1. Introduction
In today’s rapidly changing environment, if companies want to stay successful, they need to ensure a flexible response to changing conditions. They need to regularly monitor and evaluate the level of their performance and make suitable decisions and actions. Therefore, it is not surprising that the preferred area of interest of managers since the end of the 20th century has been linked to the performance of their companies. The academic community also manifests their interest with a considerable number of papers regarding this topic [
1,
2,
3,
4,
5]. Peter Drucker is famous for this statement: that businesses cannot improve what they do not measure. Therefore, performance measurement is one of the key aspects affecting growth and improvement of companies. If enterprises want to move forward and be competitive in the long run, they need to implement a suitable performance measurement system (PMS) to be able to measure and evaluate every area of their business activities systematically and continuously.
There are several tools and techniques to help managers to create and implement an effective PMS. There are already researches and examples of successful implementations of PMS. However, in most cases, large companies serve as examples of that successful implementation [
6]. Small and medium-sized enterprises (SMEs) have often been underestimated due to consideration of being a smaller version of large companies [
7], without attention to their specifics and needs in terms of performance management. However, SMEs deserve attention regarding the level of their performance as they usually represent the significant part of every economy and play key roles in building growth and development of countries [
8]. Due to their specificities, we consider that the area of PMS in SMEs is still insufficiently explored, as it was already confirmed by several authors [
9,
10]. Previous studies also pointed out [
7,
10,
11,
12] that literature specialized on SMEs, in most cases, focus on the development of new theoretical performance models, their descriptions, or characteristics, but often forget the guidelines or practical steps on how to implement these models in practice.
The main goal of our research is to analyze the process of PMS implementation in SMEs and to identify factors that influence the success and satisfaction with implemented PMS and to identify problematic factors that cause failure, dissatisfaction and create limits to PMS. The research is focused on SMEs operating in Slovakia. SMEs are especially important for the Slovak economy, as they represent 99.9% of all business entities in Slovakia. They generate more than 51% of value added and employ more than 70% of the population. Our research sample consists of SMEs of various size, age, industry, and different experiences with PMS (more description in
Section 3). Our research questions were formulated towards these areas:
What are the key success factors that affect the successful application of PMS in SMEs?
What are the problem factors that affect the implementation of PMS in SMEs?
Is there a difference in perception of success factors and problem factors in SMEs with different experience with PMS?
Is there a difference in perception of success factors and problem factors in different phases of PMS implementation model?
The paper is organized as follows.
Section 2 describes characteristics and possibilities of PMS implementation. We also point out the barriers and problems of SMEs connected to implementation of PMS based on previous studies.
Section 3 and
Section 4 explain the methodology and results of our research on SMEs operating in Slovak Republic. Discussion and Conclusion as
Section 5 summarize our main findings and recommendation for successful implementation of PMS in SMEs.
3. Materials and Methods
As we previously mentioned, several authors pointed out that most attempts to implement PMS in the SMEs fail. In view of the characteristics and specificities of SMEs, the successful PMS implementation is particularly important for these enterprises, as failure can have a much more disastrous impact on SMEs than on large companies. As this area is still not widely researched, we focused on studying possibilities on how to improve PMS implementation in SMEs. Therefore, the main goal of our research was to analyze the process of PMS implementation in SMEs and to identify factors that influence the success and satisfaction with implemented PMS, and to identify problematic factors that cause failure, dissatisfaction and create limits to PMS. We focused the research on SMEs operating in Slovakia. There are not many researches specialized on PMS in SMEs in this country. However, SMEs are especially important for Slovak economy, as they represent 99.9% of all business entities in Slovakia. They generate more than 51% of value added and employ more than 70% of the population.
Our research sample consist of SMEs of various size, age, industry (
Table 1) and different experiences with PMS (
Figure 1). Our research questions were formulated towards these areas:
What are the key success factors that affect the successful application of PMS in SMEs?
What are the problem factors that affect the implementation of PMS in SMEs?
Is there a difference in perception of success factors and problem factors in SMEs with different experience with PMS?
Is there a difference in perception of success factors and problem factors in different phases of PMS implementation model?
Based on the PMS implementation model discussed in the Literature Review, we divided the research areas into three phases of PMS: (1) design phase, (2) implementation phase and (3) use of PMS phase.
Subsequently, we have studied:
What factors have a positive/negative effect on the success of the PMS in design phase?
What factors have a positive/negative effect on the success of the PMS in implementation phase?
What factors have a positive/negative effect on the success of the PMS in use phase?
According to the experience and recommendations of several authors [
1,
7,
9,
40,
45,
46,
47,
48], we systematized the factors that affect the success of the application of PMS as given choices. We also created options of open questions for companies to indicate their opinion of factors if not listed.
