Small and Medium Enterprises in India have become a powerful driver for the social and economic growth of the nation. The Small and Medium Enterprises or SMEs in short, contribute 30% of exports and 65% of employment. Let us examine the Indian scenario of SMEs where it is defined based on the investment pattern in plant and machinery. The Small enterprise is that which has got less than Rs1 crore of investment and the Medium sector has got an investment from Rs1 crore to 100 crore. If we examine the foreign counterparts of SMEs, we can see that, the classification is based on the number of employees and not in terms of investment.
The SMEs in India are further classified as village industries, Export Oriented Units, Ancillaries etc. If we look at the characteristics of SMEs in our country, they emphasis on management leadership, employee empowerment, customer satisfaction and lower complexities.
SMEs in India face lot of threats and have innate constraints of their own. Most of the SMEs suffer from paucity of financial resources due to which the ambitions for massive expansion and the redefinition of the business, practically remain very much challenging. With limited access to appropriate technology, the growth and updating become extremely difficult for them. Also, with their existing resources, it is hard to conduct a detailed information research in order to acquire the knowledge about the various market factors, which in turn put them in deeper problems.
Being the back born of our nation’s economy, the SMEs need to be more sustainable and competitive with in their limited framework of various deficits.
It is in this context, we need to focus on the competitiveness in SME sector from a strategic perspective. To achieve and sustain competitiveness, SMEs need to equip with tools and models which will act as catalysts for growth and prosperity.
This leads to significance of strategic management in SMEs. The strategic management, which is the art and science of formulating, implementing and evaluating the organizational functional decisions that enable the organization to achieve its objective. The strategic management process consists of three phases, the formulation part followed by implementation phase and ending with the evaluation.
Be it in any industry or sector, the business entities cannot be run without decisions at apt time,with a kind of preciseness and compatibility and so as the SMEs too. In fact the business runs on strategies, at different levels and different functions.
The pressures are enormous on SMEs in terms of cost, quality,delivery speed, service,, new product development and supply chain integration, The one and only success mantra for any business organization is Innovativeness and Responsiveness. To implement this mantra, we have only one way “Device and implement effective strategy”.
As we have discussed, the strategies could be applied at any level and at any functional department of SMEs. With the right kind of vision and mission only, the strategic success can be attained by SMEs, and for this the SMEs need to have good a mentor in the form of an enterprising promoter who can guide and felicitate.
Let us examine the various strategic models which could be adopted in different managerial functions. If we start with the strategies for R&D competitiveness in SMEs, we can envisage the significance of innovation . To achieve this, the foremost thing is to conduct a case research which is based on information about other SMEs, and there by benchmarking the process. This will equip the SMEs with thorough understanding of the market needs, the competitors’ strengths and weaknesses and the whereabouts of know how’s. Again, cluster development is a good strategy for SMEs in terms of cooperation. Here the SMEs in a specific area can join together to share and validate information with respect to their business activities. CODISSIA in Coimbatore is one such entity.
Research Quotient (RQ) method is another R&D model which is represented by a mathematical equation.
Y=K∞LßRr
Where Y is the output in terms of resources, K, the Capital, L the Labour and R represents How much percentage of increase in output would you get from 1% increase in R&D spending.
And, Alpha, Beta and Gamma are the productive rate of each Input in generating Outputs.
This model throws light to the percentage of R&D spending, to achieve research competitiveness. By adopting this model, the SMEs could focus on the Return rate against investment in Research and Development.
Coming to Human Resource portfolio, the SMEs need to adopt strategies to revise the organizational culture with sheer focus on talent acquisition . The major focus of the HR policy must be to influence the organizational promoter on the need of organizational cultural change. The changes are to be implemented with thrust on Redundancy in recruitment, which talks about the multitasking employees acting as buffer for different kind of jobs. Employee Empowerment can be effectively used to motivate and educate the employees to make them self sufficient and more self responsible. The Japanese concept of Autonomous Work Group is a good model for empowerment.
The Knowledge management, one of the newly emerged concept is significant as far as SMEs are concerned. The Knowledge Management is defined as a set of organizational design and operational principles,process,organizational structure,applications and technology that helps knowledge workers to leverage their creativity and ability to deliver business value. (Gurteen 1998. ) . If we examine the factors of Knowledge Management, like Senior Management support and leadership and development of technological infrastructure with sharing kind of culture, we can definitely notice the association and appropriation with SMEs.
