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Rita, M.R. & Thren, A.T. (2019). A three-dimensional model of MSME
performance: an agenda for further research). BISMA (Bisnis dan
Manajemen), 12(October), 1-14. https://doi.org/10.26740/bisma.v12n1.p1-
14
BISMA
(Bisnis dan Manajemen)
Volume 12, Issue 1, October 2019, 1-14
ISSN 2549-7790 (Online)
ISSN 1979-7192 (Print)
DOI : 10.26740/bisma.v12n1.p1-14
https://journal.unesa.ac.id/index.php/bisma/index
A three-dimensional model of MSME performance:
an agenda for further research
Maria Rio Rita1* and Andrew Thomas Thren2
1Department of Management, Faculty of Economics and Business,
Satya Wacana Christian University
Jalan Diponegoro 52-60 Salatiga 50711, Central Java, Indonesia
maria.rita@uksw.edu
2Language Center, Department of English, Faculty of Humanities,
Bina Nusantara University
Jalan K.H. Syahdan No. 9 Kemanggisan/ Palmerah, East Jakarta 11480, Indonesia,
athren@binus.edu
Abstract
This paper discusses company performance measurement literature as well as surveys the
development of the newest literature about this topic. The purpose of this research is to
produce a new measurement of MSME performance by inputting the entrepreneurial
performance element, besides the financial measurement element and the market element.
Qualitative research with a meta-synthesis method was used in this research to produce a
new and wider viewpoint and understanding of the MSME performance measurement
dimension. This entrepreneurial dimension can supplement the previously developed
company performance measurement indicators. This study provides a performance
measurement model modification that can be applied in Micro, Small, and Medium-sized
Enterprises (MSMEs).
Keywords: entrepreneurial dimension; financial dimension; market dimension; MSMEs;
performance.
Received: April 16, 2019; Accepted: August 14, 2019; Published: October 17, 2019
*Corresponding author
Email: maria.rita@uksw.edu
Maria Rio Rita & Andrew Thomas Thren
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2 https://journal.unesa.ac.id/index.php/bisma/index
Abstrak
Penelitian ini membahas literatur pengukuran kinerja perusahaan serta survei
pengembangan literatur terbaru tentang topik ini. Tujuan dari penelitian ini adalah untuk
menghasilkan pengukuran baru kinerja UMKM dengan memasukkan elemen kinerja
kewirausahaan, di samping elemen pengukuran keuangan dan elemen pasar. Penelitian
kualitatif dengan metode meta-sintesis digunakan dalam penelitian ini untuk
menghasilkan sudut pandang dan pemahaman yang baru dan lebih luas tentang dimensi
pengukuran kinerja UMKM. Dimensi kewirausahaan ini dapat melengkapi indikator
pengukuran kinerja perusahaan yang dikembangkan sebelumnya. Penelitian ini
memberikan modifikasi model pengukuran kinerja yang dapat diterapkan di Usaha
Mikro, Kecil, dan Menengah (UMKM).
Kata kunci: dimensi keuangan; dimensi kewirausahaan; dimensi pasar; kinerja; UMKM.
INTRODUCTION
Studies on MSMEs are always interesting to be discussed, whether from the
pro side or the contra-side. Previous research about financing strategies (Brancati,
2014; Wehinger, 2012; Winton & Yerramilli, 2008), investment decisions
(Dahiya & Ray, 2012; Trinh, Kakinaka, Kim, & Jung, 2017), and entrepreneurial
behavior (Baluku, Kikooma, & Kibanja, 2016; Lee & Persson, 2016; Nguyen Anh
& Toshitsugu, 2014) have been frequently conducted. These topics were further
related to MSME performance (Dencker & Gruber, 2015; Hmieleski & Baron,
2009; Pratono & Mahmood, 2016; Shouming, Zhiguo, Redd, & Sibin, 2013).
One aspect which still has in-depth room for investigation is regarding how
to measure holistic MSMS performance that not only evaluates just company
performance but also examines entrepreneurs. Based on the literature studies
which have been carried out, most of the research only scrutinizes SME financial
performance (Eggert, Thiesbrummel, & Deutscher, 2014; Melgarejo, Simon, &
Arcelus, 2010; Sels et al., 2006; Torugsa, O’Donohue, & Hecker, 2012). Some of
the studies look at the non-financial performance side like market performance
(Richard, 2000); customer satisfaction and employee turnover (Chong, 2008);
business innovation (Comeig, B. Del Brio, & O. Fernandez-Blanco, 2014); quality
improvements (Gharakhani & Mousakhani, 2012); and production capacity
increases (Adina-Simona, 2013; Kölling, 2015). However, when stakeholders
strive to evaluate a company’s performance, complete information is needed, both
from financial and non-financial perspectives (Brouthers & Nakos, 2004; Prieto &
Revilla, 2006). This complete and reliable information can lead to better decision
making the process.
