The purpose of the research was to determine the competencies of small- and medium-sized enterprises’ (SMEs’) owners and managers and the association between these factors and the financial performance of their SMEs to help reduce the high failure rate of SMEs in South Africa.
Design/methodology/approach
A survey was conducted among SME owners and managers in Johannesburg, South Africa. Because the questionnaire used a five-point Likert scale, factor analysis was used to determine the role the various competencies play in the financial performance of SMEs and to determine a Business Success Driver Index (BSDI) based on their responses.
Findings/results
The competencies positively influence the return on investment (ROI) of SMEs, where competency is regarded as a combination of knowledge, skills, values, attitude and experience as an attribute.
Practical implications
The implication for practice is that SME owners and managers could improve their firms’ profitability and business success by enhancing their competencies by focusing on their knowledge, skills, values, attitudes and experience. The results of the study could help reduce the SMEs’ failure rate in South Africa.
Originality/value
This study is the first to investigate the combination of knowledge, skills, values, attitude and experience as competency factors driving SMEs’ profitability (measured by the ROI). The authors followed a positive approach by considering the factors contributing to success instead of the factors leading to failure in SMEs.
competenciessmall- and medium-sized enterprisesfinancial performancereturn on investmentBusiness Success Driver IndexFunding information This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.Introduction
Small- and medium-sized enterprises (SMEs) contribute in many ways to global economic improvement and social well-being. These businesses are considered to play a significant role in the national economies by adding value in the creation of job opportunities and account for more than 50% of employment. They make diverse contributions to innovation, assist in lowering income disparities, support sustainable industrialisation and contribute to environmental sustainability, which in turn provides more inclusive sustainable growth (Enaifoghe & Vezi-Magigaba, 2023). Earl and Gault (2003) define SMEs as firms with fewer than 200 employees (where 1 to 4 employees are micro, 5 to 20 are small and 20–199 are medium). The categories in North America and Europe are slightly larger (1–19, micro; 20–49, small; 50–249, medium and above 250, large).
The World Bank (2015) argues that SMEs have a high labour-absorption capacity, as they are estimated to account for between 60% and 70% of jobs in most developing countries. The number of SMEs operational in an economy remains one of the primary drivers of economic development in any country (Arrow et al., 2014). Small- and medium-sized enterprises can also reduce economic inequality and decrease the previously disadvantaged backlog (Edom et al., 2015; Mamman et al., 2015). The Organisation for Economic Co-operation and Development (OECD) calculated that SMEs in the OECD area accounted for around 45% of total employment and 33% of gross domestic product (GDP), indicating that SME growth creates new jobs and well-being across the 38 OECD member countries.
South Africa is a developing country with one of the highest SME failure rates globally, with approximately 70% of these businesses failing within their first year. This trend has been exacerbated by economic challenges such as limited access to financing, inadequate business management skills and the impact of the COVID-19 pandemic (BusinessTech, 2021). According to Mhlongo and Daya (2023), there are multiple reasons for this, including a lack of proper management capacity and training, a lack of proper financial management skills, a lack of access to sustainable financial assistance, an inadequate understanding of the industry in which the business operates and a lack of entrepreneurial networks to share resources and information, as well as crime and corruption.
The management strategy literature emphasises competence as a critical organisational resource needed to gain a competitive advantage (Campbell & Sommers Luchs, 1997; Mitrani et al., 1992; Nadler & Tushman, 1999). The current research is based on the McClelland (1973) model, which suggests that competency is a combination of knowledge, skills, attitudes and personal attributes, such as experience.
To date, no research has confirmed whether any relationship exists between business success, the managerial competencies of SME owners and managers’ self-reported business success, as measured by their firms’ financial performance, such as the return on investment (ROI). This study involved a sample of SMEs in Johannesburg using a survey to collect data about the perceived competencies required to be successful. Participants were requested to complete a questionnaire using five-point Likert scale questions and three open-ended questions. Factor analysis was used to determine the relationship between the various competencies and the self-reported financial performance based on SMEs’ ROI by using a Business Success Driver Index (BSDI). By determining the perceived competencies required to manage an SME successfully, it is hoped that the success and sustainability of SMEs may be enhanced in the future.
