A Growth State Transition Model as Driver for Business Process
Management in Small Medium Enterprises
Dina Jacobs
1
, Paula Kotzé
2,3
and Alta van der Merwe
3
1
triVector, Centurion, South Africa
2
CSIR Meraka Institute, Pretoria, South Africa
3
Department of Informatics, University of Pretoria, Pretoria, South Africa
Keywords: Growth Stage Models, Growth State Transition Models, Small and Medium Enterprises, Business Process
Management.
Abstract: A key constraint for growing small and medium enterprises (SMEs) in South Africa is the business skills
required to grow the enterprises through the stages of transformation. Business process management (BPM)
is one of the skills that could add value during transformation. Understanding the stages of transformation
during SME growth would assist to position BPM as an instrument of value for SMEs. These stages of SME
growth are typically defined as part of the SME growth stage models. However, criticism against SME
growth stage models is of concern. In this article, we propose the 5S SME Growth State Transition Model in
order to counteract some of the criticisms. The value contribution of the Model lies in defining typical states
associated with SME growth that can be used as input in research to position BPM as management approach
during SME growth.
1 INTRODUCTION
Growing small enterprises to become medium
enterprises, with the objective of job creation, is a
top priority in South Africa (DTI, 1995). However,
over and above resource poverty, a key constraint is
the business skills required to grow the small
enterprises through the various stages of
transformation. This lack of business skills as a
constraint, is confirmed from a global perspective by
Jones (2009) in his recommendation for training for
all small and medium enterprise (SME)
entrepreneurs to prepare them for their journey and
the challenges and crises that they will encounter
along the way. Hanks et al. (1993) also refer to the
lack of business skills and the formidable challenge
of guiding an organisation through the growth
process. In our wider research, on the possible use of
business process management (BPM) as a
management approach to assist SME managers, who
operate under the constraint of resources poverty,
through the transitions of growth, we again realised
the need to address the stage-state issue in SME
growth. Our view of BPM is guided by the Forrester
Research definition of BPM (Miers, 2011), which
positions BPM as a management approach,
including support of organisational change, value
optimisation and ongoing performance
improvement. We argue that the understanding of
the typical stages of transformation during SME
growth would assist to position BPM as suitable
management approach during SME growth. The
initial argument may be that there are consolidated
growth stage models available for SMEs to define
the typical stages of transformation. However, in a
review of relevant material on growth stage models
(Davidsson et al., 2005, Hanks et al., 1993, Jones,
2009, McMahon, 1998, Miller, 1987, Perenyi et al.,
2008, Jacobs et al., 2011), evidence was found that
this argument might be questionable, specifically
due to the status of such growth stage models for
SME’s. A review of the work done by , Davidsson
et al. (2005), McMahon (1998) and Hanks et al.
(1993), for example, revealed criticisms regarding
over-determinism and questionable empirical
support. Another of the critiques revealed, which is
addressed in this paper, is that the growth stage
models tend to assume that all SMEs pass
inexorably through each stage of the model.
In our earlier work, we investigated the
enhancement of growth stage models with enterprise
architecture principles, with the objective of
Jacobs, D., Kotzé, P. and Merwe, A.
A Growth State Transition Model as Driver for Business Process Management in Small Medium Enterprises.
DOI: 10.5220/0006385305070519
In Proceedings of the 19th International Conference on Enterprise Information Systems (ICEIS 2017) - Volume 3, pages 507-519
ISBN: 978-989-758-249-3
Copyright © 2017 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
507

providing guidance to SME managers during the
transformation process from being a small enterprise
to becoming a big enterprise (Jacobs et al., 2011).
One of the suggestions from this work was to
consider replacing the stage concept with a ‘current
to future state transition’ approach.
Following up on this suggestion, the focus of this
paper is the development of an SME growth state
transition model, called the 5S SME Growth State
Transition Model, aimed also at counteracting the
identified critique against growth stage models. The
intention is, as part of our wider research to position
BPM as management approach for SME growth, to
use this Model to enrich/adapt BPM approaches to
assist SME managers through transitions of growth.
The Model is not a proposed alternative for SME
growth stage models as such; its aim is specific to
identifying transitions as input towards our
mentioned research.
Section 2 describes the background to this paper
with reference to SME growth and SME growth
stage models. The research method is described in
section 3. Section 4 elaborates on the problems
identified with growth stage models for SMEs. The
proposed 5S SME Growth State Transition Model is
presented in section 5, with an overview of a
demonstration of the applicability of the 5S SME
Growth State Transition Model discussed in section
6. Section 7 concludes with a discussion of the value
of the 5S SME Growth State Transition Model and a
reference to future research.
2 BACKGROUND
2.1 SME Growth
The definition of SMEs in South African legislation
makes provision for SME growth with reference to
micro, very small, small and medium enterprises. In
South Africa a small business is defined, per sector,
by the number of employees and/or turnover and/or
assets as defined in the National Small Business Act
of 1996 (DTI, 2008). As an example, the criteria for
a medium enterprise vary per sector from 100 to 200
employees, with a turnover of between R5 million
and R64 million, and assets with a value of between
R3 million and R23 million.
SME growth is associated with a change in status
of the SME through various transitions. The South
African Department of Trade and Industry (DTI)
defines the transition cycle associated with SME
growth from an informal to a formal business as: (1)
seed stage, (2) operational, (3) registration for VAT
(value added tax), (4) permanent employment, and
(5) registration as a legal entity (DTI, 2008).
