renewal and strategic change.

Overview and objectives of the project

This project builds on the emerging literature on boards in SMEs by exploring how boards’ capital, behavioural structures (networks), and intra-team processes contribute to a SDL and value creation. As SMEs themselves are very heterogeneous and differ between countries, the project will pay attention to these contextual factors. The specific research objectives are:

  • SO1 to understand value creation in SMEs within SDL and its relationship to board governance;
  • SO2 to generate knowledge on the interplay between SMEs board characteristics and orientation towards SDL in different size classes and country contexts;
  • SO3 to improve the capacity of SME boards to govern and develop strategies to cope with a global competitive market.

Research methodology and approach

The nature of objective for this research requires a combination of different methodological approaches to capture the multi-dimensional complexity of the phenomenon. Four work packages are designed over a 24 months period to address the objectives include studies primary and secondary data collection, qualitative and quantitative approaches and cross-sectional and longitudinal designs as follows.

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Work Package 1: Development of research framework

Work Package 2: Compilation and analysis of large cross-country data set

Work Package 3: Survey and analysis of SME boards in SWE, DK and UK