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SMALL BUSINESS

MANAGEMENT

CHAPTER 9

Small and Medium Enterprises (SMEs) plays an important role in the Malaysian
economy. The development of SMEs has received much attention since the
implementation of the New Economic Policy (1971-1990). It was again emphasised in
the Second Long Term Malaysia Plan (1991-2000)

Definition
There are several definitions of what constitutes a small business. In Malaysia various
agencies adopt different definitions of SMEs depending on their business interests.
One commonly used definition is that provided by the Small and Medium Industries
Development Corporation (SMIDEC) which defines SMEs according to two main factors
i.e annual sales turnover and number of full time workers.

According to SMIDEC
MEDIUM SIZED BUSINESS
A business establishment with an annual sales turnover
of between RM10 million and RM25 million and which
employs not more than 150 full-time workers
SMALL SIZED BUSINESS
A business establishment with an annual sales turnover
of not more than RM10 million and which employs not
more than 50 full-time workers

CHARACTERISTICS OF A SMALL
BUSINESS
Ownersh
ip

Flexibility
of Change

Organizat
ional
Structure

Manage
ment

Resourc
es

OWNERSHI
P
Privately
owned by
individual or
parents,
typically
registered as
a sole
proprietorshi
p,
partnership
or private
lmited (Sdn.
Bhd.)

MANAGEMEN
T
The business is
managed and
operated by the
owner(s). The
entrepreneur of
founder of the
business leads
the company,
and acts as both
manager and
worker. The
development of
the business is
determined by
the owner.
Decision making
is mostly done by

RESOURCE
S
A small business
often has limited
resources. This is
especially true
for new start-ups
due to lack of
track record in
the business to
convince
potential
investors and
bankers. Thus, it
is highly
dependent on
the ability of the
owner to

Organizational
Structure

For a small
business, the
structure is often
flat and informal.
The owner has to
do almost
everything and
the workers are
normally
expected to be
able to function
as generalists
since there is no
clear
demarcation of
tasks

Flexibility of
Change

The business has more


flexibility to adapt to
changes in the environment
due to its size and informal
structure.

It is also vulnerable to development in


the business environment. For instance,
any changes in technology or
government policy might have a great
impact on the business because
immediate changes normally require
additional capital or resources. This
might become a constraint to the
business to compete and sustain itself in
the market

PLANNING

ORGANISI
NG

MANAGEMENT
FUNCTIONS
CONTROLLI
NG

LEADING

Management Function
1.PLANNING
Planning is the most important management function of
a manager.
Planning covers the activity of formulating companys
policy and procedure to ensure the attainment of
business mission and objectives through the most
effective and efficient means.

Business Vision, Mission, Goals &


Objectives
Business Vision
It is often stated in terms of a value statement
announcing where the business wants to go or
what it aspires to be.
Ex:
To be a reputable halal food producer in the region and
serve the needs of the global Muslim community

Business Vision, Mission, Goals &


Objectives
Business Mission
A mission is a statement of purpose or the reason
for existence. It establishes the identity of the
business and what it does. It defines long-term goals
of the company but in a specified time frame.
Ex:

to be a market leader in the production and distribution


of halal food products in Malaysia within five years and
in Asia within the next 10 years

Business Vision, Mission, Goals &


Objectives
Business Goals/Objectives
Business goals or objectives support the achievement of a
business mission and vision. They are more specific, stated in a
shorter term and have a definite time frame. A good business
objective should be specific, measureable, achievable, realistic
and have a time frame.
Ex:

to establish and operate an international standard production


facility for halal food products in Malaysia.
to produce 10 types of in-house products within the first year of
operation and identify five vendors to support production
capacity.

Management Function
2. ORGANISING
The word organise means to properly arrange.
Organising refers to the activities of designing an
organisational structure, driving and assigning jobs and tasks
among departments, sections or units besides the
infrastructure and operation methods.

Management Function
3. LEADING
Leading refers to the act of getting the job done through other
people.
Business owner would have other people to assist him in
managing his business effectively.
Supervises a group of workers to do what needs to be done in
order to achieve his business objectives.
As leader or manager they are responsible for:
Ensuring that the job is carried out effectively and
efficiently
Motivate the workers to perform their tasks.

Management Function
3. LEADING
Leading involves:
a. Assigning of jobs and responsibilities
b. Motivating employees
c. Providing and receiving feedback
A manager needs to develop interpersonal and good
communication skills to enable him to lead and motivate the
workers.

Management Function
4. CONTROLLING
Controlling is a monitoring function to ensure that activities
carried out are on track in achieving the goals set out by the
business.

ORGANISATIONAL
PRINCIPLES and
STRUCTURE
What is an Organisation?

What is an Organisation?
An organisation can be defined as a social unit
which comprises people performing different
tasks in a coordinated manner in order to
achieve organisational goals.

Organisational Principles
Organisational principles can be used as a tool for a
business to organise inputs such capital, manpower,
technology and raw materials.
Organisational principles consist of:
1. Division of Work
2. Authority and Responsibility
3. Unity of Command
4. Span of Control
5. Delegation of Authority and Responsibility

1. Division of Work

Activities or jobs that need to be done in any organisation must first be identified.
These activities or jobs then have to be assigned to workers.
Jobs assigned to a worker must commensurate with his capability and skills.
All activities must lead to achieving organisational goals.

