Saturday, January 06, 2007

Small and Medium Companies(SME) and an Indian version of McKinsey

The "India Arrived on the Global Scene" story is everywhere. When an Indian company acquires a foreign company, the news is not raising eyebrows anymore, thanks to some great companies like BharatForge/Tata Coffee. (Steel Mittals added different kind of spice to the India story).Companies like Bharti Telecom are growing very fast and leading the industry. While few of the Indian companies are growing in jet speed, what is happening with other SME (Small and Medium Enterprise) Companies?

What is an SME?
Indian Govt Recent Definition:
Small Company - Those companies which have 1 crores as total capital in plant and machinery.
Medium Company - Those companies which have 1 crores as total capital in plant and machinery.

An European definition has a complex formula considering the revenue, No of employees etc.,

This definition consideres a company which employs about 250 people as an Medium Enterprise and 50 People as Small Enterprise.

This seems to be more logical for me.People count may be easier metric to get.It is enough if you just stand near the gate for 10 minutes around 9:00 AM :-)

Some statistics Gyan From Google:
In India, SME companies account for a 45% of Industrial employment and produce 50% of the industrial output.

What are the major problems faced by them? If we take a closer look, the situation is not very encouraging. In core sectors like manufacturing the problems are aplenty for an SME.

While there are many perspectives about the problems these companies have - from Regulatory issues [Allow more FDI in this sector etc., ] to Lack of Access to Finance, I talk about the organization internals / managerial issues in this post.

I had opportunities to personally see how some of the Small companies (in Chennai) operate [in industries such as manufacturing, publishing and s/w development] - most of them headed by first generation entrepreneurs. Some(or Most?) of the SME Management do not understand that running a company of different sizes (10+ Vs 100+) demands different approaches to the same problems. There is a lot of scope for improvement in every sphere of business- be it recruiting, training, marketing or vendor management.

Some of the problems I observed were in these lines...

a) Lack of vision - Not able to see the bigger picture and prepare the organisation

b) Stone age people practices – “if this guy leaves the company I can get someone else cheaper…”

c) Build everything from scratch mentality – Companies do not partner with other small companies who can provide a niche for a low cost. Vendor relationships are pre-stone age.(how do they call it? Soil Age? )

While Jim Collins talks about how to make a good to company a great one in his book Good To Great, we need (seemingly commonsensical) practices to make a Bad company to Good.
(Will try to provide more info about some of the books I read recently in a follow up post) Effectively using internet / google may itself help these companies a lot.(Forgive me if I believe too much in googling. Blame my job – the ever googling SW Dev!) for identifying business partners or provide access to useful free software tools which may enhance productivity.

[By using better Desktop Publishing software, a publishing company can publish a book faster and cheaper. By using a better Mech Design tool, Mech Product companies can do better prototyping and avoid mistakes early in Product Development Life Cycle]

There is a great scope for collaborating with institutions / other companies who do not have a clash of interest.

Here comes MayaKinsey:
If an Indian version of a McKinsey- [can we call it as MayaKinsey? - Mayan + McKinsey - I think there is a character - Mayan- in Hindu Mythology who architects buildings for Heavenly Gods. If I am wrong, blame my grandma, who told stories from epics, who is now in heaven(hopefully!) ] is started to provide consulting to the small companies - to help the SME to adopt the latest practices in various business spheres.

Some areas where MayaKinsey can operate .....

a) How to use IT to increase the velocity of business / communicate with your suppliers / capture the knowledge using workflow capturing tools etc.,

b) Better practices for People management

c) Global outlook in marketing and new approaches like matching the available skills vs new avenues.(What are all the NC machines you have? Why can't you manufacture Product Y instead of Product X ..blah..blah)

What do you think about MayaKinsey and what are all the challenges MayaKinsey will face[apart from - "Hey! Nobody will allow you to enter the premises of the company? :-) ]?. Comment here...

4 comments:

Maggi said...

Hi
Great though provoking thoughts!! infact i met up with one gentlemen who had worked a lot on SME in India and he too was of the opinion that India should make changes in definations to start with incase it wants to make major impact on SME. We have started a small initiative with this website to make some change!!

Jegan said...

Maggi,

Thanks for your comments!

Visited ur blog @ http://smebusiness.blogspot.com/.

Sounds interesting !!!

Will keep in touch.

Anonymous said...

Why are we trying to change the definitions ya...then SME will no longer be a SME....may be we can look for avenues to run these SMEs in an organized way...instead of changing the mode of classification..
i think the latest buzz..SEZs..may give some space for the same..provided they come forward.

siva said...

Nice article Jegan...

To Add up to your thoughts...there are 2 more points from my view:

1. Family run business:
Indian business people's mentality has not grown enough to let the people outside their family to partner/manage their business. For some or other reason they employ their brothers, in-laws, uncles, etc... [They let all the females of their family to make their home?!!]. What happens now? They trust more in this kind of employees. This kind of employees walk with in the company with a pride [saying...I am MD's in law, brother etc..] and the management also favors these people. This introduces a kind of fear within the other employees. They are even afraid to ask any questions to these people. One fine day the management finds out the frauds by these "Privileged-Employees". By the time they have done enough to damage the business and what ever the founder/who ever worked hard to build the business are depressed. Business now goes for a toss and it takes quit a long time to restore it.

2. Investors/who ever built the business is not investing a considerable part of the profit back in the business. They star enjoying the profit by buying luxuries [those need quit a big sum for maintaining it]. They invest very less back to the business to improve it [for R&D new machineries, etc..]. This is not a good sign at all.

Above are my personal thought and not to hurt any one. Your comments are welcome.

-Cva