The remainder of the article is organised as follows. The ‘literature review’ section describes relevant research that has been carried out to date regarding the competencies of SME owners and managers. ‘Research problem and purpose of the research’ section articulates the research problems and the purpose of the study. In ‘Methodology’ section, the research methodology is explained. The findings are summarised in ‘Results’ section. In ’Interpretation’ section, the competencies are identified as knowledge, skills, values, attitude and experience (as an attribute) and the financial sustainability of the SMEs. ‘Conclusion’ section explains the limitations and implications of the research.
Literature review
This literature review aims to describe the secondary research that was undertaken and provides a justification for this study. Searches were performed using the following databases and search engines: EbscoHost, ProQuest, Web of Science, Sabinet and Google Scholar. Firstly, the literature review is structured to consider research about the challenges and failures of SMEs. Secondly, it defines competencies in general; thirdly, it evaluates research relating to SME management competencies found in the literature according to knowledge, skills, values, attitude and attributes and to conclude on measures of business success.
Research about small- and medium-sized enterprise challenges and failures
Small- and medium-sized enterprises face the risk of bankruptcy for various reasons, such as an increase in running costs, a weak management style, loss of capital, high debt, difficulties with cash flow or even placing the business in an incorrect location and thus not reaching the required target market or revenue as envisaged (Zugrav et al., 2016). In a survey among 110 SMEs in Bosnia and Herzegovina (BiH) and the Republic of Srpska (RS) between December 2013 and January 2014, respondents reported difficulties in the collection of accounts receivable; complicated regulations of their business operations; high rates of taxes; the negative impact of the global economic crisis; high interest rates and complicated procedures to obtain loans from commercial banks; strong competition; weak support of relevant institutions to the SME sector; an excessively high and unique Value-added Tax (VAT) rate; complicated procedures for obtaining guarantees and not having quality standard certificates as contributing factors to SME mortalities (Petković et al., 2015). These authors also identified critical success factors of SMEs as drafting formal business plans, improving business knowledge through formal and non-formal training and an increase in training providers; the professional management of companies, taking the life cycles of their firms into account; increasing the use of information technologies (IT); increased use of consulting services and establishing sectorial organisations where possible.
Small- and medium-sized enterprises contribute significantly to job creation owing to the fact that this business fosters knowledge, entrepreneurial skills and attributes, which is imperative for the owners and managers of these businesses to possess to ensure that there is sustainable growth of the business, and the lack of such competencies by owners and managers signals a pivotal challenge on the success of the business and ultimately have a negative overall impact on the economy (Sibiya et al., 2023). According to Brink et al. (2003), the failure rate of small businesses ranges between 70% and 80% in South Africa, which is detrimental to growth in the economy, given the pivotal role these businesses play in job creation. Furthermore, they found that the challenges faced by small businesses emanate from the following sources: financial issues that stem from a lack of financial planning, income generation and management competence in financial management; production issues because of insufficient attention to detail in the development of suitable products or services and a lack of quality control; the marketing environment because SME owners do not have control over competitors, market size and low demand; human resource management because of the loss of key employees; marketing management and a lack of market research and poor business location and an inability to set strategic goals.
Janeska-Iliev and Debarliev (2015) found three factors as the cause of failure in SMEs, namely a lack of experience, knowledge and strategies for achieving growth and development. Furthermore, Asah et al. (2020) are of the notion that poor management skills pose a challenge to SMEs and dampen their growth and success thereof. Furthermore, Jobo and Phyllis (2020) maintain that on the part of owners and managers, poor managerial skills and the lack of risk management knowledge, which in turn leads to poor risk management strategies being adopted, have a negative impact on the growth and performance of the business. Madzimure and Tau (2021) found that the level of education of the SME owners and managers has an effect on the success of the business. It is evident that there is a technological knowledge gap present within SMEs because of the lack of managerial expertise in this area, which ultimately has a negative impact on the success of the business.
Van Eeden et al. (2003) used a survey to investigate whether relationships exist between the identified problems, success and selected demographic variables among 1038 small businesses in the Nelson Mandela Bay, Cape Town and Gauteng metropoles in South Africa. The main problems experienced by their respondents were reported as macro-environmental factors (such as unemployment, crime and increased competition) and managerial factors, such as ineffective marketing, which negatively influenced the success of their SMEs.
