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SME Growth Strategies

SME-Growth-Strategies-Revenue-Growth-Profit-Margins

A global study was commissioned by Oxford Economics and sponsored by AMEX to investigate how SMEs are adapting to disruption, economic uncertainty and the SME Growth Strategies to win.  The highlights from that survey are summarized below.

SME Growth Strategies – Challenges to Tackle

SMEs remain positive about the economy and their strategies for the future, they also have a number of challenges to tackle in 2019.

  • Navigating regulation and economic uncertainty
  • Having a plan in pace to address cyber security and needing
  • Navigate digital disruption

All with only a fraction of the resources of their larger, corporate counterparts to draw on, SMEs continue to feel positive about global and local economies and their role within them.

SME Growth Strategies – Wide Ranging

SMEs have wide-ranging strategies in place to fuel their financial ambitions. The Strategies to Boost the Bottom Line suggest that:

  • some SMEs will focus on boosting the role technology will play in their organizations
  • other SMEs will prioritize areas such as productivity, innovation and talent.

What will be crucial is for SMEs to consider their strengths and tailor their plans to suit their own goals.

SME Growth Strategies – Top and Bottom Line Performance

Over the next three years, SMEs will need to work smarter to improve their top- and bottom-line performance. Our research highlights the ways in which SMEs are planning to achieve this, by playing to their unique strengths as SMEs. These include:

  • Expanding revenues by keeping close to their customers, understanding shifting demands and responding quickly to changing preferences. Many SMEs are regularly introducing innovative new products and services, and are collaborating with partners, including large companies, to access a larger market.
  • Improving productivity and efficiency across their operations. Many SMEs are prioritizing innovative ways to boost their efficiency and record significant year- on-year productivity gains, potentially helping to tackle the often-mentioned productivity challenge faced by many economies.

SMEs have long recognized the opportunities technology provides to foster growth and higher profits, but many have struggled to achieve the benefits. This year’s survey and case studies demonstrate that SMEs are becoming more ambitious, moving from infrastructure spending to investments in value-added enterprise systems, and more sophisticated data analysis. SMEs are also prioritizing innovation, particularly initiatives that nurture organic innovation among their own employees. This emphasizes the importance of attracting, retaining, and motivating a skilled workforce.

The World According to SMEs

  • SMEs reported that they were more confident in the prospects for the global economy for 2019.
  • Confidence in the global economy increased to 61%, from 47% in 2017.
  • Confidence in domestic economies is also higher, doubling over two years to a net positive score of 58%.

The growing impact of the digital economy on SMEs is demonstrated by those who rank cyber and data security risks among their top three external threats, increasing to 29% from 7% last year, with higher concerns expressed in sectors like technology (49%), media and entertainment (44%), and business services (39%). Only a small minority of SMEs in our survey could be considered digital companies—i.e., those who provide some of their products and services in digital form (a combined 13% of SMEs). These digital SMEs are currently concentrated in a few high-tech sectors, like technology, media and entertainment, and telecoms. The vast majority of SMEs (some 80%) mainly use digital technologies to connect with customers and take care of internal functions. The 7% of SMEs that don’t consider themselves users of technology at all are concentrated in a few sectors, like construction, retail, and food and drink.

Threats to open trading relationships increased to 22% from 13%. Amongst our respondents, about a fifth export (22%), though many more will feel the effects of constraints on international trade, as they work with international suppliers or business partners through global supply chains. The survey suggests that globalization by SMEs is being held in check. The share of SMEs that export, and the share of total sales attributed to exports, declined slightly this year. Only 20% of SMEs say export markets are easier to access, and 13% report more international supply chains than three years ago, while those who disagreed equaled 69% and 80% respectively. A more encouraging finding is that many SMEs already exporting are enjoying success, with the majority (57%) planning to expand into new international markets.

Social and demographic shifts are considered a threat by 30% of SMEs this year, down from 37% last year. SMEs need to adapt to shifting values and attitudes among customers and employees. Millennials and Generation Z are becoming more influential and can hold contrasting attitudes from older generations on the workplace and motivations for buying products and services (see box below). SMEs insist that their customers seek more personalized products and services, and two-thirds say there is increased demand for ethical, sustainable, and locally sourced products and services. Despite this, only 19% of SMEs have strategies directed to address these generational preferences.

SME Growth Strategies – Strategies to Boost the Top Line

SMEs’ strategies for top-line growth

To grow revenues, SMEs are keeping close to their customers, trying to anticipate shifting demands and making sure they can respond quickly. This is a traditional strength for SMEs, though our research shows that many are updating approaches to be even more nimble.

  • Some of the approaches SMEs are taking to to deliver top-line growth include:
  • Identify strong market opportunities. The starting point is usually their market knowledge, experiences, and know-how, but they often need to evolve to maximize market opportunity.
  • Develop innovative products and services using technology, to create a strong value proposition for their customers.
  • Use business partners and networks to build effective routes to market. All the SMEs studied have partnered with larger companies to gain greater access to the enterprise market.
  • Expand into new markets in a measured way, building on an established base.

