This paper aims to investigate the gap between theory and practice in performance management in small and medium‐sized enterprises (SMEs) and analyse it in the light of specific SME characteristics and needs, to identify how SMEs can develop their managerial practice for effective performance management.
The design of the study is based on literature review and multiple case studies. Combining both approaches and investigating a spectrum of 37 European SMEs through 232 semi‐structured and face‐to‐face interviews with managers helped the authors to provide theoretical and empirical evidence to offer a more effective performance management process for SMEs.
The paper found that SMEs engage with a four‐stage performance management process, although there are some gaps between their practice and the complete process as recommended in literature. SMEs seem to be more focussed on internal and short‐term planning, whereas they pay less attention to long‐term planning. The main challenge for making performance management practice more effective lies in an appropriate, balanced use of strategic and operational practices and relevant measures. Therefore, managerial activities such as vision, mission and values development, internal and external communication, change management and horizon scanning represent recommended areas for improvement.
The paper suggests a number of ways to improve the SME managerial practice to achieve a more balanced view of the whole performance process, which includes the mechanisms for the development and implementation of good practice in performance management.
