SMEs have been recognized as critical in the economic and social development of most countries. They are especially important for their role in job creation with low investment, regional development, as suppliers to large companies, entrepreneurship development, and, in case of new technology-based firms, innovation of new products and processes. SMEs have also become major players in the international technology market. Many SMEs are now the home of innovation and have become the new builders on the job market. SMEs all over the world, in developed and developing economies alike, are confronted with the same forces leading to the overwhelming need for change. These forces have led to the failure of some and have left others struggling to survive.
The leaders of SMEs must cope with the impact of globalization and its consequences of open economies, highly competitive market place, and the transnational flows of expertise, technologies and services. The realization that change is essential and that it must happen immediately, is not sufficient. SMEs must know what to change and how to change. There are so many factors involved in the successful management of an SMEs that it becomes difficult to know which aspects need to be changed, and which aspects need to be left as they are. While the challenges vary from one SME to another, following the analysis of the Business Development Bank of Canada1, you can summarize the winning strategy for SME growing (revenue, profits, jobs) in next points:
1. Clients. SMEs must be client-focused, client-centric businesses; the activities they conduct must be addressing client’s need. An SME must serve its clients well and, if required, it must revamp product and service offerings according to clients’ needs and expectations. This allows SMEs to increase their sales to existing clients and attract new ones. This strategy is unanimously supported, regardless of the business’ degree of growth (strong or sustained), location or size. Every identifiable functional aspect of the SMEs’ management system must be structured in such a way that it enhances the capability of the SME to meet the needs of its clients.
2. People. Leaders of growing SMEs also pay special attention to managing their human resources, that is, building a talent pool.
3. Investment. In many cases, growth is contingent on the resources invested in the business: investment is the expense that pays dividends.
4. Innovation. Innovation is the top strategy for fostering the growth of SMEs. Innovation is the ability of the SME to design and develop products (goods or services) and processes to maintain a competitive edge and move toward even higher value-added activities. In fact, innovating is hand in hand with the ability to understand clients’ needs and adapt offerings accordingly. Just like understanding and satisfying clients’ needs, innovation is one of the most important strategies, regardless of the SME level of growth, size or location.
An innovative SME is the one able to focus its actions considering its strategy, able to learn from mistakes, from competitors, from suppliers and specially from clients; an organization focused on systematically doing (than talking) and, because of that, it obtains results reliably and repeatedly over time. These results are competitive advantages and greater added value from products (goods/services) and processes, leveraging knowledge and technology to obtain those results. Quoting Larry Keeley from Doblin, “The most innovative organizations rely on systems of individual and teams working across functions in their organizations. Innovation isn’t the work of only scientists, engineers or marketers; it’s the work of an entire business and its leadership”. Innovation must not depend on luck or the talent of any single employee, instead, it must rely on an orchestrated set of systemic organizational capabilities (strategy, R&D, technology readiness, marketing, resources management) maintained and improved through an Innovation Management System (processes, organization, resources & competencies, metrics and incentives).
There are some tips to innovate:
- Get ideas and feedback from suppliers, clients and other stakeholders. Innovation is a team sport. In fact, an organization that depends on itself is destined to fail. As stated in the book “Ten Types of Innovation: The Discipline of Building Breakthroughs”2, in today’s hyper-connected world, no company can or should do everything alone. Collaboration provides a way for firms to take advantage of other companies’ processes, technologies, offerings, channels, and brands, pretty much any and every component of a business. Collaboration allows a firm to capitalize on its own strengths while harnessing the capabilities and assets of others, signifying external relationships, partnerships, consortia and affiliations. Collaboration also helps executives to share risk in developing new offers and ventures. These collaborations can be brief or enduring, and they can be formed between close allies or even staunch competitors.
