ble of Contents
A Generic Tool Based on System Dynamics A pproach To
Assess SME Business Stability And Help Designing Business
Tactics And Action Plans Within Transient, Non-Stationary
Conditions
Mohamed I. Haroon
MBA student, Maastricht School of Management (MSM), Cairo outreach program
hosted by Regional Information Technology Institute (RITI)
Product specialist CT/MR. BAHGAT Group, International Electronics, Biomedical
Division. Sole distributor for SIEMENS Medical Systems
6 El-Marwa street, Dokki, Guiza, Egypt
Tel: +2 012 323 47 43, +2 02 749 30 69. Fax: +2 02 749 20 87
haroon@ intemel t.com
Khaled Wahba
Assistant Professor, Systems and Biomedical Engineering Department
Faculty of Engineering, Cairo University
Tel: +2 02 737 6006, Fax: +2 02 739 1380
Khaled.wahba@riti.org
ABSTRACT
SMEs play an important role in developing countries economy leveraging. The SMEs
are subjected to non-stationary conditions affecting business stability. These conditions
arise due to economic environment transition or during business start-up phase. The
problem is that business-monitoring tools such as the balanced scorecards are long
term oriented and strategically focused. The SMEs’ response in the short term during
non-stationary conditions may cause serious damaging results or even lead to total
business collapse. The objective is to develop a tool to monitor the SMEs’ business
short-term transient response to non-stationary conditions. Also to help developing
business tactics and action plans. The chosen platform is a system dynamics model to
provide simulation ability under different scenarios. The model is formulated in a
generic way with the ability to define business attributes through set of model variables.
The model is built using five basic sub-models: financial, human resources, operational,
risk and environmental.
Keywords: SME, Business health/stability, causal loop, nonstationary, developing
countries, start-up, variable.
OVERVIEW
In the developing countries, large scale business firms holding large scale projects are
the ones having the most apparent and announced stories of economic development
scenario. However, undemeath lies the beehive full of actual business movers, the small
traders, manufacturers, service providers and the blue-collar crew, the SMEs. Taking
Egypt as an example, most Egyptians work for mini-firms that are invisible to the
grand-scale planners and bankers and stockbrokers: 99.7% of Egypt's non-agricultural
private enterprises have fewer than 50 employees, most have fewer than ten and many
fewer than four [The Economist print edition, Mar 18th 1999].
These medium-to-small-to-minuscule firms provide 80% of the value added by the
private sector, and employ 75% of the nomagricultural private labor force—not
including the uncounted hundreds of thousands of moonlighters from virtual jobs in the
public sector. Of the 550,000 new jobs that the country hopes to create each year until
2017, according to a goverment document, “Egypt in the 21st Century”, the tiddlers
are supposed to come up with 325,000 [The Economist print edition, Mar 18th 1999].
Most of Egypt's bankers cannot be bothered with micro businesses wanting micro
loans. They fear default, and demand to see things like feasibility studies or business
plans which the credit-seekers, possibly illiterate, have little chance of providing. Some
95% of small enterprises do not even have a bank account. So, an Egyptian wanting to
start or enlarge a small factory or a carwashing company or a fish-peddling business
will almost certainly borrow from a moneylender, or get credit from his supplier. Often
paying interest of up to 5 - 7 times the nominal interest [The Economist print edition,
Mar 18th 1999].
Another fact to add is that many of the SMEs entrepreneurs lack knowledge regarding
business navigation, governmental attitudes, foreign trade directions and the most
critical factors and exchange rate forecasting. Moreover, the extemal environment
directly affects the SMEs through factors such as exchange rate, import/export barriers,
taxation ... etc.
The above factors cause the SMEs to pass through a transient, non-stationary phase.
This is most likely to happen during the business start-up phase or during an economic
turbulence and transition, which are frequently anticipated in developing countries.
Taking Egypt as an example in 2001 - 2002, the currency exchange rate variations
caused a lot of business turbulence for many SMEs. Some of them had even to shut
down. A reason for this problem is that the current nominal exchange rate doesn’t
represent (and being less than) the actual real effective exchange rate, which is a
function of many variables such as economy competitiveness, trade balance,
import/export regulations, ... etc. To get out of the loop, government tries to narrow the
gap between the nominal and the real effective exchange rates by decreasing the
nominal exchange rate and imposing new economic and intemational trade regulations.
