Small and medium-sized enterprises

ABSTRACT

This study reports the environmental performance of Small and Medium-sized Enterprises (SMEs), who are before the present time certified to the ISO 14001 standard in the United Kingdom. A survey questionnaire was used and 59 SMEs responded to this study. The results show SMEs had acquired substantial benefits from the implementation of the standard. The ISO 14001 implementation increased knowledge amongst SMEs staff, improved procedure and documentation, improved management structures and upheld their image. SMEs also recorded financial savings in water recycling/reuse, energy and water consumption and legal compliance. Inasmuch as the saving from the SMEs is insignificant when compared to what are obtainable to bigger organisations, it showed that this standard could give rise to better savings to SMEs in the long term. Through a good environmental image and having an EMS in place, SMEs have a competitive edge in the market where supply chain pressure is increasing. However, SMEs still encounter problems in terms of costs and time-frame during the implementation process and in maintaining the standard. These problems can be resolved if the necessary support from the authorities, business clubs and environmental NGOs is given. Publicity and promotion of the benefits of ISO14001 implementation in SMEs could encourage other SMEs to follow suit. Further incentives by the government like tax reduction and financial grants to SMEs who are certified should be considered. As financial problems still remain an obstacle for SMEs in adopting EMS, financial grants, like SCEEMA can be useful.

Keywords: Environmental management, Environmental performance, SMEs, ISO 14001, Business and the environment, green consumerism

INTRODUCTION

ISO 14001 includes all features of previous environmental strategies. It is not just the matter of certification but also encompasses pollution prevention strategies, which take a cradle to grave approach. ISO 14001 comprises strategies to prevent pollution at all stages of the process and the traditional end-of-pipe strategies take care of the problem as soon as it has occurred. In ISO 14001, source reduction is the main strategy used. Environmental performance is not a preoccupation only to the industrial and business managers but also to members of the general public who have continuously demanded for green products. At this stage, ISO 14001 is the best strategy that can cope with these demands and is fully recognised universally.

Most of SMEs are vendors to large companies, which do have sufficient funds, technical support or experience to implement Environmental Management System (EMS) but at the same time they need to market their goods either locally and internationally. Some of the SMEs are under pressure from multinational companies to put an EMS in place.

This research not just tries to look at the implementation of ISO 14001 in SMEs but it also aims to look at carefully the issues of costs, barriers and difficulties in implementing EMS and how SMEs deal with those problems.

ISO 14001 is complex for SMEs to comprehend, adopt and use. These issues have also been related to the attitude of SMEs towards protecting the environment (Hillary, 1995, 1999; Rowe and Hollingsworth, 1996; Baylis et al., 1998; Smith and Kemp, 1998; Tilley, 1999). ISO 14001 implementation in bigger organisations has proved to be successful in term of the financial benefits being achieved because of wider circulation of their goods and services (Blumberg et al., 2000). However, this is not the situation with SMEs until now. The starting of this standard in SMEs will increase economic competitiveness and may also offer some benefits through compliance with regulation, decrease in energy consumption and good housekeeping practice.

It is the aim of this research to decide how SMEs cooperated to implement ISO 14001, analyse costs and benefits in financial savings from the implementation of the standard so as to recognise the areas of the organisations (e.g., waste reduction, energy efficiency) that benefited most from the implementation, determine the barriers and difficulties encountered, the suitability of the ISO 14001 for implementation in SMEs and the role played by the government in promoting EMS to SMEs, including policies, economic instruments and legislation.

