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Combining system dynamics modelling and management control systems to support strategic learning processes in SMEs: a Dynamic Performance Management approach

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Abstract

Traditional management control systems, mainly centred on accounting-based measures, are widely recognized as useful tools to support Small and Medium Enterprises (SMEs) managers and entrepreneurs in steering business development. However, due to the increasing turbulence and dynamic complexity that characterize today’s competitive arenas, such systems need to be combined with simulation-based methodologies in order to improve entrepreneurial learning processes and, as a result, better detect possible crisis symptoms and weak signals of change—emerging from the business environment—to promptly react. Therefore, the aim of this paper is to show how a combination of traditional management control mechanisms with system dynamics modelling can effectively lead to better results in terms of SMEs’ performance measurement and management. As a result, a Dynamic Performance Management approach will be illustrated and discussed, also through an empirical application to a real small business.

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Notes

  1. The European Commission Recommendation 2003/361/EC defines micro, small and medium-sized enterprises according to their staff headcount and turnover or annual balance-sheet total. A medium-sized enterprise is defined as an enterprise which employs fewer than 250 persons and whose annual turnover does not exceed EUR 50 million or whose annual balance-sheet total does not exceed EUR 43 million. A small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million. A micro enterprise is defined as an enterprise which employs fewer than ten persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.

  2. For instance, an increase in liquidity (financial perspective) allows the firm to hire more employees (social perspective), who may improve product/service quality and, as a result, increase its customer base (competitive perspective).

  3. An in-depth overview of SD methodology can be found in Sterman (2000) and Warren (2002).

  4. For instance, liquidity (a strategic resource) may change as an effect of cash flows (an end-result); the image of a SME towards customers (strategic resources) may change as an effect of their satisfaction (an end-result).

  5. An appendix including all model equations and initial values is available upon request to the authors.

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Authors and Affiliations

  1. Department of European Studies, University of Palermo, Via Ugo Antonio Amico, 2, 90100, Palermo, Italy

    Federico Cosenz & Lidia Noto

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  1. Federico Cosenz
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  2. Lidia Noto
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Correspondence to Federico Cosenz.

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Cosenz, F., Noto, L. Combining system dynamics modelling and management control systems to support strategic learning processes in SMEs: a Dynamic Performance Management approach. J Manag Control 26, 225–248 (2015). https://doi.org/10.1007/s00187-015-0208-z

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