Research about small- and medium-sized enterprise management competencies
In a study of micro-enterprises in the Netherlands, Lans et al. (2011) compiled a framework of entrepreneurial competence (provided in Appendix 1 – Table 1-A1) based on the work of Man et al. (2002). Their factor analyses suggest three distinct factors, namely analysing, pursuing and networking – in other words, on ‘getting ahead’, and competencies in the social domain, that is, ‘getting along’.
A study of SME owner-managers in Brazil’s metal mechanical sector by De Oliveira et al. (2015) confirmed that these SME owner-managers based their managerial style on both the process (planning, organisational, control and leading) and role approaches (interpersonal, informational and decisional) but concluded that these two approaches are reconcilable.
Mashavira et al. (2022) found that competencies that managers should possess include conceptual competencies, which are important for strategic planning; interpersonal competencies, which encompass people skills; and political competencies, which involve having the ability to value situations within or beyond one’s control. According to Manxhari et al. (2017), for effective business performance, managers should possess social competencies such as communication skills and influencing others, personal competencies such as listening skills and awareness of ethics and professional competencies encompassing problem-solving and strategic thinking.
Oosthuizen and Van Tonder (2010) surveyed their 55 MBA students from Milpark Business School, which included students who grew up and/or have resided in townships and/or disadvantaged communities and students who did not grow up and/or have resided in townships and/or underprivileged communities. The study classified competencies into clusters consisting of administration, finance, IT, legal, regulatory and taxes, marketing, operations and people skills. The study used a 4-point Likert scale to determine the importance of each cluster for SME success. The respondents indicated that people skills, administration and finance are the three most essential skills, followed by marketing, operations, IT and legal, regulations and taxes (in that order).
Oosthuizen and Van Tonder (2010) acknowledged that their study was exploratory and suggested that more comprehensive research regarding the competency of SME owners should be conducted, especially regarding the underlying dimensions of human capital affecting venture success in townships and disadvantaged communities.
Research about knowledge in small- and medium-sized enterprise management
Coyte et al. (2012) completed a case study of one firm in Australia and found knowledge development and utilisation (harvested) in aspects of the SME’s functioning, such as strategy, management, sales, marketing, new product development, financial management and people management, were governed by informal controls, confirming previous findings (Nunes et al., 2006). Although the results of this study cannot be generalised, it points to a tendency in SMEs to use a less formal way of managing SMEs compared to corporate firms.
Entrepreneurs in Ekurhuleni, South Africa, were found to have a limited understanding of basic financial concepts, implying low financial knowledge levels. The study by Changwesha and Mutezo (2023) also established that financial access was significantly challenging for most SMEs. The findings further revealed a positive relationship between financial literacy and financial access. Mashizha et al. (2019) found that financial literacy among SMEs in Zimbabwe is low, and hence, there is a need to introduce financial literacy education to small business owners. Chinomona (2013) conducted a study of SMEs in Zimbabwe and found that small business owners’ expertise positively influences both employees’ skills training and small business performance significantly.
Ćumurović and Hyll (2019) found that higher financial literacy is strongly and positively associated with being self-employed. Using instrumental variable techniques based on parental (especially maternal) education and early economic education, they provide evidence that financial literacy has a causal effect on the probability of self-employment rather than merely correlating with it. Because financial literacy can be acquired, these authors conclude that policies and education aimed at improving financial knowledge may foster higher levels of entrepreneurial activity.
Research about skills in small- and medium-sized enterprise management
Nunden et al. (2022) conducted a study to evaluate how effectively SMEs manage their capital budgeting activities and related planning processes. The research sought to determine the extent to which managerial competencies affect budgeting practices. The findings revealed that decision-making was primarily concentrated in the hands of business owners and managers, who often lacked adequate financial expertise and staff leadership abilities. The authors suggested that these individuals participate in short training programmes to enhance their financial management and computer literacy skills.
Fatima and Bilal (2020) used a three-wave, time-lagged survey approach to collect data from SME owners in Pakistan’s service and manufacturing sectors through cluster sampling to study the role of individual entrepreneurial orientation (IEO) as a precedent for SMEs’ performance in emerging economies. The study revealed that SME owners’ IEO was positively related to firm performance, with active social networking serving as a partial mediator in this relationship. In addition, the owners’ social competence moderated the connection between their IEO and the proactive establishment of social networks.