Defining SMEs

The definition of SMEs varies between sectors and countries. The number of employees is always used as a cut off level in the definition of SMEs but this is not suitable without mentioning other factors. The European commission has established a single definition of SME since, February 1996. This considers a combination of employee numbers, turnover or balance sheet total and ownership to classify enterprises. The European definition of SMEs is Hillary (1999, 2000) as follows:

SME:
  • Has <250 employees
  • Either an annual not exceeding 40 million ECU ( GBP 25 million)
  • An annual balance sheet total not exceeding 27 million ECU ( GBP 17 million)
  • An independent enterprise, i.e., 25% or more of the capital or voting rights cannot be owned by larger enterprise(s)

Small enterprise:

  • Has <50 employees
  • Either an annual turnover not exceeding 7 million ECU ( GBP 4.4 million)
  • An annual balance sheet total not exceeding 5 million ECU ( GBP 3 million)
  • An independent enterprise, i.e., 25% or more of the capital or voting rights cannot be owned by larger enterprise(s)

SMEs, businesses and the environment

Markets pressures need a lot of time and attention for a better understanding of the environmental costs and benefits of products and services and there is a strong and positive correlation between being at the forefront of eco-efficiency and being profitable. The most vital factors in business survival are to remain competitive and to increase the market. Nowadays, green consumerism plays a major role in the world economy. Businesses should treat environmental factors as a major aspect in their strategy. To be green can improve their product performance and at the same time increase their profits. Compliance with ISO 14001 for instance, will become a selling point providing a competitive edge for businesses.

Businesses have to take prompt actions as lots of legal requirements on environmental issues have recently been introduced. Rising costs of landfill, duty of care regulation, EC directive on packaging and packaging waste and dozens of other environmental legal requirements could be costly to businesses. A proactive business environmental activity could provide alternatives and programmes to overcome these problems.

In the case of SMEs, supply chain pressure could be a major problem. Bigger organisations are gradually demanding that their suppliers (majorly the SMEs) to implement an EMS and become certified to ISO 14001.

Environmental management activity in SMEs is not the same as in bigger organisations due to the difference in size and management structure (O'Laoire and Welford, 1995; Atkinson et al., 2000). SMEs tend to research on an ad hoc basis (Palmer and van der Vorst, 1996) compared with large businesses which have a well defined management structure. This is a serious problem for the success of the SMEs management system.

Compliance to legislation, supply chain pressures, market forces and the public green ethics were identified as the driving force that persuaded many businesses to implement proactive environmental management (Hillary, 1995, 1999; Eden, 1996; Smith and Kemp, 1998). In fact, businesses, particularly SMEs, are likely to implement EMS mainly because of legislative pressures. Hillary (1995), Rowe and Hollingsworth (1996), Baylis et al. (1998), Merritt (1998) and Petts et al. (1999) reported that legislative force remains the ultimate source of motivation to implement environmental action in SMEs whereas customer pressure is more pertinent in large companies.

Rowe and Hollingsworth (1996) reported that only 11% of SMEs will proceed with environmental improvement if demanded by customers. Poor awareness and acceptance of the proactive EMS in SMEs is mainly because of businesses attitude. SMEs do not perceive themselves to have any environmental problems and think that their impacts are too small to take into cognisance (Tilley, 1999). In Hillary (1995) Groundwater survey, 58% of SMEs felt they had little or no impact on the environment. Rowe and Hollingsworth (1996) reported this figure to be about 55%. Hillary (1995); Rowe and Hollingsworth (1996); Merritt (1998) in their survey showed that SMEs have an attention to promote proactive environmental management in their organisation but this attitude does not change to action in reality (Tilley,1999) because of other barriers such as economic ability, poor eco-literacy, low awareness and limited resources.

Environmental solutions designed for large firms cannot satisfactorily be applied to SMEs (Tilley, 1999; Rowe and Hollingsworth, 1996; Merritt, 1998) because of their management systems and structure, resources and ability to adapt. On the other hand, SMEs face greater pressure on financial resources and tend to have shorter payback periods from any investments (Palmer and van der Vorst, 1996). This means that any long term planning such as in ISO 14001 will create high risks for SMEs without offering any benefits of it in a short term. Other problems are also identified such as lack of time, uncertainty about the value of an EMS, limited human resources and low awareness of EMS (Merritt, 1998; Smith and Kemp, 1998; Baylis et al., 1998; Hillary 1999; Kirkland and Thompson, 1999).

