Using Small Firms and Outsourcing

Relational Advantage: Small Firms

Q1. What problems does the article point out that small organizations absolutely must avoid?

Two critical problems of small organizations are their limited power and their constrained resources (Jones et al., 2014). Smaller firms have less ability to engage in trust-based strategies because they cannot incentivize supplier collaboration due to limited capacity, which can hamper access to resources, the ability to function on economies of scale, and may struggle to engage in constant improvement. Thus, first and foremost small firms must take proactive measures to ensure they can fulfill promises in a timely fashion to foster such trust, and take strategic risks that will pay off for them as well as make demonstrations that they are trustworthy (Jones et al., 2014). Ideally there must be positive “self-fulfilling prophesies” for small firms Jones et al., 2014, p.5454).

Unfortunately, firms often burn themselves out with trust-building exercises that exhaust resources but do not offer adequate gains. Because they cannot operate on economies of scale and spread risk and have smaller portfolios of customers and cash flow is dependent upon major consumers, they are more vulnerable to supply chain disruptions and being taken advantage of by larger firms. Liquidity, and a lack of human resources can also make it much easier for larger firms to take advantage of them (Jones et al., 2014). Diversifying portfolios may be less of an option, which again requires strategic risk when embarking upon a venture.

Q2. Based on your reading in Chapter 3 what stood out to you in the article? Make sure you are specific and you provide references.

One of the most critical themes of the article is the idea of social relationships. Smaller firms are always marketing themselves, not simply to consumers but also to other, larger organizations with whom they wish to do business. Just as firms must foster trust with consumers, they likewise must foster trust with other organizations. Additionally, just like not all relationships with consumers are created equal, similarly not all relationships with other firms are created equal (Jones et al., 2014). Another critical idea is that, just like all routine procedures for the organization, trust relationships must likewise be routine for all involved parties, versus simply having a plan or an agreement. These routines include information-sharing and fulfilling long-term promises, which establish more and more goodwill over time (Jones et al., 2014).

Trust-building, in other words, is both logistical and technical in nature in terms of fulfilling agreed-upon objectives, but also has psychological components, as the longer organizations fulfill their obligations to one another over time and establish a mutual advantage, the more apt they are to trust one another. Again, this has resonance with how consumer loyalty is fostered. Under-investing in trust-building because of wariness can be difficult in the long-term for a small organization and investing in trust can incentive organizations to treat small firms more like larger ones (Jones et al., 2014).

Q3. What does the article tell you about the purchasing strategy of a small organization? Use Chapter 2 or other reading to help you with this.