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Thursday, 09 July 2020
--- Home Module 1

Intro

INTRODUCTION

This module is addressed to those who wish to create their own business plan, after having understood why they need help to drive growth through better sales strategies and operations. This module will provide you help in identifying your barriers to growth and which service stream is right for you as part of the assessment stage.

The following pages will describe in detail the different types of constraint commonly faced by SMEs in different situations. Some basic principles on how needs assessments should be carried out will be developed, offering a brief summary of some approaches to SME analysis which are gaining currency. Furthermore, the issue of what is meant by good practice in SME development will be addressed and how this can be measured. Good practice refers to how Business development services interventions are undertaken, but what ultimately matters is the outcome of these interventions. Particular criteria of performance and specific indicators associated with these are examined and some key principles of evaluation are presented. Finally, the broad heading of BDS (Business Development Services) into specific instruments of intervention will be broken down.

After completing this unit you will understand what comprises a Business Plan.

Welcome!

The @theEUagora Project Team

Sec 1

SMEs NEEDS

The starting point in considering the design of any intervention to promote SME development is the assessment of the needs and perceptions of entrepreneurs. This is the right place to begin for two core reasons:
• First, at the heart of any intervention rationale is the need for a detailed understanding of SMEs and their situation. SMEs exist in a broad market environment in which demand for their products is influenced by numerous factors related to geography, consumer tastes, purchasing power, trade, the weather, politics and governance. These can be classified generally as demand-side factors. SMEs’ performance within their market is also affected by factors such as skills, networks, access to resources, physical infrastructure, information availability and government regulations and policies. These may be classified as supply-side factors. Most interventions are focused on improving the supply-side. Some; however, such as international trade agreements and alternative trade organizations, focus on changing the demand-side. Whatever the intervention, a prerequisite is a clear understanding of the situation of SMEs.
• Second, there is now considerable agreement among agencies of the importance of operating in a business-like way (Gibb, Manu, 1990). For now, it needs only be acknowledged that, just as successful businesses must have a keen understanding of the needs of their customers so that they can respond to them appropriately, BDS organizations need to have the same understanding of the situation of their customers or clients, the SMEs with whom they are seeking to work, before they can develop their offer to them. This means that both SMEs and BDS organizations, analysing the needs of those with whom they are working is the best starting place for any intervention/product.

2.1.    What do we mean by SMEs needs

SME needs have been subject to many different analyses. The term “SME needs” therefore refers to the specific problems/issues they face in seeking to develop their business. Needs change depending on the particular circumstances of a business. Typically, the pattern of needs varies according to factors such as sector, sex, location, size and stage of development. Needs are not static; they change throughout a business development cycle. Regrettably, there is no neat and precise universal model relating needs to particular stages or types of business, although there are some useful frameworks which can be used in needs classification. Furthermore, there have been many specific studies on particular situations which illustrate the kind of priority given by SME owner-managers themselves to different felt needs.
Discussions about SME needs are increasingly characterized by the use of different terms which sometimes serve to confuse more than to clarify (needs, problems, constraints and barriers referring to the same factors which influence the performance of business. However, there is one specific set of jargon which does need to be clarified; this is the use of the terms felt or perceived need objective, logical or real needs and demand.
• Felt/perceived needs: these are what SMEs perceive and state to be their problems.
• Objective/real/logical needs: these are what BDS organizations believe to be the needs of SMEs.
• Demand: this implies a willingness to pay for a particular service offered by a BDS organization.

2.2.    The process of needs assessment

In practice, the issues of what needs are identified is related closely to how needs are assessed and to the interventions that are developed thereafter, i.e. the process through which needs assessment takes place is linked directly to what needs are assessed. A number of specific needs assessment approaches have emerged in recent years. Underpinning these approaches appears to be five key ideas:
1. Being close to SMEs;
2. Being participative;
3. On-going learning and planning;
4. Developing a tight focus.
Needs assessments should generate very specific information on the problems which SMEs face:
- What SMEs cannot do now that they should be able to do; and - what prevents them acting as they want;
- So that the design of interventions can be suitably precise.
5. Not just what they need, but how they need it.
Many different techniques are used in needs assessment for SME development interventions. Indeed, it is noticeable that many ‘standard’ development planning techniques, such as ZOPP and logical framework analysis, used not just in SME development but in other sectors, lay greater emphasis but on needs assessment than previously.

2.3.    Good practice: Meaning & Measurement

2.4.1 Defining Good Practice

Support for BDS is aimed at providing an appropriate response to SME needs so that the performance of SMEs can be improved. Although this objective may have its roots in economic and/or social factors, it is ultimately concerned with enhancing the business development process; i.e. more businesses (higher start-up and survival) which perform better (longer duration, faster growing). ‘Good practice’, therefore, has to be seen in relation to this overall objective. However, BDS is a relatively undeveloped field, one in which donors and practitioners should be as conscious of how much they do not know as how much they do. In this sense, use of terms such as ‘good’ or even “best” practice needs to be qualified with a suitable amount of caution. There is much that is not known. “Good practice” in BDS refers to approaches which deliver the most beneficial outcomes. However, ultimately, good practice has to manifest itself in success in achieving final objectives, i.e. it is results which matter. Only practices which result in ‘good’ performance against an intervention’s objectives can be said to be good. Good practice in BDS interventions is defined here with respect to four key levels of impact and four broad performance criteria.

