Understand the terms: Digitization , Digitalization, Digital Transformation

The next industrial revolution is going to be on Digital 

Let us understand the difference between Digitization, Digitalization, and Digital Transformation and we can relate with our organization.

Those terminologies are sometimes are used interchangeably, but there is a clear difference in each of the terminology.

Digitization :

Digitization means any effort towards converting analog information into a digital format so that computers can store, process, and transmit to anybody when it is required.

This is just converting physical format to digital format

For example, 

scanning of daily logbook information to digital format and sharing 

scanning of invoice to digital format and sharing 

taking photographs of a daily plan to digital and sharing 

Digitalization :

Digitalization means adopting digital technologies for increasing personal and business benefits.

This effort is for more than storing, processing, and transmitting the data..

For example,

 when you collect your machine utilization, performance, quality data through OEE embedded software or SCADA system, then it is digitization.

The benefits could be the elimination of paperwork, dependence on manpower to collect and record the data manually(then transferring the same data to excel), and improving the accuracy of the data collection process.

Similarly, other examples could be using barcode and scanning technology, reducing the manual effort of entry in invoice preparation and inventory recordings etc.

also, the example of employee entry and exit data, through digital scanning and software system. It brings the benefit of reducing administrative efforts of maintaining the records manually and using it for payment processing.

Digital Transformation:

Digital transformation is more than digitalization effort in the sense that this effort is a completely new way of doing process or business transaction and it is driven companywide at all levels and thereby getting higher benefits like new business opportunities, drastic reduction in the cost, or increase in employee, customer experience level. Adoption of digital technologies will be on a larger scale and the effort of change and benefits would be on a higher scale.

Sometimes, this digital transformation disrupts the current business model and new opportunities emerge. For example, the transformation of the stock market from floor auctioning to digital is an example of digital transformation.

In my opinion, the small, emerging organization has to go a long way in the digital transformation step as most of us are in either digitization or in digitalization drive only.

Just think about where your organizational efforts are in digital!

Why portfolio clarity is required among family members in the small ,emerging organization?

In most of the family business, one of the common patterns I see is that all the family members use to get involved in all the business matters. Still, at the end of the day, either decision never gets taken or decisions deferred as no one will have the final say. In this process, the organization remains mediocre, or the growth opportunities are not leveraged as supposed to be.

There is no doubt that the organization had grown from startup to significant size due to the mew hardworking family members. However, if you want to take the organization to the next level growth or if you want to make the organization more of the professional firm by bringing external talent, the first step would be restructuring at the senior leadership level, ie family members level.

One of the restructuring processes is bringing clarity on the portfolio among the family members

What does Portfolio clarity mean?

• For each family member, define the roles and responsibilities according to their qualification, strength, and experience.
• Assigning the particular functions or set of functional deliverables 
• Empowering an individual to make decisions in their respective functions or domain. To continue the inherent, inclusive way of working, the information to be shared among family members periodically. 
• Making people accountable for the result

Benefits of portfolio clarity among family members:

1. Mainly, organization growth can be accelerated as inherently, and the business has resources. Still, due to a lack of clarity on portfolio clarity, resource's time is getting wasted by involving in all business matters and enriched with only information.

2. Duplication of roles and responsibility can be avoided, and the resources can be utilized effectively

3. Gives clarity to the people of the organization on whom they should report for what purpose. The clarity at a higher level will remove the ambiguity among the employees, and also we can avoid the manipulation of communications by the employees.

4. The decision can be taken faster which helps the organization to respond quickly to the external world.

5. Bring out the extraordinary talent of the individual when they work under pressure to deliver the results


When the business is growing from small to large size, professionalism will help to accelerate the growth and for the benefit of the organization's growth, relationship and accountability need to be balanced through portfolio clarity among the family members!.

Business Head's Mindset for Sustainable Growth

In any business, there are peak and valley in terms of sales growth and profitability. However, a few organizations thrive well all the cycles and been in the business for a longer time, some organizations exist even beyond the third generation. 

