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Article history:
Received 29 January 2013
Received in revised form
7 September 2015
Accepted 3 October 2015
Available online 23 October 2015
This paper proposes a novel and practical method of classifying micro, small and medium enterprises (MSME) based on their available levels of knowledge. This classication considers that the specic problems
that dominate a companys operations are related to the level of knowledge available. Therefore, identifying the dominant problem groups facing the company can enable an estimate of the level of
knowledge available in the enterprise.
Data from 2698 Mexican M-SMEs are used to identify operational problems. The main problem
groups are obtained through a cluster analysis. The proposed classication consists of three levels of
knowledge based on the interpretation of the dominant problem groups in each enterprise. Each of the
2698 Mexican M-SME are classied by a discriminant analysis.
Nearly half of the M-SME are classied as having a lower level of available knowledge, and only 10%
are classied with the highest level. No difference is observed between the size of the company and the
level of available knowledge. This means that growth in the number of employees and sales of M-SMEs is
not necessarily accompanied by an accumulation of knowledge that companies can use to improve their
operations.
& 2015 Elsevier Ltd. All rights reserved.
Keywords:
SME classication
SME taxonomy
Knowledge available
Cluster analysis
Discriminant analysis
1. Introduction
1.1. Enterprise classication
Increasing interest in the classication of micro, small and
medium enterprises (M-SME) has led to a variety of investigations
aiming to identify a typology of the behavior and the development
capacities of these companies (Andersen, 2012). These M-SME
classication proposals contain quantitative and qualitative enterprise features with a variety of different focuses.
Current quantitative M-SME classications are based on the
objective measurement of enterprise characteristics. This type of
classication is frequently used in the public sector and in the
operation of programs focused on M-SME fortication. The most
common quantitative measure used for M-SME classication is the
size of the enterprise, which is calculated either through its
number of employees and/or its annual sales. For example, the
Corresponding author.
E-mail addresses: elopezo@iingen.unam.mx (E. Lpez-Ortega),
dcanaless@iingen.unam.mx (D. Canales-Sanchez),
tomas_bautista@cuaed.unam.mx (T. Bautista-Godinez),
smacias@compite.org.mx (S. Macias-Herrera).
n
http://dx.doi.org/10.1016/j.technovation.2015.10.001
0166-4972/& 2015 Elsevier Ltd. All rights reserved.
Fondo PYME, one of the most important programs aimed at supporting M-SME development in Mexico, establishes differences in
the amount of support according to the size of companies (Fondo
PYME, 2012).
On the other hand, qualitative classications attempt to determine the development capabilities of the M-SMEs, (Greiner,
1972; Miles et al., 1978; Braglia and Petroni, 2000; De Jong and
Marsili, 2006; Macpherson and Holt, 2007; Laforet, 2009; Li and
Tsai, 2009). These types of M-SME classications emerged from
the idea that quantitative characteristics only account for a portion
of the reality of the enterprise, and that qualitative characteristics
of M-SMEs can better explain the development of the enterprise.
These differences in focus embody conceptual differences as
well. For example, Davidsson et al. (2005) indicated that the
growth concept has two connotations. One of these meanings
corresponds to the traditional M-SME focus on quantitative classication, which is associated with the enterprises capacity to
collect tangible resources such as the number of employees or the
amount of sales. Whereas, the second connotation of the growth
concept is related to qualitative characteristics and corresponds to
the fortication of the capacities and abilities of the organizations.
That is to say, the quantitative characteristics of M-SMEs such as
the number of employees and the volume of sales do not represent
60
the companys development capacity and ability; rather, they represent a portion of their effects. Thus, it is pertinent to analyze
which characteristics better explain their development and are
based on their capacities and abilities (Davidsson et al., 2005).
The M-SME classication proposed by Miles et al. (1978) based
on qualitative factors has been widely used. This classication is
based on the way in which enterprises approach and solve three
groups of fundamental problems:
Entrepreneurial problem. How to dene the organizational domain: a specic good or service and a target market or market
segment.
Engineering problem. How to create a system that operationalizes managements solutions to the entrepreneurial
problem.
Administration problem. How to rationalize and stabilize the
parts of the company involved in its activities and achieve its
evolution.