Mashavira et al. (2019) found that managerial interpersonal competencies and the financial performance (ROI) of family- and non-family-owned SMEs in Zimbabwe and South Africa are significantly positively related. In a survey of small businesses in the United States (US), Romero and Gray (2002) found that small business owners are most deficient in an array of skills required for growing and expanding their businesses, despite being most proficient in strategic, operational and financial skills required to manage their firms in existing markets. This demonstrates the difference between SME management in developed and developing countries.
Small- and medium-sized enterprises in Pretoria are constrained not only by financial factors but also by non-financial factors such as lack of education, inadequate technical skills, poor access to markets, lack of information and unreliable infrastructure (Van Scheers & Radipere, 2007). Their research confirmed a relationship between problems experienced by SME owners and managers and the managerial skills they possess. The research established that the lack of managerial skills harms the success and viability of small businesses. The managerial skills identified by the respondents (based on their estimated time spent on these activities) are pricing, performance appraisal, recording transactions, marketing, managing conflict, managing personal stress, bookkeeping, time management, problem-solving, motivating people and writing business plans. The study concluded that the challenge is to increase the pool of capable small business owners in South Africa. ‘Improving small business owners’ managerial skills is crucial, as small businesses are considered the panacea for South Africa’s unemployment problems and stagnating economy’ (Van Scheers & Radipere, 2007, p. 85).
Research about values in small- and medium-sized enterprise management
Schwartz (2012) distinguishes between anxiety-free values (such as self-transcendence and openness to change) and anxiety-based values (such as self-enhancement and conservation), as indicated in Figure 1.
A theoretical model of relations among motivational types of value.
Lukes and Feldmann (2024) studied the relationship between personal values and entrepreneurship to determine whether these remained stable across different economic conditions for solo self-employed people compared to those employing others using the data of 151 032 individuals who had participated in the European Social Survey. These authors found that self-direction and achievement as values are positively related to entrepreneurship, while benevolence and security are negatively related. Increases in unemployment reduced the strength of the positive relationships of self-direction and achievement. Still, they mitigated the negative relationship with security for the solo self-employed and not for those who had employees. Their results hold for both genders.
The study by Boohene (2010) in Ghana revealed that female owner-managers significantly gave greater importance than males to power, ambition, social recognition and aggressiveness. The research also found that male owner-managers in Ghana tended to place more emphasis on values such as innovation, personal growth, risk-taking, broad-mindedness, competence, bravery and creativity than their female counterparts. These outcomes support the notion that gender-based distinctions in value orientation may stem from entrenched social structures that shape the personal values of small business owners.
Oldham (2024) indicates that owner-managers of SMEs in England utilise three essential means – rational values embedding, affective values embedding and building values-aligned relationships – to actively embed their values within and throughout their organisations and key stakeholder relationships. In doing so, the research also identified several barriers, namely a lack of value awareness, resource hindrances and competing values that owner-managers face when embedding their values.
Research about attitudes in small- and medium-sized enterprise management
Taking the role of positive psychology into account, Gimmon and Zysberg (2024) surveyed 202 small business owners during the COVID-19 pandemic to assess their personality traits (openness to experiences, conscientiousness, extraversion, agreeableness and neuroticism) and emotional intelligence (EI) during a period of crisis. The results suggest that business owners’ personality traits, chief among them – EI may play a key role in enabling flexibility when dealing with a long-term crisis or threat.
In their study of 42 female-owned SMEs in South Africa, Mutero and Chummun (2022) identified the most important individual attitudes as ambitious goals, a need for achievement, risk-taking, vision and agility. ‘Individuals who have high levels of the personality traits Extraversion, Conscientiousness and Openness to experience are more likely to have successful small businesses’ (Farrington, 2012).
Research about attributes in small- and medium-sized enterprise management
Marconatto et al. (2022) observed that SMEs managed by well educated and more experienced male leaders tend to exhibit higher growth potential. Although the link between owners’ and managers’ (OMs) experience and SME growth remains significant across national contexts, country-specific factors influence the extent to which education and gender shape this relationship. The study further revealed that the beneficial effects of OMs’ human capital on business expansion become more pronounced in technology-oriented firms.
