Knowledge Management in Small and Medium-Sized Enterprises. Dr. Susanne Durst

1. Introduction TO SMEs By Assoc. Dr. Susanne DursT South Ural State University – 13 December 2016

INTRODUCTION TO SMES
BY ASSOC. DR. SUSANNE DURST
SOUTH URAL STATE UNIVERSITY –
13 DECEMBER 2016
UNIVERSITY OF SKÖVDE – WWW.HIS.SE/EN
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2. Agenda

AGENDA
1.Differences between small and large firms
2.Economic impact of SMEs
3.Defining SMEs
4.Working in SMEs
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3. Key differences between small and large businesses

KEY DIFFERENCES BETWEEN
SMALL AND LARGE BUSINESSES
Aspect
Small Business
(SB)
Large Business
(LB)
Consequence
Risk of failure
High
Low
SB focus on
survival/growth
Market power
Price taker
Price maker
SB focus on niche
Management
Owner–manager
Employee–
manager
SB incentives
more aligned
Owner’s
motivation
Diverse
Shareholder value
Diverse business
performance
Brand
No brand value
Brand important
LB focus on brand
Strategy
Flexibility
Price
SB more likely to
pioneer
innovation
Internal
organisation
Informal
Formal
LB seeks to reduce
‘internal’
uncertainty
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4. Key differences between small and large businesses (Continued)

KEY DIFFERENCES BETWEEN SMALL
AND LARGE BUSINESSES (CONTINUED)
Aspect
Employee wages
Small Business
(SB)
Low
Large Business
(LB)
High
Human resources
Diverse (e.g.
Attracts educated
satisfied/exploited) workers seeking a
practices
career
Formal training
Low
High
Investment
Low
High
Finance
Limited choice
Wider choice
Political influence
Low
High
Consequence
Hire different
types of workers
SB job satisfaction
higher but LB have
better pay
SB seen as
‘backward’
LB focus on
investment
LB have greater
access to finance
LB have more
political power
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5. Word associations

WORD ASSOCIATIONS
How do small and large businesses see themselves?
Small businesses – customer focused
Large – reliable
How is it seen by the other?
Small (by large) – lacks credibility, unreliable
Large – bureaucratic, price maker
What are the key words?
Small – uncertainty, diversity, flexibility, failure
Large – reliability, brand, market power, influence
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6. Why focus on small business?

WHY FOCUS ON SMALL BUSINESS?
Small businesses are the most common size of businesses wherever
you are in the world: in all countries large businesses represent less
than 5 per cent of the enterprise population
Contribute a great deal to employment and income of any economy: in
the EU, two-thirds of employment is provided by SMEs
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7. SMEs are numerically dominant globally

SMES ARE NUMERICALLY DOMINANT
GLOBALLY
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8. Number of SMES in Russia

NUMBER OF SMES IN RUSSIA
• There are about 4,6 mln small and medium enterprises,
including 2,9 mln private entrepreneurs
• 1,4 mln micro-enterprises (up to 15 employees, annual
sales without VAT up to 1,5 mln EUR);
• 229.000 – small companies (up to 100 employees,
annual sales without VAT up to 10 mln EUR);
• 25.700 – medium companies (up to 250
• employees, annual sales without VAT up to 25 mln EUR).
• SME employ 19 mln people (14% of the total population of
Russia) that is about 22% from the general employment
over Russia
Source: RUSSIAN AGENCY FOR SUPPORT OF SMALL & MEDIUM BUSINESS
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9. Enterprises, Employment and Gross Value Added of SMEs in the EU-27, 2012

ENTERPRISES, EMPLOYMENT AND
GROSS VALUE ADDED OF SMES IN THE
EU-27, 2012
(European Commission, 2013)
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10. Defining the small business

DEFINING THE SMALL BUSINESS
Difficult because there are different ways of classifying small business
activity
Self-employment – no agreed definition but does often involve four
elements:
Control
Integration
Economic reality
Mutuality of obligation
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11. Bolton’s (1971) conceptual definition of a small business

BOLTON’S (1971) CONCEPTUAL
DEFINITION OF A SMALL BUSINESS
• Owned and managed by the same individual(s) – focus on alignment
of aspirations
• Legally independent – focus on enterprises rather than
establishments
• Have a small share of the marketplace – price takers
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12. Curran and Blackburn’s (2001) approach

CURRAN AND BLACKBURN’S (2001)
APPROACH
Problems with Bolton’s qualitative approach
Small businesses are heterogeneous
Small in one sector may be large in another
How do you measure small businesses?
Prefer ‘grounded approach’ (asking small businesses to self-define
‘smallness’)
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13. European Union’s definition

EUROPEAN UNION’S DEFINITION
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14. Russia’s SME Definition

RUSSIA’S SME DEFINITION
http://www.doingbusiness.ru/definition-of-sme/support-contacts/sme-support/definition-ofsme-eu-vs-russia/item
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15. International problems with measuring SMEs

INTERNATIONAL PROBLEMS WITH
MEASURING SMES
Figures tend to only count ‘formal’ businesses
Micro-sized businesses less likely to be registered
May operate in the informal economy
Registration thresholds likely to be set higher than lower
No standard measure of what is an ‘SME’
Yet despite these issues, SMEs are most common type of enterprise in
the world
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16. Greater levels of job satisfaction in smaller businesses

GREATER LEVELS OF JOB SATISFACTION
IN SMALLER BUSINESSES
Violence and harassment, by business size,
EU-27 (%)
Figure 4.4
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17. Why are small business workers more satisfied?