When I observe those organizations, when I deal with them as a consultant and coach, there are some typical patterns among the founders or the business heads. I can call those patterns as the mindset of the founder or the business head, which makes the business to manage through all the struggles and sustaining the growth.

I can classify the mindset into three areas

1. Mindset towards the Business

2. Mindset towards the People or Employees

3. Mindset towards the Customer

1. Mindset towards the Business:

In a sustainable business, the business head looks at the business with a larger purpose than just survival alone. He/ she is looking at the business as a means to maximize all the stakeholder's interests or expectations. The stakeholder could be financial institutions, employees, customers, even the promoters, suppliers, government, and the society in which business is operating. It does not mean that profit motive is absolutely absent, they also realize that rich cash reserve only will do all the activities to maximize the stakeholder's expectation. The point is they look at the business more than themselves. Their thought process, behaviors and decision making are all pointed towards meeting or maximizing the stakeholder's interest.

2. Mindset towards the People or Employees:

In a sustainable business, the business head always looks at the employees as an Asset rather than Commodity. This mindset is essential in making decisions on development, training, allowing the people to experiment, taking the risk, empowering people to make decisions, and providing an opportunity for learning and to grow along with the organization. Alternatively, if the business head looks at the people as a commodity, he treats them also in a low-level dignity, because he believes that there is abundance in people resources, even if x leaves the organization, Y can be recruited quickly from the market. With the mindset, no effort would be taken towards people's development and engagement aspects. 

I know in one of the organizations, the CEO looks at each people as an asset, and some of the people are staying in the organization for more than 30 years and also had grown along with the organization by developing themselves and contributing to the organizational growth.

3. Mindset towards Customer:

In a sustainable business, the business head looks at each customer from a long term perspective even though there is a loss of monetary benefit in the short term. The focus of the business head would be meeting or exceeding the customer's expectation, maintaining a cordial relationship with the customer irrespective of the customer's representative that is changing at the customer's end.

As stated above organization, the business head works with only a few customers for more than 25 years and grown along with the customer. Even when the business head expands his business beyond the old customers, the customer is keen to work with the organization. The relationship is based on the long term, and the bonding helps both of them in terms of mutual growth.

The point is the business head's mindset towards business, customers, people make a significant impact on the sustainability of the business!

Loyalty vs Intolerance to low performance

A dilemma most of the family-owned business head has is how to deal with a mediocre performer who is coincidentally the relative or loyalist to the family.

This is a real concern for the business head as today's mediocre performer might have been with the organization from early-stage and might have contributed to the growth of the organization even at tough periods. In today's scenario, the person may not be able to cope with business challenges and modern business practices. Sometimes the behavior and performance of the person affect the decision making capability in the organization and may impact the morale of the people who strive for delivering performance.

What should be the way out for the business head to deal with those people?

1 First, the business head must realize the fact that the purpose of the business to maximize all the stakeholder's interests. The organization exists to serve all, and the organization will exist only when it is competitive.No individual is vital than the bigger purpose of the organization. This realization is a must for the organization's head.

2. Second, the business head spends quality time with the mediocre person by giving the perspective about the change in the way an organization works in early times and the now in the competitive environment. The person's challenges to cope with the current business challenges need to be understood, and the necessary exposure can be given by training, coaching, and mentoring.

3. Also, the person must be given some time to perform well as per expectation mutually set. This time duration can be a year or a couple of years, depending upon the role the person plays in the organization.

4. If the person copes up with the modern business practices and delivering the expected results, that is a piece of good news for all, and the person can be groomed for further development.

Incase even after meticulous training, coaching, and development efforts, if the person is not willing to unlearn and learn, not intending to deliver the result as expected, the business head must speak up to the person and be prepared to separate the relationship and business.

If the business head prolongs the decision to separate the business and relationship, it will inevitably affect the overall business performance, which is not suitable for anyone. The survival itself will be challenging for the business head and the entire stakeholders of the organization.

The key is balanced, quick decision making from the business head is vital for the meeting the larger purpose of the organization.

