Smart SMBs: fine-tuning the engines of growth

1© The Economist Intelligence Unit Limited 2013
Smart SMBs: Fine-tuning the engines of growth
Smart SMBs:
Fine-tuning the engines of
growth
To achieve growth, economies the world over rely on small businesses to create jobs, increase
competition and spur innovation. In return, these small businesses often look to governments for
assistance, from cutting bureaucratic red tape to providing financial incentives such as tax breaks. Yet
this growth model is stuck in second gear. In the latest forecasts from The Economist Intelligence Unit,
global GDP growth for 2013 has been revised down to 3.1% - only slightly up on GDP growth for 2012
(2.9%). Meanwhile, small and medium-sized businesses (SMBs) from around the world find regulation
to be a top business concern, on a par with shortages of financing and behind only the weak economy,
according to a survey conducted by the EIU for this paper. With growth prospects and regulation
unlikely to improve overnight, smart SMBs are targeting the improvements they can make to their own
businesses.
Key Findings
To assess how SMBs are focusing on growth through smarter internal operations, The Economist
Intelligence Unit surveyed owners and senior managers of these businesses from across the globe*.
The main findings to emerge from the research are as follows:
 Smarter internal operations are key to growth
New businesses have a high chance of failure within the first five years, so revenue growth is
understandably of utmost importance to the owners and senior managers of SMBs. Next to revenue
growth, the strategic
focus of SMBs is now
firmly on improvements
in operating efficiency
and attracting and
retaining talent.
Optimising existing
company operations
in this way is seen
as a higher priority
than other strategic
objectives like
entering new markets
or developing new
products.
Top five strategic objectives for SMBs over next 12 months
(% of respondents scoring it 4 or 5 on scale of 1 to 5, 5 being highest priority)
Full width
Revenue growth
Improve operating
efficiency
Attracting and
retaining talent
Developing new products
or services
Entering new markets or
distribution channels
Chart 1
40%
49%
53%
78%
56%
Source: The Economist Intelligence Unit.
* The survey of 118 SMBs,
each with no more than
250 employees, took place
in February 2013. A full
breakdown of the survey
results and the demo-
graphics is available in
the appendix.

2 © The Economist Intelligence Unit Limited 2013
The majority of SMBs, moreover, have a complementary view of pursuing revenue growth and
making improvements to the way the company operates. Over the next 12 months, expanding the business
is likely to be the strongest reason for driving efficiency improvements, according to more than half (55%)
of survey respondents, whereas only a quarter of respondents (24%) are motivated by reducing costs. Even
fewer respondents are motivated by reducing complexity (12%) or by pressure on profit margins (5%).
This striving for smarter growth is borne out in the concrete steps that SMBs are taking to
improve internal operations. The top efficiency initiative, being undertaken by more than half (58%) of
respondents to the survey, is training employees to work smarter. A similar number of SMBs in the survey
(57%) are investing in IT upgrades to hardware or software. In contrast, only 14% of SMBs are reducing
headcounts, working hours or expanding temporary workforces.
 SMBs should embrace new technologies
Technology is a crucial component of this smarter growth strategy. As SMBs invest in staff training and
IT upgrades, the overwhelming majority are seeing the benefits of technology: over nine in ten (91%)
of SMBs surveyed say they have benefited from tech-driven improvements to the business in the past 12
months.
Looking ahead, the survey respondents pick out mobile working, cloud computing and “big data”
(enhanced data collection and analysis) as the three technology developments likely to have the greatest
impact on their business in the next 12 months. This should come as little surprise. These advances have
enormous potential to
help businesses be more
efficient, by streamlining
processes, enabling
flexible working and
reducing fixed capital
costs.
Exploiting mobile
technologies to the full is
critical for the majority of
SMBs training employees
to work more flexibly.
Five tech-themed efficiency findings
9 in 10 SMBs have benefited from technology in last 12 months (mobile working
and cloud computing expected to have biggest impact in next 12 months)
57% of SMBs have upgraded existing technology to improve efficiency,
compared to 41% that have invested in new technology
Lack of technology skills or know-how is deemed the second biggest barrier to
efficiency improvements, only behind a resistance to change
Internet speed and connectivity is less of an obstacle to efficiency improvements
than restrictive regulation
A minority of SMBs believe technology is too expensive and changes too fast
Strongest drivers of efficiency improvements over next 12 months
(% of respondents)
Expanding the business
Increasing profitability
Raising employee productivity
Reducing costs
Improving competitiveness 15%
24%
24%
55%
33%
Chart 2