Elias et al. (2018) examined the influence of owner-manager demographic characteristics on the attainment of their competencies in Tanzania by surveying 392 small restaurant businesses from Ilala and Dodoma in Tanzania. Their results show that among the demographic characteristics of the owner-manager, formal education, family background and experience in doing business are the most essential attributes in explaining how competent an owner-manager is in their entrepreneurial, managerial and functional activities.
Research about business success
According to Irene (2017), there is:
[A] lack of agreement over what comprises the best measure for business success. Some researchers advocate the use of only financial indicators, such as profitability, turnover and return on investment (ROI) as measures of business success. Others, such as Ramana et al. (2009), posit that entrepreneurial success can be measured financially and non-financially. To this end, in their study of the influence of socio-demographic factors on entrepreneurship, they used growth in total sales and employment as financial measurements, while work experience and competencies were used as non-financial measurements. (pp. 3–4)
Kruger (2004) argues that an entrepreneurial venture is only successful if it is growing. However, growth has various connotations:
Growth can be defined in terms of revenue generation, value addition, and expansion in terms of the volume of the business. It can also be measured in the form of qualitative features like market position, quality of product, and goodwill of the customers. (p. 12)
According to Ahmad et al. (2011), the motivation for some SMEs does not include job provision but instead only the need to provide for the immediate family; therefore, business growth is not a vital factor for these entrepreneurs. Also, most SMEs do not have financial statements and accurate records; business success is consequently measured by self-reporting and perceptions (Ahmad et al., 2010). This view is also held by other researchers, such as Beaver and Jennings (2005), who argue in favour of using non-financial indicators in measuring business success because, according to them, contrary to popular belief and a great deal of economic theory, money and the pursuit of personal financial fortune are not as significant as the desire for personal involvement, responsibility and the independent quality and life-style which many small business owner-managers strive to achieve. Consequently, the attainment of these objectives becomes one of the principal criteria for success, as defined by the entrepreneur/owner-manager. While financial success affords business success and growth, non-financial indicators, such as achievement, accomplishments and attainment of personal goals and objectives, are factors to be considered, according to Walker and Brown (2004). They have proposed some relevant non-financial indicators such as job satisfaction, greater independence, opportunities creation, and the encouragement of new challenges and the pursuit of personal interest. These factors have also been previously identified as entrepreneurial motivational factors for women. (Irene, 2017, p. 4)
Letsoalo and Rankhumise (2023) studied the factors determining the success of SMEs in Windhoek, Namibia. They found that the level of skills and infrastructure, the period in business, human resource development, planning and organisation and strategic skills were significantly associated with the gender, educational level and skills levels of SMEs’ owner-managers.
Reijonen (2008) found that the motives and goals of micro-businesses in the arts and crafts industries in the rural tourism area of North Karelia, Eastern Finland were not oriented towards growth but towards quality of life, job satisfaction and satisfied clientele. From an economic perspective, making a reasonable living, as opposed to business growth, constituted their measure of success. Understandably, these respondents did not employ significant financial and operating leverage and, therefore, managed to be less concerned about the profit motive.
Masakale and Pooe (2022) examined the relationship between personal competencies, dynamic capabilities (absorptive capacity, adaptive capacity, strategic stance) and SME performance. Their study involved a survey using a purposive sample. They received 253 valid responses, which were examined through exploratory and confirmatory factor analyses, alongside structural equation modelling, to test causal relationships and draw inferences among the study constructs. The results indicated that personal entrepreneurial competencies had a positive and significant effect on SMEs’ absorptive capacity and strategic orientation but a negative effect on their adaptive capability. Moreover, the analysis showed significant positive relationships among the three dynamic capabilities and SMEs’ operational performance, reflecting their overall entrepreneurial success. The findings highlight the importance of entrepreneurs continuously reassessing their competencies – particularly adaptability, creativity and openness to new ideas. The study also emphasised leveraging employees’ skills, education and expertise to strengthen SMEs’ ability to respond to market shifts and technological advancements.
