4/27/2015

DEPARTMENT OF BUSINESS ENTERPRISE DEVELOPMENT

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TABLE OF CONTENTS1. INTRODUCTION................................................................................................................2

2. RESEARCH RATIONALE.....................................................................................................4

2.1 RESEARCH JUSTIFICATION..........................................................................................4

2.2 RESEARCH APPROACH...............................................................................................5

2.3 RESEARCH QUESTIONS..............................................................................................6

3. LITERATURE REVIEW........................................................................................................ 7

3.1 MANAGEMENT COMMITMENT.................................................................................8

3.2 OWNERSHIP AND RISK TAKING BEHAVIOUR..............................................................9

3.3 MANAGEMENT COMPETENCY AND RISK TAKING BEHAVIOUR................................10

3.4 GENDER PERSONALITY AND RISK TAKING BEHAVIOUR...........................................11

3.5 SMEs AND RISK TAKING...........................................................................................12

3.6 RISK TAKING BEHAVIOUR OF SMEs..........................................................................14

3.7 MANAGEMENT COMMITMENT AND RISK TAKING BEHAVIOUR..............................15

3.7.1 ORGANISATIONAL CULTURE.............................................................................17

3.7.2 RISK PERCEPTION..............................................................................................18

3.7.3 REWARDS AND BENEFITS.................................................................................18

3.7.4 DECISION MAKING............................................................................................19

4. CONCLUSION..................................................................................................................20

5. FUTURE RESEARCH.........................................................................................................22

BIBLIOGRAPHY........................................................................................................................23

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1. INTRODUCTION

The management commitment and its impact on the SME risk behaviour is an area of

discussion that elicit an understanding of how business decisions that impact decision

making occurs. Delma (1996) highlighted that the individual and business processes are

distinct but their relationship is important for the success of a business. In essence, the

individual trait in management commitment can have an impact of the risk taking behaviour

process for SMEs (Naldi et al., 2007).

Risk taking can be described as the organisations’ willingness, dedication and disposition to

allocate best possible resources for projects where the results are ambiguous and may be

unprecedented (Southern and Tilley, 2000). Risk is an important feature of

entrepreneurship. An organisation must exhibit some level of risk taking behaviour as part

of its culture. Risk taking behaviour has been a major focus for SMEs considering their

importance in every strata of the economy (Ojiako et al., 2014). This is based on the

assertion that businesses require risks in order to achieve desired success. Allah and

Nakhaie (2011) noted that entrepreneurship is based on risks with a calculated means of

achieving positive goals. A low risk appetite means that the organisation foregoes profitable

opportunities because they are too risk averse (Atkinson, 2013).

Brustbauer (2014) highlighted risk management as a viable tool by SME managers in

identifying significant risks that can jeopardise the existence or success of the business in

order to effectively cope with them. The viability of risk management is hinged on the fact

that ineffective judgement or action can have severed impact on the business. Marcelino-

Sádaba et al. (2014) asserted that risk management is fundamental to the overall approach

in which businesses adopt towards the manner in which it deals with its corresponding

eventuality.

Small and medium-sized enterprises (SMEs) are highly important in economies both locally

and globally. Gama and Grealdes (2012) affirmed that 99% of economic activities in the

European Union is deeply rooted SMEs as they represent to thirds of private sector

employment. Small and medium scale enterprises have been recognized as the engines to

achieve the growth objectives of developing countries because they mobilize idle funds, are

labour intensive, employ more labour per unit of capital than large enterprises, promote

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indigenous technological know-how, are able to compete (but behind protective barriers),

use mainly local resources — thus have less foreign exchange requirements — cater to the

needs of the poor and adapt easily to customer requirements (flexible specialization) (Abotsi

et al, 2014). Delma (1996) also highlighted that small business together with their

management have become important factors that determines the dynamics of a particular

economy.

SMEs are difficult to define as there exist no globally agreed definition for these type of

businesses (Munro, 2013). However, SME in a global term can be represented as

organisations having between 100 and 5000 while that maximum size in the United

Kingdom is 250 (Ayyagari et al., 2005).

Napp (2011) asserted that effective risk taking approach and implementation is highly

important for businesses. The concept of risk presents the uncertainty that characterise

every decision or movement of businesses. Risk represents the possibility of both financial

or economic gains and loss based on the consequence of the associated uncertainty in

implementing a specific business action (Verbano and Venturini, 2013). Risk permeates

every human endeavour including every type of business and areas of business

management. Liekweg and Weber (2000) highlighted that economic activity and risk cannot

be separated. The importance of the risks has made risk management very important.

