PERFORMANCE IN SMALL FIRMS: A CONTEXTUALISED APPROACH

1. PERFORMANCE IN SMALL FIRMS: A CONTEXTUALISED APPROACH JEAN CLARKE LEEDS UNIVERSITY BUSINESS SCHOOL

2. 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

3. 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

4. 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

5. 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

6. 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, what’s important here is not the content of the tool itself but rather the communication which the tools may mediate

7. 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)

8. 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)

9. 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)

10. THE BALANCED SCORECARD

11. 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)

12. 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

13. BUSINESS EXCELLENCE MODEL

14. 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.

15. GROSS VALUE ADDED

16. 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 you’ve learned throughout this lecture, discuss in groups what is the best course of action for to you to take as Mary’s advisor. • Develop a strategy and present it to the other groups.

17. 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.