The problem might be as limited as a conventional crawling peg strategy for the
economy to reach the real effective exchange rate. However, the real trick is that the
span of exchange rate fixation and the amount of depreciation at the end of such periods
are totally unknown/unannounced.
The missing WHAT-IF approach arises a lot of surprises that might cause the whole
business to collapse, if the enterprise is not business wise prepared.
The above briefly mentioned factors calls for a tool to assess business
stability/resilience in such environment to help SMEs determining the most convenient
track to follow in different probable scenarios.
PROBLEM DEFINITION
To develop a common platform, first business health/stability convention has to be built
and used throughout this text. The business health/stability from the perspective of the
paper is defined as how well the business is performing from the following aspects: 1)
financial aspect represented by liquidity and profitability. 2) Human Resources (HR)
aspect represented by staff productivity. 3) Operational aspect represented by the ability
to deliver commitments. 4) Risk associated with the business. 5) Environmental aspect
represented by the effect of economic environmental measures such as Rate OF
Exchange (ROE).
As a strategic tool, the balanced scorecard concept monitors and controls the health of
the business. However, it gives more attention to the steady state, on the long tem. An
under-valued aspect is the transitional short-term phase, either at start up or during
economic transitions.
OBJECTIVE
The objective of this paper is to develop a tool to facilitate the determination of the
stability/survival of the SME within non-stationary conditions such as economic
environmental transitions or in the start up phase when the SME is more sensitive to
such factors. This tool should be able to monitor closely the health of the SMEs
business in the short term. It can be used on the tactical level to help prepare action
plans.
The chosen platform is system dynamics model to provide the needed insight to the
SME’s functional elements interaction, the most likely outcomes within different
probable scenarios as well as the control variables and using them to design efficient
tactics.
CONCEPTUAL FRAMEWORK
The framework emphasizes the cause-effect relationships among factors affecting the
SME health/stability. These relationships are formulated in a common generic way to be
applied for different SMEs.
The mental model is based upon Five basic sub-models, namely: Financial, Human
Resources, Operational, Risk and Environmental. Each of them is described in details in
later sections.
KEY VARIABLES
Stability : A measure of business local relative health/stability.
© Profit : Measured by EBIT (Eamings Before Interest and Taxes)/Net
Sales.
* Liquidity : Measured by Net Cash Flow From Operating Activity.
* Delivery : The SME ability to deliver the contracted commitments.
* Current Status : The current health of the business in terms of profitability,
liquidity, ... etc. In the start up phase it can be thought of as the
initial investment. This variable acts as an initial status or
inertia for the model.
¢ Staff productivity :Measured as output value per unit currency of staff expenses.
¢ Risk :The risk associated with SME business.
¢ Economic stability :The stability of the economic environment within which the
SME is running (ROE, import barriers, ... ).
OVERALL SYSTEM ARCHITECTURE
The system consists of three major layers. The input layer represents the immediate
inputs to stability.
The core layer, which is the business stability, consists of a number of characteristics
that describe the system behavior. However, as stability in the context of this paper is
defined as the local relative stability, the matrix of behavior characteristics evaluates to
arelative local stability comparative score.
The output layer represents the immediate effects of business stability.
Current Status
Capacity
Risk Productivity
es SM Staff
Liabilities & Development
Receivables een rf
ivi O Staff ivati
Productivity , °F aMhenk Liquidity Motivation
&
Motivation
Revenues
&
Expenses
Economic
Environment ey
Stability Profi
Fig. 1: Overall system architecture
THE INPUT LAYER
The proposed main determinants of short-term stability (first order input layer) are
Liquidity, Profit, Staff productivity (Sales and marketing “SM”, Operational “O”), Risk
and Current status.
