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Growth and stagnation in the SME universe

It is not uncommon to hear MSME owners confess they are not growing as desired or that they are stuck in a lower orbit when they have the capability to grow three to four times their existing levels.

April 25, 2012 / 10:41 AM IST

It is not uncommon to hear MSME owners confess they are not growing as desired or that they are stuck in a lower orbit when they have the capability to grow three to four times their existing levels.


 


Obviously, such claims must be evaluated objectively before they are dismissed as wishful thinking. But the question here is who will evaluate such expectations when small businesses have little or no interest in conducting market surveys, or even better, rope in business consultants who can undertake a proper SWOT of the business. For all practical purposes, regardless of how MSMEs sort this growth dilemma, this remains the most important challenge for HR to address, unless of course, HR chooses to avoid it. But how well is HR suited to address such business growth conundrums? Will it not be a case of fools rushing in where angels fear to tread?


 


The HR angle


 


Let us take a real case here to examine how HR can or cannot show, if not all, some part of the way.


 


Kantibhai and his brother, Sureshbhai have been managing a trading and contract manufacturing business in specialized bearings for the last 30 years. Since they occupy a niche where they command a 100 percent margin, business has been steadily rising but for a couple of years now, the total business turnover is stuck in the Rs 6-7 crore band. However, both are quite convinced that they can grow the business almost eight times in the next five years if only they can cater to potential demand that is theirs to grab. This is easier said than done, though. With an employee base of about 12 employees, of which 4 exclusively focus on marketing and three on customer relationship management, the business has not been able to steady the influx and exodus of employees every year.


 


While some employees have walked out because of the poor salaries, some have been absorbed by the larger customers the business caters to. Worse, despite regular job advertisements in leading local dailies, the business is unable to attract quality candidates as a result of which candidates walking in with friend and family references have been sometimes, reluctantly accommodated.  Also, existing employees have received little or no formal training to perform their roles well and contribute to the growth of the business. Besides, there is no custom of providing any employee incentive beyond the annual raise. More importantly, there is no performance management or any appraisal framework in place for the employers and employees to discuss business, function and individual performance.


 


Thus far, the diagnosis of the case points towards an HR solution or a solution that will have a very large role for HR. But will it help in taking Kantibhai and Sureshbhai anywhere close to realizing their dream targets for the next 5 years? 


 


The Strategy angle


 


In many ways, the growth conundrum that Kantibhai and Sureshbhai plan to solve is perhaps the same that a majority of MSME owners in the country face. In order to refine their growth expectations, however, the brothers were asked to indicate their business preparedness in 7 critical aspects of business management - Planning, Personnel, Operations, Sales and Marketing, Advertising and Promotion, Bookkeeping and Accounting and Financial Planning.  All key employees in the company were also asked to participate in the exercise.


 


Interestingly, on many items related to planning and strategy, there was clear disconnect between what the brothers thought and what the employees appeared to know.


 


Subsequent discussions with the owners revealed that even as they harbored a specific mission for the organization, it had not been shared with the employees. This clearly had an impact on employee motivation. The employees did not quite understand what plans the owners had or what their (the employees) own role would be, going forward.


 


Interestingly, the company also happened to be operating without a budget. Regardless of what the finance or accounts folks make of it, in simple terms, a budget not only functions as a dashboard indicating planned expenses and revenues but also as a forecasting tool enabling businesses to measure their actual performance against their best laid plans. From an HR point of view, a budgeting exercise is a participatory mechanism to rope in employees and employer alike to get a clear understanding of the various expense as well as income items and plan their finances through the year in the best possible way. The entire process brings people together and is expected to generate greater clarity about the business for all stakeholders. Does this mean that a regular budget and a shared mission can provide the answer to the growth problem that an MSME business might want to solve? Obviously, the answer will depend on how critically the owners themselves consider the exercise.


 


Another critical area of concern that follows from the Table shown above is the absence of a sales plan and a pricing policy to guide the business. Discussions with employees and owners here revealed an interesting trend. Whereas the owners had their own undocumented pricing policy or sales plan, employees had zero visibility of the same. Moreover, the marketing team felt that the absence of a basic pricing catalog covering the 100s of products the company traded in or manufactured was hurting the business hard by increasing the time taken to respond to serious customer queries. Apparently, only one of the owners did all the price negotiations and consequently, only he was privy to all pricing related information.


 


The Operations angle


 


For an MSME, operations plays one of the most difficult bugbears to manage. In some ways, Kantibhai and Sureshbhai’s chaotic and cluttered office appeared to be a small scale reflection on the way in which they conducted their business operations. A casual conversation revealed that both found it difficult to monitor and measure their personal and professional use of time and consequently found themselves chasing too many things at the same time. Interestingly, further discussions indicated that both also lacked able subordinates to support them. Obviously, this was also due to the high employee churn. Nobody stayed long enough to take on a share of the owner’s burden.


 


One of the principal challenges that the owners confessed they faced on a daily basis was management of inventory. Since they had to ensure the bearings reached their warehouses (located in 3 different areas) in time from their various vendors around the world, for the business to forward the same to the various customers in Gujarat quickly, it was imperative to have a handle on existing inventory at all times. This was however not an easy task. There were no IT systems to help them with any sort of inventory dashboard. Discussions with Stores and Accounts suggested that manually recording inflow and outflow was proving to be a nightmare. More importantly these transactions were very difficult to integrate into the Tally software the accounts team depended on. Apparently the chap in charge of Stores even had a bar-coding solution to settle the issue but he wasn’t sure why the owners weren’t buying it, though it was an established best practice. “At any point in time,” said one of the owners ruefully, “we must be sitting on Rs 3 crore of inventory without any idea about the numbers or the types.”


 


Prima facie, the Operations aspect of the business may appear to be in the most critical condition, here. However, even with this bleeding, business has been growing steadily. Clearly, the problem may need to be plugged going forward. But can it be the solution that the owners seek to their growth challenge? Perhaps not. How will it address the larger question of attracting, acquiring and retaining new and old customers?


 

Growing a small business, says, US small business guru, Michael Gerber, requires small business owners to stop “working in their business” and spend time "working on their business.” What this essentially amounts to is developing a helicopter approach to the business by rising above it rather than working harder inside the business. Of course this macro perspective is not so easy to develop and requires building systems to support this transition. But even before the systems are in place, there is an even more urgent need to develop a mindset that embraces the change. Now is that an HR solution?

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