Because M-SME typologies based on qualitative characteristics
often lack measurable properties that allow for the classication of
every company, several authors have attempted to put the ideas of
Miles et al. (1978) into practice (McCann et al., 2001; ORegan and
Ghobadian, 2005; Kabanoff and Brown, 2008).
Other efforts have been made to classify enterprises based on
the level of knowledge of enterprises (Bohn, 1994; Albino et al.,
2001; Revilla et al., 2005; Wiratmadja et al., 2013). The level of
knowledge available in enterprises is closely related to development capacity (McEvily and Chakravarthy, 2002; Galbreath, 2005;
Wiklund and Shepherd, 2003).
Therefore, classications based on the knowledge available in
companies did respond more accurately to the identication of
capacities and abilities available in a company to sustain its development, as referred to by Davidsson et al. (2005). The next
section discusses this type of enterprise classication based on its
available level of knowledge.
1.2. Classication of enterprises based on knowledge
The rst enterprise classications based on the level of available knowledge were developed in the mid 1990s by Bohn (1994).
This author proposes a framework for measuring and understanding one particular type of knowledge: technological knowledge,
i.e., knowledge about how to produce goods and services (p. 61). He
denes technological knowledge as understanding the effects of the
inputs variables on the output. Mathematically, the process output, Y,
is an unknown function f of the inputs, x: Yf (x). Then, technological
knowledge is knowledge about the arguments and behavior of the
function f(x) (p. 62).
Bohn (1994) identied eight stages based on the available level
of technological knowledge to produce goods or services (Table 1).
Enterprises in stage one had rudimentary knowledge related to
the production of goods and/or services; on the other hand, enterprises in phase eight achieved complete knowledge of and
dominion over the production processes. Companies moved upward from one stage to the next based on their technological
learning and their accumulation of knowledge. Analyzing the
available level of technological knowledge could be equivalent to
solving the engineering problem sensu Miles et al. (1978).
Bohns classication was supported by contemporary ideas that
considered the creation of knowledge in an organization as an
ascendant spiral. An enterprise accedes to a higher level of development by using available knowledge to solve its problems. At
the next level of development, the enterprise acquires more
knowledge that allows it to identify new and more sophisticated
problems (Nonaka et al., 2000). The solutions to these new
Table 1
The eight stages of knowledge proposed by Bohn.Source: Bohn (1994).
Stage Name
Comment
8
7
Complete knowledge
Know why
Nirvana
Science
6
5
Process
characterization
Process capability
Tradeoffs to reduce
costs
Local recipe
Control of mean
3
2
1
Measure
Awareness
Complete ignorance
Scientic method
feasible
Pretechnological
Pure art
Typical form of
knowledge
Scientic formulas
and algorithms
Empirical equations
(numerical)
Hardware and operating manual
Written and
embodied
Written
Tacit
Nowhere
Fig. 1. Nonaka spiral knowledge creation concept and the eight stages of available
knowledge proposed by Bohn. Source: adapted from Nonaka et al. (2000) and Bohn
(1994).
problems promote the organizations further learning and accumulation of knowledge. Creation of knowledge in an enterprise
represents a fundamental source of its development. Nonaka
(1994) dened innovation as the utilization of available knowledge
to identify and solve the companys problems.
Fig. 1 summarizes both Nonaka's and Bohn's ideas by showing
an ascendant and accumulative knowledge spiral that matches the
eight knowledge levels.
At each turn of the spiral, an enterprise identies the most
relevant problems related to its operations and identies solutions. When the relevant problems are solved, the company
reaches the next available level of technological knowledge. At this
new level of knowledge, the most relevant problems related to the
companys operations will be more complex, and by solving them,
the enterprise will advance to the next level of technological
knowledge.
The enterprise learns and accumulates knowledge during the
period of time it resides at each level; therefore, the organization
can identify new relevant problems that can be solved because of
the knowledge acquired in the previous stages.
In a similar concept of knowledge creation, Albino et al. (2001)
uses the Bohn (1994) knowledge denition to propose a classication of the type of knowledge utilized by enterprises. According
to Albino et al. (2001), knowledge is an ability function characterized by the type of information used and the way of processing such information.