As the term “entrepreneur” was first debated, risk-taking behaviour has been connected

with entrepreneurship (Corner, 2006). In every economy, SMEs embark on various types of

risks in business, and these can be in the form of strategic and operational risks (Atkinson,

2013). Risk taking may require companies to engage themselves into the unidentified,

borrowing heavily and investing major resources to ventures in uncertain environments

(Gehner, 2008).

Management commitment represents the direct participation by the topmost management

level in a business concerning specific business processes (ERA, 2015). Management

commitment symbolise the willingness and the overall support towards distinct goals which

is meant to be achieved by business processes. Marsh et al. (1998) analysed that

management commitment reflects the behavioural actions exhibited by the organisation

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towards such business process. It represents the interest and passion that is expended on

certain aspect of a business.

2. RESEARCH RATIONALE

Through involvement of the top management in various activities within the organisation,

members of cross-functional team become more passionate regarding their tasks in the

organisation in a coordinated manner and their productivity could be improved (Bonner et

al, 2002).

Especially in new product development (NPD), success is often pointed out as being

positively correlated with top managements support; this is not only allocating adequate

budget and resources for new projects, but also accountability for consequences that may

arise from such projects. (Krishnan and Ulrich 2001). Devoid of the involvement and

commitment of the top management team (TMT) in various activities of the organisation,

there is bound to be a fracture along the organisation’s corporate and business strategy

(Vermeulen and Curseu, 2008).

Denial of risk is fatal to the ability of an organisation or its projects, to manage risk properly

and conversely accepting its existence is a prerequisite to its management. Entrepreneurs

are regarded as risk takers in business but contrary to this, they find it difficult to pass on

this risk propensity to the individuals who work within the organisation (Naldi et al., 2007).

In this situation, the drive to take on projects and ventures that may be perceived as risky

will be lacking whereas the manager shows very high risk appetite. Risk taking might

produce positive or negative outcome thereby making the process of managing risk to be

effectively managed (Vermeulen and Curseu, 2008). Finding a suitable strategy on

cultivating the behaviour within SMEs is an important focus of organisational management.

The manner in which the management commitment impact the behaviour with respect to

risk taking within the organisation.

2.1 RESEARCH JUSTIFICATION

Research is an academic practice that allow the eloquent explanation of the detail approach

that was adopted in order to prove the conformity to standardised research practice.

Research enhance the body of knowledge in a certain field or used in problem solving

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(Kothari, 2004). In essence, conducting research is an important aspect in the business

environment because it solves factual problem solving that further shapes business

management and in some cases government policy formulation (Goddard and Melville,

2004).

Conducting this research is imperative as it further elaborate the impact of management on

a viable area of SME management. The research provides a contextual explanation on the

manner in which the commitment of the management can influence and effectively alter

the risk taking behaviour of an SME. It must be noted that an SME is a direct product of

entrepreneurship which is attributed with high risk (Ministry of Economic Development,

2004). This makes this research imperative in order to establish the direct impact of

management on the manner of risk management.

SMEs are commonly considered as the key and engines of innovation but regrettably, in

most cases, SMEs run out of financial resources which can be important in retaining the

engine of the innovation running (Fillis, 2005). According to Aurifeille et al. (2006), by

developing a transnational SME network, SMEs can leverage the global reach and ability to

the network to establish and market the innovation on a global basis. SMEs in the UK are

categorised by high level of risk taking behaviour and innovation and by working together

under the umbrella of a transnational SME network, they can be able to minimize the

adverse effects of failure which may be as a result of risk taking (Aurifeille et al, 2006).

This research seeks to tie the management commitment to risk behaviour in order to

establish the manner it can impact the performance of SMEs. Considering that SMEs are the

core contributor to the economies across the globe (Atkinson, 2013). This research finds a

viable place for which knowledge expansion becomes viable.

2.2 RESEARCH APPROACH

Discussing the adopted approach is an intricate aspect of a business research in order to

explicitly explain the entire conduct within the research conduct. The discussion is

important in order to detail the manner in which the research was done, This provides

evidence about the objective nature in which decisions were made considering the

numerous available approach that are available for business research (Jha, 2008). In

essence, explaining the approach is important to show the pattern of conduct in uncovering

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the truth about the social phenomenon as it exists within the business environment

(Kothari, 2004).

This research was conducted as a desk based research. This involved the extrapolation of

various texts and sources of information in discussing the current body of knowledge within

research area. The research design was conducted by putting the entire topic into themes in

which incremental findings were made independently. Since it is literature based, massive

and wide search for materials were established in order to understand the various

perspectives, opinions and findings in the research area.

