Project management in small to medium-sized enterprises

Abstract

Small to medium enterprises (SMEs) make a key contribution to the economy in terms of employment, innovation, and growth. In the European Union, they generate 60% of GDP, provide 70% of employment, and 25% of their turnover comes from new products. Project management plays a significant role in facilitating this contribution. Projects represent about one third of the turnover of SMEs, about 20% of total economic activity. However, in small and micro companies (companies with less than 50 and 15 employees, respectively) projects account for more than 40% of turnover, and micro-sized companies includes almost all firms in the first five years of their lives. At a critical stage of its development, projects represent a significant proportion of a company's activity. We propose that SMEs need less bureaucratic, more people-focused forms of project management than traditional forms used by larger organizations. Smaller companies are less likely to employ dedicated project managers, so in SMEs, particularly micro-sized companies, projects will be managed by people for whom project management is not their main skill. At a critical stage of their development, companies undertake a significant number of projects managed by amateurs. Thus, it is critical they are provided with project management approaches that are quick to learn and simple to use, but provide for the effective management of projects. We have undertaken this research to identify to what extent SMEs use project management both in their mainline business and to manage innovation and growth, what are the barriers to the adoption of project management, and what are the key components of project management used. Our ultimate aim is to develop a “lite” version of project management for SMEs. In this paper, we report the results of a web-based questionnaire. We found that SMEs do need to use project management to deliver products and services to customers and to manage their innovation and growth, and usually the form of project management needs to be much simpler than the methods readily available. A simplified version should have requirements definition at its core, and then methods for defining the work required, managing the time over which it should be done, and the cost and resources used. People-focused methods that seek team member commitment are preferred.

Key words: Size of company, size of project, project management procedures

Introduction

Small to medium enterprises (SMEs), make a significant contribution to economic activity, including development and growth (Hallberg, 1999; Floyd & McManus, 2005). In the European Union, SMEs account for 99.8% of companies, generate 60% of GDP and employ 70% of private sector workers (European Commission, 2005, 2008). SMEs undertake projects both in operations, to deliver tailored or bespoke products to customers, and in innovation and growth. In Ireland, 25% of the turnover of SMEs is accounted for by new and improved products and to achieve this development, SMEs spend three percent of their turnover on innovation (Ledwith, 2004). Thus, it is important to future economic growth that this money is spent in an efficient and effective way, so that SMEs can achieve their development objectives. Turner, Ledwith, and Kelly (2009a) showed that projects account on average for one third of the turnover of SMEs, and thus projects in SMEs account for almost one fifth of the economy. This is more than is spent on large infrastructure projects in the Western economies (Anbari, Bredillet, & Turner, 2009; World Bank, 2007), and yet large infrastructure projects received far more attention (Hartog, Baker, Stall-Ong, & Westerweld, 2008). Global GDP is US$50 trillion (World Bank, 2007), and so if we extrapolate these figures to the global economy, US$10 trillion is spent on projects in SMEs annually. A 10% improvement in performance through reduced costs, shorter duration, or improved functionality of the projects’ outputs would save US$1 trillion, the amount of money made available by the G20 nations at their meeting of April 2009 to save the global economy. We should not doubt the importance of projects in SMEs to the global economy, yet the management community in general and the project management community in particular does little to provide SMEs with guidance on managing their projects. In our sample, only one company younger than six years old was not micro-sized (fewer than 15 people), and projects in micro-sized companies are mainly managed by people for whom project management is not their main skill. Thus at a critical stage of their development, young companies are undertaking a significant number of projects managed by amateurs, and receiving no guidance from the general management and project management communities.