Factors for Next Level Growth

Each organization is striving for next-level growth from its present status. The next level of growth could be

1. An exponential increase in Turnover
2. Getting into new market/customer
3. Getting into new  product line/services


Factors for next-level growth


Potential + Strategy + Leadership mindset + Practices = Next Level Growth

Potential:

the potential is a measure of the market size for the product or service, the unique value proposition of the product or service to the customer and the evergoing demand for the product or service not only in the existing customer or in exiting demography, but scalable to new customers and demographics

In my opinion, all the business is highly potential, given the worldwide customer base unless the product/service is made obsolete through technology.

Strategy:

A strategy is nothing but clarity on the resources, competency requirement, and action plan to get into next level growth. It is more about internal organizational capability development to cater to higher level growth. The action plan must answer the typical questions as below.

1. Resources required in terms of the fund, equipment, infrastructure, and people
2. Plan to reach out to new customers/ developing new product or services
3. Personal and organizational competency required to manage the challenges in the growth phase


Leadership Mindset:

This aspect is one of the prerequisites for any organization that looks for next-level growth. Mainly, the business head or CEO's mindset is essential. When I refer to mentality, it is more about the aspiration and belief of the business head is vital. For example, in one of the client operations, the service they offer is scalable to the global level due to their quality and price point. However, the founder is not interested in going for international reach as he believed that his organization is capable of serving only the local market. Even though he is very passionate about his product and service,  his contentedness and beliefs never allowed him to grow exponentially.

Practices and Action:

Even though the organization is highly potential, aspiration, and strategy, if the methods and actions are not in line with the plan, the organization will never get into next level growth. While aspiring for next-level growth, the organization should learn to give up some of the legacy practices and to learn new practices.

To sum up,

when the leader is aspirational, believed in the potential of the product or service given the global market, if the organization draws the master plan and adapts itself to change to new practices and action, NEXT LEVEL growth is always possible one.

Business Head's dilemma: Profit or Growth ?

One of the dilemmas some of the small, emerging CEOs have is whether to focus more on profitability or looking for growth opportunities and scale up the business sales turnover.

The reason behind the dilemma is when the organization is small, most of the activities are directly monitored, executed by the business head and he/ she has direct control over profitability. They use to enjoy comfort. At the same time, there is an aspiration to grow big and also the fear of maintaining the same level of profitability and comfort. Because maintaining healthy profitability within a controlled environment is different from maintaining the same profitability when the organization is exposed to different customers, product lines, markets during the growth phase.

In my view, the business head should aspire and balance both profitability and growth for both short term survival and long term sustainability of the business.

Profitability is a measure of your efficiency, effectiveness and the excess cash will give a strength to take the organization to the next level. Whereas Growth, even though it seems to change management in the initial time, is required to generate more cash reserve for sustaining the business. when you ensure the higher or same comfortable profitability in a growth stage, that will help you to grow further into a new orbit. That is cycle and that is the nature of personal and business growth.

Hence both profitability and growth is required. There is no guarantee that the existing comfort or profitability is sustainable if the business is not exploring growth options.

Need for organizationwide performance management system

As we discussed earlier "what you measure, will get focus and control." Measuring business, functional and individual through performance metrics will drive the behavior and actions. 

Organization-wide performance management systems mean from top of the organization to the bottom of the organization have a COMMON GOAL, deployed to all levels, with a different set of objectives that will have linkages with COMMON GOAL. 

For example, a business goal of achieving X % net profit is to be deployed from top to bottom levels of the organization and everyone will have the same focus to achieve the goal. But the fact is business metrics cannot be populated down the level as such as it is very difficult for the people to understand.

To engage all levels of people, deployment of business objectives to the down the level with supporting objectives are being done. For example, a business goal is further broken down into the functional level goal, in turn, the functional level goal is further broken down as an individual goal. By achieving the goal at the individual level, the functional goals are achieved. By ensuring functional goal achievement, the business goals are achieved.

Given below 
deployment of one performance metric from the business level to the individual level.

Now let us discuss why does the company require organization-wide performance deployment?

