Transforming the Business

The Small and Medium Entrepreneur (SME) segment in India is perhaps one of the largest in the world, employing about 31million people, having 12.8 million entrepreneurs, contributing 90% of industrial units with 40% value add in the manufacturing sector, 39% of the manufacturing output and 33% of the total exports. TheSME segment is defined as having less than 100 employees. Therefore, the subject dealing in the nuances of how to transform and grow in this segment is one of high interest and needs good mentoring guidance by experts from the industry.

Mr. Krishna Ramachandran, from Ernst and Young was the speaker on the occasion. He was supported by a panel discussion when he was joined by three people from the Mentor Square team - Mr. C. S. Murali, Dr. (Prof.) K Kumar, and Mr. Vijay Sundaram, all very successful entrepreneurs / investors who mentor entrepreneurs to help them grow.

Krishna started by sharing the insight of how a large company like EDS started and built up just like a typical start-up and SME to its transformation of a large corporate company. Similar stories of Microsoft and Infosys are also well known.

Krishna explained that the effort of the Senior Management increases, as they move from the current state to the future state. There is a need to provide

1.  More time to plan and manage

         a.  Adjust span of management

2.  Higher level of delegation

        a.  Introducing intermediary levels

3.  Revisit structure and teams

       a   Reorganizing / restructuring

       b   Splitting / clubbing functions

4.  New stronger functions

      a   Investor relations

      b   Media liaison / PR

      c   Brand building / management

It is this reorganizing that needs skill and guidance. Often, there is a need for the entrepreneurs to also enhance their competencies to be able to help transform the organization and take it to the next higher level. This is especially true in the areas of delegation, decentralisation, and succession planning. The need to bring in controls as relevant to the organization takes on a high priority for the company to remain on track, and there are plenty of examples where this area led to failures, such as Enron.

Most SMEs tend to focus less on the business processes during the growth times leading to the need for business transformation processes. Some of the key challenges faced are:-

1.  Time involved

2.  Consistency of Operations

3.  Scalability of process and technology

4.  Optimum centralization / decentralization

5.  Realignment of business processes

6.  Robust MIS framework

Grand Sweets, Chennai took 20 years before they could open their 2nd outlet. Telecom companies have grown rapidly, and some which expanded nationally very soon (or started operations at national level directly) had decentralized billing and later adopted central billing systems with increased dependence on the technology used. Others have successfully adopted the hub model where billing happens in zones.

Subhiksha is another classic example of success up to the growth within Tamil Nadu, but as they moved in to a national level, they were not able to sustain, perhaps because of the lack of appropriate controls / MIS, or perhaps due to other factors relating to the preparedness for transforming the business.

Seeing these examples, a lot depends upon the risk taking ability and the culture of the business.

With the wide adoption of technology and tools today, it is a lot easier to build checks and controls, and a strong MIS system to help transform business. Organizations need to use the knowledge and relationships (credibility) that they possess to lead their growth. At the right levels introduction of alerts and balanced score cards as appropriate could ease the challenges faced in growth strategies of the organization.

Some key considerations to plan the transformation are:-

1.  Instructions: delegation of authority

2. Clarity: SOPs defining the purpose, flow of information and documents for the processes

3.  Alignment to ERP: standardization of processes would be an enabler to implement ERP

4.  Leading practices: incorporate benchmarking practices for the SLAs / KPIs used by leading global successful organizations

5.  Preventive controls: Building strong controls to enable proactive growth

6. Consistency: Procedures incorporating common understanding of roles and responsibilities across functions and locations

7.  Performance measures: Procedures incorporating monitoring of efficiency

8.  Accountability: Procedures to provide a framework for establishing accountability at business process levels

One can successfully transform businesses by developing robust standard operating procedures (SOPs) based on the above considerations.

Managing risk in today's environment is a process of managing strategy, risks, and process. The ability to assess, monitor, and enhance these is the key. It could be considered prudent to take a 2-day break to introspect on the performance every six months. The need is felt (and is of high importance) to:-

1. Assess risk functions in conjunction with the management; continuously assess the evolving risk profile and processes.

2.  Monitor based upon the assessment of risk functions, perform monitoring activities to ensure processes are operating as designed, controls are effective and risks are managed.

3. Enhance management working with risk functions and implement identified enhancements.

Some of the ways to manage risks are to have a strong internal audit function and a well designed and implemented corporate governance system.

Transforming business is about Process, Technology, People, and Governance. In the transition from the current state to the future state, the six key steps are:-

1.  Current state assessment

1.  Management vision, objectives, future plans

2.  Current business processes and practices

3.  Organization structure and reporting hierarchies

4.  Technology level and level of integration

5.   MIS

6.   Organizational, Personnel, Techno-logical strengths

2.  Gap analysis

1.  Identify gaps, inefficiencies in current processes

2.  Compare to best practices in the industry

3.  Identify dependencies, issues and imperatives

4.  Assess risks and mitigation controls required

5.  Position gaps and areas requiring special skills

6.  Based on future needs, assess gaps in current MIS and controls

3.  Alignment of people, process, technology

1. Identify centralized and decentralized activities

2. Agree on level of delegation and decision making

3. Identify key information requirements and periodicity of reporting

4.  Develop to-be processes

1. Create SOP manuals

2. Develop standard formats and process based procedures

3. Integrate systems with processes

4. Integrate controls to mitigate risks

5. Define performance indicators and Key result areas

6. Develop suitable MIS

5.  Process rollout

1.  Agree on processes with process owners

2.  Develop implementation plan

3.  Train users (workshops)

4.  Handover process manuals to process owners

6. Monitor implementation

1. Periodic review to monitor implementation progress

2. Resolve discrepancies

3. Fine tune processes / optimize

During the panel discussion that followed, many real life situations were discussed and the points given above were seen very practical and in tune with what would be required. Some key points that came up were, use web as much as possible to allow scalability in the future, re-skilling people helps, collective decision making gets a good buy-in, and use of balanced scorecards is a good method to maintain control. All this led to "have a dedicated team that can help the growth plan implementation."

This event was organised by MentorSquare with the support of Ernst and Young.

Compiled by Mr. Sanjay Dugar for Businessgyan

Issue BG99 June06