Albino et al. (2001) propose a metric based on the way in which
the enterprises acquire and process information related to productive activities and the opportunities to improve those activities. That is to say, the metric expresses the characteristics of
Knowledge type
Processing type
2. Methodology
Scientic
Quantitative
Qualitative
Tacit
Intuitive
Accurately measurable
Accurately measurable
Almost accurately measurable
Not accurately measurable
Partially known
Scientic
Quantitative
Qualitative
Experience-based
Intuitive
61
Fig. 2. Systemic representation of knowledge applied to identify production problems. Source: adapted from Bohn (1994), Albino et al. (2001) and Nonaka (1994).
62
Number of
enterprises
Percentage (%)
Micro
Small
Medium
572
1623
503
2698
21.2
60.2
18.6
100.0
110
1150
51250
TOTAL
63
Process
Administration
Workplace
Materials
Product
Lack of training
Lack of personnel commitment
No security procedures
High staff turnover
Unwilling to work collaboratively
Unbalanced production line
Lack of production planning and control
Decient quality control
Decient layout
Frequent extra labor time
Inadequate process techniques
Irregular availability of equipment and tools
Lack of control of equipment and tools
Unsafe use of tools
Inadequate tools and equipment
Equipment and tool maintenance problems
Inefcient use of equipment and tools
Obsolete equipment and tools
Decient assignment of jobs and responsibilities
Lack of internal policies
Lack of administrative controls
Inefcient production forecasting
Lack of goals in the short and medium term
Decient/insufcient process documentation
Inefcient costumer services
Insufcient personnel
Ergonomics problems
Occupational health and safety problems
Inappropriate work areas
Lack of facilities maintenance
Poor management of orders and deliveries
Inadequate material handling
Inadequate materials utilization
Inappropriate materials
Insufcient or inefcient product design
Lack of product specications
Table 5
Illustration of the interpretation of the problems documented in the RPW dossiers.
Documented problem
Problem area
interpretation
Staff
Unwilling to work
collaboratively
Equipment and tools Equipment and tool
maintenance problems
Work place
Occupational health
and safety problems
Materials
Poor management of
orders and deliveries
RPW database.
Each documented problem was associated with only one problem area and only one specic problem category. On average, 10.9
problems were identied in each RPW dossiers; therefore, the
RPW database contains approximately 29,400 specic problems.
Fig. 4. Procedure used to interpret each reported problem into a RPW database.
64
Table 6
Co-occurrence representation of specic problems (i, j).
Specic problem j
Specic problem i
0
1
A
C
B
D
65
Table 7
The ve clusters and their specic problems.
No.
Specic problems
7
9
11
6
8
Cluster 1
14
30
3
Cluster 4
4
34
35
25
24
26
10
22
18
23
36
Cluster 5
No.
Specic problems
29
32
17
33
16
28
12
13
15
27
Cluster 2
19
20
2
21
5
1
31
Cluster 3
66
Table 8
Types of problem groups found for the M-SMEs who received an RPW.
Problem group/
enterprise type
Objective
II
III
problem group.
Thus, we identied the dominant problem group in each enterprise using the average number of specic problems for each
problem group. For example, the average number of specic problems in problem group I was calculated using the following expression:
AI =
SP2,3/E
AII =
SP1/E = 4;
AIII =
SP4,5/E = 1
Fig. 6. Algorithm used to classify enterprises according to the dominant problem group.
67
Classied enterprises
Percentage (%)
Type I
Type II
Type III
Residual group
TOTAL
1278
700
274
446
2698
47.4
25.9
10.2
16.5
100.0
Table 10
Enterprise classication based on discriminant analysis and cluster analysis.
Company
type
Companies classied
by discriminant
analysisn
Rate agreement for
both classications
I
II
III
I
II
III
Companies not classied by cluster
analysis (residual group)
Companies classied by
cluster analysis
Total
II
III
1169
7
1
38
671
1
71
22
272
1278
700
274
91.5%
1.0%
0.4%
5.6%
3.0%
95.9%
0.4%
26.5%
5.5%
3.1%
99.2%
67.9%
100.0%
100.0%
100.0%
100.0%
n
The discriminant analysis was conducted with the cross validation option in
which each case is classied by the discriminant functions derived from the other
cases.