1 Organization-wide common performance deployment promotes performance s oriented culture over a period of time.
2. It differentiates performer and nonperformer.
3. It engages individual and the team, and it is a natural team-building process
4. The team understands each other's challenges and helps each other for a common goal.
4. It helps to improve individual / functional efficiency as constraints are exposed.
5. eventually, the organization migrates from functional orientation to organizational goal achievement orientation, and this drives the solutions-oriented mindset among the team.

Driving organization towards solutions-oriented culture is a paramount priority of business head, and organizational-wide performance deployment will help to achieve the mission !!

Importance of Manpower Planning during Growth phase

Like any other planning is being done in functions like marketing, sales, finance, and material, equal importance has to be given on MANPOWER PLANNING  particularly during the growth phase. Else, it would affect the organization growth badly. Having Right people in Right place at Right Time is critical for accelerating the growth.

The execution calls for detailed planning of manpower on the following aspects.

1. No of people required
2. Level of people required regarding skill and positions 
3. Compensation and Budgeting 
4. Recruitment methodology either dependence on the internal source or external support
5. Org structure, the communication process 
6. Infrastructure and facilities for increased manpower 


The typical problem with manpower  in small and medium-sized organizations are

1. Non-availability of right people 
2. Mismatch of manpower requirement vs. availability
3. High attrition rate 
4. Engagement of people towards organizational objectives

Typical mistakes the business head is doing in manpower planning during the GROWTH  stage 

1. Lack of forwarding thinking on manpower planning process:

it means the lack of thought process on the quantitive projection of manpower requirement, qualification, skill level, and how they would be positioned in the existing organizational structure and engagement plan.

2. Adhoc recruitment 

It means either compromising on the talent or fitting the people to the position rather than need. sometimes organizations recruit the people based on some reference either from relatives or friends or association, and they may not be fit into job requirements

3. Non-checking on the cultural fit :

Not verifying during selection  about the candidate's suitability to the organizational culture and values


. So when we are not planning the manpower properly in advance, the organization will lead to chaos or cost overrun on manpower budgeting. 

When Manpower planning has to be done for the organization?

Manpower planning is immensely required during the following scenario

1. Plant expansion
2. Drastic Increase in volume and variety 
3. New product  / new business lines getting added 

Benefits of manpower planning 

to plan budget/manpower cost in each category
to determine the job description/type of talent, you look for
to recruitment timely and induct
to focus more on external priorities than managing internal manpower problems.

So the point is manpower planning is one of the essential tactical activities of the organization, and  it is a continuous activity to ensure operational effectiveness and growth.

Key Drivers of your Business

As a business head, you may be spending your time, effort and energy in many activities of your business. The more you effectively spend your time in critical elements, more your business prospects.

You need to understand the fundamental of your business drivers and your awareness about those drivers and the depth of your management on those drivers will bring profitability and growth.

Key drivers of your business:

Employee:

As one of the appreciating assets in any organization is PEOPLE. However, one of the challenging area for most of the business head is managing people.

It involves 

Manpower Planning for existing and future 

Attracting Right People 

Engaging towards organizational goal and culture

Providing Growth opportunities and learning

When you are not spending your time on this "People" factor, it costs the organization regarding losing skill, high attrition, loss in delivery, quality and so on. 

From our experience with small, emerging organizations, most of the chronic problems in the organization are due to "non-availability of right people in the right positions."

Profit :

One of the critical aspect for sustaining any business for a long term is " Profitability."Only when the business generates a decent profit, the business can survive and look for growth opportunities. As a business head, you must know how the business does generate profits and the factors contributing to or affecting the profitability of the business.

To know the causes or sources of profitability, you must be aware and have depth understanding of the following factors

1. Understanding your value chain or cost stack up in your products

2. Your pricing methodology and relevance with reality

3. Product portfolio and margin in each segment

4. Buiding cost consciousness culture in the organization

5. Your sensitive analysis on volume and variety or product portfolio mix

Cashflow :

As we have observed in some organizations with high profitability, the organization struggles to meet the working capital requirements, and the business head spends most of the time in managing the cash flow issues. The reason is lack of understanding on the aspects of from where / when / how much money comes in where/ when/ how much money goes out from the business.

