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Principles of Productivity and Operations Management for Small and Mid-size Business

ABSTRACTcompetitiveness. The author points out that
SMEs have grown in number because in many
For this article, I selected a sector thatsectors barriers to entry of new firms were
has not been covered by authors and couldreduced and also because a greater motivation
hardly be found in books for Operationsof workers. Empirical studies, done on the US
Management. I find this topic's importanceand Italy, show that a firm's size and its
and significance to the global economy, andgrowth rate are negatively correlated.
the Western, in particular, very high.Nevertheless, argues La-Rovere, the reason
Authors and advocates (e.g., Schroeder, 2004)why only 40% of American SMEs have a
dealt with the large enterprises, from bothlife-span above 6 years, is mainly because
the manufacturing and service sectors; thetheir lack of liquidity. O'Gorman and Doran
smaller firms, known as Small Business,(1999) suggest that another factor that
Minority Owned Business, SME (Small andaffects SMEs, characterised by strong
Medium-size Enterprise), or SMB (Small andentrepreneurial leadership, is their state of
Medium-size Business), have been virtuallygrowth and ever-changing, which requires an
ignored  by  them.increasing need for the introduction of
formal structures, systems, procedures, and
DEFINITION  AND  CHARACTERISTICScontrols. Nevertheless, SMEs can achieve
global competitiveness without necessarily
A Small and Medium-size Enterprise is definedincreasing their actual size, argue Tetteh
differently, according to the purpose of eachand Burn (2001), but rather, by building on
definition; the "UK Department of Trade &their virtual or soft assets in order to
Industry" (2001) suggests that it is mainlyexpand. "These virtual assets include
because of the wide diversity of businesses.information skills, digital resources, and
The UK Department provides a basic definitioncompetencies for managing inter-firm
of SME, one that was used by the Boltonrelations and collaborative engagements with
Committee in its 1971 Report on Small Firms:other  firms".
"a small firm is an independent business,
managed by its owner or part-owners andThe World Bank Group's Small and Medium
having a small market share". The UKEnterprise Department claims to "combine the
Department also comes with statistics andmarket perspective of the International
hard numbers for its definition; however,Finance Corporation with the policy expertise
I'll use a more updated, and broaderof the World Bank to promote local small
definition of SME, which is given by "EUbusiness growth in developing nations" (last
Commission"  (2003):updated February 4th, 2004, website SMEs
play a key role in the developing countries'
The category of SME is made up of "autonomouseconomy, which is far greater than it is in
enterprises" which employ fewer than 250the Western countries. "SME in Bulgaria"
person and which have an annual turnover not(2001) estimates that following the 1990s
exceeding EUR 50 million, and/or an annualmajor privatisation, the number of SMEs
balance sheet total not exceeding EUR 43accounts for over 98% of all registered
million.economic entities; the vast majority of these
are micro-enterprises with less than five
An "autonomous enterprise" is any enterpriseemployees, and their main activities in the
that is not classified as a "partnerretail. However, 46.5% of Bulgaria's workers
enterprise"... or as a "linked enterprise".in 1999 were employed by SMEs; a figure that
Partner enterprise is an enterprise (upstreamis lower than the EU average. A study in
enterprise), that holds, either solely orBrazil shows that small and micro enterprises
jointly, 25% or more of the capital or voting(up to 100 employees) represent 51% of
rights or another enterprise (downstreamnational production, 42% of wages, 65% of
enterprise). [In the US it is normally calledemployment and 99% of enterprises registered
"small business" and depending on who ownsin the country ("SEBRAE", 1991). Statistics
it, perhaps a" minority owned business". Inshow that in the developed countries, 50
the US, minority owned businesses often getpercent of all innovations and 95 percent of
breaks on public projects and contact awards;all radical innovations since World War II
for example they can get a 5% higher scorehave come from new or smaller firms (Timmons,
because of their minority status when being1994). In 1996, SMEs in then
evaluated for public contracts in somefifteen-members-EU made 66% of the employment
cases.] Exceptions are public investmentshare, with six persons per enterprise in
corporations and venture capital companiesaverage ("European Foundation", 2001). In
that can hold more than 25%, provided theJapan of 1996, however, only 33% of the
