An investigation into the relationship between business model innovation and the growth of SMEs in Swaziland
Thesis (MBA)--Stellenbosch University, 2014.
Small and medium enterprises (SMEs) are an important and growing sector in all economies (Chang & Powell, 1998: 264). SMEs play a significant role in Swaziland‘s economy. TechnoServe assisted a number of start-up and existing SMEs to develop their business plans, thus improving the structure of these SMEs. Although there is limited information available, the trend has been for SMEs in Swaziland to continue to be mediocre performers, and some even resort to shutting down their businesses, thus affecting the economy of the country. TechnoServe is evaluating the performance of the small businesses that have participated in their programmes. The organisation would like to know whether the businesses were changing when there was a need for change. It would also like to know the type of business model innovation (radical or incremental) pursued by the SMEs that have participated in their programme, and further to determine whether there is a relationship between the changes in the business model and the performance of the businesses, which signals the growth of the SMEs. In this study, revenue is the measure of the performance of the business. For this study, the SMEs that have participated in the TechnoServe business planning competition were interviewed. During the interview, information was obtained on the changes that the SMEs had effected in each of the nine business elements that were used in the study. Scores were allocated and ultimately it was determined whether the SME had performed no innovation, incremental innovation or radical innovation. The increase in revenue, which signalled the growth of the SME, was also determined and statistical tools were used to determine the relationship between business model innovation and the growth of SMEs in Swaziland. The concept of business model innovation in the context of SMEs in Swaziland seems strange and determining whether SMEs in Swaziland innovate their business models seems new. Upon completing the interviews with the SMEs, it was discovered that five SMEs had not innovated their business models, eight SMEs had performed incremental innovation and two SMEs had innovated their business models radically. It is worth mentioning that those SMEs that were deemed to have not innovated their business models, had, however, innovated two of the nine elements that were used to determine whether SMEs had innovated their business models. It was discovered that innovating the value proposition and/or the channel increases the chances of SMEs increasing their customer base, in turn increasing their revenue streams. The innovation of the channel was another form of innovation that resulted in the SME that had performed it increasing shareholder value. The SME that had innovated the channel was able to sell the same product to other customer segments as well and not just to its existing segment, thus increasing market share and ultimately shareholder value. Innovating the channel has also resulted in other elements of the business model to be innovated as well. The introduction of a new channel resulted in the SME serving an additional customer segment and the cost structure changed. From this study, it was also discovered that there are links between the business model elements. Innovating one element caused the SMEs to innovate other business model elements. Innovation in the value proposition element of the business model resulted in a number of other elements being innovated as well. The reason why most of the SMEs innovated other elements was that they had innovated the value proposition. This created other opportunities for them, which is understandable given the systemic nature of business. The results of the 15 SMEs indicated that the SMEs that had innovated their business models experienced growth in revenue, which, in this study, is the indicator for the growth of the SMEs. The SMEs that did innovate their business models also experienced an increase in revenue, although this increase was smaller compared to the increase experienced by those SMEs that had innovated their business models. This means that revenue grows even if a business model is not innovated. These SMEs however, were found to have innovated certain elements of their business models incrementally. The change in the net profit for these SMEs was also considered. From the interviews, it was clear that 80 per cent of the SMEs that were considered to have not innovated their business models had experienced no changes in net profit. The rest of the SMEs interviewed, which were mostly SMEs that were considered to have innovated their business models, experienced an increase in net profit. This means that their increase in revenue was at a higher rate compared to the costs incurred by the businesses. Furthermore, regression analysis was done and the correlation coefficient (multiple R) is equal to 0.81, which is close to one. This means that 81 per cent of the variation in revenue changes is explained by the independent variable, which is business model innovation.