EFFECIENCY AND

INEFFICIENCY OF SMALL &

MEDIUM SIZED
ENTERPRISES (SMEs)
CLASS PRESENTATION BY: KOJO ADAINOO-MENSAH
INDEX NO: SB/ESD/16/0002
MBA ENTREPRENEURSHIP AND SMALL ENTREPRISE DEVELOPMENT

ORGANISATION OF PRESENTATION

INTRODUCTION (DEFINITIONS)

RATIONALE/ IMPORTANCE OF DISCUSSION

CATEGORISATION (TYPES )

MEASUREMENTS OF EFFICIENCY

DETERMINANTS OF SMES EFFICIENCY

CAUSES OF INEFFICIENCY

IMPLICATIONS

RECOMMENDATIONS

INTRODUCTION (DEFINITIONS)
Efficiency

is the maximization of output for a given set

of resource inputs its indicates how far the firm can
increase its output without absorbing further resources

Inefficiency

thus is reverse where a firm produces

below the level their endowments inputs and
resources permit

Efficiency

of SMEs often considered economically to

involve profit/benefits maximization and cost/waste
minimization

RATIONALE/IMPORTANCE OF DISCUSSION
SMEs

are considered as the engines of economic

growth and development due to their importance in
job creation, wealth distribution and resource
utilization

The

efficiency of SMEs is central to debates about

their role in economic development.

Thus the performance/efficiency of this engine is

critical factor to be considered in economic policy
formulations

It

is crucial to gauge SMEs performance to see

whether they have incorporated all inputs both
tangible and intangible into efficient operation

TYPES OF EFFICIENCY
TECHNICAL

maximum possible level of outputs

obtainable from a given set of inputs
Technological

efficiency

ALLOCATIVE

(price) ability to choose optimal

inputs levels given factor prices, thats adjustment
of inputs and outputs to reflect relative prices

PRODUCTIVE

- choosing different combinations of

resources to achieve the maximum benefit for a
given cost

MEASUREMENTS OF EFFICIENCY

SMEs Efficiency can be measured not only on FINANCIAL

(profit maximization) terms but also on NON-FINANCIAL
terms. Efficiency must be assessed by the extent to which
they add value to the economy

SME owner-managers usually pursue varied goals

Survival and stability of firm

Employment of family members

Contribution to community development etc

Measurements can be done by

PARAMETRIC (STOCHASTIC FRONTIER ANALYSIS)

NON-PARAMETRIC (DATA ENVELOPMENT ANALYSIS)

DETERMINANTS OF SMEs EFFICIENCY

1.

Internal environment (micro-level factors)

Psychological

and Demographics of owner-manager

Resources

of the firm

Strategies

Adopted

External
Market

environment (macro level factors)

structure and Dynamics

Economic

and financial climate

Technological
Legal

advancement

and Political conditions (Policies)

Socio-cultural

conditions

UNDERPINNING THEORIES
POPULATION

ECOLOGY THEORY the environment

largely determine the survival/ efficiency of
organisations. SMEs performance depends on their
ability to adjust their internal operations to the
contingencies imposed by their task envt.

RESOURCE-BASED

AND STRATEGIC ADAPTATION

THEORIES better performing firms are those that best
adapt their resources to fit the opportunities and
constraints imposed by their environment

THEORY

OF ENTREPRENEURIAL LEARNING- learning and

experiences are fundamental to the creation of
capabilities and competencies leading to efficiency.

CAUSES OF INEFFICIENCY
LACK

OF ACCESS TO CREDIT

LOW

LEVEL OF EDUCATION/EXPERIENCE

LOW

LEVEL OF TECHNOLOGIES USE (OLD

TECHNOLOGY)

NOT

ABLE TO EMPLOY ECONOMIES OF SCALE

USE

OF UNSKILLED LABOUR

LACK

OF ADEQUATE SECURITY (THEFT )

LACK

OF RESEARCH AND DEVELOPMENT (R&D)

LACK

OF MANAGERIAL COMPETENCE (not planning

well etc)

IMPLICATIONS
REDUCED
POOR

PROFITS/ LOSSES

QUALITY GOODS & SERVICES

STALLED

GROWTH

ENVIRONMENTAL

IMPACT (Global warming, deforestation,

water and resource scarcity eg galamsey)

LOW COMPETITIVE ADVANTAGE

RECOMMENDATIONS
SMEs

SHOULD INVEST IN TECHNOLOGY, RESEARCH AND

DEVT

TRAINING

TO IMPROVE MANAGEMENT AND LABOUR SKILLS

(WORKSHOPS/ON-THE-JOB)

CLUSTER

FORMATION TO ACHIEVE ECONOMIES OF SCALE

AND RESOURCE EFFICIENCY

REDUCE

WASTAGE THROUGH PROPER PLANNING,

RECYCLING AND REUSE

Cleaner

Production

(UNEP, 1990) the continuous application of an

integrated strategy to processes, products and services to increase efficiency
and reduce risks to humans and the environment.