Economic hardship producing ‘two-tier’ economy of winners and losers
Times of adversity favour adaptability over specialism. The true strength of our species almost certainly lies in our ability to innovate and adapt to a wide-range of scenarios. But how well does this translate to the world of business? During these fallow times of economic hardship, how are small- and medium-sized enterprises (SMEs) adapting? According to research by insurer Zurich and The Economist Intelligence Unit, small business is diversifying into two rather distinct species.
Tempting though it is to take our cue from H.G. Wells and start divvying up the nation’s enterprises into Eloi and Morlocks, the slightly less emotive terms the research uses are ‘low-performing SMEs’ and ‘high-performing SMEs’. The genetic make up of the two can be explained best in terms of their strategic approach, with the former being more risk-averse and the latter making more fundamental – but higher risk – changes.
The survey demonstrates that the strategies low performers have focused on tend to be more short-term, reactive changes. Out of the businesses classified as low performing, just over half boosted performance by adopting longer working hours and well over a third sought increased sales by slashing prices. By contrast, the higher performers have tried to make more long-term, strategic adaptations to the economic climate, with 53% diversifying products and services supplied and 48% finding ways to improve overall productivity.
Perhaps one of the most interesting revelations in the report is the changing perceptions the UK’s SMEs have of the factors threatening their ongoing survival. Fewer enterprises feel that inadequate cash reserves or poor cash flow management are a major threat, with the percentage of businesses feeling these pressures dropping from 31% to 27% and from 22% to 17% respectively in the last two years. However, there has been an increase in companies feeling the pinch of external factors. SMEs dealing with challenges around operational costs have leapt from 25% to 37% in the last two years and, more alarmingly, a significant 52% feel that, due to economic stagnation, weak demand is hampering their chances of survival.
It’s definitely true that the tough economic climate is helping SMEs evolve and develop new ways of working. But here’s hoping that not too many enterprises have to pass into extinction before the situation improves.