Entrepreneurial competence theory is a framework that circles around the notion that an entrepreneur’s skills, knowledge, abilities and mindset is of grave importance for owners to possess, and these competencies can be seen as key drivers to the performance of the business, which speaks to the notion of key management competencies required for business success (Schneider & Albornoz 2018). The concept of entrepreneurial competencies, its measurement and its relationship to SME performance and business success require further rigorous research and development (Mitchelmore & Rowley, 2010).
Furthermore, Mooney (2007) argues that a business owner also needs to adopt ways and possess competencies internally that make the entity stand out from the rest. This ultimately creates a competitive advantage where the business outperforms its competitors by applying skills and resources effectively in the market in which it operates. This is in line with the resource-based theory, which is a managerial framework that maintains that the internal resources of a business and competencies are related to each other in a way that has the potential to give rise to economic value and competitive advantage of the firm and the ultimate success thereof (Barney et al., 2021). Wuttaphan (2017) found that the human capital theory, which views human capital as an asset to the business that will be able to provide a positive outcome to the performance of the business, encompasses around development of humans in terms of training, education and experience, which grants them the opportunity to gain knowledge, skills and abilities in various ways. By owners and managers ensuring that they are upskilled, this will be beneficial to the economic value added and success of the business and the economy as a whole; without such competencies present, this would be detrimental to the firm. This study responds to this call for further research in this regard.
Conceptualisation of the study
The above literature demonstrates that none considered the relationship between SMEs’ financial performance and the competencies of SME owners and managers. This points to a research gap and the need for a study that addresses this research question. One explanation may be that SME owners and managers may be reluctant to disclose the financial performance of their firms. However, the use of structured questions with descriptive categories in a survey, ordinal data and the factor analysis has the potential to bridge this challenge. According to Chandler and Jansen (1992), ‘self-reported competencies are valid when measuring entrepreneurial competencies using a structured rating instrument (e.g. a survey) with good reliability’.
Research problem and purpose of the research
The research problem is to determine which managerial competencies are required for business success in the South African context. The purpose of the research was to determine the competencies of SME owners and managers and the association between these factors and the financial performance of their SMEs to help reduce the high failure rate of SMEs in South Africa.
Methodology
Respondents were sent an e-mail explaining the study, assuring them of confidentiality and providing details of the ethical clearance granted by the University of South Africa (UNISA). The survey was available for 3 weeks to give respondents adequate time to respond. Participants were provided a link to a LimeSurvey questionnaire. The questions related to competency dimensions and the financial performance of the SMEs required respondents to respond using a five-point Likert scale. However, three open-ended questions were also included in the questionnaire.
A random sample of formal SME businesses operating in Johannesburg, South Africa, was selected to participate in the survey. The SME business sampling frame was constructed from online business directories. A total of 120 responses were received from the SME’ owners and managers. The data were collected using a self-administrated web-based and computer-aided data collection method.
Factor analysis was used to determine the relationship between the various competencies and their SMEs’ financial performance (return on investment, ROI). Factor analysis is a statistical technique used to identify underlying relationships between variables in the dataset. It helps to reduce the dimensionality of the data by grouping related variables into factors (or components), which can then be used to explain the patterns in the data. Reliability testing was performed using Cronbach’s alpha (α). A BSDI was also determined. The BSDI is a comprehensive framework designed to quantify and analyse the factors or dimensions that contribute to the overall success of a business. This index helps organisations to identify strengths and weaknesses in their operational strategies and focuses on key drivers that impact performance. A principal component analysis with Varimax rotation was conducted to explore the underlying structure of 19 items related to SME success.
Ethical considerations
The research was approved by the Ethics Committee of the College of Economic and Management Sciences at the University of South Africa, with the study approval number 0316. Respondents were sent an e-mail explaining the study, assuring them of confidentiality and providing details of the ethical clearance granted by UNISA. Their participation was done with their informed consent, and they could withdraw if they so wished without any consequences. Participants were assured of their anonymity and safety. An electronic copy of the data collected will be stored by the researcher for a minimum period of 5 years on a password-protected computer and an external disc. After this period has lapsed, the data will be permanently deleted. The Unisa Bureau of Market Research (BMR) acted as gatekeeper and used a purposive sample of potential SME participants from Johannesburg, South Africa.