The performance measurement that is generally used by corporations is the
balanced scorecard method (BSC) (Kaplan, 2009; Kaplan, Norton, & Rugelsjoen,
2010) by doing a series of balanced performance measurements from various
simultaneous perspectives. The evaluation is not only focused on financial
measurements, but it also involves organizational ability to learn and make
improvements, an internal process, and a customer perspective. The results of this
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measurement will produce critical success factors from the side of the company or
stakeholders. A financial evaluation is considered as having a weakness because it
can encourage actions to be taken for short-term gains and is susceptible to data
manipulation.
Wu (2009) stated that there is no consensus regarding which measurement is
most appropriate to be used to measure MSME performance. The BSC
performance measurement model is not suitable to be used by MSMEs, because a
special measurement is needed, keeping in mind that their characteristics are
different with big companies (Hudson, Smart, & Bourne, 2001). Meanwhile,
Gumbus and Lussier (2006) stated that BSC can be applied at the SME level by
doing several measurement adjustments.
The purpose of this research is to provide an alternative multidimensional
model for MSMEs performance measurement. This is based on the unique
characteristics of SMEs that are different from corporations. This performance
measurement model is a holistic model that has not been researched to a great
extent for MSMEs. This research is expected to be able to complement the
performance measurement dimension that has been used previously, especially for
non-financial performance, and becomes an agenda for future research.
Micro, Small, and Medium-sized Enterprises (MSMEs)
Table 1. Criteria of Micro, Small, and Medium-Sized Enterprises
Category
Net Fixed Assets*
Annual Sales*
Micro-
Enterprise
≤ Rp. 50,000,000 (fifty million
rupiahs), not including the land and
building for the business; or
≤ Rp. 300,000,000 (three hundred
million rupiahs).
Small
Enterprise
> Rp. 50,000,000 (fifty million
rupiah) - ≤ Rp. 500,000,000 (five
hundred million rupiah), not
including the land and building for
the business; or
> Rp. 300,000,000 (three hundred
million rupiah) - ≤ Rp.
2,500,000,000 (two billion five
hundred million rupiah).
Medium
Enterprise
> Rp. 500,000,000 (five hundred
million rupiah) - ≤ Rp.
10,000,000,000 (ten billion rupiah),
not including the land and building
for the business;
> Rp. 2,500,000,000 (two billion
five hundred million rupiah) - ≤ Rp.
50,000,000,000 (fifty billion
rupiah).
Source: RI Amendment No. 20 of 2008 (2008)
MSMEs play a significant role in stimulating domestic requests through job
field creation, innovation, and creativity, as well as the potential to enliven the
international commerce sphere. The presence of MSMEs is also a buffer for the
nation's economy when an economic crisis occurs. When a company fails to
achieve its targeted results, in general, the causes of the failure will be examined,
which can arise from the inability of a management team to formulate a clear
vision and strategy, the lack of a well-constructed plan, etc. Therefore, a series of
Maria Rio Rita & Andrew Thomas Thren
A three-dimensional model of MSME performance: an agenda for further research
4 https://journal.unesa.ac.id/index.php/bisma/index
strategies and competencies need to be developed to become a key to success for a
company.
The criteria of MSMEs mentioned referring to the Republic of Indonesia
Amendment Number 20 of 2008 regarding Micro, Small, and Medium-sized
Enterprises, as are listed in Table 1.
The business category that is targeted in this paper is MSMEs, consisting of
micro, small, and medium-sized enterprises. This choice is aligned with the
literature research and theories that have discussed a great deal about small and
medium-sized enterprises (SMEs), which also have micro-enterprises included
within them (Chittithaworn, Islam, Keawchana, & Yusuf, 2011; Russo & Tencati,
2009).
