Public Assistance Programs and Small Business Performance

Shapiro et al.'s (1996) states, that assistance programs implementation begins by transferring inputs from the assistance program to the client, then through a series of intermediate steps, actions are taken by the client that subsequently lead to business and economic development outcomes. It is therefore possible to regard the assistance program (i.e. the consultant), its gist and input, as one party, where the other party includes the client (i.e., the firm), its capabilities, aspirations and willingness. The assistance program’s effectiveness relies on both parties as well as the quality of interaction between them.

The Program and Performance
A number of studies examined the assistance program’s effect on firm performance while noting, in general, that the only difference between small businesses that receive assistance and those that don’t is the assistance itself (Felsenstien et al., 1999; Chrisman, 1999; Chrisman and Mcmullan, 2000). Chrisman (1999) found that performance in firms that received assistance from the Small Business Development Center (SBDC) in the US was significantly better than performance in firms that were part of the control group that did not participate in any kind of assistance program.
Several Studies examined the components of assistance provided by the assistance program. Jang and Lee (1998) have indicated the consultant’s capacities, and the manner of consultation: defined objectives; and structural procedures. Kaplan et al. (2000) examined the following: full seminar days a business was allotted; the number of workshops; visits accorded to the firm and the number of formal and informal consultations. Rice (2002) examined the following: nature of instruction; amount of time allotted to assistance; intensity of assistance (i.e. its frequency and each encounter’s length); range of implemented assistance operations; and whether consultation was reactive or proactive. Wren and Story (2002) found that of three assistance components – the grant rate available to the firm; the cost of consultation per day; and number of consultation days – the last had a significant effect on performance. Chrisman and Mcmullan (2004) found significant positive correlation between the number of consultation hours provided to small businesses during the initial phases of their foundation, and their capacity for survival. Chrisman et al. (2005) found a positive, low-significance correlation between the number of consultation hours provided and performance.
Some studies examine the differentiation between various types of assistance course. Ehlen (2001) presents three feasible courses of assistance program: business activity consultation; technical consultation centering on new products and procedures; and staff instruction. Assistance components utilized within the framework of various assistance courses included: improvement of procedure; improvement of quality; financial planning; and the implementation of electronic commerce. Luria and Wiarda (1996) note that improvement in performance achieved by firms, which participated in consultation assistance course (three were examined), but here also statistic significance was low.
The studies surveyed enable to differentiate between technical and material characteristics. Technical characteristic can be define as a list of tasks detailing the type of assistance. Such tasks may generate from the firm’s own framework of activity, alternately they may result from the incorporation of the assistance program, for example - loan assistance, tax consultation, insurance consultation, consultation regarding government offices. Material characteristic can be define as such, if it is capable of indicating at the manner in which assistance is given, for example - the period of time allotted to assistance, the intensity of assistance, the range of implemented assistance activities, the consultant’s capabilities.
The possible effect an assistance program has on firm performance is more evident where there are differences in the material characteristics of assistance components from one course to another. It is possible that the fact that previous studies’ findings are not conclusive stems from examinations of the various courses of assistance that have not been detailed enough so as to determine the comprehensive nature of those parameters that affect firm performance.
The assistance program’s material characteristics can be distinguished in accordance with two dimensions. Quantitative assistance components - evaluates the extent of assistance components, such as: number of days allotted to assistance; intensity of assistance; and the range of activities covered by the assistance program. Qualitative assistance components - evaluates the quality of assistance, such as: consultant’s capabilities; manner of consultation; location of consultation.
It is possible to predict that the extent of quantitative assistance components will have a positive effect on the firm’s performance. More means of external assistance to strengthen those aspects in which the small business lacks will raise the level of performance. Moreover, It is probable that there is a positive relation between the level of qualitative assistance components and the small business’ performance. The higher the quality of the consultant and the consultation process is more precise, ordered, well-defined and active, the higher will be the level of performance.

The Client and Performance
A theoretical study by Jang and Lee (1998) enumerates three fundamental parameters, which affect the success of the management of consultation: consultants’ capabilities; manner of consultation; and organizational characteristics of the client. According to Fleming (1989), key to a successful consultation process is the successful implementation of the outcomes of the consultation process, and the abilities of the client. Shapiro et al. (1993) assert that successful implementation of the assistance program depends on the level of cooperation between consultant and client. Rice (2002) found that entrepreneurs that evinced a greater willingness to cooperate were more influenced than others in the process of business support.
The client’s objective is the success of the consultation process and as derived from it, contributing to a higher level of performance. The quality of consultation management is the means to that end.

Program–Client Interaction and Performance
According to Rice (2002), an interaction between client and consultant is the result of the quantitative and qualitative contents contributed by each of the parties participating in the process of the assistance program. It is therefore to be asked whether an examination of those quantitative and qualitative contents is enough for the purpose of learning about the effectiveness of the assistance process?
An answer to this question may be found in psychological and sociological research centering on the interaction between consultant and client. Luborskt et al. (1997) found that a measurement of the intensity of interaction depends on an analysis of both the interaction and its outcomes. It is impossible to learn of the intensity of interaction by means of measuring only the contents provided to it by the participating parties (Smith and Glass, 1977; Garfield, 1988; Shapiro, Firth-Cozens and Stiles, 1989).
How does one measure an interaction? Sharpley at al. (2000) resorted to the level of rapport that the client experienced. The basis for choosing this estimation is a wide agreement in literature, where therapeutic alliance is of paramount importance in the client’s assessment of the consultation as successful.
Horvath and Greenberg (1989) disassembled the therapeutic alliance into three components: Bond is one of them - level of trust and emotional closeness experienced by both client and consultant.
As the subject under discussion is a relationship motivated by human parameters, there is considerable importance to the intensity of that relationship, derived from both affinity and friction between the participants in the assistance process, The greater the intensity of relationship, the better becomes the assessment of the quality and intensity of the interaction in process.