Meanwhile, cloud computing is particularly advantageous for start-ups and high-growth small firms,
because these businesses have less capital than established companies to tie-up in expensive servers or
office space, but a greater need for the flexibility to scale-up operations during periods of high growth.
The potential that these technologies have to level the playing field between smaller and larger companies
is reflected in the fact that only a third of respondents now see the cost of new technology as too steep.
But despite these clear benefits and greater accessibility, many SMBs are still taking a cautious
approach to new technology. For the time being, more companies are upgrading existing hardware or
software than investing in new technology. Such caution ultimately comes down to resources. Smaller
businesses do not have the IT capabilities of larger enterprises, and many start-ups are unlikely to have a
dedicated IT specialist at all.
The use of cloud-based services should help in this regard, for the reasons set out above. But
owners and managers of SMBs also recognise the role that IT specialists have to play in small businesses: a
lack of technology skills or know-how is rated the second biggest obstacle to improving operations.
 Managers must take the lead on change
Across the world, SMBs are keenly aware they need to make improvements to the way their businesses
operate. An overwhelming 90% of respondents say their companies can do more to increase efficiency. In
addition, over half are both unhappy with efficiency at their company and struggle to tackle inefficiencies.
But aside from taking the focus off growth, there are few compelling reasons for not addressing
these issues. For instance, only 15% of SMBs surveyed believe that all obvious improvements to the
business have already been targeted. A similarly low number claim to be put off by the perceived high cost
of efficiency measures.
At the individual company level, what seems to be holding businesses back more than anything is
a resistance to change. This is cited by SMBs as the top internal barrier to launching efficiency initiatives,
ahead of the aforementioned IT skills gap and ahead of taking the focus of growth (as well as being on a
par with the percentage of respondents citing the weak economy as their top external barrier to making
these improvements – see chart 4).
A sizeable proportion of senior managers are clearly aware of the leadership role they must play
in overcoming this resistance to change. To succeed with initiatives aimed at improving the business, three
quarters of these senior respondents believe it is vital to get their buy in. What is more, a lack of urgency or
initiative from leadership is another highly ranked internal obstacle to improving the business.
Still, there is some divergence of opinion among this leadership group. Business owners are
much less likely to see resistance to change as an obstacle than other senior executives. This suggests
Chart 3
Say their company can
improve efficiency
Believe efficiency is
important but growth
is a priority
Are unhappy with
their company's
efficiency
Offer financial
incentives to
employees
to find
efficiencies
Reckon efficiency
initiatives must be
top-down to be
successful
Worry that competitors are improving efficiency faster than them
How owners and senior managers view efficiency
(% of respondents)
90% 77% 76% 52% 42% 29%

that some owners may be part of the problem – and not just the solution. Therefore, the first hurdle for
some businesses may well be to convince the ultimate decision-makers of the need for them to sponsor
organisational improvement.
 New businesses should invest in smart growth early
Given the focus on smarter growth, it is striking how few companies perceive there to be a competitive
advantage to be gained from pursuing these organisational improvements. As it stands, less than a
third of respondents (29%) are worried their competitors are improving efficiency faster than they
are. In smaller businesses, with under $1m in assets, this concern is even slighter, with only 17%
of respondents worried about the competitive advantage efficiency gives competitors. Yet such
complacency can cause longer term damage to the business.
Putting off efficiency improvements risks the problems becoming embedded in the business
as it grows rapidly and reaches scale. The results of the survey clearly show that older companies,
those with over 10 years in business, are more likely to struggle with their internal operations. Almost
three in five (59%) of the SMBs falling into this group admit to having difficulty tackling inefficiencies
compared with 46% of
younger companies.
Together with
tackling inefficiencies,
the older companies
in the survey are
more likely to have
faced challenges
to the bottom line:
while most SMBs are
profitable, four in five
of those that have
seen profits decline
or become loss-
making in the last 12
months have been in
business for over 10
years. Operational
inefficiency is likely
to be one of many
potential factors
contributing to this
decreased profitability,
so this should provide
management with
added motivation to
pursue smarter growth
from the outset.
Inside the company
Chart 4
Top 5 barriers to improving company efficiency
(% of respondents)
Resistance to change
Lack of technology skills/
know-how
Lack of urgency/initiative
from leadership
Risk of detracting from
growing business
Weak culture of efficiency
Outside the company
Weak economy
Lack of available
financing
Restrictive regulatory
framework
Shortage of talent
Fixed costs of
key inputs 22%
27%
31%
45%
32%
27%
27%
27%
44%
30%

