A SWOT analysis of small and medium scale enterprises implementing total quality management

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1 MultiCraft International Journal of Business, Management and Social Sciences Vol. 1, No. 1, 2010, pp INTERNATIONAL JOURNAL OF BUSINESS, MANAGEMENT AND SOCIAL SCIENCES MultiCraft Limited. All rights reserved A SWOT analysis of small and medium scale enterprises implementing total quality management S. D. Kalpande 1 *, R. C. Gupta 2, M.D. Dandekar 3 1* Department of Mechanical Engineering, MET s Institute of Engineering, BKC, Nashik, Pune University, Pune, , INDIA 2 Department of Industrial and Production Engineering, Shri G. S. Institute of Technology & Science, Indore M.P., , INDIA 3 Department of Industrial and Production Engineering, Shri G. S. Institute of Technology & Science, Indore M.P., , INDIA * Corresponding Author: [email protected], Tel Abstract Small and Medium scale Enterprises (SMEs) playing a vital role in nation s economy. Many studies have demonstrated the positive impact of Total Quality Management (TQM) practices on Small and Medium scale enterprises. These have relied on manager s self assessment of performance in reaching the objectives of study. It is also observed that many SMEs are ineffective and some are closed down. The main problem of those SMEs seems to be the low quality of their product and rise in competition in the market. To stand in the market, it is necessary for SMEs to face new challenges by adopting proper strategy. SWOT (Strength, Opportunity, Weakness, and Threats) analysis is one of the techniques to undertake a more structural analysis to formulate the best strategy. SWOT is the combination of four major terms as Strength, Opportunity, Weakness and Threats. The study shows that Competition and Rise in expectation of Customers are the major external issues for the SMEs of this region. The main threats observed are competition from large & multinational businesses, financial stringency and technological obsolescence. The aim of SWOT analysis is to identify the extent to which the current strategy of an organization and its more specify strength and weakness are relevant to, and capable of dealing with the changes taking place in the business environment. Every unit must be aware of their Strength, Opportunity, Weakness and Threats. To succeed in any field, weakness must be overcome through strength and threats must be transferred into opportunities. Keywords: SMEs, TQM, SWOT Analysis, Structural Analysis. 1. Introduction Total Quality Management also known as TQM, is a continuous effort to improve quality and achieve customer satisfaction. It is primarily an organizational strategy considered as a change program to achieve excellence by producing quality service as defined by the customer (Garg, 2008). On the study of TQM effect on organizational performance, most research has focused on analyzing the relationship between the implementation of different and several types of performance (Poonsook et al., 2005). The causal analysis result shows that dynamism, munificence and complexity influence the degree of implementation of the main TQM principles. The most relevant effects emerge as a result of the environmental dynamism, and the least effects are due to munificence. Similarly, the dimensions of TQM have an impact on different types of performance. The model can be used by organizations to assess their level of TQM success depending on specific environmental characteristic. Study report shows that there is a growing number of SMEs in India yearly. In spite of this, it is also observed that many SMEs are ineffective and some are closed down. The main problem of those SMEs seems to be the low quality of their product and rise in competition in the market. Ineffectiveness may result in the locking up of resources, wastage of capital assets, loss of production and increasing unemployment. In addition the ineffective units are mainly affected by the reduction of loan-able funds by financial institutions. This results in reduction of the velocity of their circulation. The investigation suggests that quality management in manufacturing companies should be conducted in a cost-effective way and directed towards improving the operational efficiency and effectiveness of the entire organization rather than simply satisfying the customers (Yeung and Chan., 2005). To stand in the

