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Small & Mid-size Business

About this page:

Small and Mid-Size Enterprises (SME), and Smaller Businesses in particular, are unique in their characteristics and needs.

Ez-B-Process has conducted many projects for Small Businesses: for IT definition and implementation, for Business Strategy development, for Business Process Improvements, and more.

In This Page you'll find issues specific to SMEs, presented in an academic manner:

Definition and Characteristics,

Operations Strategy,

Quality Management,

Technology and IT,

References are in APA Style, and whenever possible, they include links to the sources (e.g., books, articles, websites, etc.).

You may also want to view the other pages related to business consulting services; IT Development, and Business Process Reengineering as well as the Resources page.

Please Contact us for more information about our Consulting Services for Small Enterprises (Please do not modify the subject line of your email).

Definition and Characteristics:

UK Department of Trade & Industry (2001): “A small firm is an independent business, managed by its owner or part-owners and having a small market share."
EU Commission (2003): "The category of SME is made up of 'autonomous enterprises' which employ fewer than 250 person and which have an annual turnover not exceeding EURO 50 million, and/or an annual balance sheet total not exceeding EURO 43 million."

"An 'autonomous enterprise' is any enterprise that is not classified as a 'partner enterprise'… or as a 'linked enterprise'. Partner enterprise is an enterprise (upstream enterprise), that holds, either solely or jointly, 25% or more of the capital or voting rights or another enterprise (downstream enterprise)."

"Within the SME category, a 'small enterprise' is defined as an enterprise which employs fewer than 50 persons and whose annual turnover/ balance sheet total does not exceed EURO 10 million."

"Within the SME category, a 'micro-enterprise' is defined as an enterprise which employs fewer than 10 persons and whose annual turnover/ balance sheet total does not exceed EURO 2 million."
Schlenker and Crocker (2003): "Micro-enterprises are more often a mixture of sole traders or sole proprietor organisations, which tend to behave as consultants rather than as corporate bodies."

"Small enterprises more often than not, begin to behave like corporate bodies, with a corporate culture and a clear division of responsibilities."

"Medium sized enterprises often mirror their corporate counterparts with a distinct corporate culture and a dedicated IT function."

The primary purpose of these firms, is not to maximize revenues, but to generate an income for their owners; they are more concerned with 'quality of life' issues than stock value… only 3 per cent of all SMEs actually wish or are able to grow, in terms of either employment or turnover."

"Most small firms do not possess several of the core processes (conception, manufacturing, sales, delivery, after sales service) normally associated with 'doing business'." As a result, SMEs are forced to collaborate with each other and with larger concerns to survive, to compete, and to produce sustainable revenues over time.
Neely et al.. (1994): A research carried out in 1992, found that 41% of UK SMEs competed primary on quality, 37% competed primary on price, 13% on time (lead-time and on-time delivery), and 9% of the SMEs competed primary on flexibility.
La-Rovere (1996): SMEs have grown in number "because in many sectors barriers to entry of new firms were reduced and because a greater motivation of workers."

Empirical studies, done on the US and Italy, show that "A firm's size and its growth rate are negatively correlated."

"The reason why only 40% of American SMEs have a life-span above 6 years, is mainly because their lack of liquidity."
Tetteh and Burn (2001): "SMEs can achieve global competitiveness without necessarily increasing their actual size," but rather, by building on their virtual or soft assets in order to expand. “These virtual assets include information skills, digital resources, and competencies for managing inter-firm relations and collaborative engagements with other firms”.

SME Operations Strategy:

Schroeder (2004): The Operations objectives, as are derived from the corporate strategic goals are "low-cost of operations, high quality of products and services, on-time delivery, operational flexibility and innovation." These operations objectives are, even to a greater extent, true in the sector of smaller firms, which have a single Strategic Business Unit (SBU) and only one or few manufacturing plants.
Lowson (2002): Whereas "Focused Operations" is essential for large corporations' SBUs, SMEs should be more general-purpose companies with flexible factories: "agile and flexible operations aim to produce highly customized products at a cost comparable with mass production, using short lead times. The tailoring of products to demand includes a higher element of service and thus greater added value. A flexible workforce, structure and production technologies (especially through the use of computer-integrated manufacturing) are all contained within a learning culture."
Lowson (1998) discussed SME’s flexibility, and state that they “suffer from lack of specialism, that requires a degree of stability, so the same task can be performed repeatedly and skills can be perfected…[since] the more flexible and adaptive generalist becomes more valuable, [thus,] this firm is ideally suited to providing a variety of customised product and service combinations in response to constantly changing customer needs. Specialisation is only economically feasible if the output of the firm is sufficiently large, so the time and work of specialists or experts can be fully utilised”.
Coviello, Ghauri and Martin (1998) analysed software development firms, as representing "soft" service SMEs, and found that “to enhance potential, managers of service SMEs should emphasize investment in skilled, committed personnel [and] a network of formal and informal relationships that offers market contacts, access, and support for their firm. It is these relationships that will allow the firm to overcome its perceived size disadvantage while at the same time, retain the flexibility that is a strength of smaller firms”.