The literature review was conducted through the review of previous scholarly articles and

industrial reports in order to establish the platform for which the implementation can be

conducted. The literature review was conducted by resourcing through repository of

journals such as Elsevier, Emerald insight, Ebsco, Jstor and Google Scholar. Textbooks were

sourced from the library in order to establish the fundamental basis for some of the

discussion.

2.3RESEARCH QUESTIONS

This research is aimed at investigating the impact of management commitment on the risk

taking behaviour of SMEs in the manufacturing industry. The research questions to be

answered include;

What are the factors that influence management commitment?

In what ways does the management influence the risk management practice at

SMEs?

How does management commitment influence the decision making within SMEs?

The research objectives include;

Understanding the concept of risk taking behaviour and its implication for SMEs

Investigate the manner in which management commitment manifest in the risk taking

process of SMEs

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3. LITERATURE REVIEW

SMEs are continually exposed to high level of competition and uncertainty which heighten

the risk of doing business. Initially, SMEs of any kind is generally susceptible to high level of

risk as presented by the exit and entry rate which continue to be very high (Atkinson, 2013).

SMEs are perceived to be high risk venture thereby impacting the degree of failure across

the globe. Watson and Vuuren (2002) noted that South Africa records about 50% failure

rate of SMEs. Ministry of Economic Development (2004) outlined that between 40% and

50% of SMEs in New Zealand failed within the first 10 years. Anderson (2014) noted that half

of start-ups in the UK fail within the first five years.

The volatility of SME business coupled with their importance in the economy puts the risk of

exposure into perspective. Engineering SMEs continue to struggle with risks in the form of

undesirable events such as material shortage, absenteeism, accidents and machine

breakdowns (Islam, 2008; Mitala and Pennathurb, 2004). These risks are unique and form

the characteristic of business processes related to engineering in which the consistency and

stability of such businesses is affected. Islam and Tedford (2012) in putting the risks into

summary used the term “disturbances” as they constitute industry specific risks.

The risks in the engineering SMEs are high and often increase the chances of their failure.

This can be deducted from the Anderson (2014), report where the construction sector (an

arm of engineering) is suffering the highest from start-up failure at 44%. The high risk which

the industry is exposed can be asserted to be engineering risk. Yeo and Lai (2004)

highlighted engineering risk to be that aspect of the risk that is associated to technological

or operation aspect of a business.

Another risk which the engineering SMEs experiences is effective innovation required to

remain competitive in the market (Ojiako et al., 2014). Brown (1997) highlighted that SMEs

in the engineering field are faced with the need to display to customers the commitment to

skill, agility and resources development in order to stem the risk of being outdated in the

market. This is major risk as it implies the need for resources commitment in continually

driving the market relevance of the business. The innovation needs of SMEs might be easily

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misunderstood and wrongly influence the risk taking behaviour thereby resulting in

devastating effect (Verbano and Venturini, 2013).

The innovation risk in engineering SMEs; interest rate, growth and supply chain risks are

some of the other types of risks within SMEs (Falkner and Hiebl, 2015), together provide a

fertile ground for which the risk taking behaviour induced by management commitment.

This is based on the assertion that without management commitment, it is important to

generate required support in business processes (Cooper, 2006). The management

commitment can now be discussed along the parameters of response to the innovation

needs of the SMEs.

The management commitment concept will be discussed. This discussion is imperative to

provide vivid representation of how management achieve commitment and how it shapes

the direction of the organisation.

This report will be discussing the risk taking behaviour in SMEs. This is important to present

what the risk taking behaviour implies in the context of the SMEs. It provides a concise and

targeted explanation in establishing the understanding of core concept being investigated in

this research. Factors affecting the risk taking behaviour will be explored to directly answer

of the research question.

The relationship between management commitment and risk taking behaviour in the SMEs

were discussed. This will further establish the objectives and answer the core research

question of the research.

3.1 MANAGEMENT COMMITMENT

Management commitment reflect the collaborative personality qualities obtainable in the

management of an organisation. Hyrsky and Tuunanen (1999) explained that entrepreneur

personality obtainable in the management of a business determines the risk propensity. In

actual fact, collaborating the personalities in the management potentially determine the

adopted risk taking behaviour of such organisation. Cooper (2006) submitted that achieving

management commitment present a case in which individual biases can be an uttermost

hindrance towards employee behaviour that impacts the achievement of the business goal.

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It is imperative to establish that the commitment of the management in SMEs can result in

the amount of resources and support in the risk taking process.

Management commitment reflects the personality of the individual manager which reflects

the traits that will be determine behaviours within the organisation (Nkundabanyanga et al.,

2015). Korzaan and Boswell (2008) noted that the individual manager exhibit some

behaviours which affects the competencies and the behavioural fabrics within the

organisation. It can be inferred that the behaviour of the management determine their

commitment and diffuse to the behavioural characteristics of the organisation

(Nkundabanyanga et al., 2015).

