Dream Big, Start Small: SMEs and Mid-sized Companies Can Pivot Nimbly to a Greater Cause

No one doubts that small- and medium-sized enterprises (SMEs) are an important segment of the economy. They make up more than 90 per cent of all companies, 70 per cent of jobs, and by some estimates, about 70 per cent of global Gross Domestic Product (GDP). But little attention has gone to empowering SMEs in impacting their environment positively.

The same goes for mid-sized companies which fall between SMEs and large enterprises. Don’t underestimate the impact of this minority. In Canada, 1.6 per cent of all firms fall in the mid-sized category, but they contribute to 12 per cent of GDP and 16 per cent of employment.

Despite the importance of SMEs and mid-sized companies, they are often the most vulnerable. Even as the economy recovers from the COVID-19 pandemic, global disruptions such as the energy crisis, climate change and hyperinflation continue to rock the boat. The result is that smaller companies tend to be more disproportionately affected.

A need to pursue a greater cause

Out of 441 SMEs and mid-sized companies surveyed in 2022, the top challenge (67 per cent) revolves around survival and expansion. This global study, which I conducted with the World Economic Forum, examined companies emerging from the pandemic and how they could thrive in the future. In total, about 800 companies were surveyed in 2021 and 2022.

Other top challenges for the firms this year include talent issues (48 per cent) and maintaining a strong culture (34 per cent).

These figures are in stark contrast to how important sustainability was ranked—only 7 per cent of top executives cited it as a major challenge. Yet, society expects companies of all sizes to pursue goals above and beyond traditional profit objectives. According to the 2022 Edelman Trust Barometer, 59 per cent of respondents believed businesses are not doing enough for climate change, and 49 per cent said businesses are not doing enough for economic inequality.

Getting out of the firefighting mode

How can smaller companies pursue sustainability goals when they are in constant firefighting mode? After all, short-term survival goals are more pressing than green investments that will pay off only in the long term.

Our study reveals practical tips that leverage firms’ unique strengths and existing resources.

In particular, our whitepaper highlights the role of artificial intelligence (AI) and digital transformation. Through AI, companies can quantify the environmental impact of their goods and services from start to end. The metrics may include greenhouse gas emissions incurred during goods transportation, energy utilised during manufacturing and the amount of waste generated after customers dispose the goods. With computer simulations, companies can test various options to derive at greener and more efficient operations. In a project in the United Kingdom, a group of manufacturing and production SMEs had worked with university researchers to identify business processes and machines that were not energy efficient.

This is one way SMEs and mid-sized companies can save costs in pursuing sustainability. Resources saved can also be reinvested into other revenue-generating projects or sustainability initiatives.

Sometimes, firms do not have to go far to look for AI platforms or create them from scratch. German industrial minerals company Dorfner tapped on a pre-existing AI platform for chemicals to run simulations and is now offering a new sustainable formulation service for clients.

Going back to the people

How else can smaller firms thrive in the future? The twin transformation of digitalisation and sustainability becomes incredibly successful when there is a clear strategy and effective leadership. Authentic leaders—those who lead with vision, align with employees’ values and empower them—are especially vital for change efforts.

Smaller companies could also look out for candidates who align with the company mission. As it is, they tend to be more open to hiring employees based on potential, with the notion that hard skills can be trained. In return, the firms offer creative compensation packages that include upskilling and networking opportunities.

With a shorter decision-making process and quicker communication channels, we hope that smaller companies realise that it is, in fact, easier for them to pivot and implement change. Employees are motivated to fulfil the new company objectives together with the leadership in a concerted effort. Our research has shown that they can enact transformation faster than their larger counterparts. For context, a McKinsey report showed that companies that focus on innovation and technology during crises outperform their competitors by an average of 30 per cent.

As last words, leadership, talent fit, digital transformation, and sustainability strategies should be viewed as necessities for smaller companies to be future-ready. They can take small steps by identifying existing business processes that can be improved and using their existing resources and networks to go a notch further. Our research shows that these factors can help smaller companies survive not only in the immediate term, but also help ensure long-term prosperity.

The article is an edited version of the first one published in The Business Times.