2.2 SME Growth Stage Models
Davidsson et al. (2005) and McMahon (1998) refer
to the seminal book by Penrose (1959) explaining
the two different connotations of growth, namely the
amount of growth versus the process of growth.
SME growth stage models are related to the process
of growth. SME growth is viewed as a series of
phases or stages of development through which the
business may pass during an enterprise life cycle. In
their review of research on small firm growth,
Davidsson et al. (2005) define growth stage models
as a description of the distinct stages of SME
growth, as well as the set of typical problems and
organisational responses associated with each stage.
A large number of SME growth stage models exist.
The SME growth stage models that focus on
generic problems that organisations may encounter
during growth are valuable from various
perspectives:
• From a management perspective, for the
definition of SME operating models and helping
SME managers to make important decisions
(Jones, 2009).
• From the prediction perspective, one of the
objectives of the model by Greiner (1972) is to
create awareness among entrepreneurs of
possible crises and solutions as part of the
transformation through the different stages.
• From the understanding perspective, Massey et
al. (2006) confirm that the life-cycle
phenomenon has been found meaningful by
SME managers.
Concerning growth itself, SME growth stage
models can provide value:
• To identify critical organisational transitions, as
well as pitfalls the organisation should seek to
avoid as it grows in size and complexity (Hanks
et al., 1993).
• To provide a better understanding of the growth
process of small firm development as input for
research and policy-making (McMahon, 1998).
• To assist with managerial growth problems and
internal processes, such as growth state
transitions, managerial consequences and
solutions (Davidsson et al., 2005).
• To assist with the management of key transition
points (Phelps et al., 2007).
• To assist in periods of change after operating for
some period of time in a definable state that then
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changes, sometimes incrementally and other times
dramatically (Levie and Lichtenstein, 2010).
Although a wide variety of SME growth stage
models were published over the years, these SME
growth stage models, as indicated in the
introduction, did not escape criticism. It is important
to address such concerns, as SME growth stage
models are important for SME managers in order to
understand, manage and predict problems that are
likely to arise during SME growth.
This paper addresses one of these criticisms by
proposing an alternative solution to understand
typical transitions associated with SME growth.
3 RESEARCH METHOD
As part of our wider research project to position
BPM as management approach for SME growth,
design science research, following the process
suggested by Vaishnavi and Kuechler (2013), was
used to guide our research process. For the part of
the wider research presented in this paper, a
literature review of growth stage models was
conducted as first step. Based on the literature
review and the analysis of SME growth stages, it
became clear that a number of challenges exist with
SME growth stage models. One of the problems,
namely that stage models and life-cycle theories do
not accurately represent the growth of SMEs, was
identified as the focus of the problem to be
addressed in this paper. In addition, an analysis of
the corporate records of an actual SME was used to
confirm the criticisms of SME growth stage models
associated with the stages specifically. As outcome
of the two studies, a suggestion was made to
investigate whether a state transition model
approach could be an alternative to address this
problem. The development of the proposed model
involved an analysis of a representative set of
growth stage models, to identify state transitions,
and to define an SME growth state transition
classification framework. Mapping the state
transitions to the classification framework resulted
in the 5S SME Growth State Transition Model. To
demonstrate whether the SME Growth State
Transition Model addressed the concern that SME
growth stage models did not accurately represent the
growth of SMEs, the use of the model was
demonstrated by again applying it to the actual
SME. Further evaluation was done as part of the
wider research to position BPM as management
approach for SME growth.
4 ELABORATION OF THE
IDENTIFIED PROBLEM
4.1 Criticism of SME Growth Stage
Models
In the introduction, we mentioned the criticisms of
over-determinism, questionable empirical support
for growth stage models, and the fact that the stage
models tend to assume that all SMEs pass
inexorably through each phase of a growth stage
model. In addition, the following is a summary of
the criticisms identified based on the content of
reviews of SME growth stage models by Hanks et
al. (1993), McMahon (1998), Davidsson et al.
(2005), Massey et al. (2006), Phelps et al. (2007)
and Levie and Lichtenstein (2010):
• SME growth stage models are conceptually
rather than empirically based: There is a lack of
empirical validation of the proposed SME
growth stage models and even if empirical
studies were carried out, the outcome did not
favour the SME growth stage model theory
(Levie and Lichtenstein, 2010, Churchill and
Lewis, 1983).
• The definition of a stage is vague and too
general and the terminology is not explicitly
defined: Not only does the vague definition of a
stage make it difficult for the SME manager to
apply the model, but it also results in disparities
between models.
• The number of stages varies from between two
and eleven and the transition through the stages
result in variations: There is no consensus on
how many stages there are in SME growth stage
models, and whether organisations evolve
through the same series of stages.
• Descriptive model versus explanatory or
predictive model: The models serve well for
descriptive purposes, but have limited
explanatory or predictive power.
• Stage models and life-cycle theories do not
accurately represent the growth of SMEs:
Whether a specific SME growth stage model
originated from evolution or revolution as its
foundation (Greiner, 1972), stages of corporate
development (Scott and Bruce, 1987),
morphogenesis (Kazanjian, 1988) or an
organisational life cycle (Lippitt and Schmidt,
1967), the SME growth stage models are all
based on the underpinning assumptions of an
organismic metaphor regarding growth. Such
assumptions typically include the assumptions
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509

that growth is linear, sequential, deterministic
and invariant. Levie and Lichtenstein (2010)
reviewed more than 100 SME growth stage
models published over a period of more than 40
years and concluded that stage models and life-
cycle theories do not accurately represent the
growth of SMEs.
