Date and place of thesis defense:
27.08.2007, Faculty of Economics
mr. sc. Halil Gutošić
Prof.dr. Milenko Dostić
Quality management according to requirements of ISO 9000 series standard, as a business policy determinant for small and medium enterprises in Bosnia and Herzegovina
Business policy, or strategic decision-making as its contemporary form, represents a theoretical discipline as well as practical decision on strategic goals of small and medium enterprises, and manners of gearing towards realization thereof.
Determining one's proper market position, identifying key threats and opportunities from the environment, determining the position of competition, as well as assessment of the nature of the environment and researching environmental influences upon one's proper strategic position are the axioms of successful contemporary business policy management for SME's. The advantage of such a dynamic approach to managing "business policy" are reflected in constant review of existing enterprise position, elimination of potential threats, or turning potential threats into potential or real opportunities for the enterprise.
This is particularly important for SME's in Bosnia and Herzegovina, whose intensive development did not occur until the last decade. Major reason for this trend came from the need to restructure large enterprises into SME's and taking the needs of small business into consideration.
Private entrepreneurship, rapidly developing in all the former socialist countries, as well as in Bosnia and Herzegovina, influences the acceleration of this process, so that there already are cca 95 000 SME's currently existing in Bosnia and Herzegovina, arts and crafts included. Total number of employees in SME's represents circa 50 % of total number of all employees in Bosnia and Herzegovina, while gross domestic product of these enterprises represents roughly 45 % of gross domestic product of Bosnia and Herzegovina. This is still way below satisfactory in comparison with European Union wherein SME's make up for 99% of all the registered enterprises, employing 60 % of the workforce and participating in gross domestic product with a percentage higher than 60 %.
Causes for that are numerous, beginning with the fact that there is no unified definition of what a small or medium enterprise is at the level of Bosnia and Herzegovina, and ending with fact that the legal and economic legislation concerning SME's is not sufficiently clear. Namely, existing Law on Enterprises, Company Law and Law on Enterprise Registration are mainly harmonized with similar laws in developed countries but leave the possibility for different levels of government to interpret the laws in different manners and prescribe certain rules, as preconditions for starting up a business, from the aspect of pre-registration and post-registration activities, slowing the process down. Equally, the supporting laws concerning the business operation of SME's are often not applied in an appropriate manner. Thus, for example, tax return demands for extra tax paid on profit or by VAT, sometimes results in visits by tax inspectors whose task is for not returning the extra tax or VAT paid.
The Reform of banking sector in Bosnia and Herzegovina, often cited as an example of a successful reform for many a transition country, has not had a great benefit for SME's. The interest rates are still exceedingly and unjustly high while the conditions for obtaining a credit are very strict. The difference between the interest rates granted by banks to SME's upon deposits and credits approved tend to be as high as up to ten percent, to the benefit of the banks. Issuing warrants of bid or good performance can cost SME's up to 2 % and the amount of mortgage for approved credit is usually twice as big as the credit amount approved. Bylaws regulating insurance of collaterals, bankruptcy or forcible collection are not adapted to the needs of SME's yet.
Data outlined above clearly point to the fact that SME's in Bosnia and Herzegovina are still left to themselves and that they do not enjoy sufficient support of state, entity, cantonal of municipal administrations. Concrete programs of support for development and growth of SME's in Bosnia and Herzegovina boil down to certain tax relief, in the early years immediately upon establishment, possibility to reinvest from profit, relatively simplified procedure of establishment, as well as certain support by international organizations in financing consulting services needed for development and growth of SME's. Exceptions are the SME's from ZE-DO Canton area, whose expenses of introducing quality control systems, environmental control systems, HAACP principles and systems for managing health and safety protection of employees are subsidized by cantonal government.
However, it is to be expected that the acceptance of European Charter on Small Enterprises, whose provisions were accepted by representatives of Bosnia and Herzegovina at European Union summit held in Thessalonica in 2003 will significantly improve the ambiance for business of SME's in near future. By accepting the Charter, Bosnia and Herzegovina pledged to the reforms relevant for development of SME's in ten of the following areas:
Realization of the said recommendations will influence directly creation of a more favorable ambiance for growth and development of SME's in Bosnia and Herzegovina and contribute to strengthening of their competitiveness.
- Implementing education and training for entrepreneurship,
- Creating conditions for cheaper and quicker start-up of small enterprises,
- Improving legislation and regulations concerning business of SME's,
- Providing a sufficient number of educated staff for the needs of SME's,
- Improving access to the internet,
- Better use of unified market,
- A more flexible approach to taxation and financial issues of SME's,
- Reinforcing technological capacities of SME's from the aspect of establishing quality control management system and CE rating,
- Using successful business models of electronic business for developing support for small business,
- Development, reinforcement and more efficient presentation of SME's at the level of EU and at the national level.
This concerns in particular the intensifying of the process of establishing and implementing quality management systems, harmonized with demands of international standards of ISO 9000 series, upon recommendation given in eighth chapter of the Charter and one of the most important preconditions for a more successful entrance to the market of Bosnia and Herzegovina and European Union, since the innovation, efficiency and quality as well as full understanding and sensibility for customer's demands are building blocks of competitiveness, "founded" upon quality management.
The most important question arising thereof is whether quality management brings benefit to enterprises? That was one of the basic reasons for us to decide to explore the impact of introducing and implementing quality management systems, harmonized with demands of ISO 9000 series, upon business success and business policy of 100 SME's in Bosnia and Herzegovina.
The results we reached in our research have confirmed that the quality management systems, once established, not only guarantee supply of quality products and services matching demands and needs of customers, but in a way also "annul" the incompetence of management, lack of managerial experience and insufficient knowledge of an enterprise's manager on management, which are the most common causes for failure of SME's.
Established quality management systems, harmonized with demands of EN ISO 9001:2000. standard, have resolved the most important organizational problems, reinforced market position and improved business output, by improving business organization in 47 % of the surveyed enterprises, more precise definition of authorization and responsibility was reached in 70 % of surveyed enterprises, improved company image was profited from by 37 % of the enterprises surveyed, costs associated with low quality were diminished in 90 % of the enterprises surveyed, cost-effectiveness of business was raised in 13 % of the enterprises surveyed, product quality improved in 10 % of the enterprises surveyed and so forth.
And our own model for evaluation of market position of the enterprise from the aspect of customers' pleasure, before and after the introduction of quality management system according to demands of ISO 900 series standards, as presented in this work and expressed with formula;
MP=[ NSC+NSCx(4x0,30)] - [NUC + NUC x(15x0,30)],
Wherein MP marks market position of an enterprise, NSC number of satisfied customers, NUC number of unsatisfied customers, shows upon a hypothetical example to the concrete financial effects of introduction of quality management system and the need to take quality management into account on the occasion of defining business policy as an act of creative decision-making on fundamental goals, choice of appropriate strategy and structures for directing the business towards achieving these goals, and defining rules of behavior within the enterprise as well as towards the environment.
Application of a second model presented in this work, for calculation of the impact of the non-quality of products supplied, upon future business success and future business results of SME's, expressed in the formula;
P= (TR-TE)+(number of unsatisfied customersx15x030xaverage amount per customer x percentage of profit per single customer),
Wherein P stands for profit, TR - total revenue and TE - total expenditure, also tested on a hypothetical example, points out that quality management is one of the most important prerequisites of business success and business results of SME's in Bosnia and Herzegovina.