Business head needs to know the fundamentals of money flows irrespective of his background, financial illiteracy. He must know to balance the payables and receivables so that the business can run smoothly.

Growth :

Growth is essential to sustain and increase the profit. Beyond some point of effectiveness, increasing the profit is difficult. If a business wants to generate more profit, then one of the ways is looking for growth in business topline revenue.

This growth is possible in multiple ways as follows

1. Increasing share of business or volume from existing customer base or product lines

2. Expanding into new product lines  from existing customers

3. Expanding to new customers or new demographic locations

However, managing growth phase is more challenging rather than running the existing operations with effectiveness. It calls for the marketing effort, new product development capabilities, competency building inside the organization to cope with growth challanges regarding technology, infrastructure, maangement process or practices, people, and capital.

careful planning and execution is required to migrate the organization towards next level grwoth.

Operational effectiveness & Flexibility:

To ensure profitability and sustained growth, internal operational effectiveness has to be maximized.

When we say effectiveness, it is all about Equipment / Asset Utilization, People efficiency, development and product quality.

As operational effectiveness has a direct bearing on the profitability and flexibility to the customer's requirment, your time and drives the organization towards " Lean way of working " as a culture is critical. One of the differentiator among the competitors is your organizational culture on continuously improving your operational effectiveness.

Customer:

A customer is a center point of focus for any organization. The existence of a business is only due to the presence of market and customer to buy from your organizations.

You need to understand the real reason for the customer to come repetitively to you for doing business. The reason could be

your price

your attitude

your delivery flexibility

your locational advantage

your attitude and approach towards them

your service quality 

once if you understand the real reason of your customer comes to you , you need to think interms of 

1. sustaining those factors and its feasibility

2. leveraging those factors and sustain it

Maintaince of quality relationship with customers will help you on a long term.

To sum up, 

the above factors are key drivers of your business, and how much time you spend on nurturing those factors determine your business sustainability and growth on a long-term basis!

Why do you need to focus more on NPD( new product development)?

Why do you need to focus more on NPD?

This can be answered by understanding the changes happening in external and internal to the organizations.

Changes in Internal to the organizations :

As a Business head, your prime concern is sustaining profitability and ensuring future growth.

Conventionally , sustaining profitability calls for efficiency improvement,cost optimization and so on. Beyond some point, process optimization does not yield much improvement unless you revisit and re-engineer your product portfolio.

Hence, you can sustain your business profitability by creating an environment for continuous New product development and position yourself as the first mover or the preferred source to your customer on new product developments and ramping up. 

As you are aware that when you are manufacturing the same parts over a period of time, it will become a commodity and you lose the competitive advantage, in turn, you lose your profit margin. To compensate or sustain the profitability, smart organizations, equally focus more on New Product Development (NPD).

Also, the existing product portfolio dries out, the only way for growth is bringing out more new products.

Changes in External to the organization :

External to the organization, the consumers are changing fast. Thanks to awareness, affordability and enhanced lifestyle, consumers are looking for more varieties and prefer to change the product frequently to keep them update in the society. 

For example in the case of mobile devices, laptop, automobile, there were fewer varieties and more volume when they were introduced to the world than now. 

This change in external environment results in more new product development focus inside the organization.


Going forward, the organization which equally focus on both efficiency and new value creation will sustain the profitability and growth.

When does your organization need external help?

     Each organization undergoes different growth cycle, and each growth cycle calls for different management practices, business processes, and employee engagement practices. For example, the systems and processes followed by the organization when it makes 5 cr~10 cr sales turnover may not be suitable when the same organization makes 25 cr or 100 cr turnover. The leadership team and the organization have to change in line with market/customer / external expectation. If the organization does not cope with the expectation, it will perish eventually.

Fortunately, a few organization adopts to the requirements on its own and managing the change thanks to the vision, growth mindset, flexibility of the leaders. However, most of the organization needs external help in bringing the necessary changes in business and management processes and inculcating the winning mindset among the people.

The purpose of seeking external people like consultants or coach is to look at the business in a different perspective, guide and handhold the team to implement the new practices and bring confidence to the organization by showing the business results.