We propose that the nature of project management required by SMEs is different from the traditional forms of project management developed for larger projects (Office of Government Commerce, 2005; International Project Management Association, 2006; Bresner & Hobbs, 2006; Project Management Institute [PMI], 2008). SMEs require simpler, more people-focused forms of project management (Turner, Ledwith, & Kelly, 2009b). Bresner and Hobbs showed that in larger organizations, the preferred project management tools are more procedural and systems oriented, and that people-focused tools, such as team building, are well down the rankings. Thus traditional project management tools do not meet the needs of SMEs. We have undertaken this research to identify the project management requirements of SMEs in managing both their operational work in providing bespoke or tailored products and services for clients, and their innovation and growth. We aim to answer the following questions:

1. To what extent do SMEs use project management both in their operations and to manage innovation and growth?
2. Are there any differences between the nature of project management used by SMEs in different sizes of company, different industries, and different countries?
3. What are the barriers to the adoption of project management by SMEs?
4. What is the nature of the forms of project management required by SMEs and what are their key components?

In this paper, we review what has previously been written about the nature of project management in SMEs. We then describe our research methodology and explain our results.

Project Management in SMEs

To date, very little has been written about project management in SMEs (Turner et al, 2009a, 2009b).

The Nature of SMEs

Several different definitions of SMEs have been proposed (McAdam & Reid, 2005). The European Commission (2005, 2008) defined medium, small, and micro enterprises as follows:

• Medium: with fewer than 250 employees and, and turnover of less than €50 million;
• Small: with fewer than 50 employees, and turnover of less than €10 million; and
• Micro: with fewer than 10 employees, and turnover of less than €2 million.

Of course, these ranges do not exactly correspond. Turner et al. (2009b) found that the norm for turnover per employee in their sample was about €150,000, although it ranged from about €30,000 to about €600,000 per employee. They also found that the transition from micro to small companies occurred not at 10 employees, but somewhere between 15 and 20 employees. The cause of the transition was the move from one to two business units, and so the founding entrepreneur was supported by one or more other directors (Table 1). In their sample, one company had 16 people and had the nature of a small company, and one had 18 and had the nature of a micro-company, and so the transition was not precise. However, there was a very clear transition from small to medium companies at 50 employees, and indeed this was something of a crisis of growth. Several of their sample companies had approached 50 people, only to pull back. The transition that occurs at 50 people is caused by the need for people to begin to specialize, and the increasing number of staff requiring the creation of middle managers. There is also the need for the adoption of more formal processes to manage the larger numbers of specialist staff. There are more interfaces between the specialist staff and so people must adhere to the formal processes to coordinate their work.

Table 1. Features of Different Size of Company (Turner et al., 2009b)

Ghobadian and Gallear (1997) described differences between SMEs and larger organizations. In particular, they identified the following:

• Processes: SMEs require simple planning and control systems, and informal reporting;
• Procedures: SMEs have a low degree of standardization, with idealistic decision making;
• Structure: SMEs have a low degree of specialization, with multi-tasking, but a high degree of innovativeness; and
• People: Because of the high consequence of failure, people prefer tested techniques.

The first two of these suggest that SMEs require less bureaucratic methods of management, with greater flexibility. The second two imply a strong focus on people.

Project Management

The methodologies and components of project management are well documented (Office of Government Commerce, 2005; International Project Management Association, 2006; Turner, 2007; Project Management Institute, 2008; Turner, 2009). Bresner and Hobbs (2006) assessed the value of project management tools and determined the extent to which different tools were used in traditional project management contexts. They identified a strong systems focus, and tools associated with team building were used less frequently than mathematically based planning and control tools. Thus traditional project management, which is very Taylorian in its approach, fails SMEs as described by Ghobadian and Gallear (1997) on two counts, both because it is too bureaucratic and because it fails to treat people as social animals. This leads to our first proposition:

Proposition 1: Smaller companies require less bureaucratic, more people-focused forms of project management than those traditionally available.

Turner et al. (2009b) showed that what causes the transition from small to medium-sized companies with around 50 employees is that medium-sized companies are more likely to employ specialist staff, whereas employees in micro and small companies are more likely to multi-task, being more able to fulfil several roles on a project (Table 1). Thus, medium-sized companies require more formalistic management practices to coordinate the input of specialists to projects, whereas the practices required by micro-sized and small companies will be more flexible and people-focused, facilitating a more laissez-faire management style (Turner, 2009). This leads to our second proposition:

Proposition 2: Micro-sized and small companies will need simpler and less formalistic project management practices, which we will call a micro-lite version, when compared to the practices required by medium sized companies, which we call a lite version. In small and micro-sized companies procedures should facilitate multi-tasking and engage project team members in the development of plans, whereas in medium-sized companies they must be designed more to coordinate the input of specialists.