total investment is less than EUR 1.25workers were employed by SMEs, with the
million. A "linked enterprise" is anaverage of ten persons per enterprise;
enterprise that has a majority ofnevertheless, argues the organisation, in the
shareholders' or members' voting rights inJapanese economy, SMEs play a way more
another enterprise... or has the right tocrucial role than in any Western country. The
exercise a dominant influence over anotherJapanese "Keiretsu" system of
enterprise.groups-of-businesses, with network of
cross-shareholding, makes these SMEs fall out
Within the SME category, a small enterpriseof the definition above, on technical
is defined as an enterprise which employsgrounds. The US is rated bellow the EU with
fewer than 50 persons and whose annualregards to the SME employment: only 42% of
turnover/ balance sheet total does not exceedthe workforce is employed in SMEs (relative
EUR  10  million.to EU's 66%), but when comparing between the
micro-enterprises, those with less than ten
Within the SME category, a micro-enterprisepersons, the difference is wider, with 33% in
is defined as an enterprise which employsEU and only 11% in the US. Some of SME's
fewer than 10 persons and whose annuallabour characteristics, as identified by
turnover/ balance sheet total does not exceed"European Foundation" for the Japanese
EUR  2  million.society, are extensive use of part-time
employees, non unionised and non-regular
This distinction is strongly correlated withemployees (family aid, seasonal and
the firms' organisation. Schlenker anddaily-temporary), lower salaries and benefits
Crocker (2003) suggest that micro-enterprisesand more annual working hours. In the US, on
are more often a mixture of sole traders orthe other hand, the SME labour is
sole proprietor organisations, which tend tocharacterised as more flexible, even when
behave as consultants rather than ascompared to the EU; this flexibility is a
corporate bodies. Small enterprises moreresult of informal communication, direct
often than not, begin to behave likesupervision, more broadly defined jobs, and
corporate bodies, with a corporate culturethe ability to capitalise on strengths of
and a clear division of responsibilities.individual employees to meet customer needs.
Medium sized enterprises often mirror theirOther aspects of the SME sector will be
corporate counterparts with a distinctdiscussed throughout the paper. However, the
corporate culture and a dedicated ITWorld Bank Group's initiative for building
function. The primary purpose of these firms,better business environments at the
they suggest, is not to maximize revenues,developing world, highlights some of the
but to generate an income for their owners;difficulties specific to SMEs in these
"they are more concerned with "quality ofcountries: difficult regulatory, tax and
life" issues than stock value... only 3 pertrade climate, barriers to entry, lack of
cent of all SMEs actually wish or are able tolegal  infrastructure  and  corruption.
grow, in terms of either employment or
turnover". Another characteristic of thisYou can find and read the full version of the
sector, point out the authors, is that mostarticle, a 26-page PDF that includes the
firms do not possess several of the corefollowing  topics:
processes (conception, manufacturing, sales,
delivery, after sales service) normallySME'S  OPERATIONS  STRATEGY
associated with "doing business". As a
result, SMEs are forced to collaborate withSME'S  QUALITY  MANAGEMENT
each other and with larger concerns to
survive, to compete, and to produceFLEXIBLE  PROCESS  DESIGN
sustainable revenues over time. A research
carried out in 1992, found that 41% of UKOWNERSHIP,  STEWARDSHIP,  AND  MANAGEMENT
SMEs competed primary on quality, 37%
competed primary on price, 13% on timeTECHNOLOGY  AND  FLEXIBILITY
(lead-time and on-time delivery), and 9% of
the SMEs competed primary on flexibilityINFORMATION  TECHNOLOGY  FOR  SME
(Neely  et  al.,  1994).
SME  AND  THE  SUPPLY  CHAIN
As for the growing importance of SME in the
global economy, La-Rovere (1996) suggestsREFERENCES
that empirical studies show a clear trend
towards reduction of size in firms of theFOOTNOTES
manufacturing sector in developed countries.
Possible reasons for this are the diffusionEzra Bar, MBA, PhD Student, is a Business
of flexible modes of production and theProcess Reengineering Consultant, for Small,
downsizing of large firms. In addition, sinceMid-size, and Large organisations, and an
the eighties SMEs have an increasinglyOnline Academic Mentor to Management and
important role in GDP in developed countries.Engineering Students, operating globally from
This is a result of the increasing importanceToronto.
of subcontracting and labour flexibility for



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