2. Authority and Responsibility


Managers who have been given a responsibility must have the authority to do the job
assigned to them.
Authority is the power given to enable managers to delegate and take actions against
subordinates.
Excessive authority without proper responsibility will lead to abuse of power.

3. Unity of Command
Unity of command means a worker should receive direction only from one manager.
A subordinate should report to one superior

4. Span of Control
One of the important aspects of ensuring effective management in an organisation is
to be able to organise and control subordinate.
Managers should supervise a certain manageable number of subordinates.
Span of control refers to the number or workers under the supervision of a manager.
An effective span of control depends on several factors such as worker
competencies, nature of the job or work plan that needs to be executed.

5. Delegation of Authority and Responsibility


Delegation of authority and responsibility refers to job and responsibility assigned to
subordinates.

PERSONNEL PLANNING

Job Analysis

Job
Description

PERSONNEL
PLANNING
Job
Specification

Job Analysis
A systematic process to identify tasks and determine skills and knowledge required to
perform a job.
Each job is thoroughly analysed to identify all the tasks involved.
Job analysis can be done based on the managers previous experience in performing
the job.
Job analysis helps to determine the scope of a position identified.

Job Description
A written statement outlining a given job.
It states the functions, duties and responsibilities of the person appointed to do the job.
It also outlines specific tasks involved, states guideline on how to do it, specifies tools,
machinery and supplies needed and describes a suitable environment to do the job.

Job Specification
Jobs are created as a result of job description.
Each job is detailed in the form of a job description and needs to be filled by qualified
personnel.
A job specification states the minimum qualifications required of a candidate to qualify
for a position.
It may be specified in terms of education level, work experience, skills, personality,
physical capability and other necessary criteria related to the job.

Job Description
A written statement outlining a given job.
It states the functions, duties and responsibilities of the person appointed to do the job.
It also outlines specific tasks involved, states guideline on how to do it, specifies tools,
machinery and supplies needed and describes a suitable environment to do the job.

RETAINING EMPLOYEES
Compensation, Salary, Wages, Sales Commission, EPF,
SOCSO, Allowances, Fringe Benefits.

Compensation

Salary

Employees need to be
compensated for their work and
contributions. A sound and fair
compensation scheme helps to
retain employees in the company.
Compensation refers to the
monetary reward in various forms
of pay. Among the main
categories of cash compensation
are salary, wages, sales
commission, allowances, bonus,
EPF and SOCSO contributions.

Salary is a fixed monetary reward paid


to workers on periodical basis. It can be
paid on a weekly, biweekly or monthly
basis as required. However, it is normal
practise to pay salaried worker on a
monthly basis. Salaried workers are
expected to work a certain minimum
number of hours per day and specified
days per month. Salaried workers are
not subjected to a loss of pay in the
case of allowed absences such as
illness.

Wages
Wages are paid to part-time or
temporary workers based on
output of job performed. Often they
do not enjoy equal employment
benefits as salaried workers.
Wages can be daily, weekly,
biweekly or monthly as agreed by
both parties. The rate of wages is
determined by the output.
Sometimes they are paid by the
hour. Hourly wages are commonly
associated with blue-collar jobs.

Sales
Commission
Paid based on a percentage of
sales generated. This form of cash
compensation is known as sales
commission. For instance, a
salesman might receive a low
basic salary but his sales
commission can be very lucrative if
he performs well.

Fringe
Benefits
Fringe benefit can be either monetary or non-monetary. Monetary
benefits are usually referred to as bonus. Bonus is often a shared
achievement reward and usually paid based on performance. It is
an additional reward for employees for their contribution towards
achieving or exceeding set targets. Bonus can be regarded as an
indication of good performance of the company as a whole.
Non-monetary benefits such as medical coverage, paid recreation
club membership, paid holidays and sport club membership are
sometimes offered to qualified employees as additional incentives
to retain them in the company.

Contribution to the
Employees Provident Fund
(EPF)

EPF is mandatory for all registered employers in Malaysia.


Responsibility of the employer to register its employees if they are
not yet contributors to EPF.
The statutory rate of monthly contribution for employees is 11% of
the basic salary.
The employers portion of the monthly contribution is 12%

12%
employer
contribute to
employee
account
monthly

11%
deducted
from
employees
salary
EMPLOYEE ACCOUNT

Every registered and incorporated business entity must inform the EPF
board, which acts as the trustee for EPF members not later than 30 days
after being incorporated. Any employer who does not confirm to the
allotment under the Act subsection (1) is liable for imprisonment of up
to (3) THREE years or a fine up to RM10,000 or both.

Social Security Organisation


(SOCSO)

SOCSO responsible for the implementation, administration and enforcement of


the Workers Social Safety Act 1969 and Workers Social Safety Regulations
1971.
SOCSO offers two Insurance Schemes

Invalidity
Pension
Scheme

The
Employment
Injury Scheme