Raising of SME Capabilities: the Case of Latvian Printing Companies
Автор работы: Пользователь скрыл имя, 26 Апреля 2013 в 11:01, статья
Краткое описание
The article covers work efficiency problems for small and medium sized enterprises, by stressing the importance
of performance assessment. The article also provides an overall evaluation of the performance in the
manufacturing and printing industries in Latvia. Indicators’ selection and estimation possibilities have been
inspected from the perspective of resource management conception. The authors consider that because of the
increasing number of small enterprises in the national economy, topical are becoming the issues that concern
production cost management and assessment of work performance. Work performance assessment system should
be included in the company’s management system by regarding the characteristic features of the business
process of the respective branch of industry.
Вложенные файлы: 1 файл
Raising of SME Capabilities: the Case of Latvian
Printing Companies
Guna Ciemleja, Mg.oec.
Talsu Printing House Ltd, Financial Director
17 Jauna Str., Talsi, LV-3201
E-mail: guna@dizainstt.lv
Natalja Lace, prof., Dr. oec.
Riga Technical University Faculty of Engineering Economics
1 Kalku Str., Riga, LV-1658
E-mail: natalja.lace@rtu.lv
ABSTRACT
The article covers work efficiency problems for small and medium sized enterprises, by stressing the importance
of performance assessment. The article also provides an overall evaluation of the performance in the
manufacturing and printing industries in Latvia. Indicators’ selection and estimation possibilities have been
inspected from the perspective of resource management conception. The authors consider that because of the
increasing number of small enterprises in the national economy, topical are becoming the issues that concern
production cost management and assessment of work performance. Work performance assessment system should
be included in the company’s management system by regarding the characteristic features of the business
process of the respective branch of industry.
Key words: SME, work efficiency, performance assessment, manufacturing industry, printing companies
INTRODUCTION
Irrespective the sphere of activity of a contemporary enterprise, effective functioning
can be ensured only if each, even the tiniest activity, is serviced by means of knowledge and
skills available in the world [1]. In order to conduct the management of even a small company
in a result based and proficient manner and to use the resources cost-effectively, special
attention should be paid to the management of company’s activities and proper evaluation of
its performance. Company’s management process involves not only set goals, a developed
strategy for their achievement and planning processes, but also assessment of company’s
performance. Defining of goals and the necessity of finding approved indicators that comply
with the set goals could be based upon the assumption that only measured things can be
implemented. Performance measurement and analyses provides for the possibility to return to
assessment of indicator compliance or to the revision of the set goals.
In nowadays market conditions the following situation can be observed in companies –
on the one hand problems incur because of the changing external environment or market
situation, whereas on the other hand – the company itself needs to implement internal
changes. In small companies, by regarding their simple structure and organization, topical are
issues that touch upon planning, cost and inventory management, human resources planning,
productivity assessment, quality control and usage of information technologies. The
efficiency should be present in all business processes of the company and the overall
performance assessment should be based upon criteria that are linked to the sphere of activity
of the particular company. Because of the development of production technologies, the
efficiency of processes and the possibility to identify the value-adding elements of the
company is becoming more and more important. Management of a company’s performance
has become an issue of strategic importance and therefore result assessment indicators have to
be included in the corporate management system.
Problems in companies usually incur because of inadequate action, lack of proficiency
or even in the result of absence of action, whereas the assessment of the incurred problems is
based upon the retrospective approach – i.e. analyses of past events. For the purpose of
conducting proper analyses one needs correct, thorough and well-structured information,
because the future perspectives of the company will depend on how precise the analyses of
the past activities has been and whether the existing problems have been identified. Activity
assessment system can serve as a support for organizational development of small and
medium sized enterprises.