Although all these criticisms are important, this
paper specifically addresses the last one related to
the stages of growth stage models.
4.2 Analysis of an Actual SME
An analysis of the corporate records of an actual
SME, company SME X, growing from a small
enterprise into a medium enterprise was used to
confirm the criticisms of SME growth stage models
associated with the stages specifically. The nature of
the underlying business of the small enterprise was
that of a consulting practice with a narrowly defined
service range. During the 2011/2012 financial year,
the number of full time employees was around 35
and the number of subcontractors varied between 10
and 20. The SME’s management wanted to
understand the areas of concern and wished to
identify the initiatives to be included in the business
plan to deliberately manage the growth from a small
to a medium enterprise.
During 2010, SME X developed an operating
model with one of the objectives being the growth of
the enterprise from a small into a medium enterprise.
The growth model for 2011/2012 financial year was
based on the replication of new pipelines. The
replication model (Ross et al., 2006) was therefore a
good fit to describe the growth model.
The Model for Small Business Growth (Scott
and Bruce, 1987) was used in the analysis of
company SME X. The Model consists of five stages
as illustrated in Table 1. The principles of the
Evolution of Five Phases of Growth (Greiner, 1972)
were the foundation of the Model for Small Business
Growth (Scott and Bruce, 1987). The Evolution of
Five Phases of Growth highlighted typical crises and
solutions as part of the transformation through the
different stages of SME growth. In the Model for
Small Business Growth, the different criteria, such
as the stage of the industry and key issues, were
presented in relation to each stage, from the
Inception stage (Stage 1) through to the Maturity
stage (Stage 5). For example, in Stage 1, Inception,
the key issues were those of obtaining customers and
economic production, which changed in Stage 5,
Maturity, to those of expense control, productivity,
and niche marketing if the industry was declining.
Using the 2010 operating model of company
SME X, the current and future states of the SME
were mapped according to the Model for Small
Business Growth (Scott and Bruce, 1987). The
outcome of this mapping of SME X is illustrated in
Figure 1 . Based on the SME growth stage model
principles, the expectation was that there would be a
single value for all areas of concern, e.g. for all areas
of concern the stage would be Stage 3, an indication
that the company was in that specific stage of
growth. A second expectation was that for all areas
of concern the future state would be the next stage,
for example Stage 4, indicating that the company
was moving to the expansion stage.
Figure 1: Current and Future States of Company SME X
based on 2010 information.
This mapping of the current and future states of
the company illustrated the challenges faced by the
company in determining its current and future stage
according to the guidelines of growth stage models.
For the product and market research as well as major
investments, the current state of company SME X
was still Stage 2, but for management style, systems
and controls and cash generation, the current states
were associated with Stage 4. For the other six areas
of concern, the current state of company SME X was
indicated as Stage 3. Regarding moving to the future
state the intent, for the majority of the areas of
concern, was to move to the next stage. However,
for three of the areas of concern, namely
management style, systems and controls as well as
major source of finance, there was no business value
in moving to the next stage.
Whether the observation, that an enterprise is not
necessarily in the same stage for all areas of
concern, was contributing towards, or was a result
of, the criticism of SME growth stage models, was
not clear.
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Table 1: Model for Small Business Growth (Scott and Bruce, 1987).
Stage 1
Inception
Stage 2
Survival
Stage 3
Growth
Stage 4
Expansion
Stage 5
Maturity
Stage of Industry Emerging,
fragmented
Emerging,
fragmented
Growth, some larger
competitors, new
entries
Growth, shakeout Growth/ shakeout or
mature/ declining
Key Issues Obtaining
customers,
economic
production
Revenues and
expenses
Managed growth,
ensuring resources
Financial growth,
maintaining control
Expense control,
productivity, niche
marketing if industry
declining
Top Management
Role
Direct supervision Supervised
supervision
Delegation,
coordination
Decentralisation Decentralisation
Management Style Entrepreneurial,
individualistic
Entrepreneurial,
administrative
Entrepreneurial,
coordinated
Professional,
administrative
Watchdog
Organisation
Structure
Unstructured Simple Functional,
centralised
Functional,
decentralised
Decentralised
functional/product
Product and Market
Research
None Little Some new product
development
New product,
innovation, market
research
Production innovation
Systems and
Controls
Simple
bookkeeping,
eyeball control
Simple bookkeeping,
personal control
Accounting systems,
simple control
reports
Budgeting systems,
monthly sales and
production reports,
delegated control
Formal control,
systems management
by objectives
Major Source of
Finance
Owners, friends
and relatives,
suppliers leasing
Owners, suppliers,
banks
Banks, new partners,
retained earnings
Retained earnings,
new partners, secured
long-term debt
Retained earnings,
long-term debt
Cash Generation Negative Negative / breakeven Positive but
reinvested
Positive with small
dividend
Cash generator, higher
dividend
Major Investments Plant and
equipment
Working capital Working capital,
extended plant
New operating units Maintenance of plant
and market position
Product and Market Single line and
limited channels
and market
Single line and
market but
increasing scale and
channels
Broadened but
limited line, single
market, multiple
channels
Extended range,
increased markets
and channels
Contained lines.