Management commitment is usually in different form thereby explaining the pervasive

nature in the strategic and operational actions of the organisation. Sometimes, supports

from top management can also be non-monetary such as encouraging and helping cross-

functional team members conquer problems, fostering collaboration and communication

among various teams (Muscatello et al, 2003). The versatile nature of management

commitment explains the difference in the need by various SMEs. Buonanno et al (2005)

explains that management commitment in the IT SMEs differs thereby making its

implementation to primarily focus on the needs of the SMEs.

Various factors can impact the nature of management commitment with respect to risk

taking behaviour (Cooper, 2006). Cooper (2006) noted that management commitment can

be based on some factors thereby infiltrating the entire risk taking culture within the

organisation and these factors include ownership structure, management competence and

gender personality. Some other factors that play a vital role in the determination of the level

of management commitment and risk taking behaviour are business location and sector; as

well as family size and marital status (Abotsi, 2014).

3.2 OWNERSHIP AND RISK TAKING BEHAVIOUR

Zahra (2005) presented that the behaviour in SMEs can be hindered by the nature of the

ownership structure of such businesses. Ownership structure of businesses influence

decision making and the adopted culture in a business. The individual characteristics of SME

owners and SME ownership structure have a significant impact on the business direction of

an organization and also on risk management practices (Acar and Göc, 2011; Brustbauer,

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2014; Gao et al., 2013; Georgousopoulou et al., 2014; Kim and Vonortas, 2014). Wang and

Poutziouris (2010) cited a family owned SME where the risk taking behaviour might be

influenced by the influence of family members who have influence in the management of

the company. This is based on the suggestion that the ownership type determine the

governance structure and the risk based decision making process at SMEs. Naldi et al. (2007)

identified that risk taking behaviour cannot be isolated from the overall management

process which is subjective to the ownership structure existing in an organisation.

SMEs and other kind of businesses exhibit some level of personality trait which determines

their potentialities. Pathan et al. (2008) identified the risk taking propensity as a trait that

permeates through an organisation towards achieving the growth and success of such

businesses. The risk-taking propensity reflect the overall management direction which has

been adopted by the business. Risk taking behaviour is a direct derivative of governance in

an organisation (Rachdi and Ben Ameur, 2011). Governance which defines the manner in

which the management is administering the organisation depict that style adopted in risk

culture within the business. Governance is a subjective to ownership as it defines the

manner in which the overall administration of a business is to be conducted (Wang and

Poutziouris, 2010).

3.3 MANAGEMENT COMPETENCY AND RISK TAKING BEHAVIOUR

Management competency in an organisation impacts the understanding of the risk and the

attitude in decision making. Atesci et al. (2010) noted that the composition of the

management of an organisation directly affect the manner in which risk management

attitude is fostered within such organisational. Lee (2009) highlighted that incompetence is

reflected in the abilities obtainable in the management which in turn affect risk based

decision making.

Nkundabanyanga et al. (2015) asserted that the commitment of the management of

businesses in risk taking is a function of the competency. This assertion is hinged on its

overall effect on the knowledge based that will be sufficient in developing a governance

structure that will optimise risk. For example, management competency has been blamed

for SMEs being excluded from funding from microfinance institutions (MFIs) based on low

understanding of the scheme (World Bank, 2012).

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The competency of SME management influence the entire decision making including risk

taking (Gilley et al., 2002). Brown (1997) highlighted the ignorance in SME innovation

management as a major hindrance to the management commitment thereby affecting SMEs

in the engineering field. The inability to understand core areas of the business and the

inability to manage the business can potentially affect the decision and commitment

required in business risk taking.

Lee (2009) identified knowledge, abilities, skills and most importantly behaviour as core

characteristics of management competency. The dearth of these skills impact the focus and

direction in which the management of SMEs are committed. Incompetent management in

SMEs will result in poor decision making in commitment and risk taking process thereby

exposing the grievous result. Verbano and Venturini (2013) established that failure or poor

risk management practice can result in the overall closure of SME business.

According to Jay (2010), managerial competence to represent the managerial ability to

effectively deploy the resources within a business towards the defined outcome.

Incompetence reflects in not directing the organisational human resource in a risk taking

direction that will optimise business performance. Developing risk awareness and culture in

an organisation is a function of the management competency. Nkundabanyanga et al.

(2015) identified that managerial competence impacts the fundamental management

commitment to development of employees that should nurture the risk taking behaviour

within the organisation.

