Disruption is more than a buzzword; technology and innovation are causing seismic shifts in the ways even the most established industries operate. By virtue of their size, SMEs are best placed to come out on top – and the corporate world should be afraid.
We all know the stats and the rhetoric: SMEs make up some 97 per cent of all businesses in Australia, are by far the largest employers and are the ‘growth engine’ of our economy. Yet it is the corporates that seem to dominate the headlines – from profit numbers to business forecasts to employment and so on.
“We spend too much time focusing on large companies. I wish everyone would do more for SMEs because that is what makes an economy,” Professor Boris Groysberg, a specialist in business culture and talent management at Harvard Business School in the US, tells My Business in an exclusive interview.
“The start-ups of today are the Googles of tomorrow.”
It is this latter point that is emerging in the world of business, and that corporates are perhaps less inclined to (publicly) discuss: the increasing challenges they face at the hands of SMEs.
In a world where technology is changing the way we operate on a seemingly daily business, versatility, adaptability and nimbleness are key traits for every business – not just to be able to grow, but to survive.
‘It’s no longer size that counts in the marketplace, but speed,’ is a phrase being used with increasing frequency and gusto in business circles.
It was for this very reason that Boris shifted his research focus from the corporate sector to SMEs and family enterprises.
“If you are a small company, you have to face those issues without [big budgets and resources]. [As such], if you teach to small companies, as long as it is actionable and implementable, they are actually going to do it,” he says.
Corporates often talk about innovation; yet, as anyone working within them will attest, actually delivering innovation is a huge challenge. Getting management, product development, IT, marketing, legal and sales to all agree on the strategy and delivery for an innovation can be a minefield.
While corporates are battling this internal red tape, SMEs are getting on with the job and taking their innovations to market.
When My Business asks if nimble SMEs will present an increasing challenge to corporates, Boris is emphatic in his response.
“Yes, I agree with that. Disruptive technology more commonly comes from small companies. Many small businesses and start-ups look [at problems] differently – and not just products and services, but also [issues like] talent management.”
He uses employee pay and rewards as an example.
“[Many businesses ask] ‘What is the best compensation system in 2016?’. That’s not the right question. The right question is: ‘What are the right rewards in 2016?’. Rewards come in lots of shapes and sizes,” he says.
“Money is not a long-term solution. Start-ups [and SMEs] can look at this and do something different.
“Yes, of course you have to get compensation right, but you have to get many other things right. I think too many companies focus on compensation.”
Doing different, not being different
In many instances, it is not necessarily a new product or service that revolutionises a market and delivers successful innovation, but rather a different way of operating.
Arguably the world’s most iconic entrepreneur, Sir Richard Branson has made billions of dollars doing exactly this – entering an established industry and competing on an altogether different service proposition. Airlines, trains, music, telecommunications, financial services… the Virgin Group operates across an extensive list of companies and sectors.
“Virgin is a way-of-life brand, and therefore ... over the years, any time I’ve felt something’s not being done well enough, I just go: ‘Let’s give it a go – let’s see if we can have a tilt at this sector or that sector’. And it’s been the most fascinating university education I never had; I’ve just been learning, learning, learning, learning about so many different things,” he explains.
“The important thing is that you instinctively feel you can do it a damn sight better than everybody else, you just get out and do it, and if it’s that much better, more money is going to come in than is going out.
“And that’s the simple thing about business – just come up with an idea that is really going to make a positive difference to other people’s lives and the figures, by and large, will add up. Sometimes they won’t, but it’s likely that if you’re creating something really special, it’s very rare that special things go bust.”
While the Virgin Group has grown into one of the largest companies in Europe, Sir Richard is adamant about maintaining its underdog status and doing things differently to shake up existing markets.
“We’re building three cruise ships, which are going to be the kind of cruise ships that I think you and I would like to go on. I’ve never wanted to go on a cruise, so I thought: ‘Let’s see if we can build a cruise ship that I would want to go on’.
That’s the best way of looking at most businesses,” he says.
“Come up with an idea that is really going to make a positive difference to other people’s lives and the figures, by and large, will add up.”
The culture of change
Yet, as Boris points out, being different is in itself a form of innovation.
He suggests that SMEs can use their strengths – such as their nimbleness – to their advantage, as means of outpacing bigger competitors.
“Some of my biggest learnings come from smaller companies. They have a very fresh perspective. They are innovating how we organise ourselves: teams, engagement, hiring processes, performance management and technology,” he says.
