By: Anna Majavu
New research has found that small businesses in Gauteng have a high failure rate partly because they do not apply an approach of systems thinking that allows them to solve tough problems in the SMME sector. Thabisile Mhlongo of the Durban University of Technology’s Department of Leadership and Complexity, and Preeya Daya from the University of Cape Town’s Graduate School of Business, researched 46 SMMEs from Johannesburg, Ekurhuleni and Tshwane.
They concluded that the growing failure rates of small enterprises might be “significantly reduced” if the businesses adopted systems thinking. Systems thinking is a practice where enterprises plan their work only after assessing how their abilities and resources will cope with an environment for SMMEs in South Africa that is “highly complex”. It is also rapidly changing and full of problems such as red tape, lack of finances, training, technology, infrastructure and crime, the research found.
The SMMEs they studied came from different sectors including agriculture, mining and quarrying, manufacturing, electricity, gas and water construction, retail, motor repair services, wholesale trade, catering, and accommodation. Mhlongo and Daya found that when people set up SMMEs to solve a socio-economic problem, such as poverty or joblessness, it became even more critical for them to use systems thinking to understand all the direct and indirect factors that would inevitably affect their businesses.
For example, “some government rules in South Africa are seen as a danger to the SMME industry”. “Therefore, entrepreneurs cannot reach their goals because of constraints such as red tape and bureaucracy rules that are hard to follow and other taxes that make their workload heavier,” Mhlongo and Daya said in the study titled: Challenges faced by small, medium and micro enterprises in Gauteng: A case for entrepreneurial leadership as an essential tool for success.
Another factor affecting many SMMEs is that managers and owners “do not have enough money for education and training, which impacts managerial competency and business growth”, which in turn makes it difficult for them to compete with bigger businesses. Most SMMEs could not afford to invest in technology and use outdated technology which rendered them “unable to complete, affecting their competitiveness”, said Mhlongo and Daya.
Many small businesses also think internal controls are too expensive and unnecessary, but this places them at risk of fraud which costs them more money and makes them even less competitive.
The government could assist SMMEs by lowering compliance costs, which included reducing the red tape and different fees that small businesses had to pay to operate. It would also have to introduce policies that helped SMMEs develop entrepreneurial leadership skills and understand the tough business environment, the research found.