Opinion

Fostering a culture of innovation and digitisation in SMEs

Samir Sathe | Updated on April 20, 2021

SMB entrepreneurs must energise direct reports to think of growth, low-cost innovations, and adaptation

Small and Medium Businesses (SMB) entrepreneurs’ attention, allocation and action on innovation-led agenda has halved since the pandemic hit India in 2020 and continues to hit us in 2021. with its second wave denting the hope of resurgence.

Can SMBs focus on innovation when the cash runway periods of the SMBs are under threat once again? How much is innovation responsible for growth, sustainability and leadership in post-crisis situations? How can SMBs use the period of crisis and feeling of anxiety to their benefit?

Do innovators in crisis outperform peers post-crisis?

Empirical research suggests that companies that exercised discipline in managing and innovating on the variables of cash, customers and capacity in pre-Covid-19 periods survived better in 2020 and emerged stronger in their industries in calendar Q1 2021. They have gained 8-1000 bps over their peers in revenue and 2-300 bps in profitability margins. Industries such as pharma, med-devices, healthcare, technology and consumer goods have fared better than industrial goods and services. The question to ask is whether these innovators are SMBs?

Untrue for SMBs, though.

This evidence is limited to larger-sized companies and not smaller companies. Our findings suggest that innovative SMBs began well in 2020 but have, by and large, met with hurdles to scalability of their innovations, hit by unfavourable external variables such as Covid and lack or inadequate access to funds or markets, continually, unless they were technology and platform-enabled and supported by kindhearted investors with a longer investment horizon. If the external situation of the second wave and impending lockdowns continue for another three months, it could wipe out the incremental gains they have enjoyed over their peers during the second half of 2020 and Q1 of 2021.

What should SMBs do in the second wave of Covid?

1. Energise and adapt strategy and innovations

SMB entrepreneurs must energise direct reports and their teams to think of growth, on the ground rapid cycles of low-cost innovations, and adaptation with speed and not be fixated on strategy and plans made before the second wave. The internal culture of positivity and growth mindset helps employees build innovation in their daily lives. It is the job of leaders to ensure that their mid-level employees stay occupied and energised with an innovation mindset. Then, one could hope for innovating on the products, services, business models and improving the odds of success during a crisis.

It does not matter what one’s mission is if one does not live to see it. The founders, promoters, owners, top management must question every single assumption, not with the lens of being cynical and negative, but with an urgency to morph it into a model that would win, given the context of their customers.

Remember, in periods of crisis, in particular, empathy between a customer and a supplier and service provider goes a long way in cementing a relationship and business. Empathising with your customers and responding to changing mindsets in the crisis period is a critical act that customers must see and feel, not intellectually but in reality and actuality. In fact, these shared feelings give rise to mutually beneficial innovations. The KRAs and goals must be an outcome of these deliberations and not the drivers of strategy.

2. Innovate leveraging core competencies and strengths and not balance sheets

SMB entrepreneurs must look within and reflect on leveraging their core and innovating the same as leveraging their balance sheets. There is a funding gap, but more importantly, there is a gap in knowing whether the funds will generate returns, making the capital owners wary of SMBs. This is a vicious circle.

The better approach is to look into the key strengths and competencies that their businesses possess? Is it land, hard assets, intellectual capital, distribution, access to technology, access to customers? Project management skills? In crises, one often misses out on the most visible and yet seemingly hidden competencies that organisations possess. Leaders’ job is to identify them and put them to use to earn relationships, revenue and returns.

3. Digitise transactions, customer experiences and not relationships

There is a massive uptake in the digitisation of B2B and B2C businesses, with the customers’ habits of doing business changing significantly during 2020. As we approach the middle of 2021, we see a dramatic change in payment patterns, sourcing customers, and even transacting with them, undergoing a massive change. Businesses have reaped digitisation benefits by reducing Cost to Serve (CtS) by 25-50 per cent and expanding reach and conversions by 33 per cent. The entrepreneurs must be mindful that they should continue to invest their attention in building relationships thatbytes cannot buy. Technology is a servant, and one must treat it like one. It is a means to an end and not an end itself. Entrepreneurs need to understand the difference between digitising businesses and relationships.

Samir Sathe is Executive Vice President, Wadhwani Advantage at Wadhwani Foundation

Published on April 20, 2021

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