The implementation of ISO 14001 could give benefits to SMEs if it is done properly and with the support of a third party. Smith and Kemp (1998), Baylis et al. (1998), Holt (1998), Hillary (1999) and Kirkland and Thompson (1999) have reported internal and external benefits arising from the implementation of ISO 14001 in SMEs. Internal benefits can be improved on documentation, training, awareness and quality and also financial (costs saving on materials, energy savings and waste reduction). External benefits can be new customers, marketing advantages, reduced insurance premiums and increased competitiveness, compliance to legal requirements and a positive public image.

During the past few years, the UK's central government has doubled their efforts to encourage industries, especially SMEs, to take more proactive action to improve their environmental performance. Several schemes targeted to SMEs have been established for that purpose, including: the Environmental Technology Best Practice Programme (ETBPP) helpline, the energy efficiency best practice programme helpline and the Small Company Energy and Environmental Management Assistance Scheme (SCEEMAS). Palmer and France (1998) reported that 83% of callers who used ETBPP helpline services are SMEs and that they have made an average of 6 visits per week to SMEs for site assessment and free advice. On the other hand, the energy efficiency helpline did not receive much response from SMEs even though this scheme is targeted at them. The third scheme, SCEEMAS, is intended to help smaller organisations research towards registration under EMAS with financial help to meet consultancy costs.

SMEs in the United Kingdom

SMEs are an important part of the UK economy accounting for 51.8% of the UK annual turnover and creating about 56.3% of jobs. SMEs dominate the service sectors and are also important in manufacturing sectors. They create jobs, encourage innovations, skills and are a major supplier to larger businesses. Some studies have estimated that the cumulative effects of SMEs contribute about 70% of pollution levels but their total environmental impact still remains unknown (Hillary, 2000).

SMEs in the UK economy have increased steadily over the last two decades. In 1980, there are only 2.4 million businesses categorised as SMEs. From 1989-1998 the number of SMEs remained between 3.5 and 3.7 million. UK Department of Trade and Industry (DTI) statistics show that businesses with fewer than 50 employees were the source of half of employment and over a third of turnover in the UK economy. From 3.7 million enterprises in the UK, 99.8% are considered as SMEs while only 0.2% is large enterprises. Only 24,610 are medium sized and <7,000 are large (250 or more employees) enterprises. Size class zero (sole trader or partners without employees) businesses make up about 64% (2.3 million) of enterprises in the UK while micro and small businesses make up 35.2%.

SMEs contribution to the UK economy cannot be denied. In 1994 (Gallup survey), 64% of SMEs thought that their contribution to the economy was quite high or very high. (Hillary, 1995) and in 1998, this number had significantly increased to 77% (Smith and Kemp, 1998). In 1998, SMEs contributed around 51.9% of a total of 1.9 billion in businesses turnover compared to 48.1% from large businesses. SMEs made up 99.2% of businesses and employed over 9 million people, out of the total workforce in employment of 21.6 million people, in 1998. SMEs account for about 2.5 million workers (11.6%) while large businesses employ over 9.4 million (43.7%) in only 6,660 businesses. SMEs account for >56% of employment in the UK.

MATERIALS AND METHODS

This research plans to look at a collective view from SMEs managers from their experiences in implementing ISO 14001. For that aim, a quantitative approach was applied. A set of questionnaire was designed to identify several issues from pre-implementation processes, which cover the time and costs of implementation, the driving force behind it, external support and the areas which are considered to have the most significant impact in their organisations.

The second part deals with the organisations' environmental performance after the implementation. The final part on the questionnaire is targeted to get their views on the suitability of ISO 14001 implementation at their scale. SMEs were also asked for their opinions on how the government can help them to maintain the certification.

