Scaling SMEs: Building a flexible platform for growth is an Economist Intelligence Unit report that discusses how highgrowth small and mid-sized enterprises (SMEs) are scaling their organisations to provide resources for growth whilst ensuring flexibility to respond quickly to changes in market conditions; the role of technology in scaling SMEs; and success factors in scaling headcount. The findings of this briefing paper are based on desk research and on in-depth interviews conducted by the Economist Intelligence Unit with founders and managers of SMEs and other experts.
For the purposes of this report, SMEs are defined as businesses with annual revenues below $750m. In the context of businesses of this size, scaling is defined in this report as developing an organisational structure and operational platform to ensure sufficient resources for sustainable growth. Scaling is therefore understood here to be distinct from growth in the volume of business that the company conducts.
Small and mid-sized enterprises (SMEs) play an important role in economies across the world. In the European Union, for example, SMEs employ two-thirds of the workforce—but create 85% of new jobs. Still, as they grow, many SMEs face constraints on their resources. Especially in times of economic uncertainty, expanding resources carries considerable risk; yet, amid intensifying competition, SMEs must prioritise growth in order to survive. This need to pursue growth raises the question how managers of SMEs can best provide additional resources to enable continued expansion, whilst ensuring that investing in these resources does not threaten the viability of the firm.
The answer lies in scaling the organisation by building an operational platform on which to deliver growth—whilst maintaining the flexibility that is critical in enabling management to respond to changes in market conditions. In short, these businesses are pursuing growth whilst remaining resilient. Examples of successful scaling among SMEs provide useful insights into how high-growth businesses are tackling this challenge. This briefing paper, based on desk research and on in-depth interviews with founders and managers of SMEs and other experts, discusses how businesses are building flexible platforms to provide resources for continued expansion. The report discusses operational strategies for scaling the business; the critical role of technology in scaling SMEs; and key issues in scaling headcount. Below are some key findings of the research:
- High-growth SMEs set operational strategies to scale the business. As part of corporate growth strategies, SMEs are setting out how they expect to scale their operational platform to ensure they have adequate resources to be able to deliver on the firm’s corporate growth strategy. Defining the future organisation is a first step in setting such an operational strategy.
- For some SMEs, scaling entails new structures and processes. As part of efforts to scale their businesses, SMEs are putting in place new, formal, organisational structures. They are also drawing up policies and establishing processes, for example around human resources or finance. These processes are often standardised, repeatable, and automated, and pave the way for the organisation to ‘take care of itself’.
- IT tools and systems are increasingly accessible to SMEs. High-growth SMEs have better access than ever before to information technology tools and systems, for example cloud computing and enterprise resource planning systems. These resources are now widely available on an as-needed basis, reducing capital requirements and costs, and providing scalability, flexibility and resilience.
- A balanced funding structure can support the scaling process. Experts say that a sound cash position and solid cash flow are important prior to scaling, as subsequent business growth puts pressure on working capital. Maintaining high-quality financial statements and a balanced funding structure are additional success factors in scaling a high-growth SME.
- Sound HR capabilities are the key to scaling headcount. Some managers take only experienced recruits; others prefer to train recruits. Either way, sound human resources capabilities are critical to scaling headcount. Interviewees caution that an SME may outgrow some employees as it scales—but say that there is no room for unproductive employees in a highgrowth business.
- Preserving company culture is critical as SMEs scale. Business managers say that preserving the company culture is among the most important—and one of the most difficult—elements of scaling. Artificial or complex values do not scale well, according to interviewees; the key to success appears to lie in simplicity of the values underlying the company culture.
The research was sponsored by SAP. The Economist Intelligence Unit bears sole responsibility for the content of this report. The findings and views expressed in the report do not necessarily reflect the views of the sponsor.