Multiple markets and
channels
What was, however, confirmed with this analysis
of company SME X, is that the typical SME growth
stage model may be value adding to create
awareness of concepts related to growth. It also,
however, revealed that a new approach is required in
order to understand typical transitions during SME
growth, which can affect how to position BPM as
management approach for SMEs.
5 PROPOSED 5S SME GROWTH
STATE TRANSITION MODEL
The development of the proposed 5S SME Growth
State Transition Model involved five steps, starting
with the identification of a list of SME growth stage
models to consider, followed by the selection of a
list of ten representative SME growth stage models
to analyse in order to derive possible SME growth
state transitions. The terminology used in the ten
SME growth stage models was used to define an
SME growth state transition classification
framework. The detailed SME growth state
transitions were mapped against the SME growth
state transition classification framework, resulting in
the consolidated 5S SME Growth State Transition
Model.
The identification of an inventory of existing
SME growth stage models is discussed in section
5.1. The selection of a representative set of SME
growth stage models is described in section 5.2. The
set of SME growth state transitions derived from
these selected SME growth stage models is
described in section 5.3. In order to consolidate the
derived SME growth state transitions in section 5.5,
a classification framework is defined in section 5.4.
5.1 Identification of SME Growth
Stage Models
The literature review of SME growth stage models
by Levie and Lichtenstein (2010) included
references to 104 distinct articles referencing SME
growth stage models published during the period
1962 to 2006. Ten SME growth stage models,
representing the majority of concepts found in the
104 growth stage models, were identified for
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inclusion in the detailed state transition analysis. An
in-depth analysis of all 104 models is identified as
further research.
The identification of articles describing SME
growth stage models, as candidates for selection of
one of the ten representative models, focused on two
periods, namely articles published in the period 1962
to 2006 and articles published during the period after
2006. For the period 1962 to 2006, candidates were
identified by cross-mapping the references of the
following literature reviews:
• Hanks et al. (1993) include references to eleven
articles describing SME growth stage models.
• McMahon (1998) refers to 31 articles describing
SME growth stage models.
• Davidsson et al. (2005) refer to nine articles
describing SME growth stage models.
• Phelps et al. (2007) include 33 different
references in their SME life cycle literature
review.
• Levie and Lichtenstein (2010) cite 104 articles
describing SME growth stage models. For the
purpose of the identification of ten
acknowledged references to SME growth stage
models, only references also listed by one of the
other literature reviews or references that were
cited four or more times were considered,
resulting in 28 of the 104 articles being included
in the candidate list of SME growth stage model
references.
For the period after 2006, a review of literature
resulted in the identification of an additional seven
references to SME growth stage models.
5.2 Selection of Representative SME
Growth Stage Models
The selection of the ten representative SME growth
stage models from the identified publications of
SME growth stage models was done by applying the
following criteria:
• A reference to an SME growth stage model was
included if the reference was referenced by at
least four of the five literature reviews.
• As an additional test it was checked that the
references most cited, according to Levie and
Lichtenstein (2010), were all included for
consideration as a representative SME growth
stage model.
• The SME growth stage models were further
examined to determine if the description of an
SME growth stage model in literature was
sufficient to derive SME growth state
transitions.
The seven references published after 2006 were
also considered as candidate sources. Only three of
these seven references included enough detail to
derive transitions. The SME growth stage models
described by Phelps et al. (2007), Lester and Parnell
(2008) and Levie and Lichtenstein (2010) were
consequently included in the final list of references
of SME growth stage models.
The final selection of ten representative
references used as sources to derive SME growth
state transitions from SME growth stage models is
listed in Table 2. The name used to identify a
specific SME growth stage model was derived from
the content of the published article.
Table 2: Representative References to SME growth stage
models.
Representative List of
References to SME
Growth Stage Models
Name of the SME Growth Stage
Model
Greiner (1972) Evolution in Five Phases of Growth
Model
Adizes (1979) Organisational Passages Model
Churchill and Lewis
(1983)
Stages of Small Business Growth
Model
Quinn and Cameron
(1983)
Integrated Life Cycle Model
Miller and Friesen
(1984)
Corporate Life Cycle Model
Scott and Bruce (1987) Model for Small Business Growth
Hanks et al. (1993) Structural Variable Model
Phelps et al. (2007) Tipping Point Framework
Lester and Parnell
(2008)
Organisational Life Cycle Scale
Levie and Lichtenstein
(2010)
Stage Categories Model
5.3 Deriving SME Growth State
Transitions
Each of the SME growth stage models, listed in
Table 2, was analysed and the SME growth state
transitions were derived for use in the development
of the 5S SME Growth State Transition Model. The
focus of this activity was to determine whether it
was possible to derive the states as the result of a
transition from the SME growth stage models.
As example, the result of deriving the growth
state transitions from the study by Hanks et al.
(1993) is included in this paper. In the Structural
Variable Model (Hanks et al., 1993), it is proposed
that each life cycle stage of an enterprise consists of
an unique configuration of variables related to the
organisation context and structure. Two sets of
variables are used to measure the context and the
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structure of the enterprise. The contextual variables
include measures such as age, size and rate of
growth, and were not used to derive states related to
SME growth. The structural variables, which were
used to derive states related to SME growth, include
measures of vertical differentiation, structural form,
formalisation, decision-making, specialisation and
centralisation. The states derived from the Structural
Variable Model are listed in Table 3.
A similar process was followed to identify
growth state transitions from the other nine
representative SME growth stage models.