In a later meeting, a project manager from the one large company interviewed by Turner et al. (2009b) told us that in their company the use of specialists on small projects does not work. It is very difficult to get 10 specialists to make a 10% commitment to a small project. It is far more effective to have one generalist working on the project. Thus even in medium-sized and large companies it may be necessary to adopt the micro-lite version of project management on the smallest of projects to facilitate multi-tasking by a small team of generalists.

Projects in SMEs

Turner et al. (2009a) show that on average smaller companies undertake smaller projects. In their sample, the median size of a project for micro companies was less than three months, for small companies was three to six months, and for medium-sized companies was six to nine months. Similarly, larger companies had larger project team sizes. There are exceptions. In their sample, eight percent of micro-sized companies did projects lasting more than 12 months and four percent had teams of over 30 people (clearly with client or contractor personnel). However, on average, they do smaller projects. Turner et al. (2009b) reported that one of their sample, a company providing project management consulting services, have a model for the level of project management functionality required by companies depending on several parameters, which are correlated to the size of company and size of project. Thus, the very small number of smaller companies undertaking large projects will require more traditional forms of project management functionality, but the majority ones will require lighter versions of project management. Payne and Turner (1999) demonstrated quite conclusively that better results are obtained for projects if the procedures are tailored to the size of project. Thus, these traditional approaches to project management will not meet the needs of SMEs. This leads to our third proposition:

Proposition 3: The simpler, less bureaucratic project management practices required by SMEs will have a reduced range of core project management functionality when compared to forms that are more traditional.

Project Management in SMEs

Ledwith (2004) and Murphy and Ledwith (2007) conducted an initial investigation into project management practices in SMEs in high-tech and service industries in Ireland. They suggested that SMEs should follow a structured process for selecting their project management practices by identifying:

• Their strategic objectives,
• appropriate success criteria and key performance indicators for their projects,
• appropriate success factors, and
• appropriate project management tools and techniques, which meet the criteria outlined previously.

Turner et al. (2009b) identified the main barrier to the adoption of project management within SMEs was lack of support or even resistance from the founding entrepreneur. This usually happened because he or she knew little about project management and the advantages it could bring. In companies where the founding entrepreneur shows no interest, project managers may or may not use project management practices depending on their own commitment. However, project managers are more likely to use project management practices to manage projects for external clients than to manage internal development projects. Companies are more likely to adopt project management if the founding entrepreneur or CEO sees the benefit of its use, and the practices are simple to adopt and apply. In micro-sized and small companies, project team members want to be engaged in the development of project plans to gain their commitment to the plans. This leads to our fourth proposition:

Proposition 4: Project management practices applied in SMEs should be easy to learn and simple to apply, and clearly demonstrate benefit from their use.

Methodology

Through this research, we aim to answer the following research questions:

1. To what extent do SMEs use project management both in their operations and to manage innovation and growth?
2. Are there any differences between the nature of project management used by SMEs in different sizes of company, different industries, and different countries?
3. What are the barriers to the adoption of project management by SMEs?
4. What is the nature of the forms of project management required by SMEs and what are their key components?

To answer these questions we conducted a web-based questionnaire with four parts.

Part 1—The Nature of the Company

The first part asked questions about the company. To determine the size of company, we asked about the number of employees and the turnover. We mainly use the number of employees to determine the size, and place the transition from micro to small at 15 employees, as suggested by Turner et al. (2009b), and from small to medium at 50 as suggested by the European Commission (2005, 2008). However, we found quite close conformity in the size as determined by number of employees and the size as determined by turnover. We asked how old the company is and what industry they operate in. Based on the findings of Turner et al. (2009b) for industry we offered the following options:

• Construction,
• manufacturing and process,
• information computers and telecommunications, ICT,
• food and pharmaceuticals, and
• services, consulting, and finance.

We also asked the role of the respondent within the company to see if there were any differences due to the perspective of the respondent.

