Risk management capability building in SMEs: A social capital perspective

Abstract

This article addresses the under-researched issue of risk management (RM) and risk management capability building in small and medium sized enterprise (SMEs). It draws upon theories of social capital to explain enablers and obstacles for RM capability building and practice sharing in a small and medium-sized construction enterprise in China. Two related propositions are made: first, RM capability is built by SMEs without formal structures and knowledge; and second, such firms are more likely to adopt informal processes to develop RM capability. The article concludes that the role of cognitive capital is the most important for the RM capability building of SMEs and that cognitive capital plays a crucial role in accumulating structural and relational capital. It proposes a model of cognitive capital-based RM capability building in which integrates communication, knowledge, relationship and learning.

Developing Risk Management as a Competitive Capability

“…A number of scholars (Sitkin and Pablo, 1992;Sitkin and Weingart, 1995;Forlani and Mullins, 2000;Keh et al, 2002;Mullins and Forlani, 2005;Janney and Dess, 2006;Gao et al, 2012;Podoynitsyna et al, 2012) have examined the risk behaviour of SMEs. Sitkin and Pablo (1992) for example suggested that the risk preference of an individual may be mediated by their risk propensity.…”

“…The final question (Question 8) sought to explore risk maturity, a first step in the development of risk management capability (see Gao et al, 2012).…”

“…This finding raises 18 concerns, particularly in relation to the ability of the firm to foster a shared risk culture that will support the development of a shared risk management capability. Research (Gao et al, 2012) has already shown that SMEs lack appropriate risk management capability; thus the existence of varying genres of risk culture raises considerable concerns. One primary reason is that research (Boholm and Corvellec, 2011) had already shown that risk culture is primarily a social process characterised by relationship networks.…”

“…Aloulou and Fayolle, 2012;Covin and Wales, 2012) have shown that entrepreneurial orientation, which articulates consistent tendencies towards entrepreneurial behaviour, comprises three distinct behavioural components -innovativeness, risk-taking and proactiveness. Our interest in risk management is, however, driven by literature (Kreiser et al, 2010;Gao et al, 2012;Podoynitsyna et al, 2012), which suggests that risk management is a critical aspect of value creation in SMEs.…”

“…Although risk is a critical aspect of management for SMEs, it still remains underresearched (Blackburn and Kovalainen, 2009;Herbane, 2010;Gao et al, 2012). The risk challenges faced by SMEs is further compounded by the reality that lessons for best practice remain largely drawn from knowledge developed from adjacent disciplines, thus creating a situation where contexts specific to SMEs are not captured (Ruefli et al, 1999).…”