1. Importance of small enterprises and their performance characteristics
The proportion of small and medium sized (SME) enterprises in the economic area of
the European Union (EU) is considerable and amount to more than 23 million companies that
have created over 100 million work places and compose 99% of the total number of
companies in Europe [2]. The interest about management problems in small and medium
sized enterprises gained its topicality thanks to the activities of the U.K. based Bolton
Committee (1971) in the 70ies of the previous century, which was established for the purpose
of defining problems faced by small and medium sized enterprises and to come up with
activity recommendations for small companies. The Bolton Committee laid down the most
essential features characterizing small companies: relatively small share of a competitive
market; unable to influence market price level; the owner or the co-owner has close personal
involvement in all aspects of the management decision taking process; the employees have
very minimal participation in decision–taking processes; the business is institutionally
independent, whereas the shareholders can limit the decision taking freedom (family
enterprise, company limited by shares).
If we take some particular sphere of industry, then the activity of small companies is
influenced by the same external factors as large enterprises. However, one cannot assure that
a small company is a duplicate of a large company in a reduced size! When compared to large
enterprises, the most frequently mentioned advantages of SME are as follows: ability to
quickly respond to changes in demand, to restructure the classification of goods and the
assortment because of the small production lots; exploration of market niches that are not
attractive for large enterprises, thereby satisfying public needs more completely; simplified
organizational structure that ensure fast turnover of information; a basis for establishment of
the middle-class thereby creating a positive social effect.
Each company might be treated as a universal formation that uses a characteristic
combination of resources, technologies and organizational models. As far as company’s
ability to gain profit is based upon the proficiency in application of business management
methods and tools, then for the management of profit gaining process it is preferable to use a
system approach. It means that the amount of the profit and maximization possibilities depend
on how purposeful and harmonious is the correlation between separate processes in the
company or functional elements (units).
Colin Gray (2004) indicates that small and medium sized enterprises typically adapt to
changes in external circumstances, they are not undergoing strategic activities and especially
obvious the above is at micro-firms (up to 10 employees) [2]. External circumstances prevail
over the company and it has no real chances to influence the environment. Adaptation to the
conditions of the external environment by preserving the set operational targets is rather
problematic because the external circumstances change globally, on the level of the national
economy and within the framework of the particular branch of industry. Assessment and
analyses of external circumstances are rather complicated processes and small companies
have neither resources nor knowledge for conducting the above and therefore the only
possibility left is adaptation. Insolvency and bankruptcy cases of small and medium sized
companies can be linked to inconsistency and weakness of company’s management [2].
Therefore, according to the opinion of McLarty R. (2005) the activities of small and medium
sized companies have to be based upon the value chain concept – i.e. usage of internal
resources, because of the inherent “small firm” specifics [4]. According to an empirical
research conducted by Gulbro a.o. (2000), result assessment systems and activity
improvement measures in small enterprises are not introduced to such a level as it is in large
enterprises [5]. According to Levi a.o. (1999), small enterprises concentrate upon “survival”
in the competition circumstances and therefore their long-term strategies are inconsistent and
indefinite [6]. Thence, the development and capacity to survive of small and medium sized
enterprises is influenced by (Hilton, 2000): insufficient access to resources, lack of time and
money; lack of proficiency, skills and knowledge; weak understanding of problems, risk
awareness and regulation; insufficient analyses of customers and employees’ needs; lack of
knowledge on management methods and tools; inability to assess the circumstances in order
to gain benefit; lack of strategic thinking; lack of internal communication and integration;
insufficient flexibility and preoccupation with potential changes; organizational problems –
no coordination of internal processes [7].
2. Assessment of work efficiency of SME in Latvia
The statistical data provided in table 1 below show that the largest proportion of
economically active companies in Latvia is made up exactly of micro and small companies.
Similarly also elsewhere in the world and in the majority of the European countries SME
correspond to micro size. Small companies operate in the spheres of industry where
economies of scale are not of great importance as well as concentrate upon less capital intense
sectors [8].