Part 2—The Nature of Projects Within the Company

The second set of questions related to the nature of projects within the company. We asked approximately how much of their turnover is spent on projects and the type of projects they do. The options for type of project were:

• Research,
• product development,
• other internal such as computer systems,
• bespoke products for external customers,
• tailored products for external customers, and
• other external projects.

We differentiated between bespoke and tailored products by saying that bespoke products were a completely new design whereas tailored products are an existing design adapted to the requirements of this customer. We asked about the duration of the company's projects, the size of project teams, and whether the company employs dedicated project managers.

Part 3—The Use of Project Management

We asked to what extent the company uses project management. For both internal and external projects, separately we asked whether project management is used, what support is provided by the CEO, and what the attitude of project team members is. Where project management is used, we asked whether:

• People resist its use,
• people use their own methods, and
• there is a formal policy for its use.

With the support of the CEO, we asked whether the CEO:

• Knows little about it,
• discourages its use,
• provides no support,
• provides support if people want to use it,
• actively encourages its use, and
• insists on it.

For the attitudes of people, we asked whether they:

• Know little about it,
• actively avoid using it,
• show little interest,
• use it if required to do so,
• actively want to use it, and
• a required to do so by company policy.

Part 4—Project Management Practices Used

In the fourth part, we asked what practices the companies use and what tools and techniques. Based on the work of Turner et al. (2009b) and Bresner and Hobbs (2006), we suggested several project management practices and asked whether the respondent thought they are:

• Essential,
• useful, and
• excessively bureaucratic.

We also asked whether they used the following tools:

• Tracked bar charts,
• milestone tracker diagrams,
• earned value method, and
• software support.

We also asked what sort of software support they used.

Distribution

We used a snowball approach to distribute the questionnaire. It was sent to professional associations in Ireland, the United Kingdom, and Australia, including the Association for Project Management, the Project Management Institute, and the Australian Institute of Project Management, who distributed it to their members. We also sent the questionnaire to master's degrees’ students and people attending other courses and events at Limerick University. Copies were sent to the Chambers of Commerce in Ireland, and we distributed the questionnaire to business contacts in Europe and the Far East. Copies were also sent to all the people interviewed by Turner et al. (2009b). To date, we have received 87 responses: 46 from Ireland, 22 from Britain, 6 from the rest of Europe, 11 from Australia, and 2 from the Far East.

Results

Nature of Company

Table 2 shows the companies responding by country, size, and industry. Only one of the companies is less than six years old and is not a micro-sized company (based on the number of employees). This company is Australian. Thus, we concluded that (usually) it takes at least five years for companies to grow from initial start up to at least 15 people. All the respondents from the manufacturing industry are from Ireland. The largest number of companies is from the services industry, 39% of the total.

Table 2. Companies Responding

Nature of Projects

Table 3 shows the percentage of turnover spent on projects by country, industry, size of company, and age of company. The figures for Ireland are similar to those obtained by Turner et al. (2009a), which were for Ireland only. The British do the most projects, followed by the Irish and other Europeans. The Australians and companies from the Far East do the least. Turner et al. (2009a) gathered their data in Ireland, and so the figure for Ireland confirms their result. Unsurprisingly, the construction industry has the highest proportion of projects, followed by the ICT industry. The rest are close to the one-third observed by Turner et al. (2009a). Smaller companies have a higher proportion of projects than the larger companies. Thus, in their first five years while growing, projects make a more significant contribution to the business. The figures by age of company confirm this. In the first two years of their lives, more than 60% of companies are spending more than 60% of their turnover on projects. Old, more mature companies are doing fewer projects. In fact, the last row of Table 3 suggests that it is the age of the company that primarily determines the extent to which it uses project management. The size of company is a secondary affect because younger companies tend to be smaller.

Table 4 shows the size of project, based on duration and team size by size of company, industry, and country. It also shows the percentage of companies employing dedicated project managers. As expected, smaller companies have smaller projects, and in fact, unlike Turner et al. (2009a), none of the micro-sized or small companies have teams with more than 10 people. In addition, as expected, construction has the largest projects in terms of both team size and duration. Manufacturing comes next in terms of duration and ICT in terms of team size. Projects in Ireland have larger team sizes than all the other countries.

