McKinsey urges SMEs to turn to tech
Digital and new technologies create an opportunity for small and medium-sized enterprises (SMEs) to enhance their reach and efficiency at lower costs, overcoming the scale disadvantage they have relative to larger players.
This is according to a new report from consultancy firm McKinsey & Company.
The report, which looks at how South African SMEs can survive and thrive post COVID-19, says between 40% and 60% of SMEs expect to make a loss of more than 5% as a result of the pandemic.
In the report, McKinsey & Company draws on its experience working directly with SMEs in the country to provide insights into the headwinds they are facing at this time, along with best practice examples and recommendations on how to address some of these challenges.
“Because of their critical role in job creation and growth, protecting and enabling SMEs during this period of economic turbulence is important not least because their survival and recovery is likely to be a bellwether for the economy as a whole,” says the report.
In the post COVID-19 period, it adds, SMEs can focus on key areas of competitiveness in their value chain and identify the best technology levers to enhance competitiveness.
For example, it says: “A local BPO (business process outsourcing) SME leveraged widely available technology – a virtual private network (VPN) – to transfer their systems onto a custom-made platform, which could be quickly modified as their needs shifted. This allowed them to rapidly move their call centres to remote working in the wake of a nationwide lockdown in South Africa.”
It continues: “In less than five days, they moved more than 80% of their operations to a remote working model. The remaining capacity was not needed due to scaled-back customer demand during the crisis. The company was subsequently able to employ this unused capacity to generate additional business by supporting state initiatives aimed at reducing the spread of the coronavirus.”
A strong technology position helped this BPO player to be more agile in the face of significant market uncertainty and disruption to their operations, reads the report.
Further, it says most SMEs that McKinsey & Company worked with focus on increasing sales and managing cash as priorities.
It reads: “SMEs that also focus on operational efficiencies can drive further competitiveness to support sales, while also potentially creating increased capacity in the business.
“For example, a manufacturing SME used basic visualisation tools such as management boards to optimise operations. By tracking tasks in progress and KPI dashboards, they managed to achieve a 25% improvement in scrap reduction, which had a resultant EBITDA impact of roughly 100%.”
This, it says, was primarily driven by improved visibility into areas of leakage as well as a better ability to focus team efforts on solving problems.