Small is . . . Different
by
Rosie Harrison
Are
you the one with the big sign? You
know the one I mean, it says ‘The buck stops here’.
Or does the buck just drop in on you because you provide the reassurance
or information? With the growth in public accountability of senior managers
perhaps it’s time to take a closer look at this buck and where it can come
from.
Unless
you work for one of the few big companies that is self-sufficient your business
will depend on the goods and services produced by other firms. What kind of
companies are they? How big are they?
You
rely on these other businesses to provide you with the resources and expertise
you need to enable you to thrive and excel in your business. When you look at
your own business risks their ability to manage their risks may affect your
contingency plans and the level of assurance you can give. The better they
manage their risks the less chance there is of a herd of bucks rushing headlong
to arrive at your desk.
So
what does size have to do with it? Everything!
Including the level of confidence that you can place in any risk assessment
information supplied to you.
Introducing
SMEs
The
name says it all - Small to Medium Enterprises - You could be forgiven for
thinking that this has nothing to do with you. But are you sure?
SMEs
may be small but there are a lot of them! 3.7
million in the UK alone.
Would it surprise you to know that SMEs are the faster growing sector of most economies in the world? And that in the UK they:
► account for 44.7% of business turnover
► make
up the 96.5% of companies employing ten or less staff
► employ 12 million people out of a total workforce of 21.7 million - three times as many people as are employed by the FTSE
500 companies
► produce
40% of the GDP
Somewhere
along the line you are probably working with an SME.
This
can be excellent news. According to the CBI, SMEs are hot and sexy, frequently
on the cutting
edge of technology and able to react quickly to market trends and new
opportunities. So what is life like in an SME?
Management
in SMEs tends to be concentrated in a small ‘team’, sometimes an individual
manager – 1.1 million UK SMEs do not have any
employees. The ‘team’ does everything: running the business; marketing;
financing; compliance; troubleshooting; hiring and firing and every other thing
that needs to be done.
For
many, perhaps even most, SMEs tasks like long term planning and risk management
take a back seat in the day to day business needs and the copious amount of
government regulation. They can even get squeezed out altogether.
In spite of this time pressure, changing regulations, global markets, higher customer expectations and the pace of technological innovations mean that the SME sector now requires greater management expertise than ever before. Failure to properly address risks can be devastating and rapid for unprepared small companies. From all that you might expect that their required skill set would include good risk management practices - so how are they doing?
Ready
or Not?
Seemingly
the majority of the SMEs, including those with over 50 employees, do not have
formal risk mitigation plans and are lagging behind larger organisations in
their efforts to develop formal procedures for identifying and mitigating high
impact risks.
The
short answer is NO there is a good chance that your SMEs have not identified
their high impact risks. Their failure to manage their risks could just very
well end up in your lap. What would happen if your SME partner went out of
business or in the case of single consultants and experts simply did not turn
up? Are you ready for that?
There
is no single source for SME statistics and those that do exist tend to be about
18 months old because of the difficulty of collecting and collating all the
information. This makes it difficult to get a true picture – it could be a lot
better or a lot worse – or just very different.
One
way of getting a better grasp of what is going on is to look at the SME
special interest sites on the web, the government advisory services, national
and regional business links, Chambers of Commerce and specialist business
papers.
You
also find lots of help with venture capital, credit, financial, pension, and
human resource risk. If you are looking for specific SME advice and information
on strategic, business and operational risk – I wish you luck. All I could
find was IT Risks in the form of BS7799, Data Protection and an article on
Turnbull on the Irish Business Plus web site.
The
good news is that if we look at the Health and Safety arena we see a
developmental process well along the learning curve with SMEs showing increasing
levels of awareness and expertise in risk assessment and management, reflected
in emerging good practice and effective
risk management systems.
On
the face of it, it looks as though it could be years before business, strategic
and operational risk form part of SMEs formal plans.
What
it does mean is that you cannot make any assumptions about the SMEs that you
work with – you’ll just have to ask them what do they do?