Table 3. Percentage of Turnover Spent on Projects

Table 4. Percentage of Turnover Spent on Projects

Only half of micro-sized companies employ dedicated project managers, so at this critical early stage of their development they use amateur project managers even though 40% of their turnover is project-based. In fact, if we look by age, we find it is the age of the company that primarily determines whether they use dedicated project managers. For companies one to two years old, only 29% use dedicated project managers; for companies 3 to 10 years old it is 65%, and companies more than 10 years old 71%. All construction companies employ dedicated project managers and the services industry the fewest. There is little difference by country.

Looking at the size of a company, 50% of micro companies use dedicated project managers, 88% of small companies, falling to 58% of medium-sized companies and rising again to 88% of large companies. Thus, there seems to be a loss of project management maturity as companies make the transition to medium-sized. This is confirmed by our results for the extent to which project management is used. The only case in which project managers resist the use of project management is in medium-sized companies for internal projects. In addition, the number of companies using project management for external projects as company policy is for micro companies 3%, small companies 25%, medium-sized companies 15%, and large companies 34%, again showing the loss of maturity in medium-sized companies.

Use of Project Management

There is very little difference between companies in the use of project management for external projects. Eighty percent to 90% either actively encourage project manager to use project management or have a company policy that it should be used. The remaining 10% to 20% are not doing external projects. The CEO never actively discourages the use of project management for external projects, but it is in larger companies where he or she is most likely to have no knowledge of it or provide no support. It is the manufacturing industry where the CEO is most likely to know nothing about project management and the food and pharmaceutical industry where he or she is most likely to offer no support. It is in Ireland where the CEO is likely to know nothing about project management, and also where he or she will provide no support for its use. Never do project managers actively avoid the use of project management for external projects, but it is in medium-sized companies where they need the most encouragement to use it. There is little difference by country industry.

The results for the use of project management for internal projects is a little more mixed, confirming the results of Turner et al. (2009b). The number of companies that actively encourage the use of project management for internal projects is only slightly less than for external projects at 75% to 85%. However, there are now five companies that actively resist the use of project management for internal projects.

Three are Irish companies, and two are from Australia, two of them are from the services industry and two from the manufacturing industry. All are medium-sized companies. It is in larger companies where the CEO is least likely to know nothing of project management and where project team members will resist its use. It is in the manufacturing industry were the CEO is most likely to know nothing of project management. In the ICT industry, project managers are most likely to use actively project management, and it is the only industry where more than half of project managers do so for internal projects. In the food and pharmaceutical industry, project managers are most likely to resist the use of project management for internal projects. The other industries fall between these two extremes. Further, as reported by Turner et al. (2009b), it is in Ireland that the CEO will be ignorant of project management, with Britain the only other country reporting that. Also, Ireland is the country where project managers are most likely to resist the use of project management for internal projects, with again Britain the only other country reporting that.

Project Management Practices

Table 5 shows the extent to which the project management tools are used and are sorted into three categories (following Bresner and Hobbs, 2006): those which are used a lot, those which are used somewhat, and those which are used rarely, There is little difference in use by country or size of company. However, there are differences by industry. Across the board, the construction industry tends to use the tools less than the other industries and the services industry more. We can speculate why this might be. Perhaps in the construction industry people manage projects using much more informal tools; and the service industry, which offers consulting services, practices what they preach. Turner et al. (2009b) interviewed one consulting company, which did as a matter of policy, ensure that their own staff used the tools that they offered as part of the consultancy service.

Table 6 shows the extent to which the tools are used. There is little difference in the use of these tools by country, industry, or size of company.

Agile methods are thought by our sample to be very bureaucratic and earned value analysis is seldom used. We believe that this is an indication that project management tools can appear to be bureaucratic, or even be sold as such. Turner et al. (2009b) reported that three small-sized, Swedish companies in their sample were using a form of agile methods to great effect. It met their needs for people-focused project management very well. Thus, our results may reflect the perception of the tools rather than the reality and suggests the need for lite or micro-lite versions. The same may be true for earned value analysis. Turner (2009) tried to simplify the technique.

