The critical success factors for organizational performance of SMEs in Malaysia: a partial least squares approach.
| Autor | Lo, May Chiun |
| Cargo | Texto en ingl |
I Introduction
Small and Medium Enterprises (SMEs) are considered as one of the cornerstones of Malaysian's engine of economic growth. Therefore, Malaysian Government has introduced several development programs in helping local SMEs to grow with the intention to realize its vision to be one of the high income nations with developed status by 2020. However, Malaysian SMEs are still losing their competitive advantage in the global business environment due to their low productivity and poor performance (Tehseen, Sajilan, Ramayah, & Gadar, 2015). Furthermore, Malaysian SMEs are found to provide a lower contribution to the nation's GDP and exports as compared to SMEs of many neighboring nations such as Japan, South Korea, and Singapore (Halim, Ahmad, & Ramayah, 2013). Taking cognizance of the importance of Malaysian SMEs as the building blocks of economic growth, it is therefore crucial to identify critical success factors that can improve competitiveness and reduce the gap between Malaysian SMEs and SMEs in these countries in term of contribution to the economy.
Prior research has emphasized the importance of various strategic orientations such as technology orientation, learning organization, market orientation, customer orientation, top management support and competitor orientation in determining the firm performance and the development of a sustainable competitive advantage (Day, 1994; Gatignon & Xuereb, 1997; Zhou & Li, 2010). In continuation, Salaheldin (2009) proposed a framework to identify the critical success factors of total quality management implementation, and evaluate their effects on operational performance, financial and non-financial performance among the SMEs in Qatari. The results revealed that strategic factors such as leadership, top management support, and organizational culture have strong positive impact on overall performance, while operational factors such as customer orientation, process control, product and service design have a strong positive impact on operational and financial performance, and lastly tactical factors such as supplier relationships, employee training and empowerment have a strong positive impact on operational performance only. Moreover, Chong, Shafaghi, and Tan (2011) critically explored critical success factors for SMEs operating in China and they suggested a combination of internal critical factors (successful customer relationships, security and trust, transparency of information, IS/IT infrastructure, top management support, supply chain facilities) and external critical factors (global competitiveness, government commitments, cultural considerations) in developing and sustaining the success of business to business e-commerce. A recent study conducted by Vyas, Raitani, Roy, and Jain (2015) found that critical success factors such as supportive organizational factors, fast and responsive services, target-based marketing, SME banking policy and model, and enhanced customer services are important for the success of SMEs operating in the banking industry in India.
In view of the above, it is clear that research on critical success factors for SMEs' success is still at a developing stage. Currently, there is still lack of a validated and solid critical success factors framework for SMEs as a guide to improve their competitiveness in the market (Chong, Shafaghi, & Tan, 2011). This study intends to fill the gap by identifying critical success factors for SMEs in the context of Malaysia, and studying the relationship between identified critical success factors and organizational performance (financial and non-financial performance). The outcome of this study will be useful for entrepreneurs as well as scholars in generating a framework that can improve overall organizational performance in an emerging economic context. The research objectives of this study are twofold:
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To investigate the relationship between critical success factors (Top Management Support, Customer Focus, Employee Orientation, Technology Orientation, and Entrepreneurial Orientation) and non-financial performance of the SMEs.
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To investigate the relationship between critical success factors (Top Management Support, Customer Focus, Employee Orientation, Technology Orientation, and Entrepreneurial Orientation) and financial performance of the SMEs.
The rest of the paper is structured as follows: the first part reviews the existence of empirical literature. Secondly, the research methodology is described. Then, the third part represents the data analysis and respective results. Finally, the results are discussed and conclusions are presented.
2 Literature review
This study investigates the relationship between the determinants of organizational performance in SMEs in Malaysia. A review of related literature was undertaken with the primary focus on defining the variables as well as the theoretical relationships between them.
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I Organizational performance
Organizational performance refers to a concept that measures a firm's position in the marketplace and the firm's ability in meeting its stakeholders' needs (Griffin, 2003; Lo, Mohamad, Ramayah, & Wang, 2015). It can also be known as the degree to which the operation fulfils the performance objectives (primary measures) and meets the needs of the customers (secondary measures) (Slack, Chambers, & Johnston, 2010).
Previously, the concept of organizational performance normally referred to financial ratios such as profitability, return on assets (ROA), return on investments (ROI), and return on equity (ROE). Nevertheless, there is increasing criticism on the short-term thinking of traditional performance measurement systems that only employs financial measures (Kaplan & Norton, 1996). Consequently, many researchers have employed a more balanced approach of performance measurement by including both financial performance and non-financial performance measures (Ho, Ahmad, & Ramayah, 2016; Simon et al., 2015). Financial performance has been seen by many as the ultimate aim of any company and it reflects how well a company uses its assets to generate revenues (Chen, Tsou, & Huang, 2009). On the other hand, nonfinancial performance measures refer to longterm operational objectives of a company or, in other words, future performance indicators that are not presentable by contemporary financial measures (Blazevic & Lievens, 2004; Prieto & Revilla, 2006).
The critical success factors for SMEs are identified by combining literature review and focus group. First, the researcher critically reviewed relevant papers in order to identify critical success factors that have been found to contribute to business success. Then, a focus group consisting of senior executives from the industry was established to rank the identified factors that they perceived as most critical for the success in the current business environment. Among the determinants, five factors have been selected as variables to be studied in this study: top management support, customer focus, employee orientation, technology orientation, and entrepreneurial orientation. These five important determinants of organizational performance serve as the critical success factors for this study.
2.2 Top management support
The concept "top management support" has been studied by many scholars and unarguably it is known as one of the most important critical success factors underlying the success of companies (Bryde, 2008; Hung, Lien, Fang, & McLean, 2010). Top management support refers to backing and commitments by highest ranking executives for projects as well as strategies implementation (Garrett & Neubaum, 2013).
Flynn, Schroeder and Sakakibara (1995) as well as Powell (1995) likewise argue for the need of top management commitment, as it has a large influence towards the overall strategic direction of the organization. The importance of top management support is lurther acknowledged in the recent empirical literature. General consensus stated that top management support must be verified and demonstrated, by actively communicating the mission and vision throughout the organization (Demirbag et al., 2006; Fotopoulos & Psomas, 2009; Salaheldin, 2009; Turkyilmaz, Tatoglu, Zaim, & Ozkan, 2010). Many other aspects should be focused by managers to align the quality objectives with the vision, to commence quality and a corporate culture, and to create a culture with continuous improvements, minimizing the reluctance towards change.
Sexton and Upton (1987) supported the strategic choice perspective by arguing that the performance of a firm is not a natural phenomenon, but rather the choices and social interactions made by the firms' top manager. Top management is empowered with the most influential decision making role in the organization. Furthermore, top management plays a key role in creating conditions in the work environments that are favorable for an integration of learning and work (Noe & Wilk, 1993). The responsibility of the top management includes communicating the company strategy to all members of the organization, providing financial support for training programs, and motivating employees to innovate and solve problems (Al Shaar, Khattab, Alkaied, & Manna, 2015; Umble, Haft, & Umble, 2003). The discussed empirical literatures provide evidence that displaying top management support is essential, and how it remains critical in order to reap the benefits. In this regard, Iqbal, Long, Fei, Ba'ith, and Bukhari (2015) revealed that top management support plays a crucial role in ensuring project success by facilitating the provision of timely resources. Similarly, Fernandes, Lourenco, and Silva (2014) found that leadership attitude and support of the top management can promote organizational innovation. Therefore, the following hypotheses are formulated:
HI: Top management support is positively related to non-financialperformance.
H2: Top management support is positively related to financial...
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