Typically organization needs external help in any of the following situations. 

1. The business is not growing regarding sales turnover for last three years, or the growth is only incremental
2. The business is growing regarding top line, but the profitability  stagnant or downward trend or negative 
3.Both top line and bottom line stagnant and no clarity on the direction to take 
4. Increase in sales demand and product line/varieties, but struggle to cope up with growth. (struggling to meet the delivery, cost, quality, and efficiency requirements)
5. To transform the organization towards performance-based culture  by reorienting the old and new people 

Relook at your business performance and determine the right time to seek the external help for timely growth!

Why must continuous Lead-Time reduction be the focus for a Business head?

From customer's perspective, Lead time is the time taken between customer placed the order for product/service and the time the customer received the product/service.

This lead time may be further broken down into supply lead time, manufacturing lead time, distribution lead time and so on.Those classifications are internal to the organization, and the business head must focus on to reduce the overall lead time continuously.

Why lead time reduction is an essential focus for the business/business head?

Lead time reduction is important from four perspectives.

1.Working capital & Finance perspective

2.Triggering sales & operations teams towards growth performance

3.Operational Efficiency perspective 

4. Customer's perspective

Let us understand from each perspective.

1.Working capital & finance perspective:

When the product/service order fulfillment lead time is more, the expenses incurred to cover the product/service till getting payment from the customer will also be more. The business gets the cash only when the product/service is sold to a customer and converted as cash.

For example, if the lead time is six months, business will get the cash only after six months. Till such time, the business has to fund for all the expenses like salary, material procurement, and other overheads, etc .that is working capital is required for six months..(Pl ignore, advance payment, credit times, payables, receivables, etc. as those are all tactic arrangements by the business)

If the business team reduces the lead time by three months, working capital required only to fund three months expenses.

Hence, if you have high working capital, one of the causes and solution approach would be a LEAD-TIME reduction of your order fulfillment.

2.Triggering sales & operations teams towards growth performance:

Typically entire organizations' speed depends on the PULL.For example, If lead time is six months and the order execution capability of 6 months, say one crore, then the organization can make only two cr as sales turnover annually. Based on the execution capability or capacity of the organization, the sales and marketing function also behaves and operates. Once the lead time is reduced by 50 %, say by three months, then organization capability is also increased to 4 cr as sales turnover. The point is when Operations engine pulls more, the other parts of the organization also pull more from the market or customer.

The business head responsibility is to understand this behavior and must focus on lead time reduction.If your organization sales turnover is stagnant, one of the reasons could be high lead time and complacent in the organization.

3.Operational Efficiency Improvement 

When the lead time is high compared to actual value addition time, it means, your product/ service is held up in the value chain as waiting or delay. This results in accumulation of inventory in the form of WIP, which sometimes leads to rejections/ rework, making the communication complex, storage, handling, manpower deployment and so on.

Also, your strategic decision on supply chain leads to high lead time in getting the raw materials and high lead time in reaching the customer .Typically when the lead time is high; it brings all the inefficiency or wastes in the system. When the lead time is low, it brings flexibility into your production system as you can move from " Build to stock" to "Build to order."Also, the change in your production system will reduce your inventory and its derivative wastes in the system.

If you are struggling with low efficiency in your operations, one of the causes could be high lead time

4.From customer's perspective :

In today's fast-moving lifestyle, the customer does not want to wait, and he is willing to pay more for quick delivery than negotiating and followup with your team on delivery dates.Less the lead time, more customer's satisfaction and there is possibilities of further business partnership.If the lead time is high and non-negotiable, there is a possibility of your customer move to the competitor.

In essence, as a business head, your continuous focus must be on reducing the lead-time either in supply chain or operations or distribution. 

This focus will give tremendous benefits in terms

1.Capability to increase sales turnover

2.Reducing the cost of the product

3.Reducing the working capital

F

How SME's transformation are different from large size organization transformation?

SME 's are mainly different from large size organization based on the investment and sales turnover they make. Even within SME's , there are further classication as micro, small and medium size organization.