Table 5. Extent to Which the Project Management Practices Are Used

Table 6. Use of Tools

Conclusions

Use of Projects in SMEs

SMEs do make substantial use of projects in their businesses, confirming the work of Turner et al. (2009a, 2009b). It seems to be age rather than size of company that primarily determines the extent to which projects are used, with companies making the greatest use in the first two years of their lives. It is also during that time that they are least likely to use dedicated project managers, meaning that during this very critical time of their existence projects are being managed by amateurs. Those amateurs will require simplified forms of project management that they can apply simply and effectively, confirming Proposition 4.

Use of Project Management

Our results show that project management is widely used for both internal and external projects. There is a slight tendency to use project management less for internal projects than external projects, but this may not be significant.

What is significant is that there is a greater tendency to resist the use of project management for internal projects. What was unexpected is the loss of project management maturity in medium-sized companies. There is a growth in the maturity of the use of project management from micro to small-sized companies, but then a loss of maturity from small to medium-sized companies. It would appear that with the crisis of growth at 50 people, with the switch from multi-tasking to specialist working, with the introduction of middle managers that firms have to relearn the use of project management. It would also appear that there is some resistance among the specialists to the use of project management especially on internal projects. Thus Proposition 2 is confirmed but in ways and for reasons that were not expected. Different forms of project management are needed to coordinate the work of specialists, but in a way, that maintains project management maturity within the firm. Large companies adopt project management much more as company policy, and so maturity rises again.

Barriers to the Adoption of Project Management

We found much fewer barriers to the adoption of project management than reported by Turner et al. (2009b). It is only in medium-sized companies that the CEO discourages the use of project management, though in 6% of companies he or she shows little support and in 11% knows little about it. In 19% of companies, project management is used as company policy for external projects, and in 38% more project managers actively us it. The figures for internal projects are 14% and 30%. It is only in medium-sized companies for internal projects that we found project managers actively resisting the use of project management.

Practices Adopted

SMEs use a reduced range of tools when compared to those used by larger companies, as reported by Bresner and Hobbs (2006). Requirements management is the most important practice, and this was in fact incorporated into the A Guide to the Project Management Body of Knowledge (PMBOK^® Guide—Fourth Edition) (PMI, 2008) for the first time. The people-focused practices, particularly team building and the use of responsibility charts, appear in the list of those used somewhat. Thus, they do not figure in the top list, but they do figure more highly than in the work of Bresner and Hobbs where team building appeared in the list of hardly ever used.

Thus, the first part of Proposition 1 is confirmed. SMEs are looking for less bureaucratic forms of project management. The second part is only conformed to an extent. The practices adopted are more people-focused than traditional forms of project management, but the people-focused practices do not figure on the most highly used practices. Proposition 3 is also confirmed. There was little difference in the use of the practices by size of company, contradicting Proposition 2.

As we said, some of the results we think show that project management is poorly sold rather than is inherently bureaucratic. Turner et al. (2009b) showed that adapted agile methods could be effectively used by SMEs, but they are perceived by 13% of our sample, and 36% of people who answered the question as being excessively bureaucratic. Also 50% of our sample, and 55% of the people who answered the question wanted to monitor cost, but only 11% wanted to use earned value analysis to do that.

Implications and Further Work

We have shown that SMEs require two forms of project management:

1. A micro-lite version that will support project teams where people fulfil multiple roles and may be managed by non-specialist project managers. These practices must be simple to use and easy to learn and adopt. This version will be used by micro and small-sized companies and especially by companies in the early years of the existence. However, it may also be used by medium-sized and large companies to manage the work of small project teams consisting of non-specialists fulfilling multiple roles.
2. A lite version that will coordinate the work of specialists. This must be easy to use and clearly demonstrate benefit to be adopted by people in medium-sized companies who are more resistant to the use of project management.

Both versions will have at their core requirements management.

Once methods have been developed, their use will need to be validated with practicing project teams in SMEs.