Essential to SMEs; business theory!

Theories are formulated to explain, predict, and understand phenomena. Applying that theory in practice challenges current thinking and extends knowledge about what is effective and what is not. Small & Medium Enterprises (SMEs) are no exception to this rule.

SMEs are smaller (5-250 employees) and more agile than larger corporations. They may not have the same ready-to-access resources but they have speed and can respond to changes in their environment much quicker.

There is a virtuous circle (a chain of events that has favourable results) that exists concerning SMEs that clearly demonstrates the importance of using business theory to solve problems and innovate.

Business owners serious about surviving and thriving will use a version of this (although for micro or smaller businesses it may be simpler). Others do not recognise the value of being in control of their business operation in this way. The danger of ‘poke and hope’ responses to market changes are costly and dangerously loaded with risk and uncertainty. The difficulty for most small business owners is that running their company is an instinctive occupation. They use their expertise in their field to create and build a business and then must struggle through problems that occur using a poke and hope approach. Crises are the result of such a haphazard approach.

The root cause of nearly every one of these crises is not that things are being done poorly. It is not even that the wrong things are being done. Indeed, in most cases, the right things are being done—but fruitlessly. What accounts for this apparent paradox? The assumptions on which the business has been built and is being run no longer fit reality. The world around them has changed and they have been so focused on 'doing' they haven't noticed. These false assumptions shape the business owners’ behaviour, shape their decisions about what to do and what not to do, and define what they consider to be meaningful results.

Their assumptions are about markets. They are about identifying customers and competitors, their values, and behaviours. They are about technology and its dynamics, about a company’s strengths and weaknesses. These assumptions are about what a company gets paid for. When things are going well a business owner will not think twice about this stuff because their order book is healthy, and the money is flowing in. However, when their fortunes begin to change many use their default position of working longer hours and increasing their activity. The result however is struggle and crises because no amount of the same stuff will produce a result if it is the wrong stuff.

At this point they have two choices: learn how to run a business in a changing market using business theories that are tried and tested or work with an expert who can give them the shortcut to that winning plan of action.

There are many business consultants and coaches that offer support who have a grounding in business theory but that should not be taken for granted. The most effective coaches/advisors are the ones with a command of business theory across a number of sectors. Their art is practiced by carefully analysing the business and the environment it operates in to ensure any assumptions the business owner makes are accurate. They work with their client to put together a bespoke solution that is accurate, tailored to the operating environment and clearly understood by the business owner and their team so that it will be successfully implemented.

Business theory is not deadly dull opinions that are contained in dusty volumes of business books: sold in their millions and read in their hundreds. It is tried and tested solutions that that recognise the change in conditions and build workable strategies and business plans that take businesses into profitability.

The essentials of absorbing business theory into everyday working

1. The assumptions you make about your operating environment, your business purpose and the core competencies you use to operate MUST fit reality. Part of a business owners’ role is to objectively understand the changing patterns and trends of the market they operate in. Environmental scanning is the theory of using patterns and trends from the past to predict likely scenarios in the future. (It is the art of seeing the world as IT is not as YOU are) Those assumptions need to be regularly tested to spot subtle changes in the market. That is the role of a 3-5 year business strategy.

2. All of those elements must connect because they are interdependent and need to work in harmony if the business is to succeed. Systems theory demonstrates that all elements of a business interact and are affected by their environment. Those elements are capable of evolution; developing new properties to make the most of change and self regulation to correct themselves if the right procedures have been put in place. That is the role of a business plan.

3. Every successful business needs an infrastructure to operate effectively. Business Administration theory states that every successful enterprise, regardless of its size, needs core functions covered by a workable process; business planning, finance, operations, staff, sales & marketing and leadership. That is the role of business processes.

4. Data and intelligence is a critical success factor in sustainable business. A command of the data your business collects, and analyses is the key to business success. Data and digital literacy is a core competence in any business as it gives the capabilities of analysing and mitigating risk, identifying new opportunities and capitalising on them. That is the roles of business and marketing analytics.

Wendy Garcarz Author Futurist and Business Strategist. 07973 780054 or 01283 575136 Happy to have a conversation about the contents of this article.

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