The influence of operational risk on the sustainability of manufacturing small and medium enterprises in the Cape Metropole

Abstract

South African Small and Medium Enterprises (SMEs) are regarded as the driving force of economic growth and play a particularly critical role in developing countries because they contribute to a country's gross domestic product (GDP), create jobs and reduce poverty. Nevertheless, most SMEs face different types of risk that are detrimental to their sustainability, which, in turn, negatively affect economic growth. One of these major risks that SMEs face is operational risk. Since operational risk causes are growing sporadically and can harm the trustworthiness, status and finances of a business, it is essential to equip business entities with the necessary knowledge and skills to recognise and manage risk effectively to attain business objectives. To shed light on the preceding phenomenon, this research study aimed to identify the extent to which operational risk influences the sustainability of SMEs operating within the manufacturing sector in the Cape Metropole The research fell within the ambit of the positivistic research paradigm. This approach was realised by conducting a literature review to aid in the construction of a survey in order to conduct empirical research by accumulating quantitative data from owners and/or managers of SMEs in the manufacturing industry. Non-probability sampling methods, particularly that of purposive sampling and convenience sampling, were used to select a representative sample size of respondents. The survey comprised qualitative and quantitative questions to evaluate the influence of operational risk on the sustainability of SMEs within the Cape Metropole manufacturing industry. The quantitative data obtained was analysed using descriptive and inferential statistics. Based on the analysed data, it was discovered that most SMEs did not perceive themselves to be facing operational risk, and consequently, they did not implement ORM. Almost half of the respondents was not au fait with the term “operational risk”. Most of the respondents agreed with statements relating to achieving business objectives and not encountering any of the listed operational risks. Only some businesses indicated that they were adversely influenced by operational risk factors, which did not seem to affect the sustainability of their business because all of them had been in existence for about 15 years. Four major operational risk factors were found to influence SME sustainability in all the SMEs that implemented ORM: people, systems, processes and external risk. Stemming from the above results, it is evident that the data gleaned from manufacturing SME managers and/or owners is not in congruence with existing academic literature.

Therefore, it is recommended that further research be conducted to determine why manufacturing SMEs have good sustainability rates despite not being fully aware of operational risk and ORM. To increase ORM implementation in SMEs to mitigate the average operational risk factors that adversely affect these business, it is proposed that educational programmes are offered to assist SME owners and/or managers to recognise and mitigate operational risk because this action could contirubte to and/or increase business sustainability.