2 60 market, it is necessary for SMEs to face new challenges by adopting proper strategy. SWOT (Strength, Opportunity, Weakness, and Threats) analysis is one of the techniques to undertake a more structural analysis to formulate the best strategy. On this background the objectives of this paper are too Study SMEs and o Apply SWOT analysis for the situational analysis of SMEs to get insights into their status. 1.1 Introduction to SWOT Analysis: SWOT is the combination of four major terms as Strength, Opportunity, Weakness and Threats. Strength refers to inherent abilities to complete and grow strong. Weaknesses are the inherent deficiencies that cripple one s growth and survival. Strength and weakness are mostly internal. Opportunities are the good chances and openings available for growth. These are environmental & external. Threats are extremely wielded challenges, which might suppress inherent Strength, accelerate weakness and stifle with opportunities being exploited. These are again posed due to the external environment (Foong, 2007; Directors Briefing, 2006). According to Johnson and Scholes (1994) the aim of SWOT analysis is to identify the extent to which the current strategy of an organization and its more specify strength and weakness are relevant to, and capable of dealing with the change taking place in the business environment. Every unit must be aware of their Strength, Opportunity, Weakness and Threats. To succeed in any field, weakness must be overcome through strength and threats must be transferred into opportunities. 1.2 Benefits of Small and Medium Enterprises: SMEs provide development sinews to the hook and corner of the economy. Economic growth is accelerated by the SMEs, as SMEs are productive and vibrant contributors to the economy. SMEs output grew with higher speed than the large industrial sector. Employment generation in SMEs is swifter, 0.5 million jobs annually. SMEs is 33% more employment intensive than the whole of the economy taken together. Exports of SMEs are surging fast and its share is over 42%. Besides these the capital intensity is less. Investment in fixed asset in SMEs is just one fourth of that of large-scale industries. On the other side the labour absorbing capacity of large scale industries is limited and has been declining over a period of time due to the fact that it becoming more capital intensive. Similarly, growth in agriculture facilitated by irrigation was labour intensive in the initial stage but become capital intensive later and was accompanied by reduced labour absorption. Moreover, the pressure of population on land is already high and increasing and has resulted in a large surplus of labour in rural areas. On this background, it is felt that SMEs represents a vital backbone of the Indian economy. There is also a growing worldwide appreciation of the fact that the small and medium enterprise plays a catalytic role in development process of most of the economies. This position gets reflected in the form of increasing number, rising proportion in overall product manufacturing, export and manpower employment by these units (SIDO GOI., 2004 and Economic Survey, GOI., 2007). This makes them the backbone of industrial economy in a developing nation like India. Throughout the world economics are to a large extent dependent on the success of SMEs. For example, in the UK alone more than 70% of all business employs fewer than hundred people (Huxtable, 1995). Also 18% of UK gross output (Manufacturing) is generated by SMEs (Ghobadian and Gallear, 1996). In Japan 72% of the entire workforce is engaged in SMEs, whereas in USA and Korea 53% and 51% respectively. In India SMEs account for about 40 % of the total industrial output and contributes nearly 35% of the total direct exports. Table 1 shows the contribution of small sector industries worldwide. Small and medium enterprises (SMEs) comprise 95% of Australian businesses, employ 45% of the workforce, and generate 55% of sales. With significant downsizing of large enterprises over recent years, there has been an increasing interest from both governments and industry bodies in Australia in the growth potential of this sector. It is recognized that there are political, economic and social imperatives for helping SMEs to survive and develop, particularly to support job growth (Barnes et al., 1998). Table 1. Contributions of SSI Worldwide Country Share of Total Criteria for Recognition Output Employment Export India 40% 45% 35% Fixed assets USA -- 53% -- Employment Japan 52% 72% 13% Employment & assets Taiwan 81% 79% 48% Paid up capital, assets and sales Singapore 32% 58% 16% Fixed assets and employment Korea 33% 51% 40% Employment Malaysia 13% 17% 15% Shareholder fund & employment Indonesia 36% 45% 11% Employment Source: Laghu-Udyog, Volume, 26 (6), 2008

3 61 2. Methodology A structured questionnaire survey and open-ended interviews are used as a technique for data collection. Literature review and discussion with managers from SMEs were used for developing the questionnaire. The questionnaire was divided into three sections- 1. The company background i.e. Year of Establishment, No. of Total Employees, Main Products, Total annual Production in Rupees, Total investment in Land and machineries in Rupees and Turnover of last three years etc. 2. SWOT factors i.e. Questions on the various factors considered under strength, Weakness, Opportunities and Threats are shown in Table Environmental factors, i.e questions on the various external factors affecting the performance of the plant are shown in Table 2. The structured questionnaires consist of five questions. For identifying the rank of various factors considered under Strength, Opportunity, Weakness, Threats and Environment and data is collected from the target market. Likert type five point scales were used. In