5.4 Proposed 5S Classification
Framework for SME Growth State
Transitions
The first step towards the definition of the 5S
Classification Framework was the consolidation of
all the states from the analysis of the ten selected
SME growth stage models.
The ten selected SME growth stage models did
not use the same classification scheme to group the
different states. A prerequisite for the consolidation
of the states was therefore the development of a
classification framework to group the different
states, resulting in the 5S SME Growth State
Classification Framework. Based on the principle
that seven plus/minus two elements are easier to
process and to remember, the objective was to group
the identified states into a framework with a
maximum of nine elements.
The resulting 5S SME Growth State
Classification Framework, as presented in Table 4,
includes five classes as well as sub-classes. The
names of derived classes each starts with the letter S,
namely Strategy, Structure, Systems, Style of
Management and Staff. As a way of verifying the
classification, it was compared with other SME
growth stage models. The classes of the 5S SME
Growth State Classification Framework was similar
to the categories of attributes as described by Levie
and Lichtenstein (2010).
5.5 Consolidation into 5S SME Growth
State Transition Model
The consolidated list of states derived from the
representative set of growth stage models was
thereafter mapped to the 5S SME Growth State
Classification Framework, as presented in Table 5 to
Table 12 (see Appendix). The content of these tables
was determined through synthesis.
Table 3: States derived from Structural Variable Model
(Hanks et al., 1993).
Context
State Description
Formalisation
Formal policies and procedures guide most decisions.
Important communication between departments is
documented by memo.
Formal job descriptions are maintained for each
position.
The top management team is comprised of specialists
from each functional area.
Reporting relationships are formally defined.
Lines of authority are specified in a formal organisation
chart.
Rewards and incentives are administered by objective
and systematic criteria.
Capital expenditures are planned well in advance.
Plans tend to be formal and written.
Formal operating budgets guide day-to-day decisions.
Organisation
(Structure)
Simple (Owner/Manager assisted by individuals with
varying responsibilities. No divisions or functional
departments)
Function (Separate departments or functions (i.e.
engineering, marketing, production, personnel)
Division (Separate groups for similar products, markets
or geographic regions)
Top
management
dec
i
s
i
o
n
Entrepreneurial (One individual makes decisions based
on personal judgment)
Professional (Functional specialists make decisions
based on expertise and analytical tools)
Centralisation
Who is the last person whose permission must be
obtained before legitimate actions may be taken in the
following areas?
Promotion of a direct worker
Addition of a new product /service
Unbudgeted expenditure ($500-$1000 in 1994)
Selection of type or brand of new equipment
Dismissal or firing of a direct worker
Specialisation (Responsible person per area)
Public/shareholder relations
Shipping and receiving
Building maintenance
Customer/Product service
Production planning / scheduling
Personnel
Advertising
Legal affairs
Purchasing
Sales
Quality control
Employee training
Market research
Accounting
Inventory control
Industrial engineering
Research and development
Safety / security
Payroll
Finance
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Table 4: 5S Growth State Classification Framework.
Class Sub-Classes
Strategy
• Product leadership
• Operational excellence
• Market share
• Customer focus
Structure
Systems
• Process
• Information systems
• Controls
• Planning
Style of
Management
• Delegation of authority
• Decision-making style
Staff
The consolidation was based on the classes and sub-
classes as defined by the 5S State Growth
Classification Framework. This final deliverable is
referred to as the 5S SME Growth State Transition
Model and is collectively represented by the content
of Table 5 to Table 12.
The 5S SME Growth State Transition Model is
structured in such a way that it can be used as an
assessment sheet, by adding three columns (current
state, future state and not applicable), allowing the
SME manager to indicate the current state as well as
the future state, or whether the statement is not
applicable to the specific SME. The future state
column would indicate the list of transitions to be
managed for the specific SME. If the current state is
also the future state, both cells should be selected.
5.5.1 SME Assessment of the Strategy as
Differentiator in the Market
The consolidation of the states associated with the
Strategy (S1) class is grouped in Table 5 (see
Appendix) according to the following four
strategies: product leadership, operational
excellence, marketing or distribution channels and
customer focus.
5.5.2 SME Assessment of Structure
SME growth results in a transition from an informal
structure to a more formal Structure (S2), with a
number of options, as presented in Table 6 (see
Appendix).
5.5.3 SME Assessment of the SME as a
System
Within the context of an SME as a system, a
‘system’ is referring to a set of distinct parts that
interact to form a complex whole. The four distinct
parts of the Systems (S3) class are the processes,
enabling information systems, controls and
specifically the concept of planning as part of the
SME as a system. These sub-classes of states are
included in Table 7 to Table 10 (see Appendix).
5.5.4 SME Assessment of the Style of
Management
The style of management matures as the SME
growths. Within the 5S SME Growth State
Transition Framework the Style of Management (S4)
has two concepts related to the SME assessment,
namely the delegation of authority and the decision
making style. The sets of state statements are
included in Table 11 (see Appendix).
5.5.5 SME Assessment of the Staff
Component
The state descriptions that form part of the Staff (S5)
component is included in Table 12 (see Appendix).
6 DEMONSTRATION OF THE
APPLICABILITY OF THE 5S
SME GROWTH STATE
TRANSITION MODEL
The applicability of the proposed 5S SME Growth
State Transition Model was illustrated by again
studying company SME X to demonstrate that the
identified growth state transitions are indeed
applicable to SMEs.