- Organize innovation as any other business process involving the whole SME staff. They have intimate knowledge of the business and industry, and are often the best source of ideas. Paraphrasing again Larry Keeley, when a firm organize innovation, as any other business process, its people start to act and think differently over time, and when they see different and better results emerge from these behavioral shifts, culture, innovative thinking and creativity take care of their selves. The problem with trying to change the culture, to stimulate innovative thinking and to unleash the creative potential of the people of an organization is that it is a bit like trying to hug a cloud, you can see and feel it, but it is hard to get a grip on it. To shift the behaviors of an organization, it is required to define and drive the change from multiple angles. It is not enough just to festoon walls with pretty posters, run corporate innovation fairs to enhance creativity, perform brainstorming sessions, proudly display the company ping pong tables with toys, sticky notes, color markers, Nerf balls and guns, besides sport a gleaming new innovation center. It is very rare indeed for actual innovations to make it to market following all of that hoopla. Is is alto not enough just to hire more innovative, risk-taker or creative individuals because without a clear approach to guide and coordinate their efforts, the right place in the organization to house them, and the appropriate metrics and incentives to guide them, they will fail.
- With the help of the SME staff, develop an innovation strategy to improve products and services, processes, marketing strategy, business model, and supply chain. Remember to keep it up to date.
- Don’t look for a magic formula. Instead, try to make gradual improvements. They may be as simple as changing one process, adapting a product for a new market or exploring new ways to reach clients.
- If applicable, consider patenting the innovations and protecting the intellectual property.
The planning and deployment of a winning strategy considering the four points above requires special care of the next two issues: Information and Change Management.
Information. Specially in developing countries, a vast majority of SMEs have no systematic method for collecting, storing and utilizing basic data that measure performance, e.g. revenue, costs, production, etc., that is, they do not have a Financial Management Information System (FMIS). A FMIS can be broadly defined as a set of automation solutions that enables an SME to plan, execute, and monitor the budget by assisting the prioritization, execution, and reporting of expenditures, as well as the custodianship and reporting of revenues (World Bank, 2011). A FMIS allows to identify problem areas more quickly and to correct them before they became serious. A reliable FMIS is a prerequisite for the deployment of a winning strategy for SME growing.
Change Management. Change is always a painful but necessary tool for management improvement in an SME seeking to improve its performance: a project can be designed to diagnose an SME’s need for new practices and implementation plan for transformation. The SME transformation process is a continuous and iterative process, although, for purposes of explanation can be divided into three phases, namely, diagnosis, planning, and implementation. In most cases the process is facilitated and directed by an external consultant but some SMEs try to manage the process with internal teams. It must, however, be remembered that whether internal or external consultants are used, the ultimate success or any transformation process will depend on the commitment from the organization’s leadership at all levels of staff.
1. BDC Study, “SMEs and growth: challenges and winning strategies”, October 2015.
2. Keeley, L., Walters, H., Pikkel, R., Quinn, B., “TenTypes of Innovation: The Discipline of Building Breakthroughs”, John Wiley&Sons, Abril 2013, p. 276
Ruben D. Cruz obtained the BSc. degree in Electrical Engineering and the MSc. degree in Electrical Power from the Industrial University of Santander – UIS (Bucaramanga, Colombia), and the Ph. D. degree in Electrical Engineering at the Bolivarian Pontifical University – UPB (Medellín, Colombia) sponsored by Electrical Interconnection – ISA. During a semester of his doctoral studies he was a Visiting Fellow at the Department of Electrical and Computer Engineering of the University of Texas at Austin (USA).
In addition to his participation in the Development and Network Optimization Team of the major transmission company of Colombia (ISA), his career includes the Colombian Petroleum Company (Ecopetrol) and eight year as full professor at the Industrial University of Santander (UIS) where he also was the director of the School of Electrical Engineering (E3T) during six years. Since 2012 he is with the Center for Research and Technological Development of the Power Industry (CIDET) as Chief Innovation Officer (CINO).
During his 20 years of professional, research and teaching experience he has focused his interests on planning, management, operation, monitoring and regulation of energy markets, the implementation of best practices management models and developing models for technological scouting and innovation management for the power industry. He has authored and co–authored several technical papers in all those areas.