Limitation for Measuring the Effect of Public Assistance Programs on a Country-Level Economy

Are there benefits in trying to measure public assistance effect at the country-level economy? Literature suggest two main approaches, Wood (1994) ; Blizzard (1995) ; Wood (1999) claims that an economic approach which represent each change as a result of macro economic status is the one with the upper hand. Chrisman (1995) ; Chrisman and Mcmullan (1996) ; Chrisman and Mcmullan (2002) represent an opposite approach, they claim that even though measurement has significant difficulties, it’s can be argued that improving the management level in a firm using assistance of outside help can lead to an improvement at the firm’s performance level. Such improvement at the firm level could suggest that changes will exist at country-level economy as well.

Analyzing the different ways scholars tried to cope with measuring the effect of public assistance programs on country-level economy, raise several questions regarding the possible accuracy that can be achieved based on the existing models:
1. There is objective difficulty in gathering data from public assistance programs that can be used for analysis at the country-level economy.
2. Measuring effects at country-level economy is based on measurement at the firm level. Using different models scholars “transform” data from firm level to country-level. The “transformation” process doesn’t take into account significant measures at country-level economy (e.g. GDP growth, Unemployment).
3. Luukkonen (1998) argue that the difficulties to assess the effect of public assistance programs comes from the problematicalness to “transform” the analyze data from the firm level to country-level.
4. Measures, like Sales growth and employment growth, which have been used to assess the effect of public assistance programs at country-level represent performance measurement which relate to “growth”. Other measures, such as, profitability, efficiency, liquidity, which relate to other dimensions of the overall performance structure, could in fact pull to other as well as opposite direction.
5. Sale growth and market share growth measures represent opposite directions. Sales growths that follow market share growth by a given firm suggest that the particular sale growth comes on the account of other firms in the industry, and it’s not represent genuine growth. Most scholars doesn’t coupe with this issue.

Do Government Assistance Programs in Fact Assist Small Businesses?

Government budgets are relayed to various assistance programs whose purpose is to encourage economic activity in small businesses. It is often asked whether these programs do in fact fulfill their purpose or maybe these budgets are wasted? A groundbreaking research jointly conducted by Ben-Gurion University and the Ministry of Industry, Trade & Labor elucidates this issue. Researchers Dr. Rami Schayek and Prof. Dov Dvir have developed an innovative model which measures the effect of government assistance programs on small businesses, identifies the most important components incorporated in the assistance program and determines which managerial, operational and behavioral activities should be focused in order to improve on business performance. The research included one hundred and thirty five small businesses which participated in the Ministry of Industry, Trade & Labor’s Standard Coaching project. This project is one of several business coaching projects run by the ITL ministry and it is designed for small and medium businesses of five to one hundred employees. A business of five to ten employees is appointed up to one hundred coaching hours. A business of eleven to one hundred employees is appointed up to one hundred and fifty hours. The coaching project finances 75% of the cost of coaching. 25% are financed by the business.

Results indicate that there is a return on the taxpayer’s money!
Findings indicate that government assistance program involvement positively affects small business performance. The basic research model, which examined only the direct effect the assistance program has on small business performance, shows that the greater the number of quantitative components (hours of consultation; proximity of consultation encounters; range of issues incorporated into the consultation), and the higher the standard of qualitative components (level of the consultant’s professional understanding of the respective subjects of consultation; level of organization and planning of the consultation process; level of trust, commitment and mutual understanding between consultant and small business owner), the higher will be the level of performance in the small business. When adding to the model an examination of indirect effects, assistance programs are shown to affect small business performance primarily through the consultant’s influence on the small business owner which is expressed in the latter’s motivation to take action, like as attention to the service provided after the sale, understanding the fluctuation in customer preferences and the small business’s operative environment, and the need to measure and analyze customer satisfaction and respond to the customer’s complaints regarding either the service or the product provided by the small business. The consultant also affects the business owner with respect to the latter’s ability to manipulate business opportunities through utilization of competitors’ weaknesses and an understanding of the ways in which the small business as a whole may benefit the customer. Consultation raises the small business owner’s level of awareness as to the need to innovate, take risks and increase the level of activity, both in implementing changes in the service or products he provides and as regards conduct in the face of competition. In fact, the consultation process motivates the small business owner to take actions which would raise the level of market orientation and entrepreneurship in the small business, and as a result initiate an increase in its level of performance.

How is it possible to win an even greater return?
The findings of Dr. Schayek’s doctorate thesis supervised by Prof. Dov Dvir, facilitate recommendation on a number of issues which could intensify the effect of public assistance programs on performance in small businesses. Thus it is important that the consultant emphasize before the client that submitting reliable and comprehensive information to the consultant, as well as willingness on the part of the business owner to implement changes in accordance with decisions reached as a result of cooperation with the consultant, is paramount for the success of the assistance process and the improvement on performance in the small business. Based on the research model, the client constitutes an integral part of the assistance program. The more involved and active he becomes in the process of coaching, the greater will be the assistance program’s positive effect on the small business’ performance. In addition, the research indicates that effort must be made on the part of the consultant in improving the client’s capacity of raising finance. The client’s capital raising capabilities which, according to the model constitute a parameter in the improvement of the level of performance, will improve if the client is given an explanation as to existing finance opportunities and is prepared as to the manner in which one should approach and present the small business’ requirements before possible financing sources (such as banks or credit companies).