1 INVESTIGATING SUSTAINABLE STRATEGIES FOR TURNING ROUND ‘STUNTED GROWTH’ BUSINESSES Carmine Bianchi Department of Management, Faculty of Political Sciences, University of Palermo, Palermo, Italy bianchi@unipa.it Graham W. Winch University of Plymouth Business School, Plymouth, United Kingdom graham.winch@plymouth.ac.uk { CONTACT: Prof. Carmine Bianchi, Full Professor in Business Management, bianchi@unipa.it ABSTRACT A distinctive group of small companies, and especially micro-firms, comprises those that have survived through many years, maybe many generations, providing their owners with acceptable returns and lifestyles, but have remained very small despite having significant growth potential - the ‘dwarf’ or ‘stunted’ small firm (in Italian nanismo aziendale). The ability of such firms to break out from this situation varies with external opportunities, but especially with regard to internal strategic resources and the attributes of the owner- entrepreneurs. This paper builds from earlier work by presenting a fully developed insight model which is used to examine a wide range of scenarios representing different constraints and opportunities. The simulations confirm that simple changes in owner-manager attitudes could potentially enable a stunted firm to break into growth-mode, but also to gradually degenerate into structural instability or even crisis. A changing set of relevant external variables, such as those related to competitors’ strategies, pose further challenges. These results add significantly to the understanding of this particular aspect of growth dynamics in small firms. More directly, the model has also been developed into an easy-to-use Interactive Learning Environment (ILE), or ‘management flight simulator’ tool that could be used directly by small company owners to help them understand why their stunted nature means they might be missing opportunities for enhancing their revenues and net worth. Simulations with the ILE, examining a potential crisis scenario, are shown to demonstrate its use. INTRODUCTION Within the range of small companies, and especially micro-firms, there is a group that have survived through many years, maybe many generations, providing their owners with acceptable returns and lifestyles, but have remained very small despite them having significant growth potential. This phenomenon is recognised in the literature as the ‘dwarf’ (in Italian nanismo aziendale) or ‘stunted’ small firm (see, for example, Rapporto ISAE – 4th Report, 2003; Brown & Kirchhoff, 1997; Gibson, 2002; Holmes & Zimmer, 1994; Russo, 1988). The ability of such firms to break out from this situation varies according to external opportunities, but especially with regard to internal strategic resources and the attributes of the owner-entrepreneurs. Previous work by the authors (Bianchi & Winch, 2005a) has used case study evidence to characterise different firms and has then presented qualitative analysis to provide some initial ideas in how such firms could break out from this condition. This earlier work lead to the conclusion that a business simulator could be of significant value in investigating the change process, and a preliminary model was posited. The work described in this paper builds from that earlier work by presenting a fully developed insight model. This model includes a more extensive representation of critical strategy assets, reflects the base dynamics (or ‘reference behaviour mode’) expected of stunted firms, and then examines a wide range of scenarios representing different constraints and opportunities for entrepreneurs to change their firms into ones that could achieve long-term sustainable growth. Finally it introduces the notion of an Interactive Learning Environment (ILE) that comprises the core model within an easy to use business simulator. The simulator Agse Conference, Auckland (New Zealand), February 2006