Growing SMEs Exponentially
The business world is experiencing a major attack on traditional business models due to radical technological innovation. Some large enterprises may succeed in adverting the attack by rapid implementation of new technologies in key sections of their “DNA-strings” but a considerable portion of them will succumb. New technologies are the main building blocks of the DNA of startups, as well as that of Unicorns like Uber and Airbnb.
But what about the SMEs? How can they survive the attack and use digital technology for rapid growth?
Traditionally large multinational enterprises, MNEs, have had advantages over small and medium sized enterprises, SMEs, by following what has been characterized by John H. Dunning as the OLI-framework: Ownership, Location and Internalization advantages.
MNEs have competed using ownership advantages like e.g.: proprietary knowledge on how to produce unique products or services. MNEs have sold their products or services internationally in geographical areas with location advantages like e.g. large market concentrations. And MNEs have reached these markets through various degrees of internalization of the distribution process: From export of products, to licensing, joint ventures or establishment of subsidiaries.
However, many MNEs are now being disrupted by ExOs – exponential organizations. An ExO has an output, an effect – which is disproportionally large – at least 10 times larger than that of similar organizations. This concept is only a few years old but their number is growing rapidly. Examples are Airbnb, GitHub, Local Motors, Quirky, Google Ventures, and Tesla. More and more often, they reach a market value of one billion US$ within the first year after startup.
ExOs grow exponentially by applying specific, revolutionary new business methods.
In the book, “Exponential Organizations”, Salim Ismail et al. found that ExOs are guided by a massive transformative purpose (MTP) and in addition apply a number out of 10 largely digital enabled techniques that can be grouped as either internally (left brain) or externally (right brain) oriented:
SMEs are threatened too. But SMEs are more flexible than MNEs and have a built-in ability to change fast – if driven by opportunities or threats. According to Salim: “Medium size companies actually have an extraordinary opportunity because while a startup is really hard to build, SMEs are established and have a great chance to exploit these ExO-opportunities and totally blow it open.” (1)
Ownership advantages 2.0: Having ownership advantages is still a necessity – and here access to big data may increasingly provide ownership advantages. Data and knowledge about product usage or customer preferences may be collected continuously through a number of sensors and or digital platforms and by use of Interfaces, Algorithms and Experimentation enable the rapid development of new solutions that fulfill customer needs better than competition. Here SMEs have an advantage in their flexibility and ability to change fast.
Location advantages 2.0: Applying ownership advantages in areas where there are location advantages is also still an attractive option – but locations increasingly shift from being defined by geography and national borders towards global segments of customers sharing or benefiting from the same MTP. Here SMEs have advantages in their abilities to create alignment around powerful MTPs through strong personal leadership characteristics, a high degree of coherence and a strong sense of shared values..
Internalization advantages 2.0: Internalization or how best to reach the chosen locations is still essential in order to turn an ownership advantage, obtained by use of Interfaces, Algorithms and Experimentation, and applied in an advantageous location (MTP) – into a profitable venture.
Traditionally SME’s were stuck in the role as local sub-suppliers to their nearby MNEs. However ExO-techniques may be used by SMEs to disrupt this value chain. Perhaps disruption may be achieved by SME’s by looking at the LLL-framework, originally formulated by John A. Mathews: Linkage, Leverage & Learning. According to Mathews this was the framework used by the Asian Pacific Multinationals, so called “Dragon multinationals” as they grew rapidly and had their successful internationalization process.
Linkage in our case would refer to how the SME’s may focus not only on developing and applying own proprietary knowledge but also on obtaining knowledge from outside their own organization e.g.: through an Internet organized Community of enterprises, freelancers and individuals who share intent, belief, resources, preferences, needs and/or risks. And Social Technologies may create efficient linkages by reducing the distance between receipt and treatment of information, and decisions, switching from seeking information to receiving an information flow and by using the community to develop new ideas. Further Engagement may be used with customers, employees, and others in creating value, by means of competitions, games, etc.
Leverage may refer to how SME’s may use Leveraged Assets like e.g. TechShops, which is a chain of member-based workshops that lets people of all skill levels come and use industrial tools and equipment to build their own projects. Or leveraging may be Crowd funding which is used in order to raise capital via the internet from a large number of investors private as well as corporate and funds.
Learning may be facilitated using Dashboards where employees will be shown real-time data, objectives and key results, in order to motivate and create positive culture and energy or learning may refer to Autonomy, i.e. organizational structures particularly suitable to SMEs that facilitate bottom-up thinking and risk taking versus MNEs that are set up to scale efficiency and predictability and thus withstand risk and change.
Also Staff-On-Demand may be a key learning tool enabling SMEs to compete.
SMEs typically can’t afford nor attract top notch experts with crucial value creating skills to become employees. And no matter how talented their employees are, chances are that many of them are becoming uncompetitive or they lack the skills to take the SME to the next level.
The half-life of a learned skill used to be about thirty years. Today it is down to about five years. However, thanks to the internet, the cost of finding and tracking outside staff has dropped to almost zero and the volume and quality of freelancers have gone up dramatically.
And there is more =>
(1) Laila Pawlak, Dare2, interview with Salim Ismail: http://dare2.dk/conversation-with-salim-ismail/