Firm Performance Measurement
Business performance is considered as the results obtained from a
production process by utilizing the available input for the enterprise. Performance
is a way to measure the expected target of a business that is conducted by an
individual. Traditionally, company performance is only seen in the financial
aspect (Mallick & Yang, 2011). According to Laitinen (2002), measuring
performance from the financial aspect alone is insufficient to depict a company’s
overall performance, so that it needs to be combined with financial and non-
financial dimensions. Therefore, financial measurements (like profit and earnings)
and non-financial measurements (like innovation increases and customer
increases) (Brignall, Fitzgerald, Johnston, & Silvestro, 1991; Kaplan & Norton,
2001); improvements in business internal processes (Jungman, Okkonen, Rasila,
& Seppä, 2004; Phillips & Shanka, 2002); increases in production and
investments (Kölling, 2015); and market performance (Campello, 2006) can be
collaborated to measure SME performance, so that a depiction of the holistic
business performance can be obtained.
There is no consensus regarding the performance measurement for MSMEs
to encourage the need to devise a method that can be applied at the MSME level.
One of the methods that are frequently used is the balanced scorecard (BSC). This
is a performance measurement model that utilizes financial and non-financial
measurements. It was developed by Kaplan and Norton in 1996. The performance
measurement is carried out equally from various simultaneous perspectives in four
dimensions, which are a financial perspective, a customer perspective, an internal
business perspective, and an innovation and learning perspective, so that it will
produce critical success factors from the side of the company or stakeholders
(Kaplan & Norton, 2001). All of the perspectives can assist an enterprise to
answer the four basic questions. (1) How can a company create shareholder value
(financial perspective)? (2) How do customers see us (customer perspective)? (3)
What is our superiority (internal business perspective)? (4) Can we continue to
grow and create value (innovation and learning perspective)?
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Unfortunately, this method is not the best fit for MSMEs, because their
conditions are very different from those of big companies. Although it is very
popular, the BSC measurement model cannot be applied to measure MSME
performance, keeping in mind that their conditions are vastly different from large
businesses. Special measurements are needed due to the unique characteristics of
MSMEs. This opinion is supported by other researchers (Gumbus & Lussier,
2006), who stated that the BSC model cannot be applied as it is; there should be
some adjustments in the dimensions and measurements of this model so that it can
be applied for MSMEs. This means that the BSC standard model should be
modified.
The dimensions above have been frequently utilized to measure business
performance, but there is one dimension that is rarely measured, which is from the
entrepreneurial performance aspect that is attached to the business. The
characteristic of an SME where the owner is also an owner-manager makes it
impossible to separate the company performance from the entrepreneurial
performance because this influences every business decision taken (Wu, 2009).
Due to that, this research considers the significance of including the
entrepreneurial dimension in the MSME performance measurement.
Besides the dimension and measurement problem, the BSC model also has
another weakness because it contains a formative (cause) indicator and a reflective
(effect) indicator within one construct (Park, Lee, & Chae, 2017). Having a
mixture of two kinds of indicators within one model simultaneously will cause an
identification or misspecification problem (Park et al., 2017). Reflective or
formative actually can be determined from the measurement conceptualization of
each question item (Kim, Shin, & Grover, 2010). The formative construct can
cause a problem to surface in the identification stage because the researcher will
be unable to determine to model coefficient (unidentified).
There are two ways to change a model with a formative construct to become
identified. First, do an expansion by adding a reflective indicator in the construct
(or changing the character of a formative indicator to become a reflective
indicator). Second, join the formative construct with another reflective construct
(Jarvis, MacKenzie, & Podsakoff, 2003). This means that the researcher must
conduct an identification through a structural relationship. Determining a specific
model coefficient value will be obtained when the number of variables is the same
as the number of equations. This implies that having formative and reflective
indicators in the BSC model does not cause a specification problem when all of
the question items from each indicator are made in a reflective measurement.
METHODS
A reduction in the MSME performance measurement dimension in this
research was obtained through a meta-synthesis method for qualitative research.
Maria Rio Rita & Andrew Thomas Thren
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The approach used in this method was done through an inter-related qualitative
study (Jensen & Allen, 1996). This method began with identifying the area/topic
to be discussed. Next, it was supported with a sufficient literature review from
previous studies. This literature study was done continually until no more new
research results were discovered about the particular topic.
As seen from the philosophy, this method focuses more on the
epistemological aspect of the knowledge produced (Walsh & Downe, 2005).
