Artificial Intelligence Based Commercial Risk Management Framework for SMEs

Round 1

Reviewer 1 Report

Dear authors, 

The topic of the paper is attractive and I really think that a CRMF dataset used by SMEs is important, specially with the use of AI. However, in order to be considered for publication in the Journal Sustainability, some issues must be improved.

The abstract creates certain expectations that are not fulfilled in the rest of the paper. The most important: How is the study framed within the social, environmental and economic area? The role of SME with SDG  does not have sufficient theoretical support (Section 2.1).

A glance at the references indicates that journals whose scope is Sustainability (Social, Environmental an Economic factors) have not been taken into account. As the paper is presented it would seem that the importance of the SME in the fulfillment of the SDG is only a contextual factor and not a key factor, as is intended in the keywords and even in the first of the conclusions. 

The references of Section 2.1 must be scientific and sustainability driven.

In figure 2, how can environmental, and social risk be predicted? There are ways to assess the sustainable financial model of SMEs. How can it be taken into account in this figure?

The CRMF Dataset (Figure 4): The set I (Selling/Buying SMEs) can easily be replaced by Large and MNE. What are the consequences of the replacement of this data in terms of Social, Environmental and Economic Risk? How can it help SME to meet at least SDG 8 and SDG 9 as you assert in the Literature Review?

The text does not show a line of argument to support the first conclusion, either in the presentation or in the references.

On my opinion, the answer to this questions could help to circumscribe the paper in the area of study of this journal

Author Response

Response to Reviewer 1 Comments

 

The authors would like to thank the reviewer for providing valuable comments and suggestions. These comments were very helpful for refining and enhancing the paper. The following list shows the reviewers’ comments (points) and the author’s responses to each of them. The text in the reviewers’ comments is based on the previous manuscript. In the revised manuscript, the parts of the manuscript that have been added or updated based on the reviewer’s comments are marked accordingly using track changes mode.

 

 

Point 1: The abstract creates certain expectations that are not fulfilled in the rest of the paper. The most important: How is the study framed within the social, environmental and economic area? The role of SME with SDG does not have sufficient theoretical support (Section 2.1).

Response 1: There is not so much evidence in the scientific literature focusing on sustainability criteria related to SMEs risk management using AI solutions. Authors mostly focus on promoting sustainable activities or proposing management systems for sustainable development in SMEs. There are basically several mainstreams of research on sustainability for SMEs: (1) environmental issues and environmental management systems for SMEs; (2) sustainable management systems or management systems enhancing sustainability for SMEs; and (3) sustainable innovations for SMEs. Thus, our approach of pointing out the importance of commercial risk management involving AI-based tools, helping to reduce the risk for SMEs together with a better assessment of financial performance alongside with better access to finance would bring the new angle for research and applied systems for SMEs meeting SDG and improving their competitiveness. The relevant literature has been added to section 2.1

Point 2: A glance at the references indicates that journals whose scope is Sustainability (Social, Environmental and Economic factors) have not been taken into account. As the paper is presented it would seem that the importance of the SME in the fulfillment of the SDG is only a contextual factor and not a key factor, as is intended in the keywords and even in the first of the conclusions.

Response 2: There is not so much evidence in the scientific literature focusing on sustainability criteria related to SMEs risk management. Authors mostly focus on promoting sustainable activities or proposing management systems for sustainable development in SMEs. References to SDG Compass and Sustatool as existing attempts to link SME activities and SDG tasks are added in the paper. Proposed CRMF as another way to move SMEs performance toward SDG tasks is framed among these previous conceptual assumptions. It helps to prove the fit of the study in line of research linking SMEs performance and SDGs tasks.

Point 3: The references of Section 2.1 must be scientific and sustainability-driven.

Response 3: The following references were added to the revised manuscript:

 