3.4 GENDER PERSONALITY AND RISK TAKING BEHAVIOUR

A critical discussion point in the risk taking behaviour of SMEs is the presence of personality

traits. Yordanova and Alexandrova‐Boshnakov (2011) argued that gender presence in the

management of an organisation is a major factor in the risk taking behaviour of an

organisation. It was argued that the risk taking behaviour of an organisation can be

subjective to the gender distribution of the management. Meier-Pesti and Penz (2008)

asserted that men are more willing to risk than women in business. This was further

corroborated by Harris et al. (2006) who stated that the development of risk behaviour

might have handicapped women as the business space is mostly dominated by men.

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In retrospect, risk taking behaviour is perceived to be reflective of the general discovery

concerning gender based risk. Croson and Gneezy (2009) asserted that in general

population, women have relatively lower risk preferences with respect to men including

specialist societal populations such as business students, managers and entrepreneurs. The

difference in the risk preference can be associated to the difference in the perception of risk

by both male and female. Harris et al. (2006) established from an empirical research that

women perceive more risk thereby influencing their cautious behaviour in the position of

decision.

Another contrary discussion pattern in the risk taking behaviour based on the personality of

the management is the variation in the interpretation. Schubert (2006) argued this on

gender based personality differences. This argument testified that personality type makes

the behaviour of the management hinged on gender differences which thereby becloud

decision making. The permeation of this phenomenon influence the risk culture in the

business. Croson and Gneezy (2009) argued that the management of business irrespective

of the size exhibit some level gender based personality influence in which risk taking

behaviour mirror that of the manager.

However, a contrary opinion asserted that gender has limited effect and that over-emphasis

exist among business researchers about how it affects the risk taking behaviour of

businesses. Atkinson et al. (2003) explained that gender impact have not being established

for SMEs and that previous researches has been based on narrow scope. The findings have

failed to establish a far reaching industrial and concise pattern that can consistently

convince on this gender variation. Meier-Pesti and Penz (2008) corroborated by discussing

risk taking behaviour research to have ignore variation in industry, cultural differences and

professional frame in the gender based discussion. Gysler et al. (2002) argued that risk

taking behaviour impact based on management gender based personality is domain specific

and cannot be categorically proven.

Incremental research has been vehemently argued thereby making consensus in business

research to be inexistent. This made Yordanova and Alexandrova‐Boshnakov (2011) to posit

that business research is not at the level for which the gender impact on risk culture in an

organisation can be confirmed.

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3.5 SMEs AND RISK TAKING

Small and medium scale enterprises (SMEs) are characterised by a high level of risk taking,

also regarded as risk propensity, which is also generally regarded as one characteristics of

entrepreneurs (Timmons, 1989). The behaviours of these entrepreneurs who also make up

the management team of these SMEs are very influential in the management of various

processes and projects that take place in such organisation.

Commitment is a very important in managing the small teams that make up SMEs and this is

evident as entrepreneurial passion. When entrepreneurs are passionate about a project and

process in their business, they are most likely to provide the effective level of commitments

for such product projects and process to be successful. Risk taking is a beneficial

characteristics to entrepreneurs and these SMEs rely solely on it to acquire and execute

business ventures, in contrast to big organisations which tend to be risk averse in the

businesses (Atkinson, 2013).

Entrepreneurs and top management can have an impact on the risk taking behaviour within

their SMEs by developing a risk appetite and a “risk aware” culture across the organisation.

Although challenges exist, but with careful attention and involvement, an effective risk

culture will be developed. Notably, not all entrepreneurs possess a high level of risk taking

behaviours, as Acar and Göc (2011) identified that risk appetite seems to vary with

individual culture. Some seem wary of the type of risk they engage in and this might be

affected by gender (Watson and Newby, 2005), age (Acar and Göc, 2011) and owner

education (Kim and Vonortas, 2014). Acar and Göc (2011) also pointed out that SMEs

managed by entrepreneurs who possess high risk appetite are proven to have high growth

potential and success rate; as in western managers who are known for taking more risks

that managers from developing countries. Risk taking can be described as the organisations’

willingness, dedication and disposition to allocate best possible resources for projects where

the results are ambiguous and may be unprecedented (Southern and Tilley, 2000).

Every activity and form of decision making for entrepreneurs within SMEs involved risk.

Whether to expand our operations, invite new partners into our supply chain or develop

joint ventures, the management of risk within organisations must be confronted (Atkinson,

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2013). This makes it imperative for top management to make the issue of risk a strong

factor in the decision making process.

The risk taking behaviour or approach by SMEs is often challenged by the conflicting

business management principle and the personality of the management. The main reason is

that specific facets of risk management run against the nature and traits of entrepreneurs

that are in the top management team of SMEs, who rely heavily on risk taking in businesses

(Vermeulen and Curseu, 2008). In some cases, putting the entire organisation in a risky

position might make business sense but not sensible for the stakeholders and the entire

organisation.