Conclusion
The majority of SMBs in our survey are pursuing smarter growth, optimising working practices and
investing in technology. Yet there remains an element of caution here, caused in part by a lack
of technology know-how. This skills gap is important to address. Technology is widely identified
as an important efficiency driver for SMBs in recent years, so companies should embrace newer
developments like the cloud and mobile working, which they expect to have a big impact in the
near future.
Next year, the EIU forecasts global GDP growth to rise to around 4%, where it is expected
to remain until at least 2017. As the global economy returns to stability and greater predictability,
companies struggling with operational difficulties will find they have fewer excuses for disappointing
results. To negate the threat of creeping inefficiency eating into profitability, the owners and managers
of SMBs should tackle institutionalised resistance to change as well as their own complacency about
what their competitors are doing around efficiency. New businesses with absolute focus on revenue
growth should take heed of these lessons and build efficiency into their businesses from the very start.
 Smarter internal
operations are key
to growth
 SMBs should
embrace technology
 Managers must take
the lead on change
 New businesses
should invest in smart
growth early
Key findings

The Economist Intelligence Unit surveyed 118 owners and senior executives of SMBs from
North America, Europe and Asia-Pacific. The survey took place in February 2013 and our
thanks go to all those who took part. For the purposes of the survey, we defined efficiency
to mean conducting operations, processes or tasks with minimum time, cost, wastage or
effort. Please note that not all answers add up to 100%, either owing to rounding or because
respondents were able to provide multiple answers to some questions.
Appendix
Over 20% increase
10% to 20% increase
5% to 10% increase
1% to 5% increase
No change
Decrease
Went from profit to loss in the past 12 months
Year-on-year loss widened
Don’t know
16
23
12
15
20
9
4
1
1
(% respondents)
How has your company’s profitability changed over the past 12 months?
Agree Disagree
My company often struggles with tackling inefficiencies
We can definitely do more to increase our efficiency
I'm worried that our competitors are improving their efficiency faster than we are
Efficiency is important but growth is our priority
I am happy with efficiency at my company
47
10
71
23
52
53
90
29
77
48
(% respondents)
Do you agree or disagree with the following statements? Select one column in each row.

Senior management
Operations
Sales & Marketing
Support functions (eg, HR, legal, finance)
Distribution
IT
Supply chain
30
10
23
8
18
25
12
20
7
10
6
17
4
10
Most efficient Least efficient
(% respondents)
Which parts of your business are the most and least efficient?
Technology has saved time at my company
Technology has optimised effort at my company
Technology has reduced costs at my company
Technology has minimised waste at my company
Technology has achieved none of the above at my company
33
28
23
7
9
(% respondents)
Generally speaking, which of the following best describes how technology has contributed to improved efficiency at your
company in the last 12 months?
Expanding the business
Increasing profitability
Reducing costs
Raising employee productivity
Improving competitiveness
Reducing complexity
Adding new assets or operations to existing business
Pressure on profit margins
Making company more attractive to a buy out/merger
Returning value to shareholders/owners
Optimising environmental impact/carbon footprint
55
33
24
24
15
12
11
5
4
4
3
(% respondents)
Which if any of the following factors are likely to be the strongest drivers of efficiency for your business over the next 12 months?
Select up to two.

1 Low priority 2 3 4 5 High priority
Improve operating efficiency of our business
Revenue growth
Developing new products or services
Business acquisition/merger
Entering new markets/opening new distribution channels
Attracting and retaining talented staff/employees
Raising fresh capital (equity, debt)
5
2 7
12
26302117
512713
20292118
715111354
2119281716
2924251012
914281434
(% respondents)
How much of a priority are the following strategic objectives for your company? For each row, move slider along to number
best representing the priority level.
Train employees to work smarter/alter working practices
Update existing IT and technology (hardware or software)
Change suppliers/renegotiate supply contracts
Invest in new IT and technology not previously used (hardware or software)
Move to or increased web-based selling
Streamline company structure (including selling assets and consolidating functions)
Shift to greater automation, machinery, robotics
Employee redundancies/reduce working hours/increase temporary workforce
Relocate production/services to lower cost location/outsource company functions to third party (eg, managed service provider)
58
57
42
41
33
31
18
14
14
(% respondents)
Which of the following actions has your company undertaken in the past 12 months, or does it plan to undertake in the next
12 months, with improved efficiency as part of the objective? Select all that apply.
Mobile working (eg, employees working away from office)
Cloud computing (eg storing company data in remote data centre)
Enhanced data collection and analysis ("big data")
Social networking
Business continuity
Remote management (eg, managed service provider)
Video conferencing /telepresence
Collaboration software & tools
Bring your own device (eg, employees using own smartphone for work)
Virtualisation
Other, please specify
Don't know
35
34
24
23
17
12
12
11
5
4
3
1
(% respondents)
Which of the following technology developments are set to have the biggest positive impact on the efficiency of your business
in the next 12 months? Select up to two.