Morsing, M.; Perrini, F. CSR in SMEs: do SMEs matter for the CSR agenda? Business Ethics: A European Review 2009, 18, 1–6. Lawrence, S.R.; Collins, E.; Pavlovich, K.; Arunachalam, M. Sustainability practices of SMEs: the case of NZ. Business Strategy and the Environment 2006, 15, 242–257. Castka, P.; Balzarova, M.A.; Bamber, C.J.; Sharp, J.M. How can SMEs effectively implement the CSR agenda? A UK case study perspective. Corporate Social Responsibility and Environmental Management 2004, 11, 140–149. Moore, S.B.; Manring, S.L. Strategy development in small and medium sized enterprises for sustainability and increased value creation. Journal of Cleaner Production 2009, 17, 276–282. Hillary, R. Environmental management systems and the smaller enterprise. Journal of Cleaner Production 2004, 12, 561–569. Brammer, S.; Hoejmose, S.; Marchant, K. Environmental Management in SMEs in the UK: Practices, Pressures and Perceived Benefits. Business Strategy and the Environment 2012, 21, 423–434. Biondi, V.; Iraldo, F.; Meredith, S. Achieving sustainability through environmental innovation: the role of SMEs. International Journal of Technology Management 2002, 24, 612–626. Zorpas, A. Environmental management systems as sustainable tools in the way of life for the SMEs and VSMEs. Bioresource Technology 2010, 101, 1544–1557. Kerr, I.R. Leadership strategies for sustainable SME operation. Business Strategy and the Environment 2006, 15, 30–39. Burke, S.; Gaughran, W.F. Developing a framework for sustainability management in engineering SMEs. Robotics and Computer-Integrated Manufacturing 2007, 23, 696–703. Johnson, M.P. Sustainability Management and Small and Medium-Sized Enterprises: Managers’ Awareness and Implementation of Innovative Tools. Corporate Social Responsibility and Environmental Management 2015, 22, 271–285. Johnson, M.P.; Schaltegger, S. Two Decades of Sustainability Management Tools for SMEs: How Far Have We Come? Journal of Small Business Management 2016, 54, 481–505. Bos‐Brouwers, H.E.J. Corporate sustainability and innovation in SMEs: Evidence of themes and activities in practice. Business Strategy and the Environment 2010, 19, 417–435. Klewitz, J.; Hansen, E.G. Sustainability-oriented innovation of SMEs: a systematic review. Journal of Cleaner Production 2014, 65, 57–75. Halme, M.; Korpela, M. Responsible Innovation Toward Sustainable Development in Small and Medium-Sized Enterprises: A Resource Perspective. Business Strategy and the Environment 2014, 23, 547–566. Martinez-Conesa, I.; Soto-Acosta, P.; Palacios-Manzano, M. Corporate social responsibility and its effect on innovation and firm performance: An empirical research in SMEs. Journal of Cleaner Production 2017, 142, 2374–2383. Bayarçelik, E.B.; Taşel, F.; Apak, S. A Research on Determining Innovation Factors for SMEs. Procedia - Social and Behavioral Sciences 2014, 150, 202–211. Zhu, Y.; Xie, C.; Sun, B.; Wang, G.-J.; Yan, X.-G. Predicting China’s SME Credit Risk in Supply Chain Financing by Logistic Regression, Artificial Neural Network and Hybrid Models. Sustainability 2016, 8, 433. Tsai, W.-H.; Chou, W.-C. Selecting management systems for sustainable development in SMEs: A novel hybrid model based on DEMATEL, ANP, and ZOGP. Expert Systems with Applications 2009, 36, 1444–1458. Weber, O.; Scholz, R.W.; Michalik, G. Incorporating sustainability criteria into credit risk management Available online: https://onlinelibrary.wiley.com/doi/abs/10.1002/bse.636 (accessed on Jul 30, 2019).

Point 4: In Figure 2, how can environmental, and social risk be predicted? There are ways to assess the sustainable financial model of SMEs. How can it be taken into account in this figure?

Response 4: Environmental and social risks specifically are not predicted by the proposed framework. The framework addresses commercial risks. Mitigate commercial risk is a proposed way to solve potential social and environmental issues, including social and environmental risks occurring in commercial processes due to negative consequence events caused by inappropriate choices of partner (supplier and/or buyer) whose business processes, attitude, philosophy and/or products are not sustainable.

Figure 2 is abstract and conceptual depicting essential elements of the risk and risk prediction concepts. Economic, social and environmental risk factors are expected to occur both as internal characteristics of the companies as well as external attributes of the external environments surrounding certain businesses. Detailed proposed risk factors’ structure is shown in Figures 4 and 7.  Since we are not able to list all risk events factors (the particular list is unknown until certain CRMF is developed), Figure 2 only states that the range of different category factors should be evaluated.

The sustainability of SMEs’ financial model is improved by increased levels of commercial risk prediction and respective commercial risk mitigations. CRMF warns SMEs about potential commercial risks, thus preventing from financial losses or unsustainable spending, which harm SMEs’ finances and thus could impact its sustainability in economic, social and environmental perspectives. As already noted above, the current CRMF model focuses primarily on commercial risk, but it easily could be extended to cover other perspectives, including e.g. sustainability of financial sourcing.

However, responding to the reviewer’s comments and seeking to improve the integrity of the paper, we have extended Figure 2 to highlight expected effects of commercial risk mitigation for the sustainability of SMEs’ financial model. Financial model moving towards sustainable state enables respective movements towards SDGs.

Point 5: The CRMF Dataset (Figure 4): The set I (Selling/Buying SMEs) can easily be replaced by Large and MNE. What are the consequences of the replacement of this data in terms of Social, Environmental and Economic Risk? How can it help SME to meet at least SDG 8 and SDG 9 as you assert in the Literature Review?

