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10 lessons big business can learn from SMEs 

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10 lessons big business can learn from SMEs 

As a business that advises organisations on how to achieve stretching growth, we work with a wide spectrum of organisations – from blue-chip multi-nationals to start-ups with little more than a couple of founders and a dream. Given our broad client base we’re often asked what lessons can be learned from others. Most commonly it’s the biggest businesses that ask us what they can learn from SMEs and start-ups. They have a warped view of what it’s like to work in such an environment and misinterpret the realities behind the strong growth that smaller organisations can achieve. So, when we outline what we think the most helpful lessons are for them, they can be somewhat unexpected. In no particular order, here are the 10 most valuable lessons I think big businesses can learn from SMEs… 

  • Focus
Justin Wright

Justin Wright

One of the biggest challenges for big businesses is the sheer number of ideas and projects being worked on at any one time. With resource comes a lack of focus and this can seriously compromise your chances of delivering step-change growth. Conversely, SMEs tend to be better at focusing on doing one or two things brilliantly, as they typically don’t have the luxury of big budgets and teams of people. In big companies, there is a palpable feeling of risk associated with just doing one or two things and there is perceived safety in numbers – the more we do, the more chance something will be a success. Wrong!

  • Stay Lean

The other big advantage of not having access to significant resources is that it forces individuals and teams to think more creatively. In our experience, too much resource can lead to complacency and even laziness in big organisations. There is a sense that money can be thrown at a problem to resolve it, but in truth, that is rarely the case.  When resources are restricted you have to think your way around problems and compensate for lack of budget by having bigger and better ideas. This is something SMEs often use to their advantage.  Limiting the resources allocated to a project team in a big business can significantly improve the creativity and quality of that team’s outputs.

  • Mitigate risk

In our experience, the smaller the company, the greater understanding there is of the risks involved in doing or not doing something. SMEs tend to be better at understanding risk and mitigating it because everyone is so much closer to the bottom line. Interestingly, when you ask big companies what they admire about SMEs and start-ups they always talk about their desire to take risks. This is a misunderstanding: it’s highly unlikely smaller companies seek out risk given the consequences could mean the end of the road for the business. Rather than taking more risk, big companies should spend more time assessing and mitigating risk – not just of projects they do work on, but also the risk of doing nothing.

  •  Share the spoils

If you want your employees to be motivated to deliver your vision and growth targets, then they need to know there are different outcomes for them if those targets are successfully delivered. Incentivising individuals via significant upside is much more difficult to do in bigger organisations, where HR is focused on implementing and adhering to rigid bonus schemes. Equally, we find the corporate world less adept at using other non-financial ways of recognising performance and a general reluctance to single out the contributions of any particular individuals. The best SMEs are much more willing to share the spoils with those who delivered them and understand the power of the annual company away day or Christmas party to motivate as well as galvanise.

  • Be courageous

SMEs are more likely to ‘play to win’ whereas big businesses are more likely to ‘play to not lose’. The bigger you get, the more you have to lose, and this can drive conservative attitudes and behaviours. For SMEs, the potential gains are always so much greater than the potential downsides of trying something and failing. This is one of their advantages – they have a ‘challenger mindset’ that so few big businesses manage to adopt. The increased focus on short-term goals in big companies also restricts their ability to make courageous decisions that may only payback in the longer-term. Employees need to know what kind of behaviours and decisions are appropriate and be given the ‘freedom to fail’ knowing there will be no negative consequences.

  • Be agile

From first-hand experience, we’ve witnessed how quickly decisions can be made within SMEs. During a workshop with a small, fast-growth business, we saw a critical strategic decision made during a cigarette break – one that determined the future direction of the company. Perhaps quite rightly, given what’s at stake, this could never happen in a big organisation. However, decision making and planning in big business tends to take an unreasonable amount of time and involve an awful lot of people. There are huge gains to be made by becoming quicker at making good decisions AND acting upon them.