3.6 RISK TAKING BEHAVIOUR OF SMEs

The risk taking behaviour in an SME is fundamental in the entire business process and to

achieve desired goals. Sitkin and Wingart (1995) define risk taking behaviour as the

individual behaviour in situations that are risky that can be characterised by the level of

decision making risks. This in the context of SMEs represents the manner in which risk-

taking is symbolised in the overall organisational culture. The risk taking behaviour reflects

in every aspect of the business including the conduct of workers and the response of the

business process to risk taking. Miller and Fagley (1991) identified social factors as a

determinant for the formulation of risk taking behaviour. These factors might be based on

societal norms, industrial practice and other facts that can influence an organisation.

AMFIU (2011) in citing the Ugandan case identified the probabilities and size of losses and

gains, and information availability as two core factors that influence the risk taking

behaviour of SMEs during. The behaviour is grown based on the consistent pattern of

decision making thereby making it an active part of the entire organisational processes and

demeanour. Zhao et al. (2010) identified risk taking behaviour as a quality of an organisation

that can be derived deliberately or unintentionally that affects the approach and regard

from business risk in SMEs and businesses.

A fundamental focus in the discussion of risk taking behaviour is the manner of impact that

the industry have on SMEs or businesses. Marco and Fernandez (2007) presented that the

financial sector provides another dimension into risk taking behaviours as the entire

industry is highly volatile and risky. This is based on the up-swinging and down-swinging of

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the market which is unique. It can be established that risk taking behaviour is shaped by the

market of operation as various industries have different risk profile. Brown (1997)

highlighted the engineering field as innovation driven thereby making it imperative for SMEs

to respond effectively to risks associated to research. It is believed that industry play an

important role in the definition of risks and how a behaviour can be developed.

However, Marco and Fernandez (2007) argued that risk taking behaviour is subject to the

internal control mechanism that exist within an organisation. This argument noted that the

management of an organisation and governance structure have in depth impact in the

manner in which the risk taking behaviour can be nurtured. Crespi et al. (2004) posited that

without quality internal control, the risk taking behaviour of an organisation cannot be

developed.

Despite the critical point, risk in nature is inseparable from SMEs thereby making the

behaviour to be very important in the achievement of organisational success. Watson

(2010) highlighted that the behaviour or reaction of an organisation to risk is important for

effective management and this can be based on whether it is strategic or operational.

3.7 MANAGEMENT COMMITMENT AND RISK TAKING BEHAVIOUR

Management commitment is important for every activity and process within any

organisation irrespective of the size. Top management commitment forms a crucial

foundation of support for new product development (NPD) process and other

entrepreneurial activities that takes place within the organisation (Cereolaa S. J. et al, 2012;

Hoffmann and Schlosser, 2001).

Management commitment which is hinged on the collective nature of the manager’s

influence on the risk taking behaviour of the organisation (Rachdi and Ben Ameur, 2011). It

is imperative to note that leadership is fundamental to the norms and values that is

attached to risk in an organisation. Knight (2000) noted that the management with strong

commitment will often enhance high risk taking behaviour in areas, such as huge debt taking

in order to increase the returns from maximising opportunities.

The commitment argument is hinged on the direct reflection in the propensity for risk based

decision making. Freeman and Cavusgil (2007) highlighted that top level management

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commitment makes the decision making in strategic use of risks in alignment with the vision

of the organisation. The commitment of the management concretise the top level

management willingness to exploit any risk spontaneously for the organisational benefit.

Knight (2000) noted that the risk supportive nature of the top management provide an

organisational wide risk taking support.

Vermeulen and Curseu (2008) noted that the commitment of the management shape the

risk perception and influence the perception of risk thereby eating deep into the behaviour

of the organisation. The management commitment can perceive a highly risky situation as

an opportunity at market place thereby shaping the subsequent behaviour of the

organisation in future. Knight (2000) established that the commitment by the management

can shape the attitude in decision making by organisations. This is based on top level

decisions that shape the nature of work and roles within the organisation.

However, the management commitment can further plunge the organisation into

increasingly risky terrain where failure becomes imminent. Vermeulen and Curseu (2008)

noted that the management commitment should carefully be nurtured into the risk taking

behaviour. This is based on the assertion that failure to have a risk management structure

will definitely jeopardise the company. This point to the fact that the risk taking behaviour in

SMEs might be based on standardised risk management principle rather than the

commitment of the management (Janney and Dess 2006).