RESULTS AND DISCUSSION

The highest rate of certification occurred in 1998, 2yrs after ISO 14001 was established. Organisations took between 6 and 18 months to plan and prepare for certification. Most of the organisations that were certified between 1995 and 1996 had converted from BS 7750 or were involved in pilot projects supported by the government.

In terms of the cost of the implementation of the standards (including registration fees, changes made and consultancy costs), all SMEs spent <25,000 and >60% of them mostly small enterprises spent <10,000. The costs of implementing ISO 14001 in SMEs were considered not too expensive and sometimes less than expected. With an average cost of 10,000, other SMEs could also follow suit. ISO certification did not mean mass changing of the process of production or installing new equipment but to have a good EMS while using the resources available. Many SMEs reported that consultation fees were around 1,000-3,000.

In the process of implementing ISO 14001, 49.1% of SMEs received support or consulted third parties. About 27.1% of support came from local business clubs, NGOs, consultants and other companies while 20.3% came from the government agencies (BSI, DETR, and Environmental Agency, etc.). Average financial support especially from the SCEEMAS programme) received by the SMEs was between 1,000 and 3,000 to cover half of the consultant's fees. More than 60% of the respondents did not hire or contract the third parties to establish their EMS. About 39% of those that did contract the third party, the costs were below 5,000. This was a good deal for businesses, especially SMEs.

Driving forces

Hillary (1995), Rowe and Hollingsworth (1996), Baylis et al. (1998), Merritt (1998) and Petts et al. (1999) reported that legislation remains the ultimate source of motivation to implement environmental action in SMEs whereas customer pressure is more pertinent in large companies. This research found that the main driving force was organisations environmental concerns (78%) and placed legislation liability as second priority (Table 3). Only 10% of SMEs stated local communities as their driving force.

Significant environmental issues addressed

The Initial Environmental Review (IER) is one of the imperative processes in ISO 14001 implementation. About 93.3% of SMEs had done an IER and identified 3 major issues: waste generation, energy consumption and reducing pollution. These seems to be related to several pieces of legislation directly imposed on the industries such as the environmental protection Act 1990 (duty of care regulations), EC directive on the Landfill of waste (99/31/EC), producer responsibility obligations (packaging waste) regulations and air quality regulations, 1997. SMEs were also more concerned about issues such as raw materials, chemical handling, water consumption, transport and health and safety. SMEs did not show any special interest in issues of packaging, land contamination and greening the supplier. An analysis also showed that waste management is the most significant area in SMEs followed by reduction in emissions and effluent discharge and reducing energy consumption. Health and safety aspects were ranked fourth in SMEs.

Perceived benefits

Environmental performance evaluation is an important part of ISO 14001 for the future improvement in any organisation. Present performance data can be used to plan objectives and targets for continuous improvement. In this research, >97% of respondents felt that ISO 14001 has brought benefits to them. The other 3% denied that on the basis that the standard has limited value and their customers did not recognise it.

For SMEs, after the implementation of ISO 14001, the perceived benefits increased between 3 and 42.9%, except in the areas of increased market of the product, reduction in environmental costs and gaining competitive advantage (Table 4).The implementation of ISO 14001 in SMEs has proved to be profitable, gives savings in utility consumption and enhances regulatory compliance.

Benefits such as savings in utility consumption, regulatory compliance and increased awareness amongst employees are part of the results of good EMS planning. Good Housekeeping Practices (GHP) has contributed to this achievement. Almost 80% of SMEs apply GHP in their organisations.

Respondents' achievement in objectives and targets

Almost 97% of respondents have achieved the objectives and targets that had been set. About 50% of SMEs recorded an achievement above 61% success in four issues: an increase in the amount of waste recycled/reused, improvement in chemical handling, reduction in air pollutant emissions and improvement in health and safety procedure. Reduction in waste generation, water consumption and energy use had a moderate level of success with 36-59% of SMEs achieving below 60% success. Raw material handling and transport issues recorded the lowest percentage of success with almost 60% of SMEs achieving below 20% success (Table 5).