Table 1
Economically active enterprises and the proportion of small companies [9]
1997
1998
1999
2000
2001
2002
2003
2004
2005
Total number of
companies
35259
36130
37628
41992
40668
42549
45300
101634
109193
Incl. with the
number of
employees <= 49
33258
34178
35730
40066
38710
40573
43198
99293
106711
Proportion %
94.32
94.60
94.96
95.41
95.19
95.36
95.36
97.70
97.73
The quantitative indicators and the proportion of small companies from the total
number of enterprises have the tendency to increase, by simultaneously increasing the role of
small companies in the national economy. In order to give a perception on the level of
efficiency of the activities of small companies within the framework of a particular branch of
industry in comparison to large enterprises, the authors have used the absolute commercial
profitability (figure 1) and its dynamics (figure 2). What concerns the EU, then the majority
of companies operating in the manufacturing industry are small and medium sized – more
than 99% of the companies correspond the SME classification and more than 58% of the
work places in the manufacturing industry are provided for by SME, and, with regard the
above figures, the authors have chosen to analyse the situation in the manufacturing industry,
by paying special attention to companies operating in the printing industry.
-4.000
-2.000
0.000
2.000
4.000
6.000
%
0-49 persons
-2.918
-0.813
0.648
1.467
2.561
50-249 persons -0.614
1.019
2.571
3.363
3.260
250 and over
-0.614
4.061
5.129
4.065
3.451
2000
2001
2002
2003
2004
Fig.1: Commercial profitability in manufacturing companies of Latvia in the time period from
2000 - 2004, (%)
If the commercial profitability increases the total return on capital also increases.
Thus, the profit gained by small enterprises per one lat in turnover is small.
0.000
5.000
10.000
15.000
0-49 persons
1.000
1.722
2.222
2.503
2.878
50-249 persons
1.000
3.660
6.186
7.476
7.308
250 and over
1.000
8.612
10.352
8.619
7.619
2000
2001
2002
2003
2004
Fig.2: Dynamics of commercial profitability in manufacturing companies in Latvia
in
the time period from 2000 – 2004
The dynamics of the commercial profitability (figure 2) show that exactly in
companies employing up to 50 employees not only the return on resources and the created
added value is smaller, but also the profit increase is slower when compared to medium sized
and large companies. The turnover per employee (figure 3) is based upon the assumption that
the employees are the key factor for profit-making and therefore high efficiency levels in this
sphere are linked to good indicators of return. In the group of small enterprises the turnover
per employee in absolute numbers is smaller than the indices of medium-sized and large
enterprises, therewith also confirming the low level of return of small enterprises.
0.00
5.00
10.00
15.00
20.00
25.00
th
o
u
s
.
l
a
ts
0-49 persons
10.56
11.74
12.56
13.90
14.99
50-249 persons
12.23
14.14
15.74
17.80
20.56
250 and over
12.19
13.72
15.86
17.39
20.78
2000
2001
2002
2003
2004
Fig.3: Turnover per employee in manufacturing companies in Latvia in the time period from
2000 - 2004, thous. lats
The performance efficiency of a company is created already at the moment when the income
exceeds the costs and profit is generated. However, it does not mean that the maximum level
of efficiency has been reached.
3. Description of the printing industry and assessment of the activities of the
branch
The production of printing houses is regarded part of the manufacturing industry.
Printing industry is a material intensive industry. Small and medium sized enterprises in the
European Union mostly operate in the manufacturing industry – more than 99% of the
companies correspond the classification of SME and more than 58% of work places in the
manufacturing industry have been created exactly by SME. In the EU industrial policy
document on the development of the manufacturing industry, the printing industry has been
included in the basic and intermediate industries that account for some 40% of EU
manufacturing added value. Among general EU printing industry priorities to be mentioned
are issues concerning competition, power consumption and environmental aspects:
implementation of industrial researches and innovations, increasing of the proficiency level of
people employed in the sector, reduction of water and air pollution and the amount of wastes.
[10].
The average growth of the Latvian printing industry within the last five years has been
approximately 8% annually. The production of the branch can be used both for the needs of
intermediate and end consumption. Companies concentrate upon fulfilment of orders and the
activities of the companies operating in the branch are based upon the demand of the national,
internal market, because the amounts of export and number of transactions with EU Member
States are insignificant. Positive trends in the work of small companies operating in the
printing industry to be mentioned are as follows: 1) order execution terms; 2) specifics of the
offered technologies; 3) competitive production prices; 4) face to face communication of the
entrepreneur with the client.
