Application problems encountered with the realization and implementation of service engineering in SMEs

The investigated start-ups differ basically in their whole structure and alignment from large companies. In start-ups, the senior employees or the entrepreneur are responsible for controlling in contrast to controlling departments in large enter-prises. The subsequent distinctive characteristics and features have become ap-parent in the course of the over 2-year-old case study:

Personnel capacity

Personnel capacity is an obvious distinctive characteristic for large companies.

Start-ups have too little capacity enabling strategic planning. Although start-ups have flat hierarchies and decision-making and information channels are short and these companies are therefore very flexible, but the excessive demands placed on individual decision-makers prevent SMEs from using this advantage.

This is due to the limited personnel capacity, which does not allow for detailed planning, management and control. As a result, the entrepreneur cannot dele-gate tasks. This leads ultimately to an excessive workload of the entrepreneur as well as to an increased orientation and integration into the day-to-day business.

Long-term objectives are put on the backburner and it is only the short-term success that counts. Thus, the start-ups are not prepared for the risks either do

5 Material and Method of the service engineering concept in young SMEs in a case study

not see the opportunities offered to them by their alleged flexibility and innova-tiveness.

Management and organisational structure

The management structure of the investigated start-ups often corresponds with the central figure of the entrepreneur. The Managing Director is at the same time owner, developer and administrator. Thus, necessarily all functions and decision-making powers are united in one person. Thus the strategic decisions and future activities depend significantly on the entrepreneur’s characteristics and interests, who is the owner and the leading figure of the start-up at the same time.

This can also be demonstrated by a study by FELTHAM et al. (2005, p. 4).

Here three-quarters of all entrepreneurs rated the dependency of the company on their own personality as very significant. 64 percent of entrepreneurs also started that they bear the main responsibility in three out of five divisions (per-sonnel, purchasing, marketing/advertising, finance/accounting, production) and make all the decisions for these areas. Start-ups have a low degree of formaliza-tion and relatively few divisions. Managerial tasks were hardly delegated and the entrepreneurs insisted on the patriarchal and authoritarian leadership style.

Due to this concentration on one person, an overload of the entrepreneur was recognizable and this led to a number of problems, which ultimately resulted in intuitive decisions made by the entrepreneur. The entrepreneurs were often un-able to cope with developing strategic planning and leading all by themselves, which led to improvisation. This intuition, however, is not sufficient in a com-plex and dynamic situation. Moreover, insufficient business knowledge and a form of overconfidence became apparent, which put the performance of the entrepreneur at risk. The central position of the entrepreneur which united all decision-making powers and information was a risk in the start-ups. Focusing

5 Material and Method of the service engineering concept in young SMEs in a case study

on one single leading person can threaten the existence of the start-up after this person has left the company. Due to the central position of the entrepreneur, strategic measures are initiated by him too. These decisions are regarded to be made by the entrepreneur only who runs the risk of being driven by personal motivations influenced by his own properties. This is ultimately the relevance, which was promoted by the initiation and implementation of strategic process-es. The sphere of influence of the entrepreneur with the described personal ob-jectives, motives and properties decreases with increasing growth and size of start-ups. The entrepreneur of a start-up has been an important and essential factor for the progress of the strategic concepts at any time.

Financial restrictions

The equity ratio of start-ups tends to be low, because there are limits in the pro-curement of equity. This was also the case in the investigated start-ups, which were often financed by foreign capital, e.g. with the help of banks and also business angels. Especially for small companies, funding for these companies is difficult as a result of Basel II [Kummert 2005, p. 158]. Due to the new "Basel Capital Accord" (Basel II), which came into effect at the end of 2006, the com-panies must submit themselves to a rating procedure. With Basel II, there was a change of quantitative assessment criteria to now qualitative ones and future credit assessments. Due to this rating process, an implemented internal control system has received a very high relevance for the assessment [Flacke/Krol 2005, p. 149ff].

With an increasing growth of start-ups, also the profitability is growing along-side the equity ratio. Another problem is also the missing strategic planning and inadequate corporate governance, caused at least in part by over-burdened en-trepreneurs. According to GLEICH/HOFMANN (2006, p. 347), the financial risks for SMEs are more pronounced than the performance-related risks, which

5 Material and Method of the service engineering concept in young SMEs in a case study

can lead to liquidity shortfalls. Thus, the independence of start-ups is closely tied to the equity ratio.

Technical equipment

Start-ups are less well-equipped and cannot be compared to established big cor-porations. In all start-ups, the necessary hardware for controlling and data sys-tems was available to permit the collection and analysis of data. The main prob-lem lay less in the procurement of internal data, but rather in the procurement of external information. In this case, support was necessary. There are many soft-ware solutions for start-ups (such as Microsoft Navision, SAP all-in-one solu-tion, Oxaion software etc.). Problems often lie in the outsourcing of accounting, as external tax consultants manage and use the data and figures especially for start-ups. The use of all-encompassing software depended on the entrepreneur, i.e. to what extent he wanted to deal with the issue.

Other problem areas:

Management focused on the past

Many of the entrepreneurs led their start-ups focused on the past. This is related to the integration of the entrepreneur in the operational day-to-day business together and that no importance is attached to long-term planning and control.

There were hardly any controlling systems besides a balance or cost accounting systems.

Inadequate information gathering

Due to the lack of time of the entrepreneur and the missing capacities relevant information is often not obtained. Especially the access to external information is often difficult or obtaining it entails costs. Here, the support offered by coaching proved to be very helpful.

5 Material and Method of the service engineering concept in young SMEs in a case study

Managing and controlling in the informal personal contact

Entrepreneurs and employees are in close contact and there is mutual trust es-pecially in the investigated start-ups. However, entrepreneurs only rarely dele-gate decision-making powers or functions to employees. The decision-making processes often lack formalization relating to commercial and business knowledge, missing information, and also the lack of awareness of the prob-lems.

The problem of successors/substitutes

The resignation of the entrepreneur or even disease can lead to existential prob-lems, if there are no agreements on who is going to be the substitute and no competence transfer has been made. In the investigated start-ups, there were stable structures and the missing leadership represented a great internal risk.

This was due to the lack of willingness to hand over decision.making authority, problems of acceptance or a higher financial burden, if the employee had de-served a higher income because of leadership and competence authority.

6 Conclusion and new research findings after the realisation and implementation of service engineering

6 Conclusion and new research findings after the