The liquidiy provides the SME with the daily fuel to continue operating. Profitability
represents the SME’s success, investment attractiveness and healthy existence. Staff
productivity is very important factor on three different levels. First, on the sales and
marketing level, the productivity affects the SME stability supplying it with profitable
opportunities. Second, on the operational level, the productivity affects the stability
through the delivery ability and capacity to take available opportunity. Third, on he
support level (logistics, legal, funding, ...) which affects the facilitation of other aspects
activities. However, the support structure staff is out of the scope of this paper to avoid
SME restructuring approach. Risk greatly affects the SME stability especially in non-
stationary conditions. It represents a major threat that the SME can collapse in certain
scenarios if not ready such as considerable devaluation of local currency, introduction
of new trade barriers, ... etc. The current status variables play a shock absorption role, or
represent the inertia of the SME. It is a damping factor that smoothes out high
frequency transitions among different stability levels.
THE OUTPUT LAYER
The proposed main outcomes of short-term stability (first order output layer) are
Revenues, Delivery, Staff (Sales and marketing “SM”, Operational “O” development
and motivation.
The impact of the SME stability feeds back positively to revenues through ability to
finance more sales. It also enhances the staff building process (sales/marketing and
operation) via hiring more staff, motivating the current staff and continually improving
their capabilities via training and developing programs. Another important effect is on
the delivery capabilities of the SME. The more stable the SME, the more it can deliver
the committed projects and continue the business cycle.
CAUSAL LOOP DIAGRAM
This section describes the behavior of each sub-model as a stand-alone block. Next, the
interactive behavior of the sub-models is described. First, the system variables are
defined.
ENDOGENOUS VARIABLES
«Stability : SME business health/stability (%).
¢ Revenues : Annual SME revenues (unit currency/time: LE/year).
¢Cash Sales : Rate of revenues that is collected in short term (unit
currency/time: LE/month).
Credit Sales : Rate of revenues that is collected in long term (unit
currency/time: LE/month).
«Avg. cash collection period : Average collection period for cash sales (time:
month).
«Avg. credit collection period : Average collection period for credit sales (time:
month).
«Expenses : Rate of SME expenses (unit currency/time:
LE/month).
«Profit
* Liquidity
Delivery
SM Staff number
«SM Staff performance
SM Staff productivity
Secured sales
Market opportunities
O Staff number
°O Staff performance
*O Staff productivity
Capacity
COGS
*ROE
Risk
EXOGENOUS VARIABLES
«Maximum assets capacity
Local business
Local liability accrual period
: Business profitability. It is measured by EBIT
(Earning Before Interest and Tax) From Operating
activities/Net Sales (%).
: Business liquidity (unit currency: LE). It is measured
by Net Cash Flow From Operating Activity.
The SME ability to deliver the contracted
products/services (%).
: Number of sales and marketing employees (Person).
: A measurement of how satisfactory the sales and
marketing staff performance is (%).
: How productive are the sales and marketing staff.
This variable is a modified blend of the company
efficiency ratios using personnel as the input factor
(sales per employee, profit per employee). Instead of
measuring the sales and profit per employee, they are
measured per unit currency of staff expenses (%).
: The pool of available secured sales for the SME. This
variable can be considered as potential revenues. It is
an outcome of market opportunities, sales and
marketing activities (unit currency/time: LE/month).
: The average available market opportunities for the
SME business strategic segment (unit currency/time:
LE/month).
: Number of operational employees (Person).
: A measurement of how satisfactory the operational
staff performance is (%).
: How productive are the operational staff. It is
measured as output value measured per unit currency
of operational staff expenses (%).
: The overall SME delivery capacity. This is measured
by the output value can be produced per time (unit
currency/time: LE/month).
: Equivalent cost of goods sold in local currency. (unit
currency : LE)
: The rate of exchange from foreign to local currency.
(%)
: The risk associated with SME business. (%)
: The maximum output value that can be produced
using SME assets. This is measured by the maximum
output value that can be produced per time (unit
currency/time: LE/month).
: The average rate of local currency liabilities. (Unit
currency/time: LE /month).
: The period over which local liabilities have to be
settled (time: month).
«Import business
: The average rate of foreign currency liabilities. (Unit
currency/time: USD /month).
«Import liability accrual period: The period over which import liabilities have to be
«Inventory level differential
«Inventory tumover period
«Economic stability
Current Status
AUXILIARY VARIABLES
On time complete delivery
*Credit Period
Receivables
«Internal expenses
Other expenses
°SM Staff Development
*SM Staff Motivation
*Quality of SM staff
SM Staff expenses
° #Projects
Project conditions
*O Staff Development
settled (time: month).