There are companies with very diverse technical supply level, work organization and
quality control operating in the branch of the industry. There is only one printing company in
Latvia that employs over 500 employees – the rest fit in the classification of small and
medium sized companies. Notwithstanding the fact that the printing industry is developing
without any special state support, because it is not regarded a scientific knowledge based
industry, it demonstrates rapid development trends and had reached the production amount of
1990 already in 2000, whereas the overall indicators of the manufacturing industry lagged
behind the production amounts of 1990 even in 2005. The rapid development of the printing
industry could be explained with the fact that currently Latvia is still falling behind the
average EU indicators with regard paper consumption per capita. The indicators have the
tendency to increase and that means that the development potential of the industry has not
been exhausted yet.
10
15
20
25
30
t
h
ous
.
l
a
t
s
Manufacturing industry
10.8
12.2
13.6
15.3
18.2
21.2
Production of paper
and paper products
16.6
20.4
23.5
23.4
23.7
29.3
Publishing and printing
10.5
12.1
13.2
16.2
16
18.7
2000
2001
2002
2003
2004
2005
Fig.4: The output of manufactured production per one employee in the time period from
2000-2005 (thous. lats in actual prices) [11]
The figure 4 demonstrates that in companies producing paper production (labels,
packing materials) the return per one employee in the surveyed time period and also in the
year 2005 has been higher (29.3 thous. lats) than in companies engaged in printing of books,
magazines and newspapers (18.7 thous. lats) and also higher than in the manufacturing
industry in general (21.2 thous. lats). The Latvian Association of Printing Companies involves
45 printing companies that produce 60% of the national printing production. The Association
has brought to light a problem that actually statistical data cannot be used for analyses of the
branch because the data do not differentiate among separate indicators of the branch. The
information provided by the members of the Association in 2005 shows that approximately
57% of these companies are unable to reach the average statistical ratio – 18.7 thousand per
employee. The number of those “unfortunate” includes even medium sized companies unable
to reach the annual turnover of 10 thousand lats per one employee. The above indicators
demonstrate both – low technology application level and resource planning and usage
problems. Workforce usage problem is also to be regarded a serious obstacle hindering
effective work of small companies.
4. Features characterizing the work of SME operating in the printing industry
and their impact upon the work performance results
The “order portfolio” is the most important element of printing companies and is the
basis for many coherences in the functioning of the companies. The remaining elements -
operating income and expenses, the necessary technical units (number, capacity), workforce
(number, proficiency) and the type and amount of production materials depend upon the
assortment and complexity of the orders. See figure 5 for illustration:
Orders per assortment types (newspapers,
magazines, brochures, books)
Manufacturing process – technologies
Number of
employees
Qualification
Proficiency
Motivation
Work capacity
Material
consumption
norms
Procurement
amounts
Quality and sales
of the finished
production
Type of
production
fixed assets
Number
Capacity
Equipment
work load
Idle time
Process effectiveness priority indicators
Equipment
return
Productive
usage of
equipment
Basic material
productive
usage ratio
Material return
Turnover of
receivables
Work
productivity
(pcs./h)
Work return
(value per 1
monetary unit of
production sold),
Fulfillment of
norms
Process effectiveness subordinated indicators
(Work force qualitative composition, usage of
working hours, penetrability of technology flow
etc.)
Company’s competitiveness within the branch
(price, quality, execution term)
Order
portfolio
Workforce
Current assets
Capital
Planning
system
Work
assessment
system
Fig.5: Factors influencing work results of a small company operating in the printing industry
Order assortment is characterized by:
1. Elements characterizing finished production – run (short, average, large); format
(small, large), number of colours (single-colour; two-colours, multi-colour);
2. Elements characterizing finished product production process – printing technology
(offset printing, digital printing, silk screening), number of operations within the
production cycle, available additional services (development of design, delivery
services).
Short run
Average run
Large run
Fig.6: Impact of print run upon the profitability of the product by regarding the
technological possibilities of the company
Short print runs are up to 1000 copies, average print run is up to 10 thousand copies,
whereas a large print run order is one with 20 thousand copies. Thus, the work efficiency of a
printing company - production return (figure 6) is lower (R1), if the company receives “small
orders”, because the cost level is comparatively larger (C1), notwithstanding smaller time
consumption (T1). Therefore compliance of the print run with the actual production capacity
of the company is a material precondition for work efficiency.