The numerical results of the discriminant analysis also supported the difference between the previous classication and that
based on the discriminant functions. In addition, unclassied enterprises based on the algorithm of the previous section (446 organizations) were classied using the obtained discriminant
functions (Table 10).
The cluster analysis and discriminant analysis classied 2112
companies on the same level (Table 10), representing 93.8%
agreement. Type I enterprises had the lowest agreement rate at
91.5%, while types II and III exhibited greater than 95% agreement
between the two methods (cluster and discriminant analysis).
Enterprises that were not classied in the cluster analysis (residual group) were classied in the discriminant analysis. Most of
these companies were classied as type III enterprises (67.9%) by
discriminant analysis. Thus, we expect that this residual group
mainly consists of organizations with the highest knowledge level.
Therefore, most cases belonging to the residual group may correspond to type IV companies with the highest level of available
knowledge among the 2698 organizations in the RPW database.
Fig. 8 reports the classications by the level of available
knowledge for different size companies. The three enterprise types
with different levels of available knowledge (types I, II and III) are
distributed in the same manner regardless of the companies size.
This even distribution of enterprise types between different
size categories suggested that enterprise growth, measured by the
number of employees and the amount of annual sales, did not lead
to an accumulation of available knowledge. Thus, it is possible for
the number of employees and sales to grow without observing a
progression based on the accumulation of available knowledge.
68
5. Conclusions
This research explored the ideas proposed by Bohn (1994) and
Albino et al. (2001) to classify enterprises based on their knowledge level. Both authors proposed a typology of enterprises based
on their skill level without establishing a practical way to objectively identify enterprises knowledge levels. This paper proposes
that the knowledge level that exists in an enterprise can be
identied through the recognition of the dominant problem
groups in the production processes. In the spiral proposed by
Nonaka et al. (2000) (Fig. 1), at each level an enterprise identies
its dominant problem groups, solves their most relevant specic
problems, and thus reaches a superior level of knowledge. At the
next level, the specic problems will correspond to a different
dominant problem group. Consequently, the problems that dominate the enterprises production processes are an expression of
the available knowledge level of the organization.
Information obtained from enterprises subjected to the Reengineering Process Workshop (RPW) were statistically analyzed
in two ways. The results conrmed that it was possible to identify
the available knowledge level in an M-SME by recognizing the
dominant problem groups. This paper identied three types of
enterprises according to their available knowledge levels. These
three types were identied as I, II and III and could correspond to
the rst knowledge levels described by both Albino et al. (2001)
and Bohn (1994).
Type I enterprises typically had problems associated with their
technical operations and with the management and ownership of
the process (problem group I).
In these companies the use of available knowledge aims to
control their production procedures. These enterprises probably
present characteristics very similar to those of the companies with
less knowledge available according to typologies proposed by Albino et al. (2001) and Bohn (1994).
Type II enterprises had a dominant problem groups generally
associated with design and production planning. An enterprise
must achieve mastery and control of the production process prior
to focusing on production planning. Therefore, type II enterprises
included in the RPW database have solved the major problems
associated with the control of technical operations and have
achieved mastery over the production process.
Thus, the enterprises classied as type II use available knowledge in order to achieve control over their production average in
terms of the output.
Type III enterprises have a higher knowledge level, suggesting
that they have solved most of the specic problems related to the
problem groups I and II. These companies use their available
knowledge to control the variance in production and achieve client
satisfaction.
More than half of the 2112 enterprises classied by the discriminant analysis fell under type I (55.3%), with the lowest
knowledge level, while type II accounted for only a third of the
population of enterprises with 31.8%, and only 12.9% of the enterprises were classied as type III (see Table 10).
The enterprises contained in the RPW database are those
willing to accept an intervention to improve their performance.
This could represent a sampling bias and thus may preclude the
extrapolation of these ndings to the entire population of Mexican
M-SMEs. Nonetheless, our results suggest that a signicant percentage of enterprises have very low levels of available knowledge
(type I).
As seen in Fig. 8, no relationship is observed between company
size and the level of available knowledge. The fact that type I enterprises were distributed regardless of their size suggested that the
growth of enterprises, measured by the number of employees, does
not necessarily lead to an accumulation of available knowledge.
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