Financial Benefits from the Implementation of ISO 14001

Obtaining figures on the financial profits from the implementation of ISO 14001 was difficult when most of the respondents were willing to highlight the profits. Analysis showed that 50% of small organisations did not achieve any financial benefits, while the other 50% achieved benefits below 5,000. About 77.4% of medium organisations recorded savings below 30,000 and only 9.7% achieved savings >100,000.

Financial savings could be gained from many aspects of the implementation of ISO 14001. Several SMEs found that there was significant reduction in utility consumption, increased waste recycling/reuse and legal compliance which turned out to be more profitable. It is obvious that the smaller the organisations, the less financial savings they make. In reality, there are a lot more aspects that can be considered as benefits but cannot be counted in financial terms. As long as organisations implemented the EMS, savings can be made by, for example: increasing their reputation which can bring more customers and increasing employee awareness of environmental issues, which can prevent accidents and reduce risk in work place and prevent pollution and avoid any legal actions.

Respondents also reported financial savings in specific areas, such as, energy savings, reduction in water consumption, waste reduction, compliance to legislation, raw material usage and other special issues. The first three areas mentioned have been reported as more successful and beneficial. SMEs did not experience financial savings of >25,000 in any area. In smaller organisations, the limit was only 5,000. Most SMEs reported savings of 1,000-2,000 in energy consumption and about 50-1,000 in water consumption. The amount of money saved by SMEs cannot be compared to bigger organisations as nature of business are different in size, quantity and the quality of employees, resource availability and working capital.

Problems and solutions in the implementation process

Several studies on SMEs have identified that issues like costs, time, lack of resources and knowledge on environment are the major obstacles which keep them away from implementing EMS (Hillary, 1999). Results from this research confirmed this. There are ten major problems for SMEs when they implement the standard (Table 6).

Three problems faced by the SMEs is a reflection of the nature of organisations. They are small, less working capital and a weak knowledge among employees. Standard paperwork, resource availability and practical information were issues in < 10% of SMEs.

How they cope with all those problems? The two most popular solutions were training and initiatives. Training methods such as seminars, courses for all level of staff, conferences and team discussion were always used. Organisations also developed their own methods and initiatives to make the implementation a success. Initiatives included things like incentives for staff who were involved, highlighting any cost savings and benefits to all employees and developing their own procedures of assessments which were suitable for them. Some of the SMEs had to consult other parties to solve their problems, either government agencies or consultants. SMEs that were already certified with ISO 9000 series used their experiences to implement ISO 14001.

Suitability of ISO 14001 in SMEs

Results from the analysis before show that ISO 14001 implementation has brought many benefits to SMEs. About 84.7% of SMEs that are certified with this standard reported that ISO 14001 is suitable for them to adapt. Only 6.8% found it unsuitable because of several aspects such as cost, time demands and little impact on their business.

SMEs who found it suitable, gave reasons that it developed a good structured approach for management in their organisations (27%) and was useful to market their product (22%). ISO 14001 was also considered easy to implement (18%).

CONCLUSION

ISO 14001 is not a difficult standard to implement in SMEs and is not costly. SMEs may face some problems during the implementation process but this can be overcome if they are given support and advice from local clubs, environmental research centres or other relevant parties. Even though SMEs did not make many financial savings in short term, this is not an issue. Other benefits, such as compliance to legislation, securing contracts from larger businesses, good housekeeping practices and good management structures can turn to a financial gain in long term.

The implementation of ISO 14001 in SMEs has proved to be beneficial. Some of the SMEs have gained financial benefits although not as much as reported by larger organisations. Costs to implement ISO 14001 in SMEs were not higher than expected. This research found that the significant issues addressed and problems they faced were more or less the same as for larger organisations and related to current legal requirement. SMEs can benefit if several issues are considered. Areas such as how to increase knowledge of the environment of the environment among SMEs and how third parties, including the government can play a major role to support them should be given priority.

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