The criticism might be entrenched in the failure of the management of SMEs not to have

professional idea on the concept of risk. For example, the Satyam case in India where the

board of directors have no specialised business management became a factor for the

massive corporate fraud every recorded in India (Atesci et al., 2010). In this light, the

management commitment is not enough but the professionalised practice of risk

management which is a common routine within the organisation. While the commitment

and involvement of the top management is arguably necessary for the success of any

initiative within and outside an organisation, it is utterly important for procedures to be

instituted to manage risks that are associated with doing business in competitive markets

(Vermeulen and Curseu, 2008).

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The presence of a professional financial department in an SME will always make the risk

behaviour within the organisation to align to standardised practice. Baxter (2010) noted that

conforming to regulations which is the role of the organisation often place a ceiling on the

amount of risk and the way which an organisation act. In essence, the management

commitment cannot really shape the behaviour as conformity to regulations is compulsory.

Calder (2008) noted that the conforming of SMEs to industrial and corporate regulations

actually influence the risk taking behaviour.

Another critical point is that the management commitment have limited impact on the risk

taking behaviour based on the presence on risk management principle. Baxter (2010)

highlighted that the presence of risk policy within an organisation implies the manner in

which the behaviour of the organisation must be in business related risk. In essence, the

idea of organisational commitment can only be massively effective when the management

sanction the violation of this policy. Abotsi et al. (2014) noted that big size SMEs often

possess risk management policy which provides the manner in which risk must be managed.

In essence, the risk behaviour is hinged on the policy rather than the management

commitment.

Despite the critical opinion, the management commitment is argued to be highly important

in the corporate governance principles within the organisations (Ojiako et al., 2014). Some

areas of impact influences the discussion of the impact on the risk taking behaviour of the

organisation.

3.7.1 ORGANISATIONAL CULTURE

The behaviour of an organisation is characterised in the organisational culture.

Organisational culture represents the assumptions, norms, values and unique process

pattern in an organisation (Kenny and Reedy, 2006). The management of an organisation

through corporate governance and behaviour define the nature in which the culture of an

organisation is defined. Al-Ansari et al. (2014) noted that the leadership existing in an

organisation influence the manner in which the internal and external behaviour of the

organisation will be.

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Building a risk culture in an organisation rely on the management and their willingness to be

committed to organisational wide risk. Organisational risk culture is reflected in the

attitudes, behavioural and managerial norms within an organisation that determine the way

in which they identify, assess and act on challenges and risks confronted (Atkinson, 2013).

Risk within the organisational culture is a direct precept of the management.

One of the most important organisational characteristics is a culture which is “risk-aware”.

Kaufmann and Tsangari (2010) put the risk-aware attitude to be the identification of the

presence of risk within the business as well as in the external environment and includes

those intrinsically present in the projects being undertaken by the organisation. The risk

aware culture focuses on the manner in which organisation build risk into the mentality and

values of the organisation. Influencing the entire organisational culture based on

commitment is an important occurrence within SMEs (Petschnig, 2011). A culture which has

a well-developed approach to risk at all levels, which is not astonished when risk occur and

is able to take risk in its pace shows the success of the management commitment in

instilling risk awareness and management into the organisational culture.

3.7.2 RISK PERCEPTION

The management commitment is directly focused on transforming the manner in which risk

is perceived within an organisation. Risk perception was defined by Klos et al. (2005) as the

feeling which is subjective concerning the level of risk attached to a certain action or

available alternatives. The impact of management commitment is to view risk from the

positivity perspective irrespective of the degree of risk associated with such decisions. The

way in which an organisation perceive risk determine the manner of behaviour towards its

management Naldi et al. (2007). This underlines the fact that management commitment

might proof to the employees how they ought to behave towards risk.

The actions of the management is interpreted for commitment which in turn influence the

behavioural position of employees at the SMES. Forlani and Mullins (2000) noted that three

key factors that determine the risk include financial commitment level, outcome variability

and potential financial loss. The management commitment implies the financial

commitment which might be expended towards the particular risk. Orjiako et al. (2014)

noted that when an entrepreneur sees a risk as potential for gains, their financial

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commitment increases. The increasing financial commitment influence the acceptability and

the way which the entire organisation view the risk.

3.7.3 REWARDS AND BENEFITS

The management commitment in shaping the risk taking behaviour can resort to rewards

and benefits for identified individuals or groups who align to the desired practice of the

organisation. The management risk taking by making reward and benefits for commendable

risk taking behaviour (Sedighadeli and Kachouie, 2013). There are many things that the

management can do to improve the risk taking behaviour, by encouraging and promoting

creativity within their organisations. Creativity and innovation are stimulant components for

success in business; at the same time, there is a considerable need to manage resources and

make decisions (Davila et al., 2006). The organisation (and particularly its management) can

encourage and reward suitable risk taking activities, celebrating achievements and the

teams that demonstrate an effective approach towards managing risk (Sedighadeli and

Kachouie, 2013). However, this can result in internal competition which might increase the

tension and make internal collaboration difficult. Individuals or groups that are not

favourably treated in the reward and benefit system might lose commitment and interest

on projects, which may lead to reduced efficiency.