To collect the data, we chose to use an electronic questionnaire. To formulate questions, we used theoretical review of previous studies and research. The object of the research was set as randomly chosen SMEs operating in Slovakia. There were 595,371 SMEs in Slovakia in 2019. We created the SMEs database of contacts from the FinStat portal and selected 18,043 SMEs to send questionnaires by e-mail. The questionnaire was correctly completed by a total of 336 respondents. The study was conducted during August 2019 until December 2020 as part of a research project.
3.1. Research Structure
For research purposes, SMEs were divided into groups based on size, age, industry sector, life cycle of the core business and the level of implementation of the PMS. The results of the SMEs’ distribution are presented in
Table 1.
The questionnaire was divided into two main parts. The first part was used to identify companies and factors for measuring performance (area and frequency, level, methods or reasons for measuring and evaluating performance). In the second part of the questionnaire, respondents identified problems based on their previous experience with PMS. This part was structured and very detailed, and consisted of three categories of companies: (a) companies with PMS implemented (satisfied, dissatisfied), (b) companies with experiences with PMS application (PMS partially implemented, PMS application failed), (c) companies with no PMS implementation (with plans or with no plans to implement PMS in the future).
As
Figure 1 shows, our sample of SMEs consisted of six levels of PMS implementation. To analyze data, it was necessary to divide companies into two categories: whether SMEs have or do not have an established PMS. The first category (PMS implemented) consisted of companies that have PMS, and we distinguish between whether they are satisfied or dissatisfied with it. The second category (PMS not implemented) consisted of companies that do not have PMS, and again we distinguish whether they are or are not trying to implement the system or plan to implement the system in the future.
The respondents indicated the impact of the success factors within the numerical scale: no effect (1), low impact (2), medium impact (3), high impact (4).
3.2. Data Analysis Methods
We processed data through two programs: MS Excel and RStudio. MS Excel was used in the calculation of arithmetic means and in the construction of tables and graphs. RStudio was used for statistical calculations and subsequent graphical interpretation.
We used several statistical tests for inference statistics. To determine statistically significant differences between selected groups, we used the Kruskal–Wallis test with a significance level of α = 0.05. The nonparametric test was used in cases where the assumptions of one-way ANOVA were not met. Using the test, the assumptions were met in which samples from the population were taken randomly, the observations were independent of each other (there was no relationship between members within groups). Using this test, we examined statistically significant differences for continuous dependent variables through categorical independent variables. As the Kruskal–Wallis test does not identify where specifically statistically significant differences occur, or how many pairs of groups are different, a nonparametric post hoc Dunn’s test was used to pair the groups. Using the Kruskal–Wallis test, we found that there was a statistically significant dependence within the examined set, but we could not determine where and in what number it is located. Only on the basis of Dunn’s test were we able to identify exactly which compared groups had statistically significant differences.
We used a nonparametric Spearman’s correlation coefficient to determine the degree of strength and direction of the connection between the two paired variables. Using this test, the preconditions for use were also met, meaning that the variables were of the ordinal, interval, or ratio type, with a monotonic relationship between the two variables. The correlation coefficient (rho) takes values from the interval 0 to 1, while values closer to 0 indicate a weaker dependence and values closer to 1 indicate a closer dependence of the variables. The coefficient in the range 0.00–0.19 is thus referred to as very weak, 0.20–0.39 as weak, 0.40–0.59 as medium, 0.60–0.79 as strong and 0.80–1.0 as very strong.
Canonical Discriminant Analysis was used to maximize variations between groups and to express the extent of differentiation between predefined groups (satisfied, dissatisfied, failed). To reveal the correlations of the characters with the canonical axes, the total canonical structure was calculated, which contained a linear combination of variables, i.e., a linear discriminant function. Discriminant analyses generally require a multidimensional normal distribution of features, but in this respect, we have shown that they are highly resistant to variance. Based on the Canonical Discriminant Analysis, we were able to determine whether and to what extent it was possible to distinguish specified groups of objects based on the features we had available and which features contributed to this distinction to the greatest extent. We graphically displayed (as it will be presented in
Figure 2 and
Figure 3) the given findings through orthogonal projections of points of two-dimensional space on lines. The discriminant function was thus designed in such a way that the individual groups of objects were separated as best as possible after the projection.