Recently Govt of India proposed to redefine SME's based on their annual sales turnover, replacing the current definition that relies on self declared investment on plant and machinery

According to the government’s new definition, businesses with revenue of as much as Rs5 crore will be called a micro enterprise, those with sales between Rs5 crore and Rs75 crore will be deemed as small and those with revenue between Rs75 crore and Rs250 crore will be classified as medium-sized enterprises. 

The above classification clealrly differentiates large size organization from SME's from turnover point of view.

However, apart from sales turnover, there are some other charactersitisc distingusihes the SME's from large size organization.

1. Most of the SME's are supplying to large size organization either as Tier 1 or Tier 2 vendor
2. Adding value to product with partial manufacturing content or assembly
3. Mostly scope is limited to manufacturing only
4. No banddwidth to design / development / procuring material at own identified source or reengineering on product design and material selection
5. Not much bargaining power on pricing 
6. Not much affordability to get the right talent and developmental efforts

Given the above context of SME's, the business transformational efforts are mainly on

1. Ensuring profitability or sustaining profitability through business process reengineering

2. Helping to stabilise the organization for sustainable growth by twisting business model and people engagement initiatives

How to maximize profitability in SME organizations?

Most of the SME organizations can be classified as either Tier 2 or Tier 3 level vendors to OEM. Those organizations are adding value to the final product either by way of partial manufacturing or manual content addition in the material. That is mostly the scope of the SME’s restricted to manufacturing or assembly and may not have much leverage on design, procurement aspects on the value chain.In some organizations, value addition is limited only to the manual work.

Unlike large size organizations, SME’s does not have the bandwidth to design and development of the product, RM selection and procurement, process planning and manufacturing, Assembly and Testing on its own.If the scope of SME’s on revenue is relatively smaller than large size organization, how can SME’s maximize the profitability?

Given below some of the proven methods from our experience with SME’s and the critical aspects of each method.

1. Increasing the volume 

2. Increasing the variety and customer’s base

3. Cost optimization from P&L analysis  

4. Rationalizing the product mix or portfolio  

5. Vertical integration  

6. Looking for premium products or market

7. Looking for premium processes

1.Increasing volume:

       One of the typical methods of increasing profitability is doing more volume as it covers up the overheads and there is a possibility of maximizing profitability.The prerequisite for increasing volume of a given customer’s product is the price and quality expectations to be met consistently.Most of the organizations are working internally on quality improvements, delivery plan adherence, and price optimization so that they can approach the customer for 100 % share of the business. Since the demand is a function of external parameters, there is a limited scope to increase the volume beyond a certain level.

2.Increasing the variety and customer’s base:

       One of the favorite ways of increasing the sales turnover, in turn, profitability is by expanding customer’s base and get more orders of the similar product family. For example, if SME’s has modern machining facilities, it looks for different customers and product range to maximize the revenue and profitability.

The advantage is that it helps the organization not to get into the risk of dependence on one customer and also helps the organizations to serve the different product varieties and customers to get more visibility in the market.The downside of this approach, over a period, managing multiple customers with multiple varieties leads to operational inefficiency issues.Most of the organizations fail to plan well and ended with operational issues like more changeovers, higher cycle time, higher WIP's, quality issues, lack of focus on time deliveries low productivity.However, for some organizations with better operational team and practices, this method turns out to be a better method of maximizing the profits

3.Cost Optimization from P&L Analysis:

This is an all-time workable solution, proof from recession or unfavorable external environments. Irrespective of existing customer’s base, volume, product mix and variety, some SME organizations are continuously working on waste elimination, re-engineering the process and identification of opportunities to save the cost of P&L analysis.For example, one of my known organization regularly saves 3-5 % in its conversion cost every year irrespective of volume or external condition only through continuous improvement programmes and finding opportunities to cut down the unnecessary expenses.

Another advantage of this methods, the organization develops the culture of cost consciousness as a way of life.

4.Rationalizing the product mix or portfolio:

This method is mostly last options or impossible options by SME organization as they are vendors to OEM customers and they can not influence on changing the product mix or portfolio.However, wherever the organization supplies directly to end customers influence to choose the right product mix as it maximizes the profitability significantly.