which, 1- indicates most favorable response and 5- indicates least favorable response. The sum of the responses for each factor was calculated. The factor having lowest sum has been given first rank, and the factor having highest sum was ranked as last. 3. Data Analysis 3.1 SWOT Analysis: There are three major aspects of TQM and it is only when all three are employed together that have a complete TQM effort. These components are: the cultural aspect, the technical aspect, and the managerial aspect (Jack, 2007). The major strength, weaknesses, opportunities & immediate threats to SMEs are:- Strengths Opportunities Environmental Table 2. Factors considered for SWOT Analysis S 1 Flexibility W 1 Lack of Quality Consciousness S 2 Owners Management W 2 Under utilization of capacity S 3 In-expensive labour W 3 Lack of Financial strength S 4 Less overheads W 4 High percentage of absenteeism S 5 Favorable capital output ratio W 5 Lack of proper work culture S 6 Flat management structure W 6 Lack of trained workers S 7 Co-operation from the employees W 7 Lack of technology superiority Weaknesses S 8 Closeness to market W 8 Lack proper management orientation O 1 Expert Market W 9 High turnover of key personnel O 2 Govt. Support W 10 Lack of planning O 3 Excise Relief W 11 Lack of long-term strategic focus O 4 Increase of ceiling for SMEs W 12 Lack of infrastructure facilities O 5 Ancillarisation to large business W 13 Inadequate attention to research O 6 Reservation of product items by Govt. and development E 1 Competition from large & Multinationals T 1 Competition from large E 2 Rise in expectation of customer and Multinationals E 3 Govt. Support (Financial/non financial) T 2 Financial stringency E 4 Export Market T 3 Technological obsolesces E 5 Increase in price in input Threats T 4 Negligence towards industrial training E 6 Shortage of raw material T 5 Increase in the price of inputs E 7 Ancillarisation to large Industry T 6 Lack of political peace and Stability E 8 Political will and stability. 4. Situational Analysis of SMEs The SWOT analysis, a powerful tool develop by the above procedure, was used for the situational analysis of SMEs. The statement was examined one against another on the lines suggested by Johnson and Scholes (1994). The analysis of the outcomes would basically be gap analysis; i.e. comparing the actual situation with the planning standards or other norms. Analysis of the time series would show whether the situation is improving or deteriorating (IFUW, 2007).The analysis is shown in Table 3. The main strength and weakness are in the left hand column, and are examined in terms of the key environmental issues: a + or - or 0 was scored as follows:- Marking + if there was a benefit to SMEs, i.e. if:

4 62 o A strength enabled to take advantage of or counteract a problem arising from a environmental change; o A weakness was likely to be offset by the change. Marking - if there was an adverse effect on SMEs, i.e. if: - o A strength was likely to be reduced by the change; o A weakness prevented the organization from overcoming the problems associated with the change or was accentuated by that change. Marking 0 if there was no effect on SMEs. Table 3. Approaches used for Managing Quality- Selection Grid Competition Govt. Support Rise in Shortage Export Increase Total from large & Multinationals (Financial/non financial) expectation of customer of raw material Market in price in inputs Strengths Flexibility Owners Management In-expensive labour Less overheads Favorable capital output ratio Weaknesses Lack of Quality Consciousness Under utilization of capacity Lack of Financial strength High percentage of absenteeism Lack of work culture Lack of trained worker Lack of tech. superiority What this analysis yield is a much clearer view of the extent to which the environmental changes and influences provide opportunities or threats, given current strategies and organizational capabilities. Table 3 shows that a major opportunities lies in the utilization of financial & non-financial support extended by Govt. and gain vast export market. Owner management & flexibility are the some other areas, which provide opportunities for growth. Likewise, the major threats include competition from large and multinational and rise in expectation of customers. In the light of the above considerations, the need for quality initiatives in SMEs was felt. 5. Discussion The study shows that Competition and Rise in expectation of Customers are the major external issues for the SMEs of this region. The main threats observed are competition from large & multinational businesses, financial stringency and technological obsolescence. Only 16 % of the SMEs from the sample used ISO certification as an approach for managing quality. Table 4 shows that TQM approach is not used at all. Very few SMEs identified the importance of TQM & planning for TQM adoption. Lack of quality consciousness, under utilization of capacity, lack of financial strength, non availability of trained workers, lack of culture