: The average rate of inventory value change. (Unit
currency/time: LE/month).
: The average inventory tum over period. (time :
month).
: The stability of the economy within which the SME is
running. This affects many important factors relevant
to SME business such as rate of exchange, import
barriers and regulations, ...etc. This variable is
measured as percentage stability of completely
determined environment (%).
: The current shape of the business in terms of
profitability, liquidity, ...etc. In the start up phase it
can be thought of as the initial investment. This
variable acts as an initial value or inertia for the
model (%).
: The ability to deliver projects on time completely
(%).
: The average period of delayed accrued receivables
(time: month).
: Value of SME receivables (unit currency: LE).
: Direct rate of expenses spent by the SME or business
unit (LE/month).
: Indirect rate of expenses spent by the SME or
business unit,
(LE/month).
such as depreciation, ... etc.
: The rate of sales and marketing staff development
expenditure (unit currency/time: LE/month).
: The equivalent sales and marketing staff motivation
expenditure. It is calculated as monetary equivalent
for psychological/financial © motivation — (unit
currency/time: LE/month).
: The quality of hired sales and marketing staff (%).
: Total sales and marketing staff expenses.
: Number of projects carried out by the SME (Project).
: The average project conditions in terms of needed
output, delivery time, etc. This cm he
approximated by rate of output value delivery (unit
currency/time/project: LE/month/project).
: The rate of operational staff development expenditure
(unit currency/time: LE/month).
°O Staff Motivation : The equivalent operational staff motivation
expenditure. It is calculated as monetary equivalent
for psychological/financial motivation —(unit
currency/time: LE/month).
Quality of O staff : The quality of hired operational staff (%).
O Staff expenses : Total operational staff expenses.
EXCLUDED VARIABLES (LIMITATIONS AND ASSUMPTIONS)
¢Management and Support =: General SME structure is not subjected to major
changes in the short term or start-up phase.
Capital structure : It is not in the scope of this paper, however, the
results obtained from this model must be integrated
with further information for long term planning.
Technical environment : Assumed to be constant over the short-term tactical
plans.
FINANCIAL LOOP
Stability
‘SM Staff expenses
O staff expenses
Profit
Other expenses
Internal Expe)
4
Import Liability Accrual Pertod—
Credit +
balancit
Expenses
Import business
Local business
+\+
ROE + Ri
evenues
‘+~—
Ligiiy,—~#C06 ;
K+ cosh Sale
+
Secured a
+Inventory Tum Over Peri
Average Credit Collection
Fig. 2: The financial loop
The variables of interest are profit and liquidity. Profit is the simple subtraction of
revenues - COGS - operating expenses. Revenues can come either from cash sales or
credit sales. COGS are either local liabilities or import liabilities. The import liabilities
are transformed into equivalent local liabilities through multiplication by Rate Of
Exchange (ROE). Expenses consist of staff expenses (sales/marketing and operation, to
focus within the paper scope, support staff expenses are included in the “other”
expenses), intemal expenses and other expenses.
Liquidity is more complex to calculate and also more crucial to business health in the
tactical and operational levels. It is considered as the difference between the cash supply
into the SME (inflow generated by revenues) and the out drain from that cash pool
(outflow liabilities and expenses). The main driving forces are cash sales, credit sales,
COGS, expenses and inventory level differential. The main controlling valves are
average cash collection period, average credit collection period, bcal liabilities accrual
period, import liabilities accrual period and inventory turn over period.
There exist two feedback loops. One balancing negative loop “Credit Balancing”
where a stability increase leads to increased ability for financing credit sales, this
reducing the liquidity and subsequently decreases the stability in a balancing effect.
The Other loop is the positive feedback loop “Profit Re-enforcing” where a stability
increases leads to increased ability for financing credit sales which in tum increases
revenues. This revenues increase also increases the profits and finally further increases
the stability in a re-enforcing effect.
HR: SALES AND MARKETING (SM) LOOP
Stabili
Revenue +
| productivity
SM Staff number
+ SM Staff developme!