Impact levels
1. Enterprise level: changes in the activities and behaviour (i.e. capacity) of an enterprise and its owner-manager and in the performance of the enterprise which may have resulted from these changes in practice.
2. Meso level: changes in the capacity and performance of meso-level institutions.
3. ‘Beyond enterprise’ level: wider changes in society, especially at the household level.
4. Macro level: changes to the policy and regulatory environment.

Performance criteria
a)    Outreach: the quantitative scale of a programme’s influence
b)    Efficiency: concerned with the delivery of an intervention, rate and cost at which inputs are turned into outputs.
c)    Effectiveness: measuring the extent to which an intervention’s objectives have been met.
d)    Sustainability: this can be seen at two levels: (1) the extent to which the service offered by the BDS organization can be financed through client fees, and (2) the extent to which changes in SMEs (and beyond) are durable.

2.4.    Indicators of Good practice

In practical terms, in order to measure BDS performance, we need to ask how each of the above criteria can be made tangible. How do we recognize good practice; what indicators are required. For each of the main criteria listed above, it is possible to identify a number of common indicators. While these may be useful in assessing performance, some caution is necessary.
• Lists of indicators can never be comprehensive and those given in.
• Invariably, there are strong qualitative aspects to good practice which are not readily captured in quantitative indicators. It is not possible to reduce BDS evaluation purely to a ‘box ticking’ exercise.
• There are often indicators of the process of delivering BDS which are significant in assessing performance. Efficiency and outreach are internal measures of performance and not, in themselves, concerned with impact. However, there are many other valuable operational indicators in BDS which are not addressed here, but would be expected to be covered in a monitoring system.
• The indicators as much as possible are generic and not specific to a particular type of intervention. Obviously, one would expect to see more specific indicators for particular interventions. For example, in a marketing training programme, specific changes to SME marketing strategies would be one anticipated result.
• The different criteria are linked together and sometimes overlap. Most important, generating a high proportion of cost repayment through client fees can be seen as a useful indicator of impact, as well as sustainability, since it tests clients’ own willingness to pay for a service (i.e. the value which they place upon it).
• Developing indicators at a meso-level is particularly difficult. The criteria - vision, capacity, resources and linkages - aim to provide a rounded framework for institutional development assessment.

2.5.    The benchmark issue

The preceding analysis attempts to develop relatively standardized criteria and indicators of performance. The corollary of this analysis is to try and develop values for each of these criteria to allow more detailed benchmarking of performance. This could be used by donors and BDS organizations to compare performance with peers/competitors provide a solid base for appraisal and evaluation and lay the basis for future improved intervention design. Benchmarking has been one of the features of the development of the microfinance sector and is an established practice in business. While it is clear that, in theory at least, benchmarking could be a useful tool in the development of BDS, its application currently is limited by a number of constraints

1. No standardized approach;
2. Cost-based indicators can be misleading;
3. Definition of tight indicators;
4. Problems with impact measurement;
5. Inadequate data.

Given these constraints, on the basis of figures from a number of project documents, there are only three indicators for which preliminary value ranges for current good practice can be suggested, and one of these, the survival rate, is of limited value unless compared with average survival rate figures. All three are related to training/consultancy (data were only available for these instruments):
• Percentage of direct cost recovery in training programmes: on average 50%; for growth orientated SMEs, 100% or over; for smaller SMEs nearer the start-up phase, less than 50%.
• Start-up rate (the proportion of participants on a start-up programme actually starting a business afterwards): 30-60%
• Survival rate (the proportion of businesses surviving one-year after a training programme): 80%.

2.6.    Assessing good practice

Given the above relatively broad definition of what good practice is, the next issue to consider is how this good practice can be assessed. Evaluation of SME development programmes has emerged as a major and complex area of study in its own right in recent years (SEEP Network, 1987; Gibson, 1997). From this experience, there are clearly many key points which should be considered in any evaluation of a BDS organization’s work; ten of these are highlighted here.

Good evaluation:

1.    Is based on a sound monitoring system;
2.    Requires comparison;
3.    Is increasingly converging with needs assessment and forward planning techniques as an integral part of a BDS organization’s development process;
4.    Is well prepared, especially when using external evaluators;
5.    Adopts a realistic approach to information collection;
6.    Can be undertaken by either external people or internal staff;
7.    Is done with rather than on people;
8.    Is aware of costs as well as benefits;
9.    Uses methodologies which offer a combination of rigour and practicality;
10.    Is not overly expensive.

2.7.    Assessement dissifulties and delusions

While there are clear general lessons on how to evaluate BDS, it is not the case that evaluation is a precise science which has accepted answers to all the questions related to BDS performance assessment. On the contrary, there are a number of fundamental methodological issues which pose great difficulties in BDS evaluation.

1. The additionality problem - There are many influences on SME performance.
2. The displacement problem - SMEs exist in competitive markets.
3. Defining costs - there is still no widespread consensus on what costs should be included/excluded from measurements of performance.
4. Defining benefits - The critical question in considering benefits is: how do changes to SMEs resulting from BDS manifest themselves? Answering this question requires responses to significant methodological problems, not least those associated with additionality and displacement. However, there are at least three other core issues which need to be addressed in considering benefits:
• Defining intermediary measures
• Defining indirect benefits
• Defining longer-term benefits



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