Improving Small and Medium Enterprise Growth: A Focus on Operational Efficiency

Abstract

Small and Medium Enterprises (SMEs) play a fundamental role as the primary contributors to jobs in South Africa (SA), significantly influencing the country's economic development. Therefore, the prosperity and expansion of SMEs directly affect South Africa's GDP and the sustainability of its economic growth. However, SMEs in SA face a significant challenge with a noticeably high failure rate, contributing to one of the highest SME failure rates globally, as many new ventures struggle to survive beyond their second year of operation. This alarming trend casts doubt on the potential of SMEs to make substantial contributions to job creation, economic progress, and poverty alleviation.

This study thus probes operational efficiency factors predominantly managed by SMEs, which could profoundly impact their growth trajectory. Employing a quantitative research design, data was gathered through an online survey and subsequently analysed using descriptive and inferential statistical techniques.

The research revealed a positive correlation between operational efficiency and SME growth which was measured using eight (8) factors, namely, employment, sales, revenue, gross profit, asset value, number of customers, vendor count, and number of suppliers, and established them as reliable indicators collectively defining growth in small businesses. A noteworthy finding is that Technological Practices and Innovation emerged as significant predictors of small business growth, underscoring their importance in SME survival. Small businesses incorporating technology and innovation into their operational strategies significantly increase their likelihood of success in expanding employment, sales, and assets.