SM Staff Productivity
Profit) sm
Expense}
+ . —
Revenues Expenses
+ +
SM Revent
Credit Sales | + (+)
Cash Sales
Fig. 3: HR sales and marketing loop
&
SM Staff exper
The effective output variables of ths module is the SM staff productivity, as the
productivity increases, the stability increases. The productivity is a measure of sales and
marketing staff expenditure leverage. It is the ratio of achieved revenues and profits to
the total SM staff expenses. The SM staff expenses include hiring more persons,
motivating and developing the hired staff. The caliper of the hired staff also has positive
relation with expenses. All the mentioned factors have positive relation with expenses
and with staff performance. The increases staff performance leads to more secured sales
and revenues ultimately at higher profits. However, the SM staff expense reduces the
profits. Staff motivation has financial and non-financial (Psychological) components.
However, both are calculated as equivalent total motivation. The feedback from stability
has positive relation to motivation, development, and number of hired persons and from
revenues point of views it has positive relation to credit sales, which in tum increases
revenues.
There are 3 major feedback loops. First a positive feedback loop “Revenue
productivity” through stability to revenues and profits, SM staff productivity and
positive to stability again.
Another positive feedback loop “SM revenue” is through stability which positively
affects the SM staff development, motivation and number (all of them are considered
similar loops) then positively affecting the secured sales, revenues and profit, staff
productivity and finally stability positive feedback.
The balancing negative feedback loop “SM expenses” is generated through SM staff
expenses. Starting from stability, which positively affects the SM staff development,
motivation and number (all of them are considered similar loops); those variables have
positive effect on staff expenses, which in tum negatively affecting the SM staff
productivity, which has positive effect on stability.
HR: OPERATIONAL LOOP
Collapse
L- spiral
O expense
+ ‘3 Credit period
On time
complete ,
delivery O productivit 4 Quality of O st
oO \
+ ++ O Staff expenses
. at
Delivery
a.
Capital / Assets maximum capad
Fig. 4: HR operational loop
The effective output variables of this module is the O staff productivity, as the
productivity increases, the stability increases. The productivity is a measure of
operational staff expenditure leverage. It is the ratio of achieved output capacity to the
total O staff expenses. The O staff productivity, O staff expenses, Caliper of the hired
staff, motivation and development are similar in nature and effect to those in SM loop.
The feedback from stability - as in SM loop- has positive relation to motivation,
development, and number of hired persons. In addition, from delivery point of view, it
has positive relation to ability to deliver commitments, which in tum reduces risk.
There are 3 major feedback loops. First a positive feedback loop “Collapse spiral”
through stability to delivery, on time complete delivery, negative to credit period which
positively feeds to risk and finally risk negatively feeds to stability.
Another positive feedback loop “O productivity” -Which is similar to “SM revenue” in
the SM loop- is through stability which positively affects the O staff development,
motivation and number (all of them are considered similar loops) then positively
affecting the capacity, staff productivity and finally stability positive feedback.
The balancing negative feedback loop “O expenses” -Which is similar to “SM
expenses” in the SM loop- is generated through O staff expenses. Starting from stability
which positively affects the O staff development, motivation and number (all of them
are considered similar loops); those variables have positive effect on staff expenses,
which in tum negatively affecting the O staff productivity, which has positive effect on
stability.
OPERATIONS LOOP
On Time Complete Delivery
m Project conditions
Local Liability Accrual Period projects
Import Liability Accrual Period =P
a
Credit Period
Import business SC Ne ——— eg.
Stability
ROE =
Fig. 5: Operations loop
The operational sub-model represents the most important block in the first order output
layer. The inability to deliver commitments can seriously lead to fast death spiral in the
short term. The variables affecting the ability to deliver (delivery) are influenced by the
economic conditions, capacity and the supply chain conditions. The economic
environmental status affects the delivery via the amount of import business relative to
the total business and through the rate of exchange from foreign import currency to
local currency (ROE). The impact of capacity is shown via the capacity positive effect,
where as number of projects and project conditions both have negative effect.
The supply chain conditions is modeled simply as suppliers conditions in financial
terms. The more available grace period from both local and foreign supplier, the more
ability to deliver because of the decreased needed short term resources (basically cash).