Results
The descriptive data are presented in Figure 2, Figure 3, Figure 4, Figure 5 and Table 1.
Questionnaires completed by owners, partners and managers.
Role in firm
n
%
Owner
42
35
Partner or co-owner
18
15
Manager
60
50
Employee
0
0
Total
120
100.00
The gender of the respondents.
Age distribution of respondents (years).
Years of experience distribution.
The highest academic qualification.
A control question about the person who completed the questionnaire was included. Initially, six respondents indicated they were not owners, co-owners or managers. These six responses were removed from the data set, and in a follow-up, six replacement questionnaires completed by owners and managers of SMEs were obtained.
The Cronbach’s alpha (α) results are displayed in Table 2. Cronbach’s alpha measures the internal consistency of a set of items that are intended to measure the same underlying construct or trait. These results show levels of internal consistency in the set of items used to measure the drivers of small and medium business success in Johannesburg. The exception is the alpha (below 0.7) for knowledge, which indicates an inconsistency in the items used to measure knowledge. This does not invalidate the construct because it does not assess validity or content similarity between items. At best, it indicates the items used for this measurement could have been more carefully selected to ensure they actually measure the same characteristic.
Cronbach’s alpha measuring the internal consistency.
Metrics
N of Items
Cronbach’s alpha (α)
Knowledge necessary for business success
3
0.54
Skills necessary for business success
5
0.83
Values necessary for business success
4
0.78
Experience necessary for business success
3
0.73
Attitudes necessary for business success
4
0.91
Looking at the overall scores for the five business success metrics, no statistically significant differences exist between each dimension. This is also evident from the BSDI, which summarises the research outcomes of the study in quantitative terms.
Based on the values indicated in Table 3 and the five factors suggested, the factors explain the BSDI as follows (Equation 1):
The BSDI quantifies and analyses the factors that contribute to the overall success of the SMEs involved in this study. Based on the responses of the owners and managers of SMEs in Johannesburg, this index confirms that the key drivers that impact SME performance are the combination of knowledge, skills, values, attitude and experience (as an attribute). The results yielded a success driver ratio (SDR) for each of the metrics of the study, and these are indicated in descending order in Figure 6.
Success driver ratio scores for business success metrics.
Additional insights were provided by the small business owners and managers through the three open-ended questions asked in the survey instrument. A thematic analysis was performed, which provides insights into the key drivers that constitutes business success, key drivers for successfully managing a business and the key competency drivers for successfully managing a business.
It was found that the key drivers for business success encompass around the financial health of the business, customer focus, employee satisfaction, strategic planning and execution, brand and market position, adaptability and innovation, community and industry reputation, marketing and customer acquisition, quality and product standards as well as access to capital.
The key drivers for successfully managing a business from these insights provided by the SME owners and managers were found to comprise around the business having a strong brand identity, quality product and service, operational efficiency, innovation and adaptation, customer relationships, supplier relationships, employee development, technology integration, sustainability and ethics and financial planning.
The insights provided by the SME owners and managers show that the key competencies required for successfully managing a business should circle around cash flow management skills, customer loyalty and satisfaction, strategic vision and planning, effective time management, employee development, networking and community engagement, adaptability and a strong leadership and company culture.
Interpretation
Each of the factors (drivers) identified in this study contributes to building a resilient, customer-focused and adaptable SME. Quality and integrity create a stable customer base and brand reputation, while continuous learning and industry-specific expertise keep the SME relevant. Customer-focused innovation ensures that offerings remain competitive, and a positive attitude bolsters internal cohesion and resilience. Altogether, these drivers form a sustainable business model that balances growth with stability, helping SMEs navigate challenges and capitalise on opportunities.
This blend not only enhances operational efficiency but also fosters a culture of continuous improvement and responsiveness to market demands. By prioritising these elements, SMEs can build resilience, maintain a competitive edge and achieve sustainable growth in an ever-evolving business landscape.
Conclusion
The current research problem was to determine which competencies are required for business success in the South African context. For this study, ROI was used to measure business success. Based on these competencies, the second problem was to determine the relationship between the managerial competencies of SME owners and managers and their firms’ self-reported ROI.