The study was based on the historical records of
company SME X. The states were mapped to four
major periods in the growth of the company. The
growth was defined by the number of staff and
contractors in that specific period. These periods can
be summarised as:
• 2002 - 2005: This period was associated with
early establishment, initially with four founders,
and ending with seven permanent staff members
and five contractors.
• 2006 - 2009: This period was related to
partnering with a Broad-Based Black Economic
Empowerment partner as well as a product
vendor. The staff numbers grew to fifteen
permanent staff members, and the number of
contractors varied between five and ten.
• 2010 - 2013: This was a period of growth with a
well-defined business model, restructuring of
the shareholders model, and a maximum of just
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over fifty staff members and close to twenty
contractors.
• 2014: This year was a period of transformation
and diversification in order to adapt to market
conditions. The number of staff members
declined and the use of contractors was
minimal. The period associated with a specific
growth state transition statement is indicated in
Table 5 to Table 12 (see Appendix).
The demonstration of the 5S SME Growth State
Transition Model as applied to the history of
company SME X highlighted the following:
• The Model would mature by use with the
addition, deletion and consolidation of growth
state transitions.
• Some of the growth state transitions may be
industry-specific.
• Application of the Model could result in various
outcomes, such as not being applicable, single
occurrence, multiple occurrences and repetitive
occurrences.
The most important awareness was that the
Model successfully eliminated the constraint of
stages associated with SME growth stage models.
7 CONCLUSION
The research objective of the work presented in this
paper was to develop an SME growth state transition
model that can be used as input to our research to
position BPM a management approach for SMEs.
The requirement was for such a model to address the
criticism regarding the sequential nature of the
existing SME growth stage models. The
development of the 5S Growth State Transition
Model included: (1) the identification of SME
growth state transitions as defined in existing SME
growth stage models, (2) the definition of a 5S SME
Growth State Classification Framework for the
classification of the growth state transitions, and (3)
the consolidation of the identified growth state
transitions by mapping them to the 5S SME Growth
State Classification Framework.
A study based on information from company
SME X demonstrated that the 5S Growth State
Transition Model is a fair representation of the SME
growth state transitions. These state transitions
identified potential changes and transformations in
the organisation.
BPM is typically a discipline that adds value
during changes and/or transformations. The value
contribution of the 5S SME Growth State Transition
Model can be summarised as a better understanding
of the transitions associated with SME growth,
making it possible to position BPM as a
management approach to manage change during
transformation. The next challenge is to develop a
BPM approach, supportive of self-sufficiency, which
can be used as input to the development of a BPM
approach to assist SME managers to manage a
specific growth state transition.
ACKNOWLEDGEMENTS
The work presented in this paper was conceptualised
based on the research for the PhD Degree of Dina
Jacobs, completed in 2016, at the Vaal Triangle
Campus of North-West University, South Africa.
Paula Kotzé and Alta van der Merwe were her PhD
promotors.
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APPENDIX
The transition period(s) for company SME X is
indicated in square brackets and colour blue after the
transition statement. Refer to section 6 for a
description of the transition periods.
Table 5: SME Assessment of the Strategy as Differentiator in the Market.
SME Assessment of the Strategy as Differentiator in the Market (S1)
S1.1 Product leadership as differentiator in the market The SME is offering a unique or superior product to the market. It is important for
the SME to gain and/or maintain the product leadership in the market.
S1.1.1 Diversification by acquisition is a strategy to gain and/or maintain product leadership in the market. [2006-2009]
S1.1.2 Major and frequent product/service innovations is a strategy to gain and/or maintain product leadership in the market through new
products. [2014]
S1.1.3 Small and incremental product/service modifications is a strategy to gain and/or maintain product leadership in the market. [2006-
2009; 2010-2013; 2014]
S1.2 Operational excellence as differentiator in the market
The SME is differentiated by operational excellence in the market. The differentiator may be based on price, reliability, flexibility and/or
responsiveness. The reliability is referring to quality and/or on time delivery. It is important for the SME to gain and/or maintain the
competitive advantage in the market based on operational excellence.
S1.2.1 Managing the supply-chain upstream and/or downstream is a strategy to gain and/or maintain a competitive advantage in the market.
Working closely with suppliers and the distribution network enables an integrated end-to-end service as part of operational excellence. [Not
applicable]
S1.2.2 Identification of a niche product/service to close a gap in the end-to-end supply-chain delivered is a strategy to gain and/or maintain a
competitive advantage in the market. [2014]
S1.2.3 Economic production is a strategy to gain/or maintain a competitive advantage in the market. The focus is on efficiency, improving
the production/service delivery process, to eliminate rework and to cut cost. [2014]
S1.3 Marketing / distribution channels as differentiator in the market
The strategy is to establish the brand in the market and/or to create a network of distribution channels for the SME to gain and/or maintain
market share.
S1.3.1 Expansion of market and distribution channels is a strategy to ensure dominance of distribution channels and the associated
competitive advantage in the market. [2014]
S1.3.2 Geographical expansion is a strategy towards diversification and getting entry to new markets. [2006-2009]
S1.3.3 Market segmentation with different lines of products/services per market is a strategy for the SME to gain and/or maintain a
competitive advantage in the market. [2006-2009; 2010-2013; 2014]
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Table 5: SME Assessment of the Strategy as Differentiator in the Market. (Cont.)
S1.4 Customer focus as differentiator in the market
The SME creates and maintains strong customer relationships and the strategy is to ensure that the SME is the preferred product or service
provider of the customer.
