Lean development evaluation in small Brazilian company.
| Autor | Hoffmann, Davi Laskani |
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Introduction
According to a commissioned research by Sebrae titled "Micro and Small Companies Contribuition in Brazilian Economy" (free translation) since July 2014, nearly 9m of micro- and small companies have been responsible for, about, 27 percent of the Brazilian GDP and 52 percent of the formal jobs in the country. These rates have increased over the past few years, indicating that this group of companies is significant and have become more important for the country's economy. As reported by Luiz Barreto, Sebrae Nacional's Chief Executive Officer, when the survey was carried out, "Data demonstrated the importance of encouragement and qualification for smaller enterprises, including Individual Micro-Entrepreneur."
The same importance is stated in a Sebrae/SP study called "Micro and Small Enterprises Panorama from Sao Paulo, 2015" (free translation) and in IPEA (2012) called "Micro and Small Enterprises Labor Market and Individual Micro-Entrepreneur" (free translation) (Sebrae, 2014a, b, p. 6).
On the contrary, according to another study from Sebrae itself called "Causa Mortis--Companies' success and failure in their first five years of life" since June 2014, most of these companies have been closed after a short operation period (58 percent in up to five years according to the Panorama of micro- and small business in Sao Paulo, from Sebrae/SP) due to failures in the advanced planning, business management shortcomings/deficiencies and inappropriate entrepreneurial behavior. Furthermore, it is known that the Brazilian scenario is classified as hostile for new enterprises (The World Bank Group, 2016).
Therefore, to evolve, good management practices are a crucial point to this segment and a source of survival to companies within this size.
Coupled with the evolution of good management practices, it is the gain core or competitive maintenance for corporate innovation. According to the study "Fastest Growing Brazilians SME" (Deloitte & Exame, 2016), there are five principles which support a healthy growth of this kind of organization:
(1) investment continuity;
(2) seek for efficiency;
(3) market and performance monitoring;
(4) cooperate governance; and
(5) focus on business sustainability.
According to this study, "with technological evolution in the business world, the investments in innovation on start-up companies must be aligned with the best governance practices and the pursuit for greater productivity and efficiency." Therefore, the investments in innovation are revealed as an important source of competitiveness (Table I and Figure 1).
In accordance with the same study, 83 percent of the researched SMEs had launched new products and services in the cycle, achieving positive results such as gain market share and increase of total profit margin. At this point, innovation is added to the development of new products and to its positive financial outcome of this strategic choice. Therefore, product development becomes a source of innovation and corporate survival, fighting against the previously found high mortality rate (Sebrae, 2014a, b) (Table II).
Additionally, 78 percent of the research respondents believe that sustaining constant product innovations is an action focused on continued growth for next periods and 57 percent believe that expanding the portfolio of products would produce the same result. These data demonstrate the importance of product development subject in small companies, from the perspective of the entrepreneurs themselves.
Figure 1. SME's results obtained with the launching of new products and services 83% of SME launched new products and services Gain market share 2013 62 2014 71 2015 77 Note: Table made from bar graph. Results obtained with the launching of new products and services (In % respondents that performed this investment) Gain market share Increase of total profit margin 2013 29 7 2014 19 7 2015 24 12 Source: Deloitte & Exame, 2016 (adapted by the authors) Note: Table made from bar graph. Justifying the research choice, the authors found shallow knowledge about lean in product development and no practical sign, in exploratory research together with SMEs' trade associations and consultancy in Brazilian market. For that reason, subject relevance is identified, assumptions on concept application in a small company are tested, and the matter on how the lean method for product development can or cannot be adherent in a small company is brought up.
The technical report to be presented is from the company Vendo Movel, real name withheld by the studied organization, founded in 2011; it is the first online store in Brazil specializing in the sale of complete sets for babies, children and young teenagers, selling furniture and decoration items. Therefore, it is placed within the value chain of the large Brazilian furniture market, retail chain. Brazil is the world's fifth largest furniture producer, and it has more than 20,000 producers manufacturing more than 430m of pieces a year, corresponding to 58bn reais annually in products, according to Brazilian Furniture Institute. Despite the online store, it has also expanded through showroom in Sao Paulo, granting a new shopping experience for customers, by providing them personal visualization of several inspiring environments. The company aims to offer to its clients not only product purchase but also the environment transformation, with rooms filled with emotions and dreams coming true. In its market, there are a number of competitors, several virtual stores as followers, including the largest in the industry and many physical stores distributed all over Brazil on in a pulverized way. Since the company finds itself in a highly competitive market and operates in an equally competitive sales channel, in which the consumer can easily compare the products and tend to opt for stores with lower prices, Vendo Movel established as their main strategy the development of their own products, with innovative design, including these items in their portfolio, in other words, product differentiating position in a market that demands innovation in design. Nowadays, the company draws and coordinates development projects with their manufacturing partners who develop according to this perspective.
The company, through this strategy, grew in revenue from R$1.5m in 2013 to, nearly R$ 30m in 2017 and could achieve the level of 50,000 orders annually with an organic growth and a highly innovative attitude in their own products. In/by 2013, they began developing their own products, five to start with, and are currently developing 30 a year. These represent around 30 percent of their annual revenue and these pieces parts hold a superior higher contribution margin if compared to traditional resale items. Likewise, they represent a great asset to generate financial outcome and business value.
Nowadays, Vendo Movel works with more than 100 factories of House and Decoration, their associates are aware of the process practical difficulties, and they have broad access to this supply chain with a high capacity of influence over their suppliers-partners.
In this context, observation is expected in real application value of lean concepts to product development in an SME.
It is important to point out that what enriches this case study is the practical observations, sporadic visits, access to internal documents and also the conducted and quoted interviews in this study.
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Theoretical review
The literature review particularly addressed lean concept applied to product development, observing matters assessed in a real company of this size.
In addition, literature review listed characteristics of small-sized companies and family management, given the need to observe and to determine some singularities of this type of organization, this paper's object of study.
2.1 Small company's characteristics and specificities
There are several reasons why a person decides to open their own business start. Some scholars arouse motives that explain these motivations.
The reasons that lead entrepreneurs to start their own business are, in order of importance, finding a business opportunity; having previous experience; being unemployed; having available time; having capital; being dissatisfied at work; being fired and receiving compensation (Tachizawa & Faria, 2004).
Therefore, the motivations that lead to entrepreneurship, in the sense of opening starting new enterprises (business), might depend on material or personal matter or may be related to entrepreneurship out of necessity or opportunity (Lemes Junior & Pisa, 2010).
Personal motivation includes familiar tradition, put into operation acquired skills, need of professional self-fulfillment, need of social status, contribution to social development and the need of being your own boss (Lemes Junior & Pisa, 2010).
Material motivation includes make money (increase income or become rich), resource availability, unemployment, envision of an innovative opportunity, existence of a support body and funding and booming market (Lemes Junior & Pisa, 2010).
Regardless the existing motivation to open a business, this organization will have some characteristics and will go through some challenges if it wills to survive and grow.
However, it is necessary to correctly understand which these characteristics are important in order to classify a company as a micro- or small company, within Brazil.
Officially, in Brazil, according to the Micro- and Small Companies General Law of 2006, the companies' size is classified based on gross revenue ranges (Sebrae, 2008a):
* individual micro-entrepreneur: a legalized person who works alone, with annual gross revenues up to R$81,000.00. Micro-entrepreneur can have one employee and cannot be associate or owner of another company;
* micro-enterprise: limited company with gross revenues equal or lower than R$360,000.00; and
* small-sized company: if the annual gross revenue is higher than R$360,000.00...
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