Events that happen around us today warrant us to rethink how we should conduct our business activities in 2016.
At present, your business is likely facing difficulties in hiring the right staff, having to deal with high manpower costs for existing personnel, experiencing increasing competition while the landlord is charging you high rental costs.
There is also this gnawing feeling of uncertainty in the global economic environment that holds you back in your expansion plans.
The global economy is one of the biggest external factors that will, at some point, affect your business even more than it already does. Why?
Macro risks start to have their effects on SMEs when:
- banks start to become more cautious in lending;
- prices start to be affected by higher cost of funds;
- cashflow starts to tighten;
- customers start to cut expenditures/budget;
- prices start to dwindle together with compressed profit margins and
- costs (internal and external) are going up.
And before you know it, you are wondering why you are either getting fewer sales or sales that come with diminishing profit margins.
To add to the financing woes, you, together with most SMEs, are likely to face scenarios where you need to deal with:
- Sized-related disadvantages where you have to constantly compete with larger players, including government-linked companies and MNCs;
- Limited access to skills of employees in specialised areas where not many talented people are keen to join SMEs for lack of strong branding and management competencies.
- Constraints in advanced technology which you are either unable or unwilling to acquire due to financial reasons or mindset.
What should we do to deal with the challenges?
What is apparent is that the technology and innovation cluster will be one of the main drivers in Singapore’s economic growth. It accounted for at least one-fifth of the economy in 2014, and is set to grow further in 2016 and beyond.
Many industry players believe that the Infocomm Technology sector is going to be an important pillar of support for Singapore’s economy moving forward.
The implication is that, whatever industry you belong to, there should be some deep thinking on how you should redesign your business model to cope with the structural challenges in your business environment.
SMEs in general, should redesign their business models to achieve three strategic objectives.
- achieve productivity, innovation and capability-upgrading using technology;
- seek new business growth opportunities in new market segments;
- establish collaborations with larger enterprises
Strategy Lever #1: Achieving Productivity, Innovation and Capability Upgrading using Technology
When it comes to using technology to improve productivity, what seems to be the objective? Does it entail the automation of manual work that helps to cut processing time, and therefore “saving costs”? Is it just enough and sustainable for businesses just to save costs to become profitable?
Here is a well-known article about Singapore’s failed efforts to boost productivity.
If technology is not able to drive productivity just by reducing costs alone, then what else should you do?
Well, the hard truth is that you have to use technology to generate new business opportunities, while reducing costs. It has a two-way effect.
For example, you have to mine the years of data in your organisation to make sense of the numbers to generate new leads, business opportunities and insights into the purchasing patterns of your customers. The technology must also tell you what costs to save and avoid.
Technology must also be predictive in a sense that the 2 main drivers of a company – financial capital and human capital – should be periodically measured to show how effects of human capital drive financial outcome.
This is where we are afraid or unsure to explore.
Remember: productivity is not just about cutting costs to boost margins. It is essentially, and simply put as, Output/Input. Don’t just address the denominator but the numerator too. How do you boost the output?
The bottomline is this: Collecting quantitative and qualitative data to support decisions is critical in the rapidly changing markets we face today. Identifying technology that best supports a business plan is not simple, but having a well-defined strategy that is aligned with operations and market expansion will make technology selection easier.
Strategy Lever #2: Seek New Business Growth Opportunities in New Market Segments
The second strategy that every business owner must consider is to rely less on concentrated markets (markets where everyone else around you is targeting) for business growth. Instead you must try identify new market segments that others have not pursued; and this could possibly mean overseas markets.
If you have market growth aspirations, you definitely need a global strategy that supports export sales. Nevertheless, strategy can be boiled down to two components: degree of differentiation and degree of low-cost leadership.
Important note: Technology needs to be deployed whereby strategy and operations are aligned. Aligning strategy, operations and technology therefore becomes critical.
Once that is done, any SME has the potential to dramatically increase growth by entering international markets as a worthy competitor. Why is internationalisation important?
Here are five advantages of internationalisation:
- Access to new markets (through market diversification) and customers for existing products or services
- Capital derived from foreign market penetration
- Access to valuable production processes and minimisation of labour costs: Cheap labour, skilled labour, raw materials etc.
- Development of core competencies (technology, know how, for the more strategically oriented firms)
- Networking, which comes from interaction between companies and can lead to knowledge transfer and collaboration in research and development
Hence, taking into account the aforementioned advantages, it is obvious that internationalisation is intertwined with a value chain perspective, i.e. maximising returns and minimising costs in purchasing, production and sales.
Please read this link on market share strategies and how you can deploy them effectively.
Strategy Lever #3: Why Should Smaller SMEs Partner with Bigger Peers?
The third and final strategy is about partnering and collaborating with companies that are bigger and more established than you, at least in terms of network, distribution points and geographical coverage.
Advantages of collaborating / partnering with bigger peers
- Access to knowledge: Mitigating risk and reducing potential mistakes by greater understanding of the operational context
- Access to people: Drawing on a wider pool of technical expertise, experience, skills, labour and networks
- Effectiveness: Creating more appropriate products and services, whether commercial or not-for-profit
- Efficiency: Reducing costs and delivery systems and avoiding duplication
- Innovation: Developing unexpected / new ways of addressing old issues and complex challenges
- Human resource development: Enhancing professional skills and competencies in the work force
- Long-term stability and impact: Achieving greater ‘reach’ by being efficient and effective means an expanded sustainable development impact.
- Reputation and credibility: Achieving genuinely earned organisational reputation and greater credibility.
Each party brings a different set of values, priorities, resources and competencies to a collaboration. The challenge of any collaboration is to bring these diverse contributions together, linked by a common vision in order to achieve sustainable development goals.
Organisations choose to partner because they cannot achieve their desired goals by other, non-collaborative means. In other words, there is inevitably a level of self-interest in the motivation of all partners.
Each partner will need to see benefits from their collaboration, measured in their own terms, if their involvement in the collaboration is to be sustained over time.
To achieve that, you have to showcase your credibility and core competencies that distinguish you from the rest. After all, why should they give opportunities to you if you can’t value add?
For a simple reference on how to build (and communicate) your credibility, please read this link.
Moral of the Story
On a broader note, we need to ask ourselves: how can a big, profitable, state-of-the-art business that is at the top of its game, invests in a great deal of sophisticated research, and has a long heritage of having the vision to pioneer product categories, be left behind eventually?
When a company gets really good at one way of doing business, it automatically becomes bad at learning a new way to do business. This is what SMEs must learn to avoid.
“As Samsung has risen, others have failed, often in spectacular fashion: Motorola was split up and its handset business sold to Google (GOOG). Nokia watched its long-standing No. 1 position erode when it got blindsided by smartphones. The Sony-Ericsson (ERIC) partnership dissolved. Palm disappeared into Hewlett-Packard (HPQ). BlackBerry (BBRY) continues to be on a 24-hour watch and has had its belt and shoelaces confiscated. When it comes to mobile hardware, today there’s only Apple, Samsung, and a desperate crowd of brands that can’t seem to rise above being called “the rest.”
(Sam Grobartin “How Samsung Became the World’s No. 1 Smartphone Maker” – BloombergBusinessWeek on March 28, 2013)