SMEs vs the consulting industry

For most SMEs purchasing consulting services can be a risk. Dr Suzanne Felber of Inkberry Associates believes that the time of the SME is upon us

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One of the most common criticisms of management consulting is its overwhelming tendency to focus on the operational performance of organisations without necessarily considering the context in which they operate. Another complaint is that clients are allocated consultants that happen to be “on the bench”, rather than the ones that were anticipated during contract negotiation.

This reflects the “body shopping” approach that is prevalent in the larger consulting practices. Their goal is to sell large teams of consultants to undertake complex projects for extended periods of time. In the past engaging with ‘Small to Medium-sized Enterprises’ (SMEs) has often involved the use of corporate-style practices on unsuspecting and (sometimes) unwilling clients. As a consequence, when SMEs do purchase consulting services, it has been an expensive and risky investment.

Consulting for SMEs ought to be about creating value. As you would expect, this requires innovation in the delivery and content of consulting services but also creativity in how consultants are resourced. Many small consultancies say: “We will take experienced ‘Big Five’ consultants and provide them at a fraction of their usual price… We don’t have marble atriums.” This doesn’t serve the needs of the SME marketplace because most of the ‘Big Five’ focus on the top 100 FTSE companies, all with completely different issues to SMEs. SME Business leaders deserve a more focused consulting service.

We are all aware that there have been some structural changes in the economy, affecting the way in which SMEs operate. For example, in the past, barriers to entry, economies of scale and the difficulties of accessing foreign markets have all been reasons for the domination of the corporate international conglomerate. However, various factors have combined to create an environment where small really is beautiful: this is the era of the SME.

In its recently published White Paper (Trade and Investment for Growth) the government recognises the important role SMEs play in stimulating the economy. As a consequence it has put in place many measures to assist. For instance, the Cabinet Office has removed the need for businesses to prequalify for contracts under £100,000. The government IT Strategy (published by the Cabinet Office in March 2011) further demonstrates the importance of SMEs over corporates in advancing the exploitation of technology for the UK.

In many industries, technology is also enabling SMEs to compete on equal terms with the corporates in ways we could not imagine ten years ago. Many people see the internet and its social networking capabilities as the final manifestation of innovation. However, there are many new and proven technologies which, when combined, provide SMEs with stable and cost effective platforms for growing their businesses.

For example, the ubiquitous “cloud”. Is this an opportunity of importance to SMEs or just more hype from the ICT community? Well, it is probably a bit of both. The technology and principles behind cloud computing have been around for a while. For instance, concepts such as virtualisation, shared infrastructure and Software as a Service (SaaS) have already been implemented effectively in many organisations. Bringing these approaches together to support innovative or even critical business processes can be powerful. It is true that computing power is now affordable and can be delivered on demand, removing the need to build expensive infrastructure and employ lots of ICT specialists. However, it can be hard to see through the hype and understand the practical implications for SMEs.

Another example: although the European Union has been in existence for many years it is only recently that we have seen widespread regional harmonisation of legislation in most sectors. From financial services to manufacturing, across the entire EU region, we are seeing that one product or service really can have only one directive. This is reducing and clarifying the demands placed on SMEs to comply with different legislation in order to sell into different markets.

This internationalisation of markets is clearly enhancing opportunities for SMEs. From exporting, importing or even off-shoring, there are many ways to take advantage of a shrinking world. SMEs can easily export to China, or alternatively have their product designed and built there using for example, the established FOA helps SMEs offshore their Finance and Accounting functions to centres of excellence in India.

Foreign currency is also becoming less of an issue, with standardisation across Europe and most countries happy to trade in Euros, Dollars or Sterling, there is really no excuse for not being international, even if your business is based in Yorkshire and only sells to the local health authority. And of course services such as Paypal help businesses trade across borders.

It is clear that recent technological, economic and social upheavals mean that the time of the SME is upon us. SMEs’ requirements upon the management consulting industry should also change: from the prescriptive deployment of unyielding methodologies, to the timely and adaptive injection of expertise. The challenge for the consulting community is to help SMEs achieve their potential to create wealth, employment and the services this country needs.
The key issues facing SMEs are:
– How can we adapt?
– How do we build effective leadership?
– How do we organise ourselves?
– How do we engage with the outside world?

Adapt or die!
In an ever-changing world the challenge is to manage change organically, not to create change. It is so easy to write trite prose about the necessity to be an adaptive organisation, ready to embrace change. The truth regarding most SMEs is that they are usually able to adapt quickly to changes in the market place. What traditional consulting firms try and sell them are inappropriate continuous improvement initiatives, change management and business process re-engineering projects. There is always a danger that the consultant stays longer than the CEO. SMEs are inherently dynamic and able to adapt to their changing environments. The task of the consulting community is to help these businesses create and sustain a structured approach to managing their own growth.

