Small and medium enterprises (SMEs) are the backbone of Indian manufacturing. While there is a lot of focus on the corporate sector, it is revealing to note that the 42.5 million SMEs in India, accounting for 95 per cent of the industrial output of India, contribute as much as 45 per cent to manufacturing output, and six per cent to the Indian gross domestic product. Being one of the biggest employers as a sector in the country, more than 106 million people work in SMEs.
However, growth of SMEs has been stifled over the last four years and most of them are plagued by a lack of streamlined processes and systems, thus limiting their potential for growth. That is the reason we witness very few SMEs emerging as major organisations in the corporate sector. Not only has emerging technology served as a detriment for SMEs, as they have not been able to readily adopt it, introduction of goods and services tax and other new regulatory frameworks have also caught them off guard.
Resistance to Change?
SMEs are usually either started by first-generation entrepreneurs or handed over as legacy by the family patriarch to their next generation. In either of the cases, these companies are characterised by a very personal style of management, dominated by the owners’ preferences, significant among which is a desire to do everything themselves. A second line of management is conspicuous by its absence. Over the years, more and more of the owners of the SMEs have spent time in higher education, often in formal business management training. This education has attuned them towards an aspiration for significant growth for their organisations. However, they are unable to break out of the vicious syndrome of having to do most key activities and play multifarious roles in the organisation, with little or no time for planning for growth of the organisation. They have, in essence, become the bottleneck for the organisation.
As a matter of fact, a contemporary survey of 500 SMEs all over India revealed that 72 per cent of the SME owners believed that planning for success was a myth, a luxury in time they could not afford.
Identifying the Prblem?
A high-level view of the Current Reality Tree (CRT) of this ongoing situation in most SME organisations is depicted in the figure below. The feedback loop represented by the red lines emphasize the vicious cycle most entrepreneur-owners are caught up in. As a result, the growth of the company is compromised and, in many cases, even survival is at stake.
The New Scenario
So how to come out of this debilitating loop and emerge into a virtuous cycle that prepares the foundation for accelerated growth of the organisation?
Owner-entrepreneurs of SMEs are swamped by the challenge of establishing various enabling processes in their organisations. They do not know where to start and often make the critical error of initiating process improvement initiatives on many fronts. Very soon, due to a lack of help from a structured management organisation structure, they are exhausted and the process improvement initiatives fall by the wayside.
The key lies in prioritising the few fundamental changes that will serve as the foundation for rapid growth of the organisation. More often than not, this lies in the measurement and review system followed by individual coaching of the few people in their organisation who have demonstrated potential but have never had the opportunity to undergo formal management training.
By doing this, the owner-entrepreneur soon finds that they are able to extricate themselves from the routine activities in the organisation. The owner-entrepeneur, by dint of their personal experience and skill set, has more than adequate knowledge of how to further demand a better price from their clients. As a matter of fact, despite their best intentions they had never been able to meet key clients as frequently as they would have liked. They often have clear ideas on how to generate a greater share of the clients’ wallet for their organisation, but have not found the time to implement them. Once they have adequate time to strategise, they will grab the opportunities to establish a clearly differentiated position for their organisation by developing, leveraging and sustaining a Decisive Competitive Edge.
The figure below clearly shows the progression of an SME in its quest for growth:
How to Cause the Change
A few principles must be put to practice in order to cause the change:
People are good: Owner-entrepreneurs must learn to trust their people. Most of them, although not highly educated, have been working in the organisation for a long period of time and have gained valuable practical experience. This experience can be channeled to a much higher productivity provided concise instructions are communicated periodically within the ambit of a few simple, yet powerful, processes. Moreover, trusting the employees will also bring to the fore the latent sense of loyalty and ownership some of these old timers may have for the organisation. Most importantly, this will release the owner-entrepreneur time from the daily crisis fighting.
Inherent simplicity: Most often, the answer to apparent complexity lies in simple solutions. Focusing on a few changes at a time is one of those simple solutions that flies in the face of conventional wisdom of taking up numerous initiatives in all nooks and corners of the organisation and ending up not completing most of them.
Many examples of SMEs growing to become sizeable corporates with the help of TOC exist in India and around the world. Making more money now and in the future while at the same time creating tremendous harmony in the organisation is definitely an aspiration that can be made a reality, and that too in a relatively short period of time.