5. Discussion and Conclusions
Based on our research, we found out that only 20% of SMEs have implemented a comprehensive PMS. From this 20% of SMEs in our sample, only 64% are satisfied with PMS and 36% are dissatisfied. This is a very small number. However, it was confirmed by other previous researchers [
3,
4,
13,
49], that the most attempts to implement PMS in SMEs fail. According to Smith, Smart and Bourne [
41], it is in up to 70% of cases. Of the total number of successful PMS implementations, in only about 50% of the cases where performance indicators originally planned were also implemented [
7]. Therefore, we cannot be surprised that due to the relatively negative results, many of SMEs still do not even consider the application of PMS. In our sample, it was 55%.
One of the reasons of negative results of PMS implementation, or not even a consideration of PMS implementation, can lie in the size of SME and connected limitations. As mentioned in the Literature Review, many theories on performance measurement and performance management have been developed for large organizations, and these are hard to adapt for SMEs [
7,
13]. Another reason of failure can be connected to the process of implementation. As Bititci, Turner and Begemann [
50] mentioned, managers often find out at the end of the process of implementation what is really needed to be measured and evaluated in their business. The successful implementation of PMS is particularly important for SMEs. If the implementation process fails at the end of the project, it has a much more disastrous impact on SMEs than on large companies because of the high resource load allocated to the entire implementation process [
9].
In our opinion, the problem can be caused by the lack of a preliminary phase in the process of PMS implementation that would assess whether the current conditions in companies allow the successful application of PMS. The phase would thus extend the original three-step process of PMS implementation [
1] to four phases. If, before the beginning of the whole process of PMS implementation (design, implementation, and use), managers do not perform any assessments of readiness for each phase, potential errors or problems will be noticed in the end. Failure of implementation process in the end can have more catastrophic consequences for SMEs with regard to a high load on the resources allocated for the creation, implementation and use of PMS. Therefore, if we want to increase the success rate of the implementation of PMS in SMEs, we recommend extending the model proposed by Bourne [
1] to start with a preliminary phase, which consists of recommendations, which is in what condition SMEs should be before to start implementing PMS. The preliminary phase should be based on discussions of owners, managers and experts to evaluate the preparedness of a company and to draw clear major intentions and expectations before approaching next steps of PMS implementation. Not only has the current COVID-19 pandemic crisis and connected economic stagnation since 2019 put pressure on organizations and demanded changes in their internal processes, but visions of the digital transformation associated with the advent of Industry 4.0 has opened the debate for necessary changes many years earlier. This is directly affecting demands on performance and improvements of internal processes and thus also on PMS. We have identified three major areas that should be part of the preliminary phase. The fulfillment of these default assumptions should subsequently increase the likelihood of successful application of PMS:
1. SMEs should link performance measurement to operational, tactical and as a priority to the strategic level of the organization.
The recommendation is based on current criteria for measuring and evaluating performance, according to which SMEs should not only measure performance but also link the results of performance indicators into interrelationships at all levels of management, in order to support the creation and change of strategy or learning of the organization. It is mentioned also by other authors, that performance measures support the alignment between people’s actions and company strategy [
2,
7,
9,
51,
52]. Linking the results allows regular feedback, an overview of causal relationships between indicators’ performance, supports the continuous improvement of the organization and the evolution of strategic goals. According to our results, SMEs with successful implementation of PMS have better linked performance measures with tactical and strategic objectives by 10% than the other companies.
2. SMEs should automate the measurement and evaluation of performance, while it should use an in-house information system. Performance measurement should be fully automated and able to operate without excessive human intervention.
The recommendation is based on current trends in the automation of performance measurement, according to which the existence of a properly implemented and effective information system significantly affects the success of the application of PMS [
53].
Automation delivers timely and efficient measurement that is based on well-defined algorithms that minimize the risk of error. According to our results, in 8.4% of SMEs, a direct relationship was found between the automation of performance measurement and the success of the system application. In PMS with digital and automated environment, decision-making is highly data-driven and can be significantly shortened [
53], but it requires some degree of stability and streamlined processes to enable automatization [
54].
3. SMEs should implement process management, at least at the level of described and graphically-processed process maps, and optimally, at least at the level of measurement and evaluation of processes.
The recommendation is based on trends in performance measurement and evaluation, according to which a PMS should be developed on a process approach [
55]. The process approach is considered as the basis for improving the organization, as it affects the performance of processes in the organization, but also has the effect of reducing time, improving the quality of products or services, reducing costs, improving financial performance, increasing quality and customer satisfaction or increasing employee productivity. According to our results, the level of process management has a direct positive effect on the level of PMS application in 14.4% of SMEs. The highest stages of the process approach were most often achieved by SMEs with a comprehensively implemented system, while the lower levels were achieved by SMEs with a partially implemented performance measurement system, and the lowest levels of the process approach were achieved by SMEs that did not have a performance measurement system applied.