S1.4.1 Customer preference requires diversification of marketing, products and administrative practices, Scanning customer preference and
acting on it is a strategy to gain and maintain the competitive advantage in the market. [Since 2006-2009 part of operations]
S1.4.2 High performance enterprises have a stronger awareness of customers and customer needs and it is a strategy of the SME to know
and obtain customers to become/remain a high performance enterprise. [2014]
Table 6: SME Assessment of Structure.
SME Assessment of the Structure (S2)
It is possible to select more than one option for example decentralised geographically (S2.4) as well as shared services (S2.6).
S2.1 Simple informal structure
The owner or manager is assisted by individuals with varying responsibilities. There are no divisions or functional departments.
An informal structure is built around the owner manager and it is typical of small companies in the early stages of their development.
The entrepreneur often has specialist knowledge of the product or service. [2002-2005]
S2.2 Functional structure
There are separate departments or functions (i.e. engineering, marketing, production, personnel). It is most appropriate to small
companies which have few products and locations and which exist in a relatively stable environment.
• Product based departments: Structuring by product involves organising the business into departments, each of which focuses on
a different product.
• Customer based departments: A business may be divided by the type of customer (e.g. public sector or private sector customers).
[Not applicable]
S2.3 Decentralised by geographical area
Some businesses organise their activity according to geographical area. This is common in large multinational companies but it might
also be appropriate for medium-sized businesses, for example a group of taxi firms, a small retail chain or a fast-food chain with several
branches. Organising by area means each site can operate according to local demand
b
ut still be directed by business policy. Sometimes
logistics relating to shipping, resources and staff make geographical structure the best choice. [2006-2009]
S2.4 Divisional structure
There are separate groups for similar products, markets or geographic regions. There is a degree of difference among organisational
divisions in terms of their overall goals, marketing and production methods and decision-making styles. Managers who are responsible
for their own resources head them. Divisions are likely to be seen as profit centres and may be seen as strategic business units for
planning and control purposes. [2014]
S2.5 Shared services structure
Shared services is the provision of a service by one part of an organisation or group where that service had previously been found in
more than one part of the organisation or group. Thus the funding and resourcing of the service is shared and the providing
department/division effectively becomes an internal service provider. [2006-2009]
Table 7: SME Assessment of the Processes as part of the SME as System.
SME Assessment of the Processes as part of the SME as System (S3.1)
S3.1 Processes
A business process describes the work that is being done in a business. As the SME grows it is important to define, standardise, align and
optimise the processes overtime. In order to identify opportunities for optimisation the initial step is to measure the performance of the
processes.
S3.1.1 The record keeping processes to keep record of all transactions as well as all communications are defined and implemented.
[Since 2002-2005 part of operations]
S3.1.2 The way of work to eliminate inefficiencies and to improve productivity is reviewed. Redundant activities are identified and
removed. The level of standardisation of the process is monitored with the objective to reduce rework over time. Note: Efficiency is
referring to how work is being done. [2006-2009; 2010-2013;2014]
S3.1.3 The way of work is reviewed to ensure all processes are effective, i.e. that what is being done and the outcome of a process is
adding value. Note: Ensure that you do not increase the efficiency of a process that is not effective. [2010-2013; 2014]
S3.1.4 Processes to consider for specialisation are identified. At the early stages of the SME the owner(s) is filling all the roles. As the
SME grows specialised processes are allocated to specialists or outsourced to a third party. The following are examples of processes to
be considered for specialisation: public/shareholders relations, shipping and receiving, building maintenance, customer/product service,
production planning/scheduling, personnel, advertising, legal affairs, purchasing, sales, quality control, employee training, market
research, accounting, inventory control, industrial engineering, research and development, safety/security, payroll, finance. [Since 2006-
2009 part of operations]
S3.1.5 The performance of a business process is monitored, starting with the selection of a key performance indicator (KPI) and
measurement of this one KPI. An example is to measure on time delivery or another example is to monitor the number of rework
requests as a result of quality deviations. KPIs are often related to time, cost or quality. [2010-2013; 2014]
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Table 8: SME Assessment of the Information Systems as part of the SME as System.
SME Assessment of the Information Systems as part of the SME as System (S3.2)
S3.2 Information Systems
Information systems are referring to technology that is enabling the business process. Examples are spreadsheets, cloud based
information systems or even mobile applications.
S3.2.1 Reporting is enabled by an information system to track revenue and expenses on a monthly basis. [Since 2002-2005 part of
operations]
S3.2.2 A financial system is implemented to automate the financial transactions including invoicing and management of expenses
together with the management of creditors and debtors. [Since 2006-2009 part of operations]
S3.2.3 A marketing system is implemented to manage customer information and lead management. [2014]
S3.2.4 A production system or professional services system is implemented with a time sheet system playing an important role in
professional services and the management of raw material and batches in production. [Since 2006-2009 part of operations]
S3.2.5 A human resource management system is implemented to manage human resources, payroll and compliance with labour
legislation. [Since 2006-2009 part of operations]
S3.2.6 A logistics or distribution system is implemented to manage delivery of products. [Not applicable]
S3.2.7 A management information system is implemented for information dissemination and retrieval. Relevant and undistorted
information reach decision makers on time. [Since 2010-2013 part of operations]
S3.2.8 Coordination of diverse activities is enabled through inter alia collaboration systems, document management or enterprise content
management and workflow. [2014]
S3.2.9 Information systems is used to better serve markets. Examples are online trading, tracking of orders, social media for marketing
and process execution (using workflow, business rule engine and an integration platform). [2014]
Table 9: SME Assessment of Controls as part of the SME as System.
