ONE of the things that have become apparent during the pandemic is that many companies were vulnerable to disruptions due to old business models and practices.
For example, the widespread practice of outsourcing in the early 2000s had led to high degrees of specialisation and dependencies on an integrated global supply chain. This may have further perpetuated supply chain shocks when borders were closed and movements restricted to curb the spread of Covid-19 last year.
These tendencies to specialise and build on economies of scale have cost businesses over the past two years or so, particularly for those that were not able to quickly change their products and services.
Increasingly, there is a need to take a different approach to how a business can be reshaped to ensure that it remains resilient amidst possible future shocks.
According to Singapore-based consulting firm Eden Strategy Institute, current circumstances call for a rethink of business models and practices as SMEs reset for a post-pandemic landscape.
“Historically, we’ve always looked at economic returns, almost as a singular number for success. We focus on key performance indicators like revenue, market share, margins, profits and cost reduction. There’s nothing wrong with that.
“But at the same time, think also about ways to make meaningful social impact, whether it is in fulfilling society’s need for trust, of a community coming together or for basic needs. Companies that are already doing this are enjoying economic success because they are able to plug into meeting some of these needs.
“So the first question that we need to ask ourselves in this reset is, ‘Is your company fully and meaningfully contributing to the communities you serve?’,” says partner and founder Calvin Chu.
Relooking a company’s organisational purpose would also help point it to areas of opportunities and position the business to actively support the market that it operates in.
By observing key trends and needs in the immediate market, SMEs will be well placed to be of value, not just to their customers, but also to their stakeholders.
Chu had shared his insights at “The Hard Reset: Building resilience for SMEs post-Covid-19” workshop at the SME SDG Festival 2021 last month.
Other factors that small businesses should reconsider include their supply chains, finances, research and development (R&D) and customer relationship management.
Malaysian companies that mainly derive their sales from the local market, for example, may want to reintegrate their supply chains locally to ensure that they are more resilient moving forward. They will need to identify capabilities that would ensure an agile response to changing market conditions.
In terms of R&D, rather than merely focusing on improving products, Chu opines that companies should instead think about how R&D may be applied to tackle societal challenges more collectively.
“This is where opportunities lie as well. While technology could be a lever of economic growth in terms of helping us with economies of scale and efficiency, think also about how we can help people collaborate better. Can our investment in R&D better signal the types of technology that humanity needs?” he asks.
Chu also urges SMEs to build deeper relationships with their employees, customers and communities.
With the double whammy of increasing scrutiny on companies due to their labour practices as well as the issue of labour shortages, it is becoming crucial for companies to relook the treatment of their employees.
“Are we looking at our employees beyond the ‘market value’ that they deliver? Is it just a market price of what the employees can warrant and then we just pay them that? Or can you look into how else you can retain them and help them to grow to fully realise the value for your company.”
Additionally, as businesses look into building their online presence with social media, he notes that they need to also focus on building meaningful relationships with “that few genuine, loyal and good customers.”
This will also enable companies to understand the struggles that their customers are going through and help pivot their services into solutions for their pain points.
Companies also need to, notably, match consumers’ changing behaviour. However, this is not only in their shift to online but also in their move towards conscious consumption.
“So how do you help create that piece that meets that kind of need for consumers? And in so doing, rather than thinking of market share, you are thinking about getting the price premium, the high quality, about bringing that artisan-ship of what you are doing to the world, because that is the way that you differentiate yourself as consumers are making conscious decisions
“When you have good customers coming to you, customers that are buying because they really want (that product or service) from you, the word of mouth will be stronger, the loyalty is better, the price premium will be there, the number of places that you have to serve is less, the cost of service will be less, and you get much better quality of sales coming through,” he explains.
With many more factors to reconsider, it will be crucial for SMEs to relook their strategy going forward.
Chu advises firms to also think about how they can create some notion of strategic redundancy.
For example, companies have traditionally preferred to keep minimal inventory as stockpiles can be seen as costly.
However, companies that have been able to maintain sufficient stocks have actually found that they have thrived in this pandemic because they were functional.
“So what are the assets in the business that you need to make sure are resilient, where are the system-level weaknesses and factor all of these into your total cost of ownership. Don’t just think about the dollars and cents in terms of cost.
“What happens when something breaks down? What happens when you have to source for something in a supply shock situation, you have to end up paying a premium. What happens to the goodwill you lose when customers come to you but you don’t have what they need? So think about whether we are investing in critical assets, even if it affects margins,” he says.
More importantly, companies need to rethink the purpose of their growth and identify the strength of the foundations that are driving this growth.
“There is a transition that is happening. If we are not staying ahead of the curve, we will fall behind. Look at the implications of these factors on your business.
“Think of it as a primer to your future environmental, social and governance reporting.”