WHY ARE SMALL BUSINESS
WORKERS MORE SATISFIED?
Large business workplaces have greater levels of formality (rules and
procedures)
Smaller business workplaces marked by greater levels of informality
(e.g. owner-managers more likely to know their staff)
In Europe: higher job satisfaction must be related to aspects such as
work autonomy and the meaningfulness of the work. Experts
confirm that it is particularly the "soft" side of the work relationship
that is valued highly by employees in SMEs. Employees seem to
value the face to face relationships in SMEs positively, and most
managers at SMEs are not autocratic (EIM, 2011).
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18. Remuneration

REMUNERATION
Employees in SMEs tend to receive lower wage levels than in large
enterprises, even when a correction is made for enterprise, job and
employee characteristics
Possible explanations:
• Labour productivity increases with firm size.
• Larger firms have more financial resources.
• SMEs can better monitor individual employees, whereas large
enterprises pay a premium to avoid shirking.
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19. Job Security

JOB SECURITY
Job security is found to be a key element of job satisfaction.
A prerequisite for job security is the continued existence of the
enterprise.
The risk of enterprise death is much higher in SMEs. Roughly half of
all start-ups die within 5 years, and SMEs constitute a large
majority of this group.
SMEs and micro enterprises in particular are less likely to hire
workers from temporary work agencies than large enterprises are
(EIM, 2011).
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20. Skill Development

SKILL DEVELOPMENT
In comparison to large enterprises, micro and small enterprises show
a preference for fewer formal training activities. The most common
training methods within SMEs are on-the-job training and selfdirected learning. Somewhat less common is the provision of
training courses.
For large enterprises, the most common training methods are on-thejob training and internal and external training courses.
Enterprises with higher shares of full-time workers, highly educated
employees or young employees are more likely to provide training.
This is also the case for larger enterprises and innovative
enterprises.
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21. Recruitment and Selection

RECRUITMENT AND SELECTION
Large firms will mostly use strict criteria when recruiting new
employees (for example, demanding a degree indicating that a
certain educational level has been obtained), owner-managers
from micro and small firms will more often rely on informal, wordof-mouth recruitment methods.
For these persons, the actual level of an applicant's motivation,
knowledge and skills may be more relevant than the presence of a
particular diploma or certificate.
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22. AGE

On average, micro enterprises tend to employ the highest share of
older employees (aged 50 years or older) and the lowest share of
young employees (aged younger than 25 years) of the three size
classes.
Small and medium-sized enterprises employ the highest share of
employees aged 25-50 and the lowest share of older employees.
Large enterprises employ the highest share of young people.
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23. Review of small and large workplaces

REVIEW OF SMALL AND LARGE
WORKPLACES
Table 4.4
Small and large workplaces: a review
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24. The owner-Manager

THE OWNER-MANAGER
• The owner’s willingness to take risks is constitutive for the
genesis and the existence of the company. Possible
consequence: owners identify and are identified with their
business in a way that does not exist in larger companies
• These persons determine the company goals and are usually
being replaced with their agreement only. This in turn means
that the rate of succession is low
• Often there is no separation of business and private life
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25. Strategy and Management I

STRATEGY AND MANAGEMENT I
• Empirical studies on insolvency have shown that mainly
management and leadership mistakes are the reasons
causing insolvency in small companies.
• SMEs orientate themselves to quick adaptation of changing
business conditions.
• Besides lacking resources, SMEs are said to be short of
management time and of management skills.
• Sometimes the lack of planning and strategy is compensated
for by optimism in the company’s own strength in conjunction
with flexibility and responsiveness.
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26. Strategy and Management II

STRATEGY AND MANAGEMENT II
• Managerial tools are rarely used in many SMEs. This is mainly
explained by a lack of time; missing expertise with such tools
is also rather likely. Empirical studies have shown that this
situation is likely to change once the company starts growing.
• The coincidence of ownership and management induces the
fact that decision-making primarily lies in the owners’ hands.
• From outside the firm, many owners are suggestive of being
very restrictive with respect to the disclosure of information
about their companies. This is supported by lower accounting
standards and consequently, very low or none financial
reporting rules, which in turn make it more difficult for external
persons to analyse a company’s condition.
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27.

Numerous new private firms are ‘born to die young’
Many surviving firms are ‘born small and stay small’
Only a small proportion of new and small firms make significant
contributions to economic development
Attitudinal, resource, operational and strategic barriers (i.e.
market failures) to firm formation and growth
Universal national support schemes to SMEs (or ‘blanket
policies’), ‘targeting’ support, ‘picking winners’, ‘avoid losers’,
and / or provide ‘customised support’ to each ‘type’ of
entrepreneur or firm
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28. Desire Not to Grow

DESIRE NOT TO GROW
Many owners of small firms do not want to grow their ventures
Only a small proportion of small firm owners have the inclination or
expertise to grow their ventures
Owners do not have the aspirations or management skills required to
grow a firm
Growth may attract attention from competitors who may bid to takeover the business
Many entrepreneurs are concerned with maintaining their
independence (Birley and Westhead, 1994)
Desire to run the firm to a point (‘comfort zone’) which allows owners
to maintain control and ownership
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