Exploring capability and innovation through the lived experiences of Owner-Managers in Scottish SMEs

This study explores the topic of “sensing and sensemaking” in Scottish small- and medium-sized businesses (SMEs). SMEs are critical to growth in any economy and sustainable businesses can only add to a successful economy. Sensing and sensemaking are the foundation of organisational strategic change, concentrating on identifying signals of change that will influence leaders to remain relevant in their marketplace. Sensing and sensemaking sits within the Teece Capability Theory of the Firm as a dynamic capability (2019). Because the focus of much of the research has been on large organisations, there is little understanding of how SMEs develop and use this capability to strategically change over time. The research aim was to explore the lived experience of SME owner-managers in relation to sensing and sensemaking in order to qualitatively test the relevance of this concept and potentially identify and extend its micro-foundations. A multiple case-study methodology was used, building on in-depth conversations with SME owner-managers to compile an understanding of the complexity of the studied phenomenon. This recognised that SMEs reflect substantially the influence of owner-managers and, as a result, high levels of heterogeneity. The study contributes to advancing knowledge in this area by recognising the importance of the sensing and sense making phase of a business as critical to many small- and medium-sized businesses. It recognises that the owner-manager is key to that process and that there is a need to define precisely how these individuals should construct effective and purposeful conversations across their ecosystem to ensure success. In addition, it was noted that the Teece Capability Theory of the Innovative Firm is relevant to small- and medium-sized firms, particularly as they face the waves of significant change sweeping the economic world. The Sensing and Sense Making cluster was refined into three key elements: exploration; exploitation of the current marketplace; and decision-making to create customer value through innovation. From this, the study recognised micro-foundations related to nurturing social capital, individual and organisational learning, and knowledge gain and sharing. Owner-managers are key to success through managing the exploration phase because of the complexity of the puzzle that is the outside world and their personal relationship with their external ecosystem. Thereafter, in exploitation of the current marketplace and decision- making, their co-workers make increasingly larger contributions because their tacit knowledge cannot yet be captured by the company in systems, and verbalising issues brings a shared vision of the way forward. Learning and knowledge gain is critical for SMEs to stay in the marketplace. With major projects undertaken by all of the participants, it was recognised that often the whole company had to pivot, bring new knowledge from outside and ensure learning across the whole company. This study provides exploratory findings into a phenomenon which has previously only been minimally researched, resulting in a requirement for a creative approach to defining effective and purposeful conversations. Further research should seek to build a model of these conversations to assist owner managers and test findings on a broader range of SMEs.