Catching
up
On
the assumption that your assiduous questioning of your SME partners causes them
to do something - what is it likely to be?
Yes,
you’re right it’s a trick question. The answer is it’s anyone’s guess.
What
the figures do show is that most SMEs suffer from the dual constraints of budget
and time. As a rule of thumb, the smaller the SME, the less time and money
available for training.
A
recent study of Irish SMEs showed that almost half had no formal budget for
management development and that training was mostly informal. If the Health and
Safety experience can be used as a guide the most common way was ‘pick it
up’ from books and articles or from someone they knew.
SMEs
can find it difficult to find the right kind of training – training that is
accessible, affordable, relevant to their specific circumstances, and that can
be tailored to the needs of people with very little time to spare.
A
Helping Hand
Although
it is tempting to regulate risk management the CBI warn that SMEs are in danger
of floundering under the weight of compliance work they need to do for current
government legislation. Any additional burden could well destroy the very
innovation and flexibility that can make SMEs such a vital component of the
economy.
As
an alternative it might be best to encourage a philosophy of self-regulation and
goal setting in order to identify and manage high impact risks. It is essential
that SMEs know of the business benefits of good risk management. On the bright
side risk managers have fought that battle before so you know what to do to win.
But
remember Small is Different. SMEs are likely to have significant resource
constraints, both financial and human. They are unlikely to be able to spend much time on any risk management process nor much time on follow up
actions.
So
what can we/you do for SMEs.
We
can start on improving our relationship with our SMEs and we can:
·
►
provide
a case study and checklists specific to their circumstances
·
►
provide
communication and dissemination guidance
·
►
provide
electronic forms or a ‘lite’ record keeping program
·
►
go visit them – spend an hour or two
working with them
·
►
offer
training sessions or e-learning
·
►
provide
a mentor – or put them in touch with one
·
►
sell the business benefits
The
two most important points to remember:
·
►
make
it easy, painless and fast
·
►
KISS
- Keep it Seriously Simple
Too
Much Trouble?
And
if you don’t have the resources or inclination to actively help what can you
do about getting assurance that your SMEs are managing risk effectively or even
adequately? How can you gauge the knock on effect?
Just
ask:
►
When was the last risk assessment carried
out?
►
Who
has responsibility for the assessment
► What
areas of risk are covered
► What
method is used to identify risks
► How
are they evaluated
► How
are risk reduction actions implemented
► Who
has responsibility for ensuring that actions are carried out?
► Who
needs to know about the risks and actions and who are they told?
► How
do you record all this information?
► How
often do you review your risks and risk processes?
Now all you have to do is ask yourself 'Is it likely that my SME is keeping its bucks at bay?’ Or alternatively – ‘How lucky do I feel today?’
Biodata:
Rosie Harrison is an ex Systems Analyst, Strategic Risk Manager and trainer, and corporate business manager. Currently she is working as a life coach and business mentor. She also teaches Tai Chi.
.
Some
SME special interest websites
www.bdosx.ie/startbusindex.html
www.ukonlineforbusiness.gov.uk
UK
Government SME statistics and definitions
Of
the entire business population of 3.7 million enterprises, only 25,000 were
medium sized (50 to 249 employees) and less than 7,000 were large (250 or
The Companies House definition of a Small or Medium sized Enterprise is that to be a small company, at least two of the following conditions must be met:
►
Annual
turnover must be £2.8 million or less
►
The
balance sheet total assets must be £1.4 million or less
►
The
average number of employees must be 50 or less
►
To be a medium sized company, at least two of
the following conditions must be met
►
Annual
turnover must be £11.2 million or less
►
The
balance sheet total assets must be £5.6 million or less
►
The
average number of employees must be 250 or less
► The
EC definition has the same employee number thresholds, but higher financial
thresholds:
►
Max.
turnovers of €7m and €40m for Small and Medium companies
►
Max.
balance sheet totals of €5m and €27m for Small and Medium
► A
maximum % owned by one, or several, enterprise(s) not satisfying the same
criteria of 25% - for both Small and Medium companies.