SME Quality Management:

Gunasekaran, Forker and Kobu (2000): Compared with large organizations, SMEs have been slow to adopt Total Quality Management, TQM
Parkin and Parkin (1996): The TQM concept plays different roles in SMEs and in the large enterprises. A research found that UK-owned SMEs (both manufacturing and service sectors) are better at implementing TQM, when compared to control-group of UK-based Japanese-owned companies. “Because TQM is practiced widely in Japan, it was assumed that Japanese companies would, in fact, already implement such management methods. Therefore, a wide variety of sizes and types of company was included in this group to cover a cross-section of industry and commerce”.

The study found that British SMEs are very good at implementing TQM (73.7%) and at commitment to the programme (78.2%). Nevertheless, realisation of TQM’s full potential lagged behind (63.8), with implications to customer satisfaction; the most likely reason is failure to translate management strategies into employee actions. The authors recommend on thorough investigation into this area, with a view to further raising awareness of the potential benefits of TQM at the SME sector.
Mackau (2003) found that in most cases, particularly in SMEs, the process of implementing TQM followed the ISO 9000 standard.

The study found that although there is an EFQM model especially for SMEs (five European universities entered a study for developing an SME-specific quality reward application: the framework of “EQA for SMEs” was introduced in 1997), “the acceptance of the EFQM approach seems to be limited to big enterprises; SMEs prefer to choose the ISO 9000 standard.”
Wilkes and Dale’s (1998): "Education in the philosophy of TQM and continuous improvement is extremely important to SMEs, and should be delivered by bodies which fully understand their needs."

Technology and IT for SME:

Levy, Loebbecke and Powell (2003):“SMEs are knowledge generators but are poor at knowledge exploitation.” They suggest that SMEs adopt the concept of Co-Opetition, defined as “simultaneous cooperation and competition, [which] entails sharing knowledge that may be a key source of competitive advantage, yet, the knowledge gained by cooperation may also be used for competition”.
Schlenker and Crocker (2003): There is a direct link between technology and flexibility, between sophistication and agility. “Technology that improves a company's ability to produce products and services that correspond to client needs is good technology; and in any other case it may well be a waste of money.”

The Web is not a universal solution adapted to all firms in all markets, and "Internet technologies alone cannot create value in a firm whose strategy does not match client expectations. Nonetheless, in the right conditions, and with the right partners, the deployment of Internet technologies can help reinforce the competitive position of small business both now and in the future."
Lowson (2002): Technology supports products and processes; however, "SMEs cannot afford the investment in expensive technologies, and should focus on flexible machines and processes that can be adaptable for multiple purposes. [They should have] internal operational flexibility that supports rapid changes and diversification in product and service combinations."
La-Rovere (1996) discusses the role of Information Technology (IT) in the SME sector: “The convergence in telecommunications and informatics is creating new opportunities for SMEs in several activities like provision of on-line services, software and applications development, electronic publishing and multimedia. Besides, if flexible production rests on networked SMEs, IT becomes essential to improve the competitiveness of firms by easing the flow of information within and outside the network.”

SMEs usually have low IT utilisation, due to lack of several factors, “such as resources, information concerning IT, skilled employees, and managerial abilities, as well as due to difficulties in adapting IT to their organizational needs”. This, in turn, leads to SMEs adapting an IT strategy that “is not proactive, but a reaction, usually partial, to pressures from clients and/or suppliers.”
Tetteh and Burn (2001) argue that e-business, supported by the World Wide Web, "offers exciting new opportunities for small and medium-sized enterprises to extend their customer base into the global marketplace"; a virtual organisation is the most extreme mode of e-business, to which an SME can develop. However, they add, "in order to exploit these advantages in a global strategy, the SME needs to adopt an entirely different approach to strategic planning and management which can enable it to deploy an extensive infrastructure network based on shared resources with other firms."
Huin, Luong and Abhary (2002): In general, large enterprises, and some of the top-end of medium-sized ones, too, need an organisation-wide ERP (Enterprise Resource Planning) system; an expensive system, which they can afford the purchase and operational costs. Also, "ERP features, business process flow, and implementation methodologies, primarily developed by the major consulting companies such as Andersen, Deloitte, PricewaterhouseCoopers, Ernst & Young, etc., have been designed based on practices in the larger organizations."