SME Assessment of the Controls as part of the SME as System (S3.3)
S3.3 Controls
Controls are defined and implemented in order to limit or rule actions or behaviour. Controls are embedded in the processes and to
implement controls it is important to measure compliance to these controls.
S3.3.1 Rules (policies, procedures and standards) are formalised and institutionalised.. SME growth is often associated with an increase in
staff, and it is important to set the rules and apply the rules consistently to all staff. [Since 2006-2009 part of operations]
S3.3.2 Operational controls such as the control of stock are implemented. [Since 2006-2009 part of operations]
S3.3.3 Financial controls including the performance of sub-units, departments, divisions and products are monitored.[Since 2010-2013
part of operations]
S3.3.4 The compliance to regulations and quality standards is monitored. [Since 2010-2013 part of operations]
S3.3.5 The SME is always ready for a due diligence appraisal whether it is to support a business plan to attract funding, whether it is
undertaken by a prospective shareholder or whether it is part of the evaluation of the SME as a supplier on a large contract. A due
diligence appraisal establishes the assets and liabilities of a company and evaluate its commercial potential. Well-established policies,
procedures and rules as well as operational and financial controls contribute towards a positive outcome of a due diligence appraisal.
[2010-2013]
Table 10: SME Assessment of Planning as part of the SME as System.
SME Assessment of Planning as part of the SME as System (S3.4)
S3.4 Planning
Planning is the process of predicting how the future should look like to achieve effectiveness and efficiency in a company. Planning
follows a specific process. In order to manage the performance of a business it is important to monitor the progress against a plan such as
the financial budget.
S3.4.1 Cash is managed to make provision for the investments required to enable growth. Cash forecasting is based on the financial plan
(the budget) as well as the actual financial results. [Since 2010-2013 part of operations]
S3.4.2 The processes for planning, scheduling and coordination are defined and implemented. The allocation of resources to complete
specific work is known as scheduling. Coordination is the synchronisation and integration of activities, responsibilities, and command and
control structures to ensure efficient completion of work. [Since 2010-2013 part of operations]
S3.4.3 A long-term vision is in place to ensure that the tactical and operational plans are driven by the strategic vision. [2006-2009; 2010-
2013; 2014]
S3.4.4 Both operational and strategic plans are defined for marketing, production, human resources and finance. [Since 2010-2013 part of
operations]
S3.4.5 An operating budget to support strategies is in place and is used to manage operations. [Since 2010-2013 part of operations]
S3.4.6 Capital expenditure is planned well in advance. [2014]
S3.4.7 A marketing forecast is available. [2014]
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Table 11: SME Assessment of Style of Management.
SME Assessment of Style of Management
S4.1 Delegation of Authority
Delegation of authority in the context of SME growth means that the SME manager (often then owner) is entrusting someone else to do
parts of the job on the SME manager. The state transitions associated with the delegation of authority are grouped as level of delegation,
management of the delegation of authority and the authority associated with the delegation.
Note: Level of Delegation
S4.1.1 The SME manager is supervising the employees directly. [2002-2005]
S4.1.2 Supervisors are responsible for the supervision of employees. According to Zheltoukhova and Suckley (2014) only 12% of
employees of small enterprises (10-49 employees) report to a manager with a span of control larger than ten. [2010-2013]
S4.1.3 A functional structure results in delegation of authority to functional managers. [Not applicable]
S4.1.4 A divisional structure results in delegation of authority to divisional managers. [2010-2013]
Note: Management of the Delegation of Authority
S4.1.5 Delegation of authority is managed by setting objectives for managers and measure performance against the objectives.[Since
2010-2013 part of operations]
S4.1.6 Delegation of authority is managed by putting a process in place to escalate exceptions to the SME manager. [Since 2010-2013 part
of operations]
Note: Authority associated with the Delegation
S4.1.7 Delegation of authority includes authority to promote direct workers, dismiss direct workers, add new products or services, select
new equipment and approve unbudgeted expenditure. [Not applicable]
S4.1.8 Delegation of day-to-day operating authority. [2010-2013]
S4.1.9 Centralisation of strategy-making power (acquisitions, diversification and vision). [Since 2010-2013 part of operations]
S4.1.10 Formal definition of reporting relationships. Lines of authority specified in organisation chart. [2002-2005]
S4.2 Decision making Style
Decision making style is providing insight on how a manager is making decisions.
S4.2.1 Intuitive decision making is replaced with an understanding of the decision making process to make more informed decision.
[2002-2005]
S4.2.2 Specialists are appointed to make decisions on the basis of expertise and analysis of information. [Since 2010-2013 part of
operations]
S4.2.3 Participation of employees in the decision making process is promoted with an associated increase in the level of motivation of
employees. [2014]
Table 12: SME Assessment of the States Associated with the Staff Component.
SME Assessment of the Staff Component (S5)
S5.1 An incentive scheme is included as part of the remuneration package. [2010-2013]
S5.2 A performance management process is defined and implemented. [2006-2009]
S5.3 Job descriptions are based on the processes and clear role clarification is ensured. [2006-2009]
S5.4 A training and development programme is implemented for employees. [Since 2006-2009 part of operations]
S5.5 Communication and change management are in place. [2006-2009]
S5.6 The culture and values of the SME are protected as the SME grows. [2014]
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