A complete revamping of HR recruitment models would enhance the competitiveness. Adaption of Recruitment Process Outsourcing is a handy strategy to cut costs of non value added recruitment activities. Conducting retention interview would enable SMEs with better understanding of their employees and their expectations from the company. Recruitment through social media have proven to be fruitful and invariably, it will help the SMEs to establish their own brand in the respective sector as far as recruitments are concerned.
Next comes the In Information Technology. Many SMEs considered the application of the Information Technology as a secondary or less value added service. SMEs have to rethink about the treatment of Information System and Technology like considering it as a strategic source rather than just a data base management system. A complete integration of Information System is the need of the day as far as the SMEs are concerned.
The use of cloud computing comes handy in optimizing the Information Systems . Here, the user does not have either data or the software but only have the access to use. This will considerably reduce the unwanted cost incurred in investments for data systems and software there by significantly minimizing the Information Technology operational costs.
As we know, one of the major deficit of SMEs is the inherent disability to raise funds for the expansion. When it comes to Financial strategy, a model could be followed in order to optimize the utilization of both human and economic resources. A financial Balanced Score Card is a very powerful tool for strategic planning and evaluation of the financial resources of SMEs. The Balanced Score Card consists of factorial analysis of various organizational elements like financial resources , internal learning and growth as well as the business perspective. A thorough analysis of these aspects will enable SMEs to understand the utilization pattern and scope of improvement of the same.
Also a well devised financial restructuring policy need to be adopted. Asset Light Modelling is one such practice where in SMEs could think of off loading the non core activities to sub contractors and thereby concentrating on their core competencies. As far as funding is concerned, More amount of Angel investing and VC funding are to be infused. Also the recent relaxations in Angel funding for start-ups like increasing the number of angel investors from 40 to 200 and the ceiling reduction of investment from Rs50 lakhs to 25 lakhs could be effectively adapted by SMEs.
The SMEs have to device optimal manufacturing strategy to achieve better competitiveness in their production activities. The Operations strategy could be consisting of Lean manufacturing which encompass both primary and support services. Lean literally means shedding of excess fat. The SMEs must emphasis on identifying the activities and areas where non value added elements could be identified and eliminated with alternative methods and procedures or completely revamping the process. The Lean strategy would pave a platform for a fundamental change in corporate thinking of SMEs. To ensure the success of Lean manufacturing, the critical successful factors like leadership and management, funding, organizational culture and people skills are to be addressed. The practices like energy audit and Business Oriented Manufacturing would complement the Lean manufacturing. To integrate supply chain management in SMEs, the models like Focus-Localize-Partner would be adopted.
Value Engineering is another ideal model to enhance the value of the SMEs operations strategy. The model thrusts on a detailed analysis of the existing practices and procedures of the organization in all the related areas of operations right from product planning and optimizes the manufacturing stream to ensure maximum value for the customers.
As SMEs can’t campaign at par with the giants, the Marketing strategies for SMEs must be always thriving to learn the pulse of market. Marketing being a critical function and even more critical for SMEs, they cannot just casually treat it. Right from the innovative research, the SMEs need to focus on frugal innovation, which enables the SMEs to generate more social values. Co branding of SMEs would be effective. For betterment in marketing, SMEs can adopt an integrated business strategy with effective use of Corporate Social Activities.
Predominantly the SMEs operate in niches. It becomes important for them to retain and generate customers for their successful existence and growth in the market. Customer Relationship Management systems play vital role in dealing with the clients. In understanding their needs, expectations, perceptions etc, the Customer Relationship Management stands as a pivotal strategy. Cluster approach is another effective marketing strategy for SMEs where they can for a combined campaign by means of exhibitions, show events and sponsorship. Permission marketing is proven to be a successful marketing strategy for SMEs where they can access customers through Emails or SMS there by letting them knowing about the SME products and services.
Along with the functional strategies, SMEs can thrust on implementing Business Process Re-engineering for fundamental rethinking and radical redesigning of business process to attain dramatic improvements in the area of quality, cost, speed and service, which are going to be the drivers of business growth of any organization.
As our beloved former President ,Dr Abdul Kalam told, ‘Low aim is a crime’, the SMEs should not confine to their restraining environment with lesser dreams and wishes, but should fly and try to cross the transactional boundaries to become competitive and thereafter to become excellent.
We. at Pivot. ensure the effective devising of various strategies for the SME sector with an aim to enhance their performance and enable them to focus on the future development, by optimizing the practicing models.
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Email :- rejishofpivot@gmail. com or
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