The major feedback loop “Collapse spiral” is a positive feedback through stability to
delivery then on time complete delivery, which negatively affects the credit period. The
credit period has positive effect on risk, which in tum negatively affects stability.
The most dangerous scenario could happen is the collapse fast spiral when the SME
gets into less deliver-ability situations, which causes on time complete delivery to
decrease. Then credit period and risk increase leading to a decrease in stability, which
further decreases the deliver-ability and the spiral continues till collapse.
RISK LOOP
Stability
Import Liability Accrual Period
Import business
+
Credit Period +
a
RISK
fi ul Average Cash Collection Period
Receivables
+ + — Average Credit Collection Period
Inventory Level Diffemetial Credit risk
Inventory Tum Over Period
Credit Sales
Fig. 6: Risk loop
Risk is influenced by three major factors: receivables, economic environment and
inventory. Receivables are represented via the revenues (cash and credit) collection
periods, the amount of outstanding receivables and credit period resulting from
incomplete delivery. The economic environment associated risk is linked through the
fraction import business, rate of exchange (ROE) and the time (import liability accrual
period). Although it is desirable to have longer supplier grace periods from delivery
point of view, it increases the risk associated with import business and ROE. The
inventory effect on two ways. First, the inventory level differential: the positive effect
of inventory rate of increase. Also the inventory tum over period has positive effect on
risk due to risk of slow moving, expired items, ... etc.
The balancing loop “Credit risk’ exists from positive relation between stability and
credit sales, which has positive effect to receivables. The receivables have positive
effect on risk, which finally affects stability in a negative way.
CONCEPTUAL MODEL FOR THE ECONOMIC ENVIRONMENT
Average Cash Collection Perioh fit
ROE
Average Credit Collection Petiod. ‘
+ Cash Sales
Economic Enviromental Stability
+
a
Secured Sales
Credit Sales
Market opportunities +
Fig. 7: The economic environment conceptual model
The economic environment stability acts as an exogenous factor affecting the model in
various aspects. From the import business aspect, the economic stability negatively
affects the rate of exchange, import barriers (However, the GATT makesel the import
bariers effect negligible). It has a positive effect on market in terms of market
opportunities, profit and cash sales. It has negative market effect in terms of credit sales
and collection periods (cash and credit).
SUB-MODELS INTERACTION
The previous section describes the autonomous behavior of different building sub-
models. However, interaction between those sub-models generates more sophisticated
behavior shown in the following loops.
BALANCED CREDIT GENERATED RISK LOOP
— Stability
RISK a RN
Credit Sales
of
4p
— Revenues
Credit Period
On Time Complete Delivery
"
i ae Delivery
Fig. 8: Balanced credit generated risk loop
Stability positively affects credit sales, revenues and number of projects. Number of
projects has negative effect on delivery, which transfers to the on time complete
delivery. The on time complete delivery negatively affects the credit period which
positively affecting risk. Finally risk negatively balances the stability.
BALANCED SALES - CAPACITY LOOP
This loop represents the balancing sales/capacity effect.
—— RISK —_,
Credit Period + - ore,
Stability
On Time Complete Delivery
+
Delivery
‘SM Motivation
SMStaft mumber SM Staff development
#projects oe
‘ +
Revenues n + | SM Staff performance
+
+
CashSades ~pi+t
s Secured Sales
Credit Sales +
Fig. 9: Balanced sales-capacity loop
Stability positively affects SM factors (development, motivation and number), this
positively affects secured sales, revenues and # projects. The # projects negatively
affects the delivery and which is again negatively affecting the risk (through on time
complete delivery and credit period). Finally the risk negatively balances the stability.
CAPACITY GENERATED RISK (CAPACITY FALLING SPIRAL)
This loop represents the falling capacity spiral. The danger of this loop is on the
destructive effect once the capacity falls, it goes into a positive feedback spiral that can
lead to business collapse.
Delivery—q—___
+ aw
+
On Time Complete Delivery
{ 2 C+) Sy (e) ea performance
Credit Period O Staff nme } ~
rr
cA Staff a}
RISK ce O Motivation
—+ Stability + >
Fig. 10: Capacity generated risk loop (Capacity falling spiral)
Stability positively affects O factors (development, motivation and number); this
positively affects capacity, delivery and on time complete delivery. This leads to
negative effect on the risk (through on time complete delivery and credit period).