Small-sized manufacturers’ needs, operating requirements, logistics fulfilment and financial capabilities of the SME are vastly different from the “first and second tier manufacturers”. Therefore, SMEs should, naturally, focus on MRP (Material Requirements Planning) systems, rather than ERPs; for the smaller firms in the spectrum, MRP-I will be sufficient, while the larger ones can afford the MRP-II with its facility planning and shop-floor control sub-systems.

"The deployment of ERP systems in manufacturing SMEs is simpler in some aspects compared to large corporations, but can be more complicated in others.
Polkinghome (1997, cited in Gunasekaran, Forker and Kobu, 2000) suggests the "application of new technological solutions, such as Flexible Manufacturing System (FMS), to Scheduling Systems for SMEs."
Gunasekaran, Forker and Kobu (2000): In order to improve productivity, the operations manager "should look at improving the technology, interface between departments, organizational aspects, as well as the people management in both a global and a systematic way." An MRP system allows small-sized manufacturing firms to minimise inventory and optimise the master schedule, within the constraints they are operating; working in a highly unpredicted environment, when orders are entered by the large-firm clients, with short lead-times that are determined (and enforced) and prices that leave low margins of profit. These factors force the small manufacturing company to have an extremely efficient operation, which, in turn, means deployment of computerised systems that will support the planning and control.
Humphreys, McCurry and McAleer (2001): Empirical research suggests that companies able to implement MRP-II successfully, "report enhanced competitive positions, improved customer service levels, a better financial position, increased plant efficiency, heightened morale in production, more effective co-ordination with marketing and finance, more efficient production scheduling and reduced inventory levels, fewer component shortages, reduced manufacturing costs and lead times and improvements in inventory turnover."

The low rate of successful implementations of MRP-II in SMEs, is related to the missing of “process of change management in general and effective leadership in particular”. In addition, these firms are being growing while undergoing this organisation-wide change; top management’s attention is to the growing operations and they cannot commit themselves to leading the change initiative. Also, technology implementation requires high level of organisational stability, which is not in place in a growing firm.

References

Coviello, N. E., Ghauri, P. N. & Martin, K. A-M. (1998). International competitiveness: Empirical findings from SME service firms. Journal of International Marketing, 6(2), 8-27.
EU Commission (2003, May 20). Commission recommendation of 6^th May 2003 concerning the definition of micro, small and medium-sized enterprises. Official Journal of the European Union, I.124, 36-41. Retrieved from website: http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_124/l_12420030520en00360041.pdf
Gunasekaran, A., Forker, L. & Kobu, B. (2000). Improving operations performance in a small company: A case study. International Journal of Operations & Production Management, 20(3), 316-335.
Huin, S. F., Luong, L. H. S. & Abhary, K. (2002). Internal supply chain planning determinants in small and medium-sized manufacturers. International Journal of Physical Distribution & Logistics Management, 32(9/10), 771-782.
Humphreys, P., McCurry, L. & McAleer, E. (2001). Achieving MRPII Class A status in an SME - A successful case study. Benchmarking, 8(1), 48-61
La-Rovere, R. L. (1996). IT diffusion in small and medium-sized enterprises: Elements for policy definition. Information Technology for Development, 7(4), 169-181.
Levy, M., Loebbecke, C. & Powell, P. (2003, March). SMEs, co-opetition and knowledge sharing: The role of information systems. European Journal of Information Systems, 12(1), 3-17
Lowson, R. H. (1998). Quick response for small and medium-sized enterprises: A feasibility study. Manchester, UK: The Textile Institute.
Lowson, R. H. (2002). Strategic operations management: The new competitive advantage. London: Routledge.
Mackau, D. (2003). SME integrated management system: A proposed experiences model. The TQM Magazine, 15(1), 43-51.
Neely, A., Mills, J., Platts, K, Gregory, M. & Richards, H. (1994). Realizing strategy through measurement. International Journal of Operations & Production Management, 14(3), 140-152.
Parkin, M. A. & Parkin, R. (1996). The impact of TQM in UK SMEs. Industrial Management + Data Systems, 96(4), 6-10.
Schlenker, L. & Crocker, N. (2003). Building an e-business scenario for small business: The IBM SME Gateway project. Qualitative Market Research, 6(1), 7-17.
Schroeder, R. G. (2004). Operations management: Contemporary concepts and cases (2^nd ed.). New York: McGraw-Hill.
Tetteh, E. & Burn, J. (2001). Global strategies for SME-business: Applying the SMALL framework. Logistics Information Management, 14(1/2), 171-180.
UK Department of Trade & Industry (2001, February). Small and medium enterprise (SME) – Definition. Retrieved from the Department’s website: http://www.dti.gov.uk/SME4/define.htm
Wilkes, N. & Dale, B. G. (1998, December). Attitudes to self-assessment and quality awards: A study in small and medium-sized companies. Total Quality Management, 9(8), 731-739.