Industry Update
Opinion Article11 June 2021

SMEs: Business Dynamics In The Food And Beverage Industry (Margarita Cruz)

Series article #5/9 - What COVID-19 is teaching us about what needs to be taught

By Margarita Cruz, Assistant Professor of Strategic Management and Entrepreneurship at Ecole hôtelière de Lausanne

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The pandemic COVID-19 has made apparent managers’ need to better understand the dynamics driving performance in their company. With businesses shut down repeatedly, often for several months at a time, hospitality managers were pushed to reinvent themselves in a short period of time. Nonetheless, while this has been an imminent need for nearly everyone in the industry, this is particularly true for small and medium-sized businesses (SMEs) in the food and beverage industry, where companies are especially vulnerable to changes in their external environment (Johnson et al., 2017).

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Building on systems thinking, the ability of small business owners and managers to successfully respond to COVID-19 in the F&B industry is associated with their understanding of the dynamics driving performance in their business. In better preparing future managers and business owners in the F&B industry for successfully responding to crises, hospitality programs should deemphasize the use of tools that only provide a static view of the firm, and in turn, should concentrate on imparting on students a dynamic understanding of the business world.

2.5.1 Deemphasizing the use of static tools

While the field of small business management aims at developing strategic thinking in the mindset of future SME managers and business owners, graduates often argue that some of the tools used in class only provide a static view of the firm (Morecroft, 2015). This is particularly problematic for SMEs in the F&B industry as change is a natural component of the industry (e.g. food trends change on a regular basis and hyper-competition puts pressure on businesses to innovate) and SMEs are by default more susceptible to changes in their environment than larger firms.

Thus, the result of prioritizing tools such as SWOT, PESTEL and VRIO analyses (among others) in the curricula of hospitality management programs is that small business owners lack the tools to understand the complexities and dynamics (Morecroft, 2015; Sterman, 2000) of their F&B business. For instance, SME managers often report ignorance of what causes their growth or how to transform key resources into dynamic capabilities over time. This explains why many thousands of restaurants and bars around the globe remained closed during COVID-19 without searching for alternative revenue streams.

2.5.2 Emphasizing business model innovation

One way to equip SME owners and managers to better understand and respond to the dynamics of their F&B business is by including business model innovation as part of hospitality management curricula. While business models are a common topic within hospitality management programs, business model innovation and business model dynamics (Sterman, 2000) as the result of external shocks such as crises are largely overlooked in the hospitality management curricula. In addition, business model innovation has largely overlooked SMEs (Cosenz & Bivona, 2020).

Business model innovation not only benefits large organizations, as was previously discussed, but it can also provide benefits for SMEs for several key reasons. First, because business model innovation requires that managers become aware of the drivers of growth and value inside their business, SME owners and managers can more easily identify components of their business model that could create alternative revenue streams when a given crisis such as COVID-19 challenges their survival. This has been a challenge particularly for the standalone small- or medium-sized restaurant or business in the F&B industry during the pandemic as they have been pushed to rapidly search for alternative revenue streams. Second, as opposed to other kinds of innovations, business model innovations amid a crisis imply that managers feel comfortable implementing changes they would not undertake if the crisis did not take place. This is important so that future SME managers in the F&B industry are better prepared to navigate the uncertainties of a crisis and are able to foresee the implications of implementing changes (or the lack thereof) in their business models due to the crisis.

2.5.3 Incorporating system dynamics modeling and simulations

As a methodology that can help understand performance drivers over time in a business, system dynamics could provide unique insights into future business owners and managers especially for SMEs in the F&B industry. System dynamics explains why the performance of a firm has unfolded in the way it has, can provide simulations and scenarios of likely future scenarios, and provide all necessary information for managers to improve their future outlook (Morecroft, 2015). For example, system dynamics can help SMEs in the F&B industry to understand what resources create more value and which elements could eventually evolve into a strategic component of the business model particularly due to critical conditions such as COVID-19. In addition to this, system dynamics can be an essential tool for SMEs in the F&B industry to better understand if any initiative undertaken during the crisis could potentially become part of the permanent portfolio of the firm. For example, restaurants that quickly introduced home delivery options due to COVID-19 could forecast how the service would play out once the crisis is over and what capabilities need to be redefined.

References

  • Cosenz, F., & Bivona, E. (2020). Fostering growth patterns of SMEs through business model innovation. A tailored dynamic business modelling approach. Journal of Business Research.
  • Johnson, G., Whittington, R., Scholes, K., Angwin, D. N., & Regnér, P. (2017). Exploring strategy 11th Edition. Pearson.
  • Morecroft, J. D. (2015). Strategic modelling and business dynamics: A feedback systems approach. John Wiley & Sons.
  • Sterman, J. (2000). Business dynamics: systems thinking and modeling for a complex world. Irwin McGrawHill.
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