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SME Growth Strategies – Strategies to Improve Productivity

Though overall SME productivity is often reported as being lower than in larger companies, it doesn’t have to be. A great degree of variability applies, as recognized by the OECD study into SMEs and innovation, which showed that leading SMEs are often more productive than many large firms

The survey confirms that innovation helps boost productivity. SMEs that forecast higher productivity (> 5% pa) over the next three years report being more effective today across all four key SME capabilities but particularly in innovation (74% vs. 49% for all other SMEs) and developing/retaining skills and talent (67% vs 48%).

To improve operating efficiency, SMEs cite implementing cost-saving programs as the most popular, but other initiatives are close behind, including improving quality control and management decision-making.

Technology plays an important role in helping to modernize and automate processes, particularly in sectors like technology (64%), aerospace/defense (58%), and telecoms (57%). Technology can contribute to almost all other initiatives below, as powerful, cost-effective software solutions are widely available to SMEs to improve decision- making, quality control, and asset utilization.

Building SME capabilities

In previous editions of this survey, we traced four key capabilities SMEs can use to their advantage:

  • Accelerating Innovation
  • Agility
  • Applying the latest technology
  • Attracting and retaining skills and talent

SME Growth Strategies – Adding Value From Technology

In previous surveys, SMEs prioritized spending on basic infrastructure, such as communications and cloud. A shift is apparent this year, as SMEs focus more on value-adding technologies, such as productivity tools, enterprise software platforms, technology to analyze customer data, and collaborative tools.

Leading-edge technologies, such as data analytics, connected devices, and machine learning/AI, are becoming more mainstream. Some 23% of SMEs are planning to use AI/machine learning in the next three years, compared with just 4% of last year’s respondents.

A much broader range of software tools is available today for SMEs to improve the management of their businesses. The latest software is cheaper and easier to use, usually provided “as a service” over the cloud. Help in implementing, maintaining, and getting the best out of technology is also easier to access through IT service providers. Knight Architects deploy sophisticated design tools over the cloud, so their architects can access models wherever they are located. They also use the latest business management tools to improve internal processes and decision-making.

SME Growth Strategies – Improving In-House Innovation

As SMEs prioritize accelerating innovation over the next three years, seven approaches are the most popular, ranging from 48% to 61% (see Fig. 12). These initiatives all aim to nurture creative output from employees, rather than spending on new R&D or buying up other firms. For example, creating innovative task forces has jumped in popularity this year, from 40% to 59%.

This shift in approach reflects the rising impact of powerful new software to propel innovative business models, new products and services, and process improvements. In effect, this levels the playing field for SMEs, as large-scale investments or huge teams are no longer required to create path-breaking innovation. Many of the most successful global software platforms, such as Snapchat, WhatsApp, Spotify, and Airbnb, were developed by small software-development teams. Many large software houses prefer to outsource new product development to innovative and flexible SMEs. Small teams in SMEs can be co-located, with streamlined communication and fewer corporate restrictions on their creativity. The SMEs featured in our case studies emphasize that they see their small scale as an advantage in developing leading-edge technologies.

The greatest barrier SMEs face as they grow is having the time needed to manage complex change, when they are already too busy running the day-to-day business (60% of respondents). Half that number say their organizational culture is change- averse, but only 4% says the management team lacks ambition.

In terms of financing growth, SMEs show a strong preference for relying on existing working capital, rather than bank loans. Asset-based finance is expected to be used by 37% of SMEs next year, up from 25% in 2017. Fintech is gradually becoming established but has yet to replace more traditional financing methods. As in previous years, SMEs value flexibility and responsiveness above all in their finance provider, and want their financial services to be provided at a fair price.

Conclusions and Recommendations

Our survey shows that, approaching 2019, SMEs are confident they can continue to prosper, despite economic uncertainty, disruptive technologies, and threats to global trade. This year highlights a notable shift in attitudes toward technology, as SMEs deploy it to increase both top and bottom lines.

Under pressure to sustain performance, SMEs will need to continue to sharpen their key advantages by:

  • Keeping close to customers and anticipating shifting demands, recognizing that new segments with different values, for example Gen Z consumers, are becoming more important.
  • Responding quickly, across multiple channels, as customers and business partners adopt new ways of buying and working (e.g., using new digital platforms).
  • Continuously improving their product/service offerings, including less tangible aspects like reinforcing brand values and enhancing customer experiences.
  • Increasing market reach by forging alliances and joining networks.
  • Controlling costs by looking for innovative ways to improve quality, decision- making, and business processes. SMEs may need support to learn how technology can unlock the opportunities.Attracting and sustaining the skills and talent needed to implement these changes will be key. SMEs will need to match employees’ changing demands with fresh initiatives covering terms and conditions, business values, longer-term career development, and the workplace environment.

About the study

In October and November 2018, Oxford Economics surveyed senior executives at 3,000 SMEs, ranging in size from 10 to 250 employees across 12 countries and 16 industries. Telephone interviews were used to explore opportunities and threats, business prospects, strategies, investments, and how SMEs could be better supported by changes to regulation, financing, and government support.


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