PERFORMANCE IN SMALL FIRMS: A CONTEXTUALISED APPROACH

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PERFORMANCE IN SMALL FIRMS A CONTEXTUALISED
APPROACH

• JEAN CLARKE
• LEEDS UNIVERSITY BUSINESS SCHOOL

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AIMS OF THE LECTURE

• To build on previous lecture on small firm
  development
• To outline a more contextualised approach to
  small firm performance
• To emphasise three performance measurement tools
  which can be used to stimulate discussion and
  reflection
• To complete a number of group tasks

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CONTEXTUALISING PERFORMANCE

• As outlined previously, vast majority of studies
  of small firm growth and performance remain based
  on de-contextualised, objectivist approaches
• Treat the owner-manager and their context as
  mutually exclusive properties
• Problem small business growth and development
  related to values and life-views of the
  owner-manager (Beaver et al, 1998)
• Performance as idiosyncratic construct
  performance is uniquely defined by those involved
  in performing rather than external evaluation of
  successful performance

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GROUP TASK

• Divide into groups of five individuals
• Discuss why it is important to take account of
  owner-managers aims and ambitions for the
  business
• Think of some reasons why a small business
  owner-manager/entrepreneur may want to remain
  small
• Think of potential problems with simply ascribing
  the same strategies to all small firms

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REFLECTION AND DIALOGUE

• The key to supporting small firm performance is
  to move away from generic objectivist strategies
• Owner-manager and others in the business should
  engage with their own particular strategy for the
  firm through process of reflection and dialogue
• How can this communication be mediated?
• In recent research Thorpe et al (2005a) found the
  use of boundary objects may facilitate
  owner-managers in engaging with their aims and
  ambitions for the business

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BOUNDARY OBJECTS

• boundary objects may take the form of a diverse
  number of artefacts
• performance measurement systems may allow certain
  dilemmas, contradictions and ambiguities to be
  discussed and reconciled, leading to coherent
  strategy (Thorpe et al, 2005a)
• PM systems are balanced and dynamic systems that
  are able to support the decision-making process
  by gathering, elaborating and analysing
  information (Garengo et al, 2005 25)
• While such tools are often applied in a
  prescriptive manner, whats important here is not
  the content of the tool itself but rather the
  communication which the tools may mediate

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PERFORMANCE MEASUREMENT TOOLS

• Allows owner-manager to re-engage with what is
  important to them in their own particular
  strategy
• Three performance measurement systems are
  outlined which are applied in the small firm
  sector (Anderson et al, 2001 Taylor and MacAdam,
  2003).
• Balanced Scorecard (Kaplan and Norton, 1992)
• Business Excellence Model for assessing
  applications for the UK Business Excellence
  Award.
• The final measurement tool is Gross Value Added
  (GVA), a method of measurement used by support
  agencies such as Business Link throughout the UK.
  (Thorpe et al, 2005b)

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THE BALANCED SCORECARD

• High-profile model which has attracted much
  attention from both practitioners and academics
  (Norreklit, 2000)
• What managers need is a set of performance
  measures which focus on a broad range of aspects
  of the organisation relating to its priorities
  for success
• Performance indicators need to be balanced
  between the financial and non-financial as well
  as intervention and monitoring measures
• The balanced scorecard identifies and integrates
  four aspects of performance financial internal
  business processes customers, and
  organisational learning
• Linked together in cause-and-effect relationship
  provides a comprehensive understanding of the key
  operational factors (Kaplan and Norton, 1996)

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THE BALANCED SCORECARD

• May be used to clarify and gain consensus about
  strategy obtain feedback to learn and improve
  strategy
• the greatest benefit of the Balanced Scorecard
  for SMEs is often based on clarification of the
  strategic vision as a way to build a consensus
  (Anderson et al, 2001)
• Must ensure that there is collective effort
  between all parties in the organisation, during
  the building of the scorecard and during the
  subsequent implementation
• The scorecard needs to be rooted in the language
  of the employees (Norreklit, 2000)

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THE BALANCED SCORECARD
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BUSINESS EXCELLENCE MODEL

• Business Excellence Model (BEM) designed to act
  as a general management system and help improve
  the basic managerial processes of the
  organisation (EFQM, 2001)
• A practical tool which measures where
  organisations are on the path to excellence
  helping them understand the gaps and stimulate
  solutions (BQF, 2006)
• Argues regardless of the sector, size, structure
  or maturity of a business, all organisations need
  to establish appropriate management systems.
• Framework based on nine criteria, five of these
  are enablers (i.e. what the organisation does)
  and four are results (i.e. what the
  organisation achieves)

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BUSINESS EXCELLENCE MODEL

• Award was originally designed for large private
  sector organisations 1996 specific guidelines
  SMEs were launched
• The BEM is applied in organisations through a
  process of self-assessment - allocate a score for
  each of the criterion.
• Could be misleading small companies which have
  very different issues and drivers from the large
  private founding companies of the BEM (Taylor and
  McAdam, 2003)
• Rather than emphasising the scoring and
  comparison process of engaging in dialogue about
  the strengths and problems in an organisation can
  highlight the goals and ambitions of the
  owner-manager

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BUSINESS EXCELLENCE MODEL
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GROSS VALUE ADDED

• In recent years UK Government has used GVA as a
  measurement of productivity improvements -
  Business Links now required to collect GVA data
  from clients
• The focus is on GVA as output measure of the
  creation of wealth but not on creation process
  itself.
• May also allow the owner-manager and others in
  their business, to reflect on how the business
  may be structured in a variety of ways which can
  add value.
• In recent study Thorpe et al (2005b) aimed to
  show how such a process could work through giving
  emphasis to GVA as a communication tool in a
  small owner-managed business.

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GROSS VALUE ADDED
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GROUP TASK

• Tutor will read out vignette
• Imagine Mary has come to you as a management
  consultant to advise her on what she should do.
• Drawing on what youve learned throughout this
  lecture, discuss in groups what is the best
  course of action for to you to take as Marys
  advisor.
• Develop a strategy and present it to the other
  groups.

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CONCLUSION

• Emphasis is not on the strategic orientation of
  the tool itself and whether the tool is right
  or wrong but on the process dialogue which it
  encourages.
• Alternative to mainstream strategies offered by
  governmental agencies
• By attempt to force contrived structures on SMEs
  policy makers are likely to continue to face
  failure.
• Rather than approaching small firm performance we
  must join them in their world (CEML, 2002)
• Understand SMEs as characterised by heterogeneity
  and the pursuit of a variety of different
  objectives.