I do research in my doctoral thesis with a focus on SMEs and I am often asked what the difference is and why SMEs need to be researched separately. Many people also like to talk to me about medium-sized enterprises 4.0 and wonder why I sometimes separate my articles strongly after SMEs and large companies. I would now like to give an answer to that.
Characteristics of SMEs
The entire German business landscape is dominated by small and medium-sized enterprises (99.3% of all enterprises are SMEs in Germany), which are an important pillar of the German economy due to their innovative capacity and experience. According to the EU definition (IfM Bonn 2018), SMEs are divided into three categories:
- Micro-enterprises (up to 9 MA and 2 million euros in sales)
- Small businesses (up to 49 MA and 10 million euros in sales)
- Medium-sized enterprises (up to 249 or 499 MA and 50 million turnover)
There are two definitions. My experience says that many companies up to 499 MA still count themselves as SMEs. Overall, the concept of SMEs and Small and Medium-sized enterprises is the same for the time being. Furthermore, most micro-enterprises are more traditional companies with a focus on crafts such as carpenters etc. Small and medium-sized enterprises are also predominantly production companies and are thinking about the vision of Industry 4.0. A small number are software houses and consulting companies that offer knowledge-intensive services. This distribution can be deceiving. Although most enterprises are micro-enterprises, the employment rate is very different.
Special features of SMEs and large enterprises
But what exactly distinguishes SMEs from large companies? On the one hand, I like to limit these to the fact that they have a small budget as large companies and often pursue a long-term planning and sustainable strategy. Furthermore, they are often represented in a niche and have a high level of expertise, which is based on long-term employees. They are also usually more flexible due to shorter decision-making paths and find themselves in a tension between tradition and change. Another distinction was made by Dr. Winfried Felser in an article. In this way, it compares large companies and SMEs. I have taken over parts of his table and will explain them briefly.
Limitation: Some points in the table sound a bit harsh or could be viewed negatively. However, this is not the case. For example: “far from the customer”. In large companies, there are many internal issues, which are necessary from a certain point on. A longer coordination among many stakeholders and employees is also simply necessary. In any case, I would like to limit that this should not be interpreted negatively.
This shows that large companies often have more budget and that change support is often provided by a dedicated focus team. In SMEs, on the other hand, money is often scarce and employees have to do the change work in addition to day-to-day business. Large companies also have the opportunity to purchase consultancy services which are of little use in SMEs due to the low budget. SMEs often have a much higher orientation towards day-to-day business, as this generates revenue and profit. This also means that there are few internal issues. (Example: Large companies have a data protection department – SMEs often only have data protection officers who carry out this activity in addition to day-to-day business).
In SMEs, all employees are also close to the customer (daily business) and even often on site at the customer’s premises. Due to the often short connection to the managing director (especially for owner-managed companies), decisions are often made quickly and implemented. The focus is often on a sustainable strategy and the preservation of sales. In large companies, on the other hand, there is more of a strategy depending on the current board of directors, which has to coordinate with many bodies.
Digitalisation and agility in SMEs
In my phD, I tested SMEs for the difference in agility and digitalization. There are numerous case studies on digitization, such as by Arbussa et al. (2017) as well as studies on the potentials of digital change such as data analysis tools (O’Connor and Kelly 2017). As already noted by Lindner and Leyh (2018), this will the lower budget and the fact that SMEs are often less digitised than large enterprises. According to the two authors, there is therefore often a centralized and rather inflexible IT in SMEs, which is often built up gradually and slowly due to the lower budget (Essers and Vaneker 2016).
There are also numerous contributions on the subject of agility. Lindner and Leyh (2018) note that it is clear that SMEs are often seen as more agile and flexible due to their small size and often shorter decision-making paths (Arbussa et al. 2017). However, there is one thing that applies to SMEs: rapid growth, which can reduce this flexibility and agility. In this way, agility is investigated in the context of growth. Authors such as Branicki et al. (2017) speak of the preservation of the so-called “entrepreneurial spirit” or authors like Ng and Kee speak of a post-agility in grown SMEs.
There are many SMEs in Germany and they dominate the German business landscape. They are characterized by small budgets, shortendecision paths a just do it mentality. They are also often players in a niche and have a long-term thinking and sustainable strategy based on long-term employees. SMEs are fundamentally seen as more agile than large companies and, from the point of view of digitalisation, rather more retrograde, often due to a small budget.
I find the study of SMEs very exciting and I believe that SMEs in particular will become even more important. Since I myself have been working in SMEs since the beginning of my career (3 years), I can also say from my own experience that it is really worth a recommendation to look not only at large companies but also at SMEs.Gender note: I have used the male form for easier reading. If no explicit distinction is made, women, miscellaneous and men as well as people of any origin and nation are always meant. Read more.
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Arbussa, A., Bikfalvi, A., & Marquis, P. (2017). Strategic agility-driven business model renewal: the case of an SME. Management Decision, 55(2), 271-293. https://doi.org/10.1108/MD-05-2016-0355
Branicki, L.J., Sullivan-Taylor, B., & Livschitz, S. R. (2017). How entrepreneurial resilience generates resilient SMEs. International Journal of Entrepreneurial Behavior & Research. https://doi.org/10.1108/IJEBR-11-2016-0396
Essers, M. S., & Vaneker, T. H. J. (2016). Design of a decentralized modular architecture for flexible and extensible production systems. Mechatronics, 34, 160-169. https://doi.org/https://doi.org/10.1016/j.mechatronics.2015.08.009
Ng, H. S., & Kee, D. M. H. (2017). Entrepreneurial SMEs Surviving in the Era of Globalization: Critical Success Factors. In Global Opportunities for Entrepreneurial Growth: Coopetition and Knowledge Dynamics within and across Firms (pp. 5-75). Emerald Publishing Limited. https://doi.org/doi:10.1108/978-1-78714-501-620171007
O’Connor, C., & Kelly, s. (2017). Facilitating knowledge management through filtered big data: SME competitiveness in an agri-food sector. Journal of Knowledge Management, 21(1), 156-179. https://doi.org/10.1108/JKM-08-2016-0357
The article by Lindner and Leyh (2018) is currently in the publication and can be read from July.