  • Learn & adapt

The other advantage of being small is the ability to learn and adapt quickly. If a marketing plan or new product launch is not going to plan, then SMEs seem more adept at finding out why and intervening quickly. They tend to be closer to the market and to their customers, whereas sitting in the ivory tower of a Corporate HQ can give a sense of being detached and distant from the real world. Learning tends to be more formal, involving expensive and slow research, which means by the time the learning has permeated the business, it can be too late to act to rectify the situation. On the other hand, SME’s approach to learning is usually more informal – some conversations with key customers to inform the assessment of the situation, rapidly followed by a plan to fix things before it’s too late. 

  • Have a purpose

We all need to know why we get out of bed in the morning and come into the office. More than just the motivation of money, we want to feel like we are devoting 40+ hours a week to a cause we understand and believe in. Whilst corporates try very hard to do this, their expensively researched corporate ambitions tend to be so high level and distant from employees, that they are paid little more than lip service. Given SMEs are so often owner-managed businesses, there is a direct and immediate reminder of why the business was set up and what it aims to achieve. The motivations of these key individuals are inherent in everything the business does, so it cannot fail to rub off on the work force. And if anybody does not buy into that mission, the chances are they will not stay for long anyway.

  • Don’t try to do everything yourself

Invariably, when a big business spots a market opportunity, they dedicate resources to creating a new product, service or offer to exploit it. They have a strong bias towards working autonomously to developing an appropriate solution – even if the more logical solution would be to partner with others who already have part of that solution or the skills to develop it on their behalf.  We find that small businesses are much more open to joint ventures, collaborations or licensing options that get them to a fit-for-purpose solution quicker, and without huge development investment. They realise what their strengths are and play to them, supplementing additional capabilities by inviting others to work with them. Big businesses could learn a lot from this more pragmatic and collaborative approach.

  • Enjoy the journey

One of the most exciting things about working in an SME is being able to contribute to, enjoy and benefit from the growth of the organisation. You are much more able to enjoy the journey – which is often dynamic and stimulating. Most big organisations have existed for some time and they are well into their journey. Often the focus is on not going backwards or just keeping pace with market growth rates. The journey is less tangible – if there is one at all.  Whilst this may be true at an overall corporate level, there is no reason why the leaders of teams or departments cannot create this sense of journey and allow all team members to contribute to and enjoy it.

So there they are, 10 key lessons, many of which are clearly inter-related. The challenge for big businesses is they cannot just pretend they are small and act in this way – they have too much at stake. Instead, they must understand the implications for their organisation and focus on emulating a few of the advantages that SMEs enjoy as a consequence of them lacking scale.

Justin Wright is co-author of ‘Stretchonomics – the art and science of success’ and co-founder of innovation and growth agency,Mangrove

Business

Battling Covid collateral damage, Renault says 2021 will be volatile

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Battling Covid collateral damage, Renault says 2021 will be volatile 1

By Gilles Guillaume

PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.

Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.

“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”

De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.

The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.

Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.

Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.

The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.

The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.

Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.

“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”

Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.

SHARP HIT

The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.

Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.

The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.

In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.

Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.

Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.

Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.

It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.

De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.

($1 = 0.8269 euros)

(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)

 

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Business

UK delays review of business rates tax until autumn

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UK delays review of business rates tax until autumn 2

LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.

Many companies are demanding reductions in their business rates to help them compete with online retailers.

“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.

Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.

($1 = 0.7152 pounds)

(Writing by William Schomberg, editing by David Milliken)

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Business

Discounter Pepco has all of Europe in its sights

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Discounter Pepco has all of Europe in its sights 3

By James Davey

LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.

The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.

Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.

“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.

To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.

The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.

Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.

Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.

That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.

“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.

Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.

Sales rose 3% to 3.5 billion euros, reflecting new store openings.

($1 = 0.8279 euros)

(Reporting by James Davey; Editing by David Goodman)

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