Business process management and risk-adjusted performance in SMEs

Abstract

PurposeThis paper aims to examine the relationship between business process management (BPM) and company performance. The research focuses on the instrumental aspect of core business processes and its controlling activities in small and medium-sized companies (SMEs) to identify the relationship to company performance.Design/methodology/approachThe results presented in this paper are based on a survey of Slovene SMEs. A questionnaire was distributed to 3007 SMEs via e-mail and a response rate of 5.42% was achieved. The financial data of companies over a six year period as derived from the publicly available financial reports of SMEs along with an industry-specific financial risk measure and other financial data were used for the company risk-adjusted performance measures of relative residual income (ROE-r) and risk-adjusted ROE (ROE-a) calculation.FindingsThe results show that instrumental aspects of core business process controlling activities are related to risk-adjusted company performance measures ROE-r and ROE-a. Companies with lower ROE-r and ROE-a have been perceived to be more focused on the instrumental aspect of BPM. Presumably due to the small sample, the results of a non-parametric Mann–Whitney U test did not statistically confirm the developed hypothesis: “the instrumental aspect of controlling as a core process management activity has a statistically significant impact on company risk-adjusted performance measures such as ROE-r and ROE-a.” Despite this, the results show a possible negative correlation between risk-adjusted performance measures and BPM, which opens possibilities for further research.Research limitations/implicationsThe main limitation of the purposed study model is that the paper have studied only control activities of core business processes and relate it to company risk-adjusted performance measures. The study has been limited by the SME sample and the use of a survey as a research instrument. An additional limitation of the research is the degree of reliability implied by the assumptions of the models used to estimate the required return on equity and risk. Results concern investors, managers and practitioners to start BPM improvement initiatives, to set BPM priority measures and to set priority management decisions and further actions.Originality/valueThis paper presents the unique findings from an investigation of the instrumental aspects of BPM practices and their relationship to company risk-adjusted performance measures in SMEs. This paper developed a measurement instrument for measuring the instrumental aspects of BPM use. An additional original contribution is the use of company risk-adjusted performance measures such as ROE-r and ROE-a, which take into account the required profitability of companies in different industries according to the risk and allows comparable results of companies from different industries. The approach is innovative and interesting as regards researching the factors that affect the profitability of companies that operate in different industries.