Abstract
High failure rate of small and medium enterprises (SMEs) has been partly attributed to the use of inappropriate performance measures. This study seeks to determine the types of performance measures employed by SMEs, purpose for which performance measures are used, perceived effectiveness of performance measures used and factors that may inhibit SMEs from using both financial and non-financial performance measures. Data are collected using a questionnaire and analyzed using descriptive and inferential statistics. The findings of this study reveal that most of the sampled SMEs measure their performance using both financial and non-financial performance measures, albeit financial performance measures are used more frequently than the non-financial ones. Of the financial performance measures, the most popular ones are sales growth, cash flows, operating income and net profit margin. The most popular non-financial measures are customer focused. These include response time, customers’ satisfaction, percentage of repeat customers and customers’ complaints. The findings also reveal that performance measurement reports are used by the sampled SMEs mostly for monitoring the business, gauging the performance of the business, improving business processes, identifying problems and optimizing the use of resources. The findings further reveal that the performance measures used are perceived to be effective but that the lack of awareness, qualified personnel, top management support, required resources such as computers, had, to some extent, inhibit SMEs from using the appropriate performance measures. This study not only fills in the gap in the literature on performance measurement by SMEs, but also provides invaluable insights on the extent to which these entities use different performance measures. These insights could inform future government interventions meant to avert the high failure rates of these entities and also aid SMEs to gauge their performance measurement practices with a view to adopt the best practices or avoid factors that could inhibit them from using these practices
Highlights
The importance of small and medium enterprises (SMEs) in creating employment opportunities and in contributing to economic growth of a country has for long been acknowledged by governments and researchers alike (International Labor Organization, 2013, p. 1)
This study aims to fill in the gap in the literature by investigating the performance measurement practices of SMEs operating in the Fast Moving Consumer Goods (FMCG) sector in the Cape Metropolis, in South Africa
The problem that this paper sought to investigate was that the failure rate of SMEs can be partly attributed to their use of inappropriate performance measures, namely, financial measures as opposed to the nonfinancial ones
Summary
The importance of small and medium enterprises (SMEs) in creating employment opportunities and in contributing to economic growth of a country has for long been acknowledged by governments and researchers alike (International Labor Organization, 2013, p. 1). Notwithstanding the importance of these entities, they have been characterized by a high failure rate, which has led researchers to question the management practices of these entities in an increasingly competitive business environment Some researchers have partly attributed the relatively high failure rate of SMEs to the use of inappropriate performance measures Caroline Chidinma Maduekwe, Department of management accounting, Cape Peninsula University of Technology, South Africa. Peter Kamala, Ph.D., Department of management accounting, Cape Peninsula University of Technology, South Africa
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