3.7.4 DECISION MAKING

Decision making is an area which management commitment has impacted organisational

risk taking behaviour. Commitment from the top level management towards the strategic

and organisational objectives of a business help organisations in making right decisions and

eventually sharing a common understanding of their vision (Freeman and Cavusgil, 2007).

The management commitment puts risk related decision to attract necessary support which

will impact the business direction of SMEs.

The management commitment is important in making favourable decisions that will ensure

that optimum risk management practice is entrenched (Loh and Loh 2004). SMEs require

management commitment in the form of support in order to achieve success in key business

areas. Success is often pointed out as being positively correlated with top managements

support (Krishnan and Ulrich, 2001). This will be reflected in the management having

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enthusiasm towards risk based matters thereby making budget allocation, accountability

and easy decision making process possible.

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4. CONCLUSION

Risk taking is inevitable for businesses as it holds the key to maximising opportunities and

achievement of business goals. Hence, the need for development of risk management

process that reflects the desired risk taking behaviour by the management of the

businesses. The risk taking behaviour provides an identity for a particular business thereby

characterising the manner in which the business wants go about taking risks.

SMEs continue to operate in a highly volatile environment where risk taking is imperative to

success. The volatility has made SMEs in the engineering sector to experience increased

level of risk thereby making it unique that their management exhibit consistent level of

behavioural display in the risk taking process.

Risk taking can be impacted by the industry of SME operation considering that different

industry possesses unique risks.

However, the internal control in some other perspective has been seen as the most

important in risk taking behaviour development. It is important that the management

commitment is geared towards process that will foster effective risk taking behaviour.

Individual managers forms the management of an organisation. Their behaviour impact on

the entire organisational behaviour thereby making them to be highly important in the

development of the risk taking behaviour. Competency, gender personality and ownership

structure continue to elicit argument on how the commitment of the management can be

swayed in an organisation. This is based on the inherent link by scholars between these

factors and the risk taking behaviour based on their impact on the management decision

making process.

It was established that the management commitment in SMEs is highly imperative. The

achievement of management commitment is important for the risk taking behaviour in

SMEs. This is important as the various dimensions and processes in the organisation is

established to be affected by the management behaviour in organisation. The areas which

the management commitment is affecting SMEs include decision making, organisational

culture, reward and benefits and risk perception.

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The evidence of the commitment is reflected in the support received in risk base

implementations in the organisation. The management commitment ensure that financial

commitment and overall support by the management is devoted towards risk based

processes. This will make decision making together with perception of risk within the risk

management is conducted.

In conclusion, there exist no viable or conclusive agreement point on how the management

commitment has transformed or impacted risk taking behaviour. Factors have been

identified but lacked industrial or theoretical agreement required to ascertain both remote

and direct impact on risk taking behaviours at SMEs. SMEs will continue to be relied on by

economies while the dimensions of impact which management commitment have on the

entire risk taking behaviour will continued to be expanded.

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5. FUTURE RESEARCH

Conducting this research have established that management commitment play a significant

role in the overall risk taking behaviour of SMEs. The research have provided detail findings

thereby requiring future research in order to further enhance the findings. The suggested

research area will provide further academic and industrial addition to the body of

knowledge.

Firstly, the role of regulation on risk taking behaviour in SMEs should be investigated. This is

important to provide another perspective onto how SMEs derive their risk taking behaviour.

This research will enrich the risk taking behaviour contextual understanding of SMEs. It will

allow the comparison of the most influential factor in the risk taking behaviour of SMEs.

Another research area that should be explored is the impact of SME industry on the risk

taking behaviour. This research explained that risks for SME in some cases are based on the

business area of SMEs. Investigating how this different business area induced risk impact the

risk taking behaviour of SMEs must be investigated. This will further establish how the

management commitment can be different as a result of the risk taking.

Finally, research into how risk taking behaviour of SMEs impact their performance should be

conducted. This research established that SMEs are important but operate in a highly risky

terrain. It is important to investigate how risk taking behaviour has or can influence the

performance of SMEs. This will deepen the understanding of SME management and the kind

of support that can be rendered for optimum performance. Comparison between a good

performing SME and not so good performing SME can be used to provide concrete evidence

for this research.

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