Europe’s 20 million small and medium-sized enterprises are a driving force in the economy, accounting for half of business revenues and for two thirds of all jobs in the region, yet many struggle to grow. Growth is vital to any business – it is the engine that drives an enterprise forward. If a company cannot deliver increasing sales and profits it is unlikely it will be able to take advantage of market opportunities and to thrive in the long term.
Growing companies not only have the ability to capitalise on their strengths and minimise their weaknesses, but also attract better people to work for them. Equally, they are well placed to forge productive partnerships with other enterprises.
However, many ambitious, medium-sized companies especially in distribution, manufacturing and retail, with designs on stepping up a weight are challenged on how best to go about it. Often the entrepreneurial spirit means smaller businesses are hard working, efficient and focused; but at the same time reluctant to take a long view on key issues. Growing pains can severely cramp their style.
Mergers and acquisitions
Companies can grow organically through increased sales or via moves into new markets. They can also expand by means of acquisitions. The arrival of international companies in the UK, for instance, has made mergers and acquisitions a hot topic; consolidation is taking place at a phenomenal rate. These incomers are looking to acquire market share by taking over existing players.
However, successful acquisitions depend on integrating processes and systems to deliver on operational improvements and improving inventory control and cash flow as quickly as possible. From a cost synergies perspective, organisations have several options. You can replace existing systems and start again, pick one system and dispense with the others or you can keep all the systems and stick some glue in between them. Do not overlook training in this area, which needs to be standardised if you are to see a return on investment.
It makes sense to outsource anything that is not a core competence of the business. A surprising number of activities can be outsourced including manufacturing, transport, warehouses and information technology (IT). But outsourcing does not have to be wholesale, it can be selective.
In IT, for example, a company could choose to own it own software and hardware and outsource the running of the systems. This may apply to all or just part of the IT service, according to whether the IT is core to the business or could benefit from being outsourced to professionals. It is an attractive option when acquisitions make it difficult to manage increased numbers of systems in-house.
Many companies are looking to gain increased competitiveness from outsourcing. They hope to save on staff and other costs, to enable better informed management decisions based on more accurate and timely data, to improve customer service through reduced stockouts or by providing faster turnaround time on orders and so on.
Whatever the motivation, it is critical that managers configure their supply chain for growth. And that is not just a matter of cementing a few low cost sourcing arrangements in the Far East: that is not a differentiator. You need to look beyond just finding the cheapest sources of supply to work with different sorts of suppliers. It may be that more expensive producers closer to home are better able to supply quality products in a timely fashion. Overseas sourcing is not just a matter of keeping your costs down but also of keeping your supply chain as flexible as possible. You want to work with suppliers that add value to the supply chain.
The increased number of trading partners both upstream and downstream increases complexity. When you have to deal with large numbers of companies issues of quality, inventory management and compliance come to the fore.
With bigger size go bigger responsibilities: risk management is a key issue for anyone looking for a seat at the top table. There have been several recent examples of supply problems that have called for prompt action.
Dealing with problems
Last year Cadbury Schweppes, for instance, had to recall some of its confectionary lines after a salmonella contamination scare. More recently, petrol laced with silicon had Tesco and other fuel retailers moving quickly to repair the damage it had apparently caused to customers’ cars and to the retailers’reputations.
As risks such as these multiply in a more international and interconnected business environment, boards of directors must draw up contingency plans for product recalls and other eventualities. Once overseas networks are part of the mix, recovering from health scares, product recalls and other supply chain disruptions becomes a lot more complicated.
Environmental issues are another area that growing businesses must put high up their agendas. Regulation and compliance regimes backed by targets and legal sanctions are set to affect a wide area of business activity across the world. The situation is similar to the tightening of health and safety regulations a few years ago which prompted companies to act at a senior level to avoid falling foul of the law. Now the main environmental issue is global warming and the need to mimise your carbon footprint by making premises energy efficient and working to eliminate waste, for example, by ensuring that trucks do not run half empty or that resources are not squandered by trying to make home deliveries when customers are not in.
There are public relations advantages in working with ethical suppliers. One of the Grand Prix racing teams is trying to build a green racing car by using suppliers who conform to environmental best practice. Mid size companies will have to reconfigure their supply schedules and distribution networks to take account of the new climate of regulation.
But the supply chain is not just about heading off trouble. It can be an important positive element in successfully entering new markets.
The lesson of globalisation is that no enterprise can afford to stand still, growth is a business imperative. With competition taking an increasingly international turn size does matter and small is no longer as beautiful as it once was.
Hitesh Amin is mid market sector leader, IBM Global Business Services. Email: hitesh.amin@uk.ibm.com