“All start-ups are more nimble and efficient in how they are organised.”
His comments echo those of the recently retired CEO of ING Direct Australia, Vaughn Richtor, who highlights a growing disconnection between what larger companies (such as banks) say their culture is, and the cultural experiences of employees and customers in everyday interactions.
“Culture for me is really quite simple. It’s basically what we do every day; it’s what we do around here,” he said in a recent speech to the American Chamber of Commerce in Sydney.
“What culture is not is when a management team goes into a room and they sit there and they come up with these values, and they come out and put them on a card and distribute it to staff and culture is magically transformed.
“Nine times out of 10 – no, 10 times out of 10 – your staff figure out the difference between what you’re saying your culture is, and what your culture actually is.”
He added: “Culture is set from the top, by the actions of the senior people in an organisation. But culture is lived and preserved by [everyone] in the organisation”.
Learn from other industries
In many industries around the country, technology is rapidly levelling the playing field between large and small businesses in terms of connecting with prospective customers.
Yet due to their size, it is the latter that are better positioned to grasp the opportunity before them.
A case in point is the massive disruption occurring within the delivery and logistics sector. Australia Post is facing growing criticism for its sluggish approach to adapting to a digital world of reduced letter volumes and increased parcel shipments.
In addition to impacting its own bottom line, this has allowed start-ups and smaller competitors to get a leg-up in the market, further diluting the company’s market share.
Fintech businesses are also increasing rapidly in scale and market presence, causing many within the finance industry to question what the future will look like.
“I wish everyone would do more for SMEs because that is what makes an economy.”
“According to a recent Frost & Sullivan study, Fintech in Australia – Trends, Forecasts and Analysis 2015 – 2020, the Australian fintech sector is set to take $10 billion in aggregated revenues away from the big Australian banks and contribute $3 billion of new revenue to the Australian financial services sector from 2015 to 2020,” Jost Stollmann, CEO of Tyro Payments, said during a recent industry speech.
“This train is coming fast. Can an old-style bank respond and stay competitive? Maybe. Can all of them? Probably not,” he said.
“Just think: one of the big four banks could disappear in the next 20 years. The only question is, which one will it be? Unless the banks can unbundle their products, overcome their legacy infrastructure and compete with low-cost ‘provider agnostic’ digital platforms, they might well cease to exist.”
The role of government in innovation
Sir Richard is adamant that while businesspeople and entrepreneurs should play a much greater role in solving some of society’s biggest and most contentious issues, governments would do well to learn from entrepreneurs and incorporate innovation into their own policies.
“Businesspeople are generally much more entrepreneurial than politicians or the social sector, and I think businesspeople can see problems in this world with much greater clarity sometimes than the social sector or the politicians,” he says.
“[For example] countries that treat drugs as a health problem, not a criminal problem, are getting on top of the problem.
“Portugal had a big drug problem at the turn of the century, and the Prime Minister of Portugal said: ‘Nobody will be criminalised ever again for taking drugs. We don’t recommend you taking drugs, but nobody is going to be criminalised. If you have a drug problem, we would like you to come forward and we will have a social worker that will sit down with you and will help you. If you want to take a heroin fix, the state will supply the methadone, you can come along, we’ll supply clean needles [and] we’ll supply a place where you can take your fix’.
“Over the last 10 years, the amount of people taking heroin has dropped by 90 per cent; those people are now back, useful members of society again. There’s nobody breaking and entering into people’s homes any more because these people have been weaned off the drugs … it’s been a great success.”
Boris, however, says governments still have a key role to play in supporting small businesses.
“I think countries that create an environment for startups and small businesses will be much more successful than those that don’t,” he says.
“The government has to create an environment [that is] attractive for more start-ups. Some regulations are going in the right direction.”
The future is bright
It is an empowering realisation for SME owners that the dynamics in business are beginning to shift in their favour.
Sir Richard enthuses: “The last 10 years have been unreal with the amount of creativity that is taking place and how the world is changing so rapidly as a result of entrepreneurs, and changing, I think, generally for the better”.
While this is by no means a fait accompli, it appears that the business world’s David-and-Goliath battle is now reaching a critical turning point.
Analysis: The misnomer of bank regulation and loan costs
By Adam Zuchetti
Analysis: Bank ‘misconduct’ a woeful understatement
By Adam Zuchetti
Analysis: Banks wrongly targeted as business custodians
By Adam Zuchetti