Management of Small to Mediumsized Enterprises SMEs Lecture

1
Management of Small to Medium-sized Enterprises
(SMEs) Lecture 1 Hsiuping Institute of
Technology

• Professor D.J. Visser, Ph.D.
• Professor of Management
• School of Business and Finance
• University of the Western Cape
• Bellville
• South Africa

2
Learning outcomes

• Explain how globalisation affects SMEs and leads
  to increased competition
• Understand the changing role of the SME manager
  in this global context
• Explain the essence of the World Class
  Manufacturing concept
• Distinguish between internal and external
  efficiency
• Understand the impact of culture on
  organisational behaviour
• Understand why management should be adapted to
  local needs
• Understand the process approach to management

3
Management of SMEs

• Introduction
• Emphasis on SMEs, industrial policy, growth
• New demands on managers, changing roles
• Need to understand local opportunities
  constraints
• Myths (story, fable, rumour) about SMEs
• Myth 1 SMEs are in desperate need of financial
  assistance
• Myth 2 There are quick fixes, e.g. we need a pc,
  loan, car, etc.

4
Christopher Columbus School of Management?
(1451-1506)

• When he left his port, he did not know where he
  was going to,
• When he arrived, he did not know where he was,
• When he returned, he did not know where he had
  come from.
• (Management Today,199814(4), May)

5
Globalisation

• Impact of Globalisation
• Need new management principles, coping with
  increased competition
• Emphasis on private sector
• Emphasis on SMEs state implementing changes
• Failure of large enterprises (as job creators)
• Impact of structural adjustment programmes
• Post-Fordist systems
• Move from rigid to flexible production systems
• Focus on downsizing
• Recognise entrepreneurs are the key to success

6
Evolution of Management Theory

• Contemporary approaches
• Systems approach
• Contingency theory
• Total Quality Management
• Learning Organisation
• Re-engineering

Organisation-Environment Theory
Classical approaches to Management
Management Science Theory/ Quantitative Management
WW II solving complex problems in warfare
Behavioural Management Theory/ Human Relations
movement
Mayo, Maslow, McGregor
Administrative/Bureaucratic Management Theory
Weber
Scientific Management Theory
Taylor, Gilbreth, Fayol
1890 1900 1910 1920 1930 1940 1950 1960
1970 1980 1990 2000
7
Developing countries in post-Fordist era

• Range of new programmes
• Job creation schemes
• Improving welfare
• Poverty alleviation
• Income augmentation (supplementation)
• Enhancement of technical entrepreneurial
  capacities
• Question Are these efforts activities good
  enough?
• Consequences of failure for developing countries
• Will remain marketing platforms for
  industrialised countries

8
New millennium demands on SME managers

• Trends since 70s
• Automation
• Massive capital injection
• High production volume
• These trends do not favour SMEs
• New business opportunities to SMEs
• Learn to use new situation (flexibility
  adaptability)
• Opportunities for SMEs in developing countries
• Flexibility
• Less bureaucracy
• Customer satisfaction

9
Competitiveness of SMEs

• Determining factors of competitiveness
• Modern business methods
• Applying modern management principles
• Focus on quality
• Management shortcomings in developing countries
• Lack of awareness of new trends
• Blame lack of capital as key constraint
• SMEs operating in traditional industries
• Characteristics of traditional industries
• Well-known technology
• Stable workforce
• Long-lasting knowledge (knowledge extensive)

10
Transition from Traditional to Service industry

• pi/ke people not retrained, machines lasted
  long, stable customer base

knowledge intensive (ki)
2
production industry (pi)
service industry (si)

• ki/si customers everywhere, constant changes,
  enterprises community are knowledge intensive

1
knowledge extensive (ke)
11
World-Class Manufacturing

• To some, striving for WCM seems impossible
• The concept
• applying the best and latest knowledge and
  ideas, having the ability to operate at the
  highest standards of any place anywhere
• ? quality, ? cost, ? new product development
• Elements of WCM
• New approach to product/service quality
• Flexible approach to customer requirements
• Changed approach to managing workforce
• Elimination of cost drivers (time thieves, i.e.
  costs which bring no benefits)