Resistance to change
Lack of technology skills or know-how
Weak culture of efficiency
Lack of urgency/initiative from leadership
Risk of detracting attention from growing business
Reluctance to pursue efficiencies beyond cost-cutting
Not the right time/stage of company's development
High cost of efficiency measures
Already pursued all obvious efficiencies
There are no meaningful internal constraints
44
30
27
27
27
18
17
17
15
8
11
(% respondents)
Which if any of the following internal factors currently limit your company's ability to undertake efficiency initiatives?
Select all that apply.
Weak economy
Lack of available financing
Restrictive regulatory framework (eg, employment laws/environmental laws)
Shortage of talent
Fixed costs of key inputs
Poor quality of communications infrastructure (internet speed, connection)
Political uncertainty (eg, tax treatment, legislative deadlock)
Influence of labour unions
Lack of transport infrastructure (roads, airports, seaports)
There are no meaningful external constraints
45
32
21
27
22
16
14
8
6
4
14
(% respondents)
Which if any of the following external factors limit your company's ability to undertake efficiency initiatives?
Select all that apply.
Strongly Agree Agree Neutral Disagree Strongly disagree
A culture of efficiency runs through my company
My company has made good use of the changing global economic climate to become more efficient
Efficiency initiatives must be driven from the top down to be a success
Employees at my company are financially incentivised to find efficiencies
Changing existing IT systems could eliminate delays and disruption at my company
New technology is too expensive
New technology developments change too fast
6
7
4
721292814
6
1628409
23243314
4
1193541
34292410
6
14214118
16333312
(% respondents)
To what extent do you agree or disagree with the following statements? Select one column in each row.

United States of America
United Kingdom
Canada
India
Germany
Netherlands
Spain
Singapore
Switzerland
Australia
Belgium
China
Portugal
Sweden
Denmark
Indonesia
Malaysia
New Zealand
Poland
Russia
Thailand
Turkey
Vietnam
22
20
9
8
5
5
5
4
1
1
1
1
1
1
1
1
4
2
2
2
2
2
1
(% respondents)
Where are you personally located?
Western Europe
North America
Asia-Pacific
Eastern Europe
48
31
20
1
(% respondents)
In which region are you personally located?

Less than 250,000 dollars
250,000 to 499,999 dollars
500,000 to 999,999 dollars
1m to 9.99m dollars
10m to 49.9m dollars
35
10
7
35
12
(% respondents)
What is your company’s annual global total assets in US dollars ? please select the most appropriate option if your company does
not report assets in US dollars
1 to 9
10 to 49
50 to 99
100 to 149
150 to 199
200 to 249
47
29
12
6
3
4
(% respondents)
How many people does your company currently employ full-time (including yourself)?
Owner/manager/partner
Chief executive officer (if different)
Chief financial officer (if different)
Other C-level (if different)
Manager (non C-level)
59
12
8
10
12
(% respondents)
What is your job title?

Technology
Financial services
Professional services
Manufacturing
Media & entertainment
Agriculture & agribusiness
Biotechnology
Logistics & distribution
Pharmaceuticals
Automotive
Healthcare/provider care
Real estate
Retail & wholesale
Consumer goods:
Education
Mining & metals (including coal, steel and aluminium)
Power & utilities
Aerospace & defence
Construction
Diversified industrial products
Oil & gas
Telecommunications
19
16
15
7
7
4
4
4
4
3
3
3
2
2
1
1
1
1
1
3
2
2
(% respondents)
What is the primary industry your company is in?
Under 1 year
1 to 2 years
3 to 5 years
6 to 10 years
Over 10 years
1
4
21
20
54
(% respondents)
How many years has your company been in business?

While every effort has been taken to verify the accuracy
of this information, neither The Economist Intelligence
Unit Ltd. nor the sponsor of this report can accept any
responsibility or liability for reliance by any person
on this article or any of the information, opinions or
conclusions set out in this article.

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