5 63 due to low industrial development and high interest on loan are the some of the common problem faced by SMEs. So the thrust areas for SMEs of this region arei. Education and training to manager/ entrepreneur regarding the benefits and need of continuous improvement. ii. Education & training to employees on various aspects like quality and its need, use of SQC, importance of continuous improvement, use of data and understanding of processes. iii. Adoption of philosophy of continuous improvement (TQM) and iv. Development of competitiveness through use of better technology, use of improved equipment and testing facilities. 6. Conclusion Table 4. Approaches used for Managing Quality S.N. Name of Approaches No. of Units 1. Traditional Approach (Inspection) 65% 2. ISO Certification 16% 3. Statistical Quality Control (SQC) 13% 4. Total Quality Control (TQC) 02% 5. Others (TCCQS) 03% 6. Total Quality Management (TQM) 01% SMEs play an essential role in sustaining a developing nation s survival and growth. The aim of this study was to investigate the extent to which the SWOT factors have been attained in SMEs with particular reference to the selected companies operating in Maharashtra. The empirical data was collected and practitioners opinions were analyzed to compare the actual situation with the planning standards or other norms. The study shows that Competition and Rise in expectation of Customers are the major external issues for the SMEs of this region. The main threats observed are competition from large & multinational businesses, financial stringency and technological obsolescence. It was found from the SWOT analysis that poor information on TQM, low level of awareness and understanding, and non availability of a specially developed TQM model which guides the TQM implementation are found to be the main barriers in the process of adoption of TQM philosophy in SMEs and potential benefits could be derived from the successful implementation of the TQM. In spite of the various lacunas, it is felt that with the existing technology and manpower, SMEs can do miracle by adopting a philosophy of continuous improvement (TQM). It is imperative to pay attention towards the study of existing self assessment and quality awards models which suit the needs of SMEs as a future scope. References Barnes M., Coulton L., Dickinson T., Dransfield S., Field J., Fisher N., Saunders I. and Shaw D., A New Approach To Performance Measurement For Small And Medium Enterprises, Proceeding of International Conference on Performance Measurement, Churchill College, Cambridge U.K. Directors Briefing, SWOT Analysis, e-book Online Published by BHP information solution Ltd., Althorp House, 4-6 Foong L.M., Understanding of SWOT Analysis, TQM case studies-e-book Online, 31st August 2007,.from Garg I., Employees Training & Participation-A Must For Total Quality Management, Proceeding of IABR & TLC Conference, San Juan, Puerto Rico, USA. Ghobadian A.,and Gallear O., Total quality management in SME, Omega, Vol.24. pp Huxtable, N 1995, TQM; Small business, Chapman and Hall, Landon. IFUW., Situational Analysis, International Federation of university Women, Geneva, Switzerland. Jack B. ReVell., TQM Tools & Tool Kit, International Federation of university-online, IFU Poonsook J., Kusuma P. and Pong H., An application of Total Quality Management for Thai Communities Knowledge Management Systems, Proceeding of the Fourth International Conference on Business, Bangkok, Thailand. SIDO Half Century by DCSSI, Govt. of India, 2004 and Economic Survey, Govt. of India, , Feb. Yeung C.L. and Chan L. Y., Quality Management System development: Some implications from case studies, proceeding of Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Pokfulam Road, Hong Kong. Biographical notes S. D. Kalpande is a Workshop Superintendent and Head of Mechanical Engineering Department, MET s Institute of Engineering, Bhujbal Knowledge City, Nashik, Maharashtra, India. He has 15 years of experience in teaching and research. He is a Life Member of IIIE (India), Life Member of ISTE (India). R. C. Gupta is a Professor and Head of Industrial and Production Engineering Department, Shri G.S.I.T.S, Indore, M.P., India. He has more than 25 years of experience in teaching and research. His research interests include industrial engineering, total quality management, supply chain management, world class

6 64 manufacturing and Multi-criteria Decision-Making. He has written two books on relevant subjects. He is a Life Member of IIIE (India), Life Member of ISTE (India). M. D. Dandekar is a Associate Professor in the Industrial and Production Engineering Department, Shri G.S.I.T.S, Indore, M.P., India. He has more than 20 years of experience in teaching, research and industry. His current area of research includes manufacturing processes, tool design, quality engineering, supply chain management, Intellectual Property Rights and world class manufacturing. He has published and presented various papers on his research in international journals and national and international conferences. He is a Life Member of IIIE (India). Received June 2010 Accepted September 2010 Final acceptance in revised form September 2010