SME Performance

SME Performance

Separating Myth from Reality

John Watson

The performance of Small and Medium-sized Enterprises (SMEs) has been a subject of continual interest to both researchers and practitioners. This enlightening book investigates the pitfalls which have affected the assessment of SME performance in much of the past research.

Chapter 5: Relating Outputs to Inputs

John Watson

Subjects: business and management, entrepreneurship, economics and finance, international accounting

Extract

INTRODUCTION Chapter 4 analysed closure rates for male- and female-controlled SMEs and found no difference after controlling for age, size and industry. However, as discussed in Chapter 2, using closure rates as a performance measure has a number of limitations. For example, many service businesses will close when the proprietor reaches retirement age, and the vast majority of these would not be considered failures. Therefore, to further compare the performances of male- and female-controlled SMEs, this chapter will examine a number of other potential performance indicators that relate various outputs (such as sales and profit) to various inputs (such as the number of employees and the owner’s investment in the business). While previous studies have also examined some of these output and input variables, few have related the output measures to the input measures. For example, Rosa, Carter and Hamilton (1996) reported that businesses owned by women were found to underperform on a number of quantitative measures, such as: number of employees, sales turnover and value of capital assets. I would argue that these are not appropriate measures of performance; they are simply measures of size. For example, let us assume that we have two investors (A and B) and that A invests $100 000 in the stock market and B invests $50 000. After twelve months both investors liquidate their stocks with the result that A achieved a profit of $4500 and B $3000. Which investor did best? A had a higher profit, but then A also invested (and...

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