Meta-synthesis is a method that summarizes and describes the research results of a
certain topic. Then the research results are compared in a research model or
analytical technique. The results are in the form of a new viewpoint and
understanding about a particular topic, which is the synthesis results so that a
certain pattern will appear from a specific topic as well as other aspects that have
not been researched before.
Meta-synthesis is a research method to synthesize (summarize) research
results that tend to be descriptive and qualitative. Perry and Hammond (2002)
mentioned that meta-synthesis is a technique to do data integration to obtain a new
theory or concept or improve an understanding to be more in-depth and complete.
An in-depth and complex literature review is needed from previous research
regarding the desired topic so that it will guide the researcher to formulate or
construct a new model. The proposed finding is the collaboration result of the
variables found in previous research, and it experiences a modification according
to the context learned. As a systematic review, meta-synthesis strives to improve
the benefits of previous research for the users. These research results are input
from a strategic policy and an operational technical policy, depending on the
research design and characteristics provided. A systematic review is a research
method to identify, evaluate, and interpret all of the research results that are
relevant to particular research questions, topics, or phenomena that will become
the focus of attention (Kitchenham, 2004). A systematic review will be very
beneficial to do a synthesis of various relevant research results so that the facts
provided to policymakers will be more comprehensive and balanced.
RESULTS AND DISCUSSIONS
Proposed Model
Based on the literature search of MSME performance measurement from
various sources (see Appendix 1.), then the MSME performance was measured
through an elaboration of the performance measurement from the financial and
non-financial aspects (Prieto & Revilla, 2006). The financial performance was
measured with ROA, ROS (McMahon, 2007; Torugsa et al., 2012), and sales
growth (Brouthers & Nakos, 2004). Especially for the non-financial aspects, they
were differentiated again to become market performance and entrepreneurial
performance. The market performance was measured with customer satisfaction,
customer total growth, and market access growth (Brouthers & Nakos, 2004).
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Then entrepreneurial performance was measured with their success as
entrepreneurs in achieving their company primary goals: entrepreneur satisfaction
towards the profit produced, employee welfare, and employee total growth
(Taghizadeh, Rahman, & Ramayah, 2017).
Ittner and Larcker (2003) revealed that companies do not place much
emphasis on measuring non-financial performance (such as customer satisfaction
and employee satisfaction). This is because management does not do much
identifying, analyzing, and responding to the appropriate non-financial
performance measurement dimension. Besides that, they also do not correlate
between improvements in non-financial activities and the effects of the financial
results. Likewise, when measuring performance is only focused on reaching a
mathematical figure, it is unable to provide an in-depth description. There are
behavioral aspects that cannot be measured mathematically, but they can be
represented from the manager's perception aspect of the company owner aspect.
When studying the small enterprise dynamic, in which the company dynamic is
greatly dominated by the owner-manager, it will be better to learn about the
entrepreneurial dimension from MSME performance. Peel and Bridge (1998)
discussed the success aspect as an SME performance proxy besides profitability.
SME managers are asked about their perceptions regarding the companies' success
compared with the competitors' success both from the quantitative and qualitative
dimensions so that an evaluation is obtained in classifying a company as being
very successful or very unsuccessful. Therefore, the performance measurement
model proposed in this research combines financial and non-financial
measurements, so that it can holistically provide information on the company's
condition to the relevant parties to achieve the company's strategic goals.
Figure 1. Three-Dimensional Model for MSME Performance Measurement
The MSME performance measurement in this paper can be visualized
through Figure 1. Figure 1 reveals that MSME performance measurement can be
carried out from the entrepreneurial aspect or the company itself, whether
financially or non-financially. This model provides a more expansive performance
measurement alternative, especially for micro, small, and medium scale
Maria Rio Rita & Andrew Thomas Thren
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enterprises of whose performance greatly depends on the entrepreneurs.
Entrepreneurs who have a high entrepreneurship orientation will choose an
entrepreneurial motivation that enables them to see opportunities, develop ideas,
and assemble resources, to develop their businesses. Performance can be
measured from objective or subjective indicators (Harris, 2001). This three-
dimension indicator also has both indicators. The financial indicator tends to be
more objective because it originates from the current financial data, while the
market dimension and the entrepreneurial dimension are a combination of both of
them.