The participant organizations in the Latvian Association of Printing Companies – printing
houses control their performance results at least once every month, however the applied
methods and technological solutions differ. For financial accounting purposes the printing
houses use very different software tools -1C, Kentaurs, Jumis, Hansa World, Axapta,
Apvārsnis. Thus, the companies have asserted that the said software tools are not capable of
providing direct data usage possibilities and additional processing of information is required
in order to obtain the desired body of indicators that would give a fair view about company’s
activities. For the above purpose the companies mostly use Microsoft Office spreadsheet
program Microsoft Office Excel. The most widespread overview option used by the
companies for assessment of operating results is the profit and loss statement which is
prepared monthly.
It is interesting to note that companies with the turnover per employee exceeding the
average of the industry partially apply the principles of internationally widespread company
strategy implementation instrument – the balanced scorecard (BSC). Financial indicators are
combined with separate indicators obtained from management accounting data: cost price per
product groups; production load; amount of orders per product groups. Though, these
companies correspond to status of medium sized enterprises because their number of
employees exceeds 50.
In small printing enterprises the order structure and value is monitored on regular basis.
Exactly in small companies the financial statements (cash flow, balance sheet, profit and loss
account) are prepared only for the needs of external users and the information technology
usage level is lower than in medium-sized enterprises. No such systems are applied that
would combine financial and non-financial data which are mutually functionally linked. The
management decision taking process is based upon the individual experience, knowledge and
skills of the management.
Profitability of the order
R 1 < R 2
R 2 < R 3
R 3
C 1 > C 2
C 2 > C 3
C 3
Total costs
Order production time
T 1< T 2
T 2 < T 3
T 3
Large amount of material flow is very typical for printing companies. It includes basic
materials, auxiliary materials, semi-finished goods and finished production. The work
efficiency of printing companies can be assessed by applying the return on resources
approach, by analysing the return on resources involved in the added-value process. The total
costs of a company consist of three main cost groups: materials, workforce and capital. The
indicators determining material costs are the price and the amount. It is more important to
assess the quantitative usage efficiency of the material, because the price is linked to the
quality and it is determined by external factors. Whereas what concerns workforce costs,
larger attention is to be paid to the working hours’ usage efficiency, because the conventional
salary rate is influenced by the open labour market and the competitiveness of the branch of
industry. In the event the resource usage result will be economical and effective the value of
the finished production will be maximized.
What concerns raw material costs in printing houses, paper takes the largest proportion
thereof not only quantitatively but also in terms of value. It means that first of all a company
should pay special attention to harmonization of incoming orders and paper purchase
amounts. Secondly, a by-product of paper generated during the production process is paper
waste. By regularly monitoring the dynamics of the waste paper amount against the processed
amount of paper, to be evaluated is whether the purchased paper format complies with the
technological processes used and the parameters of the finished production.
Work productivity indicators characterize not only workforce usage efficiency in the
particular company but also the work efficiency of the management – both when selecting
duly qualified staff and also when attracting customers’ orders that comply with the actual
capacity and technologies of the company. The effectiveness of the process to a great extent
depends upon working hours’ usage efficiency. Uselessly spent working hours will not
increase the overall result. Unfortunately it has to be concluded that companies rarely use
some particular accounting of idle time or waiting time connected with orders or reasons that
result in useless consumption of working hours. It is also difficult to assess work effectiveness
of a printing company in physical units because of the heterogeneity of the production. The
possibility exists to use a conditionally physical unit – “single format”, thus such an
assessment does not provide information on the quality and additional calculations are
required. Therefore for work effectiveness calculations in small enterprises more advisable
would be the value method.