The challenge is to engineer change in such a way that being adaptive is seen as being a natural strategy of evolution and not born of desperation. The likelihood is that most SMEs struggle to manage the resourcing issues surrounding change, simply because of the scale of them. Recruiting, retaining and retraining people are typically the problems SMEs have. Getting good people and hanging on to them is important. Creating the organisational structure where the right people are in the right place is a continual challenge SMEs face. Having a trusted agency that can quickly provide the best people in a range of roles adds considerable value to any SME.

Leading from the back
Being the CEO of an SME can often be a lonely role: no-one to confide in and no one to hold you to account, except perhaps the shareholders. Effective leadership is a fundamental necessity for any organisation, but particularly for an SME where the character and values of the CEO are an integral part of the business. The dilemma most CEOs face is where to turn for advice; whether they need an executive coach, a new CFO or help with their medium term strategy. Even personal development can sometimes get jettisoned through the necessity of the routine.

At some SMEs, succession planning can be a key element in ensuring a business will continue in the long term. Identifying and developing a leadership team capable of taking the business onto greater heights is a key element in delivering value to any organisation, and to prepare for a profitability for the CEO and other investors. Consulting firms should be helping create the teams and support networks required by the modern CEO. In many ways getting the balance right can be a life choice: with the right team in place the CEO can lead from the back.

Let’s get organised
Getting organised in an SME covers so many areas; from creating a compelling vision to successfully delivering to customers requires joined up thinking. In markets where branding is seen as the key to success, and effective market segmentation is the Holy Grail, it is still mundane operational organisation such as inventory optimisation that ensures your product is on the shelf.  Whether offering financial services or manufacturing goods,  the lessons are the same: getting organised is not just about doing things right, it is doing the right things. How do we measure the process and provide feedback? How do we fine-tune the system to ensure we use our resources to best effect? Designing a robust and efficient supply chain is not about technology; it is always about process. Many consulting firms have their pet ERP system and simply go in search of clients willing to use it. “SAP is the answer, now what was the question?”

In many instances SMEs are delivering products or services to large conglomerates, such as M&S, government departments, the NHS or to other SMEs. The increasing challenge is to design a socially responsible supply chain that is likely to be scrutinised by the end customer. Coaching SME leaders on Corporate Social Responsibility and looking to the future is important.

Just as the opportunities for the SME to link to the rest of the world have increased, so too have the number of ways they can be influenced by society, its politics and values. There are opportunities to innovate for every SME and these include environmental challenges.  The requirement for consulting firms is to help SMEs design effective supply chain organisations that are both effective and socially responsible. We must develop simple strategies, implement these quickly and review their effectiveness, repeating the process again and again. So, let’s get organised.

Engaging with the world
Creating the right brand is fundamental to establishing a presence in the chosen market. Understanding that market is part of the decision making process. However, SMEs sometimes don’t have the resources to access the types of business analysis and market research required to gain those necessary insights and develop strong competitive advantages.

Helping develop and apply a brand image that reflects your ethos and brand promise is a major responsibility of every CEO. Most people who buy goods or services gravitate towards organisations that “stand for something”. The image SMEs project in their chosen marketplace is fundamental to attracting the right customers.

The challenge is to help CEOs create brands that change their chosen market, helping them create an image that reflects their values and ensures that they “stand for something”. Providing access to resources and helping define and exploit an SME’s competitive advantages is part of the new consulting paradigm. Seeking funding is often a major part of ensuring a business is successful. Creating the right context for investors is also the CEO’s responsibility. Good corporate governance is part of that whole jigsaw puzzle, and getting support and guidance to create that compelling investment proposition is not easy. Corporate governance is important to attracting investment: well-governed companies can command a value premium of up to 30 percent and significantly reduce their cost of capital.

Consulting firms need to adapt to the changing needs of SMEs, by providing the guidance on branding, not just at a product level, but also at a strategic level, creating credible investment vehicles for venture capitalists, banks, and the City.

Looking to the future
All organisations need some form of help and advice as they grow and develop. The challenge for the consulting sector is to serve SMEs with a fresh offering, and not simply repackaging the complex solutions developed by larger firms. Successful consulting firms will need to adapt and move away from the ‘body shop’ mentality, and instead create long term mutually beneficial relationships with clients who value commitment, contribution and insight.

Management consulting shouldn’t be about “throwing consultants bodies over walls” to see who stays and who goes. It  should be about helping the CEOs of SMEs build capable and sustainable organisations, credible investment vehicles that can be passed on to the next generation.