What is the secret to a triumphant enterprise?
May 24, 2009
 By Vuyo Jack
What is the secret of success for small and medium enterprises (SMEs) in South Africa? Arthur Goldstuck, the chief researcher of the SME Survey 2007, has the answer.
The results of the survey were used to tease out what makes SMEs successful. These insights were extracted from 5 164 businesses interviewed.
The key insight gleaned from the survey is that unprofitable and small SMEs do not think that they are competitive. Furthermore, the small, informal and family-owned businesses tend to be unprofitable, whereas the well-established and larger businesses tend to be more profitable.
There are five key areas identified as critical to the success of SMEs.
The first is centred on strategy development and mentorship. This is a critical area for SMEs because having their strategic direction figured out helps them create a business model that increases profitability.
The challenge faced by SMEs is the inability to articulate their strategy clearly, which leads to more confusion about the direction that the entity should be taking. Therefore, by having an external mentor, the SME could gain access to a fresh perspective on their strategy and expertise.
The prevalent business expertise used is from accountants (73 percent) followed by bankers (59 percent). This is not surprising as accountants are much closer to the details of the business and numbers.
But this does not necessarily translate to the SME using them for strategic input about the long-term direction of their entities. Only 10 percent of the SMEs surveyed used mentors, which shows that mentorships are under-used.
Marketing and sales are the second success factors that affect the top line of the company's performance. Of the marketing and sales resources used by the SMEs 82 percent were based on referrals while 52 percent used print advertising.
Other forms of marketing, such as on-line marketing and public relations, were not yet widely used. Referrals rely on building and maintaining good relationships with clients and suppliers. Therefore, the importance of a sales force cannot be underestimated, whether it is in-house or outsourced.
The third component is related to human resources development. It is always accepted that managing your employees is critical for the success of any business. However, the process of hiring people is very time-consuming. So the secret of success, according to the findings of the survey, is to use on-line recruitment.
The cost of using third party agents can be expensive for SMEs, so the on-line alternative is more suited to their budgets. But the risk of sifting through the candidates and verifying their suitability can be high because of the higher numbers that might be attracted through the internet. So the suggested filtering mechanism is to use psychometric profiling.
The downside to all this is the accessibility of internet resources to the targeted employee groups, especially black people who may not have easy access to the internet. The other key success factor is to ensure that there is a link to the Balanced Scorecard, which ensures the human resources development is a core component of the business strategy. Without this linkage the implementation of the business strategy will remain a pipe dream.
Skills development is also critical for customer satisfaction, which affects business sustainability.
Connectivity is the fourth success factor. The survey finds a strong link between the competitiveness of the SME and the following: IT hardware, internet connectivity and internet services. Technology enhances the competitiveness of SMEs.
There is more connectivity as some of the telephony costs are starting to fall, thanks to competition in data services. E-mail services are now given for SMEs. This allows the SMEs to create websites to advertise themselves and their services. There is increased scope to use on-line recruitment, on-line accounting services and on-line banking. Leveraging the web is the way of the future for SMEs.
Access to resources is the fifth success factor. The key resource identified was hardware and software. An example is BlackBerrys, recommended for those SMEs whose work requires them to be on the move most of the time. Mobile data services are also used to provide flexibility to the SMEs.
Ultimately, there is no easy and guaranteed recipe for success for SMEs, but it always helps to experiment and test different things until one finds the unique formula that works.
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