CONCLUSION
This paper strove to provide a performance measurement framework
(model) modification that can be applied in MSMEs. The argument that underlies
this modification model formulation is because of the MSME unique
characteristics that are different from big companies so that an adjustment is
needed of the measurement model. Through a review of several papers about the
MSME performance measurement dimension, a non-financial performance
dimension was developed in the form of entrepreneurial indicators. This modified
model can be called a multidimensional model because it does not only consider
the company elements themselves (financial dimension and market dimension)
but also the entrepreneurial dimension.
Although this study has already described the indicators of each
performance measurement dimension, future research can modify or add
indicators needed, according to each company strategy. This model can be applied
in research about SMEs, and there are still opportunities to improve and critique
this proposed model. The entrepreneurial performance dimension can also be
expanded by adding the issue of well-being or prosperity in entrepreneurship
studies.
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Appendix 1. SME Performance Measurement
Research
Dimension
Indicator
Measurement
Sels et al.
(2006)
Financial
performance
(financial
health)
- Value added
The difference in operating results with
the good/service costs that are given to a
third party (external costs) that are spent
to achieve results.
- Profitability
((earnings before taxes)/(equity + retained
earnings))
- Liquidity
Acid test ratio (quick ratio)
- Solvability
(solvency)
(retained earning + earnings after taxes)/
total assets
Johnsen
and
McMahon
(2005)
Financial
performance
- Profitability
- Return on equity (ROE)
- Return on assets (ROA)
Business growth
- Growth
- Growth in employee number
- Growth in sales
- Growth in assets
BISMA (Bisnis dan Manajemen)
Volume 12 Issue 1, October 2019
E-ISSN 2549-7790, P-ISSN 1979-7192
Page 1-14
https://journal.unesa.ac.id/index.php/bisma/index 13
Research
Dimension
Indicator
Measurement
Prieto and
Revilla
(2006)
Business
performance
consists of:
a. Financial
performance
b. Non-
financial
performance
- Profitability
- Market
- Improvement in
work
productivity
- Improvement in
production cost
- Return on assets (ROA)
- Sales growth
- Average productivity
- Cost reduction
-
- Customer
satisfaction
- Employee
satisfaction
- Organizational
reputation
- Growth in the number of customers
- Growth in employee number
- Quality in products and services
McMahon
(2007)
Business
performance:
a. Financial
performance
- Profitability
- ROA
- ROE
b. Business
growth
- Return on sales (ROS)
- Growth
- Employment growth
- Sales growth
- Asset growth
Melgarejo
et al.
(2010)
Financial
performance
- Profitability
- ROA
- Return on Investment (ROI)
-
- ROS
- Short-term
solvency
- Current assets / current liabilities
- Long-term
solvency
- Total solvency
-
Eggert et
al. (2014)
Financial
performance
- Revenue
- Revenue growth
- Profitability
- Profitability growth
Torugsa
et al.
(2012)
Financial
performance
- Perception
towards ROA
- Perception
towards ROS
The respondents were asked to evaluate
their company’s financial performance for
a period of six months before compared
with similar companies in their industrial
sector, by using a five-point scale (1 =
"very bad" until 5 = "very good").
Maria Rio Rita & Andrew Thomas Thren
A three-dimensional model of MSME performance: an agenda for further research
14 https://journal.unesa.ac.id/index.php/bisma/index
Research
Dimension
Indicator
Measurement
Brouthers
and
Nakos
(2004)
Firm
performance:
a. Financial
performance
- Sales growth
- Sales level
- Profitability
The respondents were requested to
evaluate their company’s performance on
a 10-point scale (1 = “very dissatisfied”,
until 10 = “very satisfied”). The financial
performance factor consisted of the total
score of sales growth, sales level, and
profitability.
b. Non-
financial
performance
- Market share
- Market
- Distribution
- Reputation
- Market access
The non-financial performance factor
consisted of the total score of the market
segment, marketing, distribution,
reputation, and market access.
Peel and
Bridge
(1998)
Business
performance
- Profitability
The SME managers were asked to
perceive their business profitability
relative to their competitors. The score
was taken from a five-point scale (1 =
“very unprofitable”, until 5 = “very
profitable”).
- Success
The SME managers were asked to
perceive their business success compared
with their competitors, in reaching their
quantitative goals (market share, turnover,
ROI, etc.) or qualitative goals (quality,
image, technology status, environmental
concern, etc.). The score was taken from a
five-point scale (1 = “very unsuccessful”,
until 5 = “very successful”).
Source: Result of the research.