It requires active accounting and cost deployment practices, wherein the organization can precisely know the cost of goods sold for each product mix.Accordingly, the management decides the product mix be continued or dropped.

In one of my client, when we did products costing and selling price analysis, we came to know the some of the product ranges, the organization is making losses as the cost of manufacturing outweigh the selling price. The management took timely decision to drop some of the low-end products, thereby could able to release the capacity for the higher end as well as to increase the profitability.

5.Vertical integration:

One of the common practice prevailing in most of the SME’s over a period, after stabilizing the basic process and get the customer’s confidence, they get into vertical integration as a natural growth.This expansion gives growth and profitability advantages to the organization.

For example, an organization specialized in forging or casting is expanding the horizon to machining and assembly.

This method is workable once the organization establish themselves with the basic process and have a financial and technical bandwidth to expand vertically.However, this method requires continuous reevaluation of product cost and sales realization.

6.Looking for the premium product or new market:

One of the possible option for SME organization to look for premium product lines or new market whereby it enjoys the premium.It calls for expanding the marketing effort to find to find the niche or premium product lines and customers.

7.Looking for the special process:  

Rare and ultimate option for SME organization to get into the special process to enjoy the premium as this must be the entry barrier to others.

In today’s competition and free market environment, the organization can be healthy only by generating sufficient cash reserve through profitability.It is the business head or CEO's prime responsibility to revisit the model continuously!!

Why is business (head) transformation equal to business transformation, especially in SME’s?

There are several factors contribute to the success of the business regarding profitability and growth. Those factors could be type of products or services, talented employees, competition, positioning, market, economic environment and so on.Those are all common factors prevailing for any business in which some organizations are doing successfully, and others are struggling.The crucial differentiating factor between a progressive organization and stagnant or struggling organization is a business head especially in small, emerging medium size (SME’s) organizations.The business head could be the founder or the director of the firm.The business head's beliefs, quality of thinking, business practices and leadership style determines the organizational success amidst the common factors as listed.

As I had a privilege to work with more than 100 small and medium-size business heads on different occasions, one profound truth that I have realized.That is, irrespective of industry, business nature, product, manufacturing process, marketing environment and competition, the growth of the organization primarily depends on the business head ‘s thinking process or mindset, leadership style, his business practices or daily management processes and how he is directing or guiding his team.

Predominately his belief or how he looks at the business determines his leadership style, enables him to choose the right business practices or processes and ultimately reflects on the profitability and growth.

Most of the business heads as I observed, look at their business with either one of the two beliefs like survival orientation or growth orientation.

In survival orientation, he looks at his business and customers as a mean to make profits; he tends to make a profit somehow, with little or no emphasis on adhering to process, ethics, considering the interest of all stakeholders, future growth aspects and long-term sustainability of the business.Those organizations struggle with profitability issues, low employee engagements, frequent customer's turnout.

In growth orientation, he looks at his business and customers as a purpose to enhance the value of all stakeholders, including his motivation. This mindset will improve his thought process towards long-term sustainable business decisions. When he has the purpose of the business, his approach and thought process would be on building a solid foundation for the process, systems, technology and talent management, in turn, his visionary approach would be long-term oriented even though sometimes he loses in the short term. His growth mindset enables him to choose a set of business processes or practices on a day-to-day basis, which promotes positive organizational culture, business results, and long-term growth.His enhanced mindset enables him for creating sustainable wealth creation from his business to meet all stakeholder's expectation.

In our business transformation engagements, we have witnessed that whenever the CEO or business head understands the desirable behavior gap or the business process gap and then works full heartedly along with us, the business results used to be extraordinary. 

In my opinion, business success factors like technology, effective asset utilization, expanding into new markets, managing the competition, talent management and fulfilling the customers’ requirements are relatively easy tasks if the CEO or business head tune up his mindset and thought process towards growth orientation.

The real transformation has to happen at a business head level from mere survival mindset to a growth mindset.Business transformation starts from an individual and that too from the head of the organization. If that change happens at a business head level, I firmly believe that business is also equally transformed.