Business Practices And Performance In SME's
Updated: Aug 4
Business practices are the ways in which businesses operate through processes, methods and techniques which develop in the pursuit of goals that are guided by a company's values (Neneh & van Zyl, 2012). Achieving an objective can be considered as improved business performance; however, these objectives are not always tangible or quantifiable. Flynn, Sakikibara and Schroeder (1995) put it in a slightly more concise manner, highlighting that practices are inputs that managers and workers action in order to achieve a certain performance or output.
Performance improvements can only be measured if there is a benchmark to gauge against (Poister, 2013). When one sets baseline performance goals, then improvements in outcomes and performance can be monitored through performance management. If baseline goal metrics are set accurately and made available to workers, then these workers will strive to meet the set requirements (Eckerson, 2006, p. XIV). It is therefore apparent that for a SME/company to determine how it is performing, it must have some way of measuring its performance at a particular point in time.
‘Best’ practices are the practices that should logically produce the best performance (Mandal & Venta, 2008). Researchers have found a positive relationship between the implementation of ‘best’ business practices and the performance of businesses (Lau, Zhao, & Xiao, 2004; Prajogo & Sohal, 2003; Rahman, 2001); Mandal’s (2008) study shows the numerous ways in which business practices can be established, leading to exemplary business performance, such as implementation of clear processes and quality requirements and checklists. Kelliher and Reinl(2009 as cited in Neneh & van Zyl, 2012) stated that in order for SMEs to ensure long-term survival and success, they should allocate their scarce resources using ‘best’ business practices to their core business strategies. It is therefore evident that 'best' practices will lead to a better performance in firms. However, one will not know if a firm is implementing ‘best’ practices unless they are aware of what types of business practices are being implemented, and have a means to measure the outcomes of these practices through performance management.
“This abridged passage was first published in its full form by M. Schreiber as ‘Why South African SME engineering managers introduce business practices: The degree to which chosen business practices influence firm performance', 2016.”