Based on the research results, the main implications for practice are the following. The research and the way of formulating research questions were conducted in order to point out the difference between successful and unsuccessful PMS. This different view of factors brings the necessary arguments for SMEs and possible inspirations for praxis. According to our findings, PMS failure is also a consequence of these statements:
Businesses do not have a clearly defined goal.
Management does not sufficiently support the implementation of PMS.
Barriers are also the expertise of employees involved in the process.
The authors Ates, Garengo, Cocca and Bititci [
56], in their study, point to the difference in short-term and long-term goals in setting PMS. According to them, planning is perceived by entrepreneurs and managers of small companies as a bureaucratic burden, while flexibility and quality in production and services are perceived as a critical factor of success. There is a difference between a business and managerial approach and a mindset. A relationship is also identified based on what is the main driver of PMS implementation, whether it is of primary interest to HR, manufacturing or sales. Based on the interest in measuring performance and using indicators in the work of line and top managers, the relationship of managers to PMS and perceived benefits for their own managerial work is formed [
57]. The importance and contribution of PMS for managerial praxis is a strong motivator for managers to engage in PMS implementation. Ates, Garengo, Cocca and Bititci [
56] also mention in their study the importance of planning and linking systems to business goals, including a formalized strategy, with a top-down approach to breakdown indicators from strategic priorities and important goals of companies. The other main findings of these authors [
56] are also in line with our findings, although they interpret them as a problem of internal communication and managerial work in SMEs based on traditional command and control approach.
Although SMEs’ managers make the decision about their interest in PMS, their failure is currently in the implementation phase. As our research shows, it is not about the intensity or duration of action in the implementation phase, but about interest and support. SMEs that were satisfied with the implementation had the support and effective involvement of managers. As Lee, Townsend and Wilkinson [
57] point out, there is a difference in the focus and use of PMS, whether it is formal or informal PMS. As stated by Urbancová, Stachová and Stacho [
58] in their research, formal PMS are used mainly by companies with global operations or international connections in Slovakia and Czech Republic. In these companies, the formalized system is also connected to the employee appraisal. The openness of the Slovak economy presupposes the formalization of PMS, but a large part of SMEs are suppliers and subcontractors of Slovak large companies, which may not exert enough pressure to formalize PMS. The necessary involvement of managers also depends on this. Moreover, on the basis of different expectations, possible conflicts or dissatisfaction may also arise. Sardi, Sorano, Ferraris and Garengo [
59] emphasize the developments in companies related to the development of managers’ relationship to information systems and data. This factor can play a significant role in involving managers in the PMS implementation process, and with the advent of a new generation of managers and the improvement of their IT skills and Data Literacy, we can expect greater commitment. Already in our previous research by Stachová, Papula, Stacho, Kohnová [
60], we have referred to the needs of engaging in knowledge networks and using external partnerships. The ever-expanding possibilities of education and development in the external environment, together with the intensification of the activities of clusters and interest groups, is an opportunity for companies to overcome these obstacles. Sardi, Sorano, Ferraris and Garengo [
61] highlighted the development of enterprise performance systems in the context of their knowledge activities.
This research and the presented conclusions have several limitations, as well as possibilities in continuing research work. The limiting factor is undoubtedly the size of the examined sample, and the relative short time interval of the research. Research on the topic of performance and the answers of respondents can be influenced by a subjective attitude to the current performance of the company across individual sectors. The sample size did not allow to analyze deeper differences and agreement between respondents from different sectors or regions. As Silva, Sousa, Moreira, Amaro [
62] pointed out, PMS can also be affected by the external environment, which differs depending on the sector and industry in which the company operates. Impacts and pressures, especially from external stakeholders, also have a significant impact on managers’ motivation to make decisions on performance management issues. These recommendations were written by Lorincová, Bajzíková, Oborilová, and Hitka [
63] as well. Given the specifics of the structure of the Slovak economy, it is therefore our intention in the follow-up research to specify the findings in the industry sector.
As analysis of results from the use phase of PMS did not point out any significant findings, therefore, we want to focus our further research on a deeper analysis in this aspect. We are aware of the limitations of this research. Our research was focused only on the implementation of PMS, and therefore, we did not address other issues related to performance in the research. Finally, we want to point out other open (so far unresolved) issues that need to be addressed and that go beyond the scope and focus of this paper. These areas would be exploring how to develop appropriate performance indicators that SMEs should measure in their performance measurement systems, e.g., according to research, 50% of the proposed indicators will prove to be unnecessary in the use phase. Another area of research would be to focus on the creation of other specific tools and techniques designed and adapted for SMEs, as according to several authors, there is still a lack of suitable tools or techniques for the environment, and as our research showed, SMEs were most often satisfied with the system.