What traits will help SME leaders manage external threats?

Leaders with high EI can effectively communicate with their teams during times of uncertainty, instilling confidence and motivation.

Just as we have seen post-demonetisation, small and medium enterprise (SME) leaders face various external threats that can significantly impact their success and sustainability. Three years ago when the pandemic hit the economy, the biggest losers were the SMEs.

What are some of the common external threats facing leaders, and how can they navigate them?

The first and foremost is economic uncertainties such as recessions, inflation and currency fluctuations. For example, after the ill-conceived demonetisation exercise in 2016, most SMEs were faced with reduced consumer spending, limited access to credit, and accumulated losses. Leaders should maintain financial flexibility by building cash reserves, diversifying revenue streams and exploring cost-saving measures during periods of economic instability. Further, build strong relationships with financial institutions and industry bodies to get lines of credit.

Second: The rapid advancements in technology pose both opportunities and threats. The rise of digital transformation, automation, and artificial intelligence can lead to increased efficiency and productivity, but those who fail to keep pace risk becoming obsolete. As we have seen in recent times, traditional brick-and-mortar retailers faced immense challenges when online e-commerce platforms disrupted the retail business model. Leaders must embrace technology as an enabler rather than a hindrance. Invest in upskilling employees, adopt relevant digital tools, and stay informed about industry trends to stay competitive and seize new opportunities.

Third: Is intense and unexpected competition.  SMEs operate in saturated markets with fierce competition from larger enterprises and new entrants. This eats into market share and profit margins. Look how the highly competitive food delivery industry has been inundated with multiple startups and established players who all vie for customers' attention and loyalty. Leaders should focus on differentiation by identifying unique value propositions, developing niche markets, and building strong customer relationships. Maintaining excellent customer service and consistently delivering quality offerings can also help to stay ahead of the curve.

Fourth: Regulatory changes such as environmental regulation or tax-related compliance such as the goods and services tax. Complying with evolving regulations and industry standards can be daunting, especially in sectors with strict compliance requirements. Failure to meet compliance standards can result in fines, penalties and reputational damage. This will also encourage corrupt practices at compliance authorities. In the last couple of years, most SMEs faced such pressures from authorities. Leaders should stay updated on relevant regulations, seek legal advice when needed, and establish robust internal controls to ensure compliance. Regular audits can help mitigate compliance risks.

A fifth threat is related to supply chain disruptions such as the one faced during the onset of COVID in 2020. Disruptions such as natural disasters, geopolitical events, or raw material shortages can impact production and distribution capabilities. The Russia-Ukraine war highlighted the vulnerability of global supply chains and disrupted operations across industries. Leaders should diversify suppliers, maintain buffer stocks of critical inputs, and establish contingency plans to mitigate supply chain disruptions.

Leadership qualities

Effective leadership becomes a critical factor in addressing and overcoming these threats. The following traits in leadership could go a long way in navigating through external threats:

·         Resilience: This is the ability to bounce back from setbacks and adapt to changing circumstances. Resilient leaders remain composed under pressure, learn from failures, and quickly regroup to develop innovative solutions. During COVID, those leaders who demonstrated resilience adapted their business models to embrace digital platforms, offering online services to remain operational.

·         Strategic vision: Effective leaders possess a strategic vision that enables them to foresee potential external threats and opportunities. They analyse market trends, competition, and emerging technologies to proactively plan for the future. For instance, a leader with a strategic vision may anticipate shifts in consumer preferences and pivot their offerings accordingly.

·         Flexibility and adaptability: External threats often require leaders to be flexible and adaptable in their approach. The ability to adjust strategies, reallocate resources, and make quick decisions is crucial. An adaptable leader embraces change and encourages employees to embrace it as well.

Smart Growth

·         Emotional intelligence (EI): It is the capacity to understand and manage emotions, both in oneself and in others. Leaders with high EI can effectively communicate with their teams during times of uncertainty, instilling confidence and motivation. They also foster a positive work culture, enhance team collaboration, and resolve conflicts constructively.

·         Innovative mindset: Innovation is crucial in addressing external threats and seizing opportunities. Leaders who embrace this encourage creative thinking and experimentation within their organisations. They are open to trying new approaches, technologies, and business models to stay ahead of the competition.

·         Risk management skills: Addressing external threats involves assessing and managing risks effectively. Skilled leaders understand the balance between taking calculated risks and mitigating potential downsides. For instance, a leader may diversify the company's customer base to reduce dependence on a single market segment.

·         Collaborative leadership: This involves involving team members in decision-making processes and leveraging their diverse perspectives and expertise. Such leaders can build stronger teams and create a sense of ownership among employees. They encourage open communication and value each team member's contribution.