Endorsed espoused values and financial performance: A review of ‘best-in-class’ SMEs

Small and medium-sized enterprises (SMEs) represent the vast majority of businesses and contribute to global economic growth and employment. SMEs also attract considerable interest in their local communities by contributing to the job market and engaging through socially responsible initiatives. Through organisational behaviour and transparent communication, SMEs can build trust and positive image and reputation.

Behaviour in SMEs is shaped by the values of its management that impact strategy and tactics, and eventually, contribute to financial performance. It is therefore important for management to clearly articulate their values to effectively shape the behaviour expected of the staff body.

Managerial values are typically espoused by senior management and most effective when aligned with employees’ values and operationalised across the organisation through actions. To have a committed workforce and thus to be successful, the gap between espoused and enacted values must be as narrow as possible. Management can help by actively stressing and interacting with values across the hierarchy and thus narrowing the gap; for example, persistent information and communication, training and workshops discussing examples from practice, or values/ethics officers.

In an earlier study conducted in Switzerland, seven SMEs were identified achieving both high-level of values-interaction and financial performance; setting the benchmark amongst the analysed 46 SMEs. These ‘best-in-class’ companies have been re-analysed again after eight years, investigating whether their positive relationship between values and financial performance was sustainable over this period. For comparability reasons, same approach and methods were applied as per the previous research. A qualitative content analysis of annual reports identified how well endorsed espoused managerial values were; the respective operational financial ratios were calculated.

After eight years, four SMEs were still listed on the SIX (Swiss Exchange), two companies merged with other companies, and one was listed on an electronic exchange platform for non-SIX shares (OTC-X). That is, five SMEs – four SIX SMEs and one OTC-X SME – could be deconstructed.

Results of this cross-sectional analysis showed that the four SIX SMEs retained their top level of values-interaction whereas the OTC-X SME dropped significantly. A similar picture emerged regarding the financial data. The four SIX SMEs showed positive compounded annual revenue growth rates and increased in the number of employees; that is, they were growing and appeared competitive in their markets. Overall, return on sales (ROS) and return on equity (ROE) showed solid performance, although they differed across the SMEs. On the contrary, all these ratios were lower for the OTC-X SME.

The results suggest that SMEs that publically endorse their espoused values and thus demonstrate values commitment are likely to do financially well and grow. The reasons as to why the OTC-X company suddenly stopped depicting and interacting with their values need further qualitative investigation.
Ultimately, thorough implementation of their espoused values provides management with the opportunity to enhance economic performance.