Finally the risk negatively the stability continuing the positive feedback loop.
The complete causal lo op can be seen in Appendix A.
MODEL CUSTOMIZATION
As seen throughout the text, the model is formulated in a generic form. However, it can
be customized to match the specification of different SMEs with different business
activities through the following variables: Local business, import business, local
liabilities accrual period, import liabilities accrual period, secured sales, cash sales,
credit sales, average cash collection period, average credit collection period, expenses
(SM staff, O staff, intemal, other).
MODEL Validation
The suggested model validation procedure consists of two steps: First, customization, in
which the model customization parameters are set to fixed values which describe
specific business or business class. Second validation at the level of customized
business or business class.
CONCLUSION
From the analysis as well as the empirical observations during an economic transition
(also in the start-up phase) in developing countries, it is evident that SMEs’ short-term
transient business response is as serious as the long-term strategic behavior. Providing
some probable scenario, the developed tool can help assisting the business stability
throughout different scenarios. It also can help in developing tactics and action plans for
the SME to be businesswise prepared for such transitions.
REFERENCES
Brigham, Eugene F. and Houston, Joel F. 2001. Fundamentals of financial management.
9" ed. Harcourt.
Byras, Lloyd L. and Rue, Leslie W. 2000. Human Resource Management. 6" ed. Inwin
McGraw-Hill.
Campbell, David J. 1997. Organizations and the business environment. Butterworth-
Heinemann.
CIA 2001. The World Fact book: Country Listing. Central Intelligence Agency; U.S.A.
http://www.odci.gov.
Forrester. Jay W. 1990. Principles of systems. Pegasus.
Fu, Caroline, 2001. System dynamics insight for balancing in a corporate storm. 1g"
International Conference of the System Dynamics Society, 23-27 July 2001. Atlanta,
Georgia USA.
Horngren, Charles T. and Sundem, Gary L. and Stratton, William O. 1999. Management
Accounting. 11" ed. Prentice Hall.
Husted, Steven and Melvin Micheal . 2001. Intemational Economics. 5 ed. Addison
Wesley Longman.
Meigs, Robert F. and Williams, Jan R. and Hakka, Susan F. and Betner, Mark S. 1999.
Accounting, basis for business decisions, International edition. 11" ed. Inwin McGraw-
Hill.
Quinn, Virginia Nichols, 1995. Applying Psychology. 3“ ed. McGraw-Hill.
Ritchie-Dunham, James L. 2001. Informing mental models for strategic decision
making with ERPs and the balanced scorecard: A simulation based experiment. 19"
International Conference of the System Dynamics Society, 23-27 July 2001. Atlanta,
Georgia USA.
Samulson, Paul A. and Norhaus, William D. 1998. Economics, Intemationd edition.
16" ed. Inwin McGraw-Hill.
Sterman, John D. 2000. Business dynamics - Systems, Thinking and modeling for a
complex world. Inwin McGraw-Hill.
The Economist print edition (Mar 18th 1999). Survey: Egypt.
O Staff development
APPENDIX A 0 Motivation q
The whole Causal Loop without + OGually of se F O'Star iies
Economic model ( Q Staff number \ -
0 Staff performance
+
0 Slaff Productivity
Maximum Assets Capacity a
+ +
‘4. #projects
Curd
: + Project conditions
Local Liability Accrual Perio / Hott Productivity
Arfport Liability Accrual Perio
—
Credit Period / + ¢ hie 2
Stability
Delivery
Import business ~ / + s a
E
Capacity
On Time Complete Delivery re
+
Local sins Expenseg Common expenses share
SM Staff number
+ SM Staff development,
| Intemal Expenses
a5
Receivables -
(Staff expenses 4
*SM Motivation
+ +
L ‘6
— . *
4 { Infestory Level Ditipfontial Liquidity. raantga 2 . Quality of SMstaff +)
. en
Inventgry Turn Over Perio x ‘\
SM Staff performance
Average Credit Collectio
. +
Credit Sales ZA Soom Sele a a
+ ‘Market opportunities
Back to the Top
