By S Venkat
MSME business transformation: In the last decade, SMBs have leveraged business transformation initiatives to manage growth in business, optimize cash flow and improve their profits. In certain industries that have seen sales volume pressures, sales realization challenges, erratic cost fluctuations, supply chain disruptions etc., the transformation agenda has been virtually forced upon the SMBs. In certain other industries, however, that have seen structural and business tailwinds, SMBs have opted for transformation to propel themselves to the next level of their growth journey.
Either way, there are a plethora of opportunities available to SMBs today to navigate scale, change, meet customer expectations and improve productivity. Business transformation opportunities can broadly be classified into:
- Technology and Process-led
- Outsourcing led and
- People-led.
Let us study some examples of how SMBs have transformed their businesses successfully.
Technology and Process
On the technology and process side, SMBs have never had it better. A slew of tools, most of them SaaS offer pay-as-you-go, affordable plans that allow SMBs to digitize and automate their processes to drive efficiencies. A generics pharma company with heavy reliance on field force for sales, implemented field force automation technology to connect with their salespersons across Tier I/II/ III cities and remote areas. The tool requires minimal investments, is easy and intuitive for the sales force to use, and provides real-time visibility to the company on secondary stock levels, order booking, retailer level volume, beat tracking and sales-person performance. Productivity improved by around 20 per cent.
Also read: Fast-tracking SME’s digital transformation
Another SMB, in the speciality chemicals business, was under severe margin pressures on account of poor sales realisations. The SMB implemented a reverse auctioning tool to create and manage an alternate vendor base. This exercise along with a rationalization of trade terms, allowed the SMB to compare alternate quotes in a transparent manner, with excellent controls. The creation of a competitive bidding scenario reduced inefficiencies in the purchase process and reduced the purchase cost of key raw and packing materials delivering a gross margin improvement of 250 basis points.
Several SMBs have embraced the power of ERPs and Business Intelligence tools to dramatically improve their business performance. At a real estate development company, the Founders were struggling with broken processes, lack of coordination between sites and Head Office, poor controls over materials delivered at the site, lack of timely inputs to enable book close and lack of visibility into how cashflow from one project was subsidizing another project. Implementation of an affordable ERP has now allowed the founders to have a single-click view of the status of all processes. Site level profitability is now tracked via a business intelligence tool which provides real-time visibility.
Outsourcing
More and more SMBs are choosing to focus their attention on their core activity and outsource non-critical areas. Traditionally, the approach has been to “Do-It-Yourself” to manage costs better. Increasingly, however, as business processes have become more specialized and a number of professional agencies have emerged to provide these services in a tech-enabled and transparent manner, the willingness to outsource has improved.
For instance, a garments manufacturer selling under his own label diversified into online sales which now accounted for around 30 per cent of their revenue. Warehousing and Logistics were earlier managed in-house. The business faced challenges of mis-shipments, a high rate of sales returns, damaged goods received etc. The founder evaluated and eventually appointed a 3PL service provider. The founder has not only been able to save on warehousing rentals and reduced losses on account of returns, but most importantly has been able to save time in dealing with non-core issues relating to labour and infrastructure.
People
Progressive SMBs are beginning to actively embrace advisory boards to elevate the level of governance in their companies. These advisors also play a very important role in acting as a sounding board to founders, particularly on matters that have long-term business model implications or involve significant use of judgment. The main role of the advisory board is to work on the founder(s) and not on the business. Founders who have been able to understand this have leveraged Advisory Boards to significantly ‘up their game’.
Also read: Creating an Enabling Environment for Indian SMEs: value of digitizing one crore seller
Similarly, there are a number of professionals in their 50s who have worked with large enterprises who are willing to take up CXO positions in SMBs. They want to apply their professional learning in a smaller, less structured environment. Several of these professionals actively seek out these opportunities to work in an entrepreneurial environment even at a reduced salary, with the objective of creating wealth through ESOPs. For Founders, these CXOs with their depth of experience, are a great lever to significantly evolve their businesses.
SMB promoters are well advised to proactively embrace business transformation initiatives before they get forced upon them by industry dynamics. There is no dearth of opportunities and means to deliver these initiatives successfully. What is needed is a strong desire and conviction that this change is needed today, to ensure the continued success and prosperity of the enterprise tomorrow.
S Venkat is the Founder of performance improvement consulting firm Practus. Views expressed are personal.