12
Managing change, culture and innovation

• Change takes place, no matter what deters it.
• (Plato, 428-347BC)
• Organisations long-term success ability to
  manage change
• IBM
• Slow to change
• Slow to take advantage of software opportunities
• Change with diversifying global environment

13
A changing environment

• Types of Change
• Planned to Unplanned
• Internal to External
• Adapting to a changing environment
• External environment Stable of Unstable?
• Internal environment Flexible or Rigid?
• Types of enterprise
• from
• Rigid, administrative, bureaucratic, dead
• to
• Flexible, dynamic, learning enterprises

14
Factors of change
Planned
new technologies
? in products
Strategic importance
Planned internal
Planned external

• Areas of change
• Changes in the organisation
• Changes in task
• Changes in people most difficult

Internal
External
Unplanned internal
Unplanned external
? in employee demographics
competition
Unplanned
15
Kurt Lewins taxonomy of Change
Unfreeze
Move
Refreeze
Desired state
Restraining forces

• Reasons
• Uncertainty
• Inconvenience
• Self-interest
• Loss job, insecurity
• Control power, status

Level of change
Status quo
Driving forces
Time
16
External SME Linkages

• Sources
• Access to new ideas, inputs, markets, products,
  business information necessary for change
• Operational framework for two situations Sweden
  and a developing country
• Level 1 close relationship with SMEs
• Level 2 reasonable relationship with SMEs
• Level 3 distant relationship with SMEs

17
External linkages Swedish example
Level Three
Universities
Export promoters
Level Two
Large enterprises
Branch organisations
Level One
Suppliers
Customers
SME
Banks
Local collaborators
Trade fares
Consultants
Training courses
Chambers of commerce
Research institutes
18
External linkages Developing country
Level Three
Local collaborators
Branch organisations
Export promoters
Level Two
Suppliers
Large enterprises
Level One
Banks
SME
Training courses
Customers
Trade fares
Chambers of commerce
Research institutes
Universities
19
Western paradigms local management

• A universal management theory?
• Weak "fit" between Western management models and
  different contexts
• West - East
• North - South
• South - South
• Assumptions of Western management models
• Abundant resources
• Free access to capital
• Pool of trained skilled labour
• Highly developed infrastructure
• Developing countries political, economical,
  social instability

20
Business fads - quo vadis?????

• Theory Z
• T-Groups
• Centralisation
• Decentralisation
• Matrix management
• Managerial grid
• Conglomeration
• Theory Z (II)
• Intrapreneuring

• Demassing
• Restructuring
• Corporate culture
• One-minute manager
• Management by Walking Around
• Zero-based budgeting
• Experience curve
• Portfolio management
• Re-engineering

Since the 1960s a new fad introduced every 2½
years!
21
How not to manage SMEs (1)

• Dakota tribal wisdom and dead horses
• Buy a stronger whip
• Changes riders
• Say things like this is the way we have always
  ridden a horse
• Appoint a committee or field an expert mission to
  study the horse
• Arrange visit other sites to see how they ride
  dead horses
• Rewrite the standards for dead horse performance
• Appoint a tiger team to revive the dead horse
• Create a training session to increase riding
  ability
• Compare the state of dead horses in todays
  environment
• Change the requirements declaring that this
  horse is not dead
• Hire consultants to ride the dead horse
• Harness several dead horses together to increase
  speed and pulling power
• Declare that no horse is too dead to beat

22

• Provide additional incentive funding to increase
  the horses performance
• Do a study to see if consultants can ride it
  cheaper
• Purchase a software product to make dead horse
  run faster
• Declare that the horse is better, faster and
  cheaper dead
• Form a quality circle to find uses for dead
  horses
• Revisit the performance requirements for dead
  horses
• Say this horse was procured with cost as an
  independent variable
• Promote the dead horse to a supervisory position
• Shorten the track
• Establish a benchmark for industry dead-horse
  leaders
• Gather other dead animals and announce a
  diversity programme
• Put together a spiffy PowerPoint presentation to
  get planners to double the dead horses budget
• Get the horse a website

23
Questions

• If you have any questions?
• Thank you very much for attending this lecture.