In addition to the literature review, the study used a survey among SME owners and managers to identify the competencies (knowledge, skills, values, attitudes and attributes) that positively influence their firms’ profitability (ROI).
The implications of the findings are discussed in the following order, namely firstly, considering the implications for practice; secondly, implications for teaching and thirdly, implications for research. The implication for practice is that SME owners and managers could improve their firms’ profitability by enhancing their competency (their combination of knowledge, skills, values, attitudes and experience). The implications for teaching are that training providers and business coaches must include more than management knowledge in their courses and devote time to values and skills such as strategic foresight (future consciousness), communication, decision-making and leadership skills. The values of serving others, integrity, self-enhancement and openness to change must also be featured. Persistence, long-term commitment and a positive attitude need to be inculcated among SME owners and managers.
Comparative research could be carried out on the same topic in different countries to establish whether any other factors influence the findings. The role of technological disruptors, such as the fourth and fifth industrial revolutions, may also be undertaken on the competencies required in the future.
The limitation of this study was that the respondents’ self-reporting was the source of all measurements of competency and business success. This approach was necessary given the difficulties in independently assessing each variable. However, self-reporting is common in studies examining management behaviours and business owner-managers.
Acknowledgements
This article is based on research originally conducted as part of Shenice B.S Kemp’s master’s thesis titled ‘Key management competencies for business success: insights from SME owners and managers’, submitted to the College of Economic and Management Sciences, University of South Africa in 2025. The thesis was supervised by Johan Marx. The thesis was reworked, revised, and adapted into a journal article for publication. The original thesis is currently unpublished.
Competing interests
The authors declare that they have no financial or personal relationships that may have inappropriately influenced them in writing this article.
CRediT authorship contribution
Shenice B.S. Kemp: Conceptualisation, Formal analysis, Funding acquisition, Methodology, Visualisation, Writing – original draft. Johan Marx: Conceptualisation, Project administration, Supervision, Writing – original draft, Visualisation, Writing – review & editing. All authors reviewed the article, contributed to the discussion of results, approved the final version for submission and publication and take responsibility for the integrity of its findings.
Data availability
The data that support the findings of this study are available from the corresponding author, Johan Marx, upon reasonable request.
Disclaimer
The views and opinions expressed in this article are those of the authors and are the product of professional research. They do not necessarily reflect the official policy or position of any affiliated institution, funder, agency or that of the publisher. The authors are responsible for this article’s results, findings and content.
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Competence domains, definitions, and underlying dimensions of entrepreneurial competence.
Competence domain
Definition
Underlying dimension
Opportunity competencies
Competencies relating to recognising and developing market opportunities through various means
Proactive searchingAlertness
Relationship competencies
Competencies relating to person-to-person or individual-to-group interactions
TeamworkSocial perceptionNegotiating
Conceptual competencies
Competencies relating to different conceptual abilities reflected in the behaviour of the entrepreneur
Diagnosing problemsAnalysisJudgement
Organising competencies
Competencies relating to the organisation of different internal, external, human, physical, financial and technological resources
Personnel managementPlanning and organisation
Strategic competencies
Competencies relating to setting, evaluating and implementing the strategies of the firm
Result orientationStrategic orientationVision
Commitment competencies
Competencies that drive the entrepreneur to move ahead with the business
Learning orientationSelf-management
Source: Man, T.W.Y., Lau, T., & Chan, K.F. (2002). The competitiveness of small and medium enterprises: A conceptualization with focus on entrepreneurial competences. Journal of Business Venturing, 17(2), 123–142. https://doi.org/10.1016/S0883-9026(00)00058-6 and Lans, T., Verstegen, J., & Mulder, M. (2011). Analysing, pursuing and networking: Towards a validated three-factor framework for entrepreneurial competence from a small firm perspective. International Small Business Journal, 29(6), 695–713. https://doi.org/10.1177/0266242610369737
How to cite this article: Kemp, S.B.S., & Marx, J. (2026). Competencies of small- and medium-sized enterprises’ owners and managers as drivers of the financial performance of small- and medium-sized enterprises in Johannesburg. South African Journal of Business Management, 57(1), a5348. https://doi.org/10.4102/sajbm.v57i1.a5348