Response 5: The selling / buying SMEs as providers of their internal commercial data for CRMF are not easily replaced by the large companies and MNEs. Large business and MNEs most often have their own analytical functions and respective funds allocated for risk identification, assessment, and management. SMEs often lack resources as well as literacy to manage commercial risks. Thus, large companies have less motivation and potential expected benefits from the proposed framework. Without a clear stake and foreseen benefits, it is hard to expect that large companies would be interested in participation in CRMFs developments.

Large companies and MNEs could and would be welcome to participate and support SME oriented CRMFs. Their experience in risk assessment and shared datasets would be worth extensions and valuable resource for better risk predictions based on data processing through AI. Extensive risk factors datasets and/or somehow structured information about commercial process events with negative consequences provided by MNEs would help to improve machine learning, development of risk assessment and events prediction models and respectively improve the outcomes of CRMF.  As it was already noted above, commercial risks assessment and their manageability are the main prerequisites to move towards SDGs.

Large companies and MNEs could be expected as additional data sources and CRMFs supporters instead of SMEs replacements.

Point 6: The text does not show a line of argument to support the first conclusion, either in the presentation or in the references.

Response 6: In our opinion, the answer to these questions could help to circumscribe the paper in the area of study of this journal.

Author Response File: Author Response.docx

Reviewer 2 Report

The article is original and very interesting for international readers. The methodology is appropiate. There is a clearly formulated goal of the study. The subject literature is sufficient.

I only recommned adding any alternative methods or approaches that can be applied in this study.

Author Response

Response to Reviewer 2 Comments

 

The authors would like to thank the reviewer for providing valuable comments and suggestions. These comments were very helpful for refining and enhancing the paper. The following list shows the reviewers’ comments (points) and the author’s responses to each of them. The text in the reviewers’ comments is based on the previous manuscript. In the revised manuscript, the parts of the manuscript that have been added or updated based on the reviewer’s comments are marked accordingly using track changes mode.

 

 

Point 1: The article is original and very interesting for international readers. The methodology is appropriate. There is a clearly formulated goal of the study. The subject literature is sufficient. I only recommend adding any alternative methods or approaches that can be applied in this study.

Response 1: We have updated the manuscript in various parts and specifically regarding the alternative methods or approaches for risk-related analysis added the following text and one additional reference [*].

A number of methods are used for risk or safety analysis [*]: Failure Modes, Effects, (and Criticality) Analysis (FMEA/FMECA), Fault Tree (FT) analysis, cause and effect diagrams, Bayesian belief networks, Event Tree (ET) analysis, Reliability Block Diagrams (RBD), etc. It might be recommended [*] to start the risk analysis by constructing FT. In the construction of the FT, all potential causes of specified events (like accidents) are identified. The construction of FT will give the analyst a better understanding of the potential causes of an unfavorable event. If the analysis is carried out in the design phase, the analyst may rethink the design and operation of the system and take actions to eliminate potential hazards. Combining FT and ET became a usual approach for system reliability and accident sequence analysis in Probabilistic Risk/Safety Assessment (PRA/PSA) [*].

PRA/PSA is used in those areas where undesired events and corresponding consequences in terms of loss of property, profit, human health, and lives are possible. Risk analysis is used in order to identify potential risks, problem areas, and corresponding systems, propose risk reduction measures and choose the most efficient ones. Such, risk analysis supports decision making related to several alternatives.

An integral part of PRA/PSA is Human Reliability Analysis (HRA), which identifies possible human actions or their absence that could affect the safety of the system being analyzed. Humans influence risk in different ways, like making important functions unavailable due to errors during maintenance, or initiating an abnormal event or making errors during unfavorable events mitigation. HRA task is to identify human actions that are vital for the system safety, adequately evaluate factors that have the highest impact performance of humans, evaluate Human Error Probability (HEP) for each action and include the actions in the PRA/PSA model.

[*] Rausand, M.; Høyland, A. System reliability theory: models, statistical methods, and applications; Wiley series in probability and statistics; 2nd ed.; Wiley-Interscience: Hoboken, NJ, 2004; ISBN 978-0-471-47133-2.

Author Response File: Author Response.docx

Round 2

Reviewer 1 Report

There is a lot of improvement in the paper.

Please take this in consideration:

In Figure  2 the elements must have the same format like the rest of the symbols. Having a different arrow without a legend could create confusion for the readers.  Some acronyms are not presented properly.

 

Author Response

Response to Reviewer 1 Round 2 Review Comments

Thank you for reviewing our updated paper. We have considered the comment and the respective suggestion.

Reviewer's Point 1: In Figure  2 the elements must have the same format like the rest of the symbols. Having a different arrow without a legend could create confusion for the readers. Some acronyms are not presented properly.

 

Response 1:  We have refined Figure 2 with the following edits:

The legend was extended to explain precisely all shown links and markings of different kinds of variables. Used acronyms are mentioned in legend text. They link the definition of the risk considered in the paper and risk conceptualization depicted in Figure 2. The process of risk assessment is broken into three clear phases with defined outcomes.

Author Response File: Author Response.docx