The production amount is a productive indicator which on its turn is influenced by
multiple internal factors (organization of the technological process, employees
communication quality etc.). In case of computerized process management the obtaining of
information is made simpler. Thus, in companies without computerized process management,
which mostly include small companies, the so called “technological mapping” can be used,
which provides for a description of the technical parameters of the order as well as the tasks
to be carried out for the relevant stage of the technological process. The technological map is
among the principal documents on the basis of which the analyses of the used materials,
equipment involved in the technological process as well as separate processes and the total
order fulfilment time consumption can be conducted. By regarding the practical possibilities
of companies, the processing of the technological map in order to combine the necessary
information and to calculate various indicators can be carried out by using Microsoft Office
spreadsheet program Microsoft Office Excel. In the above process the companies would
receive information that can be processed further to: 1) develop a remuneration system for
qualitative work and for promotion of good employees; 2) achieve reduction of product cost
price and time spent for the production cycle; thereby providing for the possibility to increase
the production amount.
CONCLUSIONS
The number of SME is constantly increasing and so is their role in the national
economy. Despite the active involvement in the work of the industry, the results achieved by
small enterprises are merely average. To certain extent the above can be explained with the
lack of balance between the activities and the strategic priorities. In large companies the
totality of indicators that are observed and monitored embrace the business processes of the
company more thoroughly and computer technologies are used for processing and analyses of
information. The priority of small companies is collection of financial accounting data and
drafting of financial statements, and therefore the issues of concern touch upon production
costs and stock management, planning of human resources, assessment of profitability, quality
control and usage of information technologies. Thus, in all companies, irrespective the size,
the most important value adding processes and resources have to be realized, the costs that are
linked to the adding of value assessed and one should concentrate upon cost management by
making use of efficiency ratios. In manufacturing companies with low productivity, effective
consumption of working hours and rational material consumption ratio should be set as the
priority. The scope of development of a performance result assessment system is to
incorporate it in the company’s management system, by consequently improving the
competitiveness of the relevant company.
REFERENCES
[1] H. Emerson “Twelve Principles of Efficiency” [Electronic resource]. – Read 5 August
2007. - http://orel.rsl.ru/nettext/economic/emerson/12pr003.htm
[2] Vispirms jādomā par MVU [Electronic resource]/European commission. – Read 5
August 2007. - http://ec.europa.eu/enterprise/entrepreneurship/docs/sme_pack_lv.pdf
[3] Gray, C. Management Development in European Small and Medium Enterprises;
Advances in Developing Human Resources 2004; 6; 451-469 pg.
[4] McLarty R. (2005) The essentials of value chain implementation in small and medium
sized enterprises; Strategic Change, 14: 45–58 pg.
[5] Gulbro, R.D., Shonesy L., Dreyfus, P. Are small manufacturers failing the quality test?
Industrial Management & Data Systems 2000; 100, 76 – 80 pg.
[6] Levy M, Powell P
,
Galliers R, (1999) Assessing information systems strategy
development frameworks in SMEs; Information & Management, 36:247-261
[7] Hilton, M. (2000), ‘SME Support for Sustainable Development: Principles and
Practice’, in: European Foundation for the Improvement of Living and Working
Conditions, Sustainable Development, SMEs and New Enterprises (Conference Report),
Luxembourg: Office for Official Publications of the European Communities, 2001, 25-
27.
[8] Big challenge for small business: sustainability and SMEs [Electronic resource]. – Read
5 August 2007. - www.uneptie.org/media/review/vol26no4/IE26_4-SMEs.pdf
[9] Economically active enterprises, business companies by form of ownership
//
Statistical
business register . – Read 5 August 2007.- http://data.csb.gov.lv/DATABASE
[10] Communication from the Commission - Implementing the Community Lisbon Program:
A policy framework to strengthen EU manufacturing - towards amore integrated
approach for industrial policy [Electronic resource]. – Read 5 August 2007. - http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52005DC0474:LV:NOT
[11] Industrial output by kind of activity per one employee engaged in industrial production
// Industry. - Read 5 August 2007. - http://data.csb.gov.lv/DATABASE/rupnbuvn/
Ikgadējie%20statistikas%20dati/Rūpniecība/Rūpniecība.asp
Информация о работе Raising of SME Capabilities: the Case of Latvian Printing Companies