Shared Services for MSMEs
24
Sep
2018

Shared Services – The New Age MSME Partner in Growth

Micro, Small and Medium Enterprises’ (MSME) contribution in the development of Indian economy has been significant, both in terms of contribution to GDP and creation of employment opportunities. Many studies show that economic growth of any country is closely associated with SME’s development and there exists a positive relationship between the relative size of the MSME sector and economic growth.  In India, the sector has consistently maintained a growth rate of over 10%. With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output. They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India. However, challenges faced by them are myriad and overcoming those in today’s highly volatile, competitive and technological dominated world is equally difficult.

From MSME’s perspective, keeping up the pace with developments, as fast as the market is changing, not the competitors alone, is a mandate. The way you find customers is changing, the way your customers contact you is changing, the way you do business is changing, your employees’ and workers expectations are changing. What has not changed is the outcome or expectations out of a business – a seamless, self sufficient and profitably running business. The onset on the industrial 4.0 era has put technology at the fore front   On one hand it has changed the way business and on other hand it has made competition tough, fast evolving and in need of constant update. The challenges have evolved more than ever.. not only in terms of getting the machinery up and running daily.. not only in terms of opening the unit/factory daily on time, not only in terms of running the wheel to get into profit/loss arrangements, but many many more. Lets ponder upon the commonly felt and pinched challenges for MSMEs today in India –

1. Technology upgrade is the biggest challenge. No matter how much one strives, technology remains ahead and demands continuous investment. Automations, RPAs, BOTs are innovative disruptions however require considerable investment. This is not a one-time cost; technology is ever-changing and investment needs to be ploughed in to stay abreast. Moreover, cybersecurity risks will give any business owner sleepless nights. Technology Upgrade
New Business Opportunities while retaining the existing 2. Retaining customers and focus on searching new business avenues – Getting new customers has been age old method to grow the top line. Today, MSMEs need to equally focus on retaining the existing ones and put in lot more efforts to get repeat orders from them. Competitors are doing everything to snatch customers, for they also have to make their business profitable. This demands businesses to be innovative finding newer avenues finding and attracting customers. But this would certainly need lot of time and energy to be innovative in business and strategy making.
3. Focus on operations or strategy/core business – With the core business members being busy in supervising day to day operations, ensuring that correct invoices are raised, payments are made correctly, orders are dispatched in time, workers are paid accurately and lot more, they become de-focussed from the core business growth and strategy building. In MSME sector business owners know the business best.. and no one else can run it better than them, only if the owners had few more hours in a day. Not possible, huh? So much to do in 24 hours… Upgrading the business as per industry trends and staying current with what’s latest becomes a challenge. divided focus and operational excellence
Person Dependence 4. Person Dependence – In MSME’s sector, despite working for long hours, putting health and personal life at a stake, business owners still have a lot of person dependence. Invoices could not be raised because accountant is on leave for 3 days. System is down because IT guy is not experienced enough to troubleshoot the error and the IT expert at the corner of street is asking for a hefty amount. Then arises a need to work on Sunday to ensure that workers are paid on time, because the HR girl’s child is not well and she is unable to come to office. These are all common issues that are faced by MSME business owner, every other day. Either there is no in-house expertise, a huge amount is spent on other small vendors, or is an in-house team is maintained, not only there is a person dependence, there is a risk of lack of competence for every process.
5. Increased Overheads – Hiring the team seems to be an easy solution. But maintaining the team is a real challenge. There are lot of costs and compliances attached with each new employee. Today, we all know that increasing profits is possible by either increasing sales or decreasing overheads. If we try to reduce overheads, we end up cutting costs where they are necessary too, probably cutting costs at the cost of business growth. Increased Overheads
Workforce Productivity 6. Workforce Productivity – Even if there is a dedicated workforce, with experts of each process, so the business runs well and business owners’ focus remains on marketing and strategy building, workforce productivity remains a challenge. Operational expertise is not enough. A complete system of supervisors, managers, senior managers and a complete hierarchy is needed to ensure that everyone not only fits well, but is being productive.
7. Getting right set of expertise – To be able to hire the right set of expertise or collaborate with right set of service providers, the hiring managers need expertise with not only the business industry but the function too for which the hiring is to be done. And even if a great hiring is done for the business, there arises a need to motivate and retain the workforce. Today its not only customers who need continuous attention, but employees too, who expect much more from the employer today, in comparison to what they expected 10 years back. Businesses are at great risk today, internally as well as externally. Providing right working environment to people, to motivate them to work, and retain them to keep the engine running without a break is the demand of the time. One dropout and system seems to halt. Getting right set of expertise

There are many more challenges which MSMEs face everyday. And the business owner will know them much better than anyone else.. few are common to all industries, few others are specific to an industry and few others are very specific to a business. But this would not and should not stop the business functions. Where there is a problem, there is a solution too.The concept of shared services has been a boon for large and mid sized businesses for past more than a decade. If we replicate the similar model to MSMEs, you would have most of your concerns resolved. Let’s understand what is shared services. It is a platform where a business gets benefits of sharing of support services like HR, Finance & Accounts, supplier management, IT & technology. These are not the core business, but are very much required to run the core business. Instead of developing and maintaining in-house expertise on these support functions, if these functions are leased out to the functional experts, and business owners get to focus on the core business strategy building, things would be different for them.. much less day to day operational headaches and much more marketing oriented strategy building & execution. On top of it, MSMEs can avail best in class expertise, ensuring the standards and best practices maintained, at a shared cost. And the benefits are not limited to cost sharing, they are extended beyond –

  • Technology – Leverage cutting edge technology in place with a shared services centre. To be able to cater to larger businesses, SSCs not only keep abreast with latest technology, in the terms of tools, infrastructure, processes, automations, bots, they maintain accuracy at a certain standard rate by minimizing human intervention. While there are separate teams to run technology, to upgrade technology and to innovate technology at an SSC, as a client, MSMEs would get benefits of all.
  • Economies of Scale – If a new purchase is made at an MSME level, however strong negotiator one may be, there is a risk of not only losing the vendor, but also the availability on time. With large shared services where huge amount of purchases are made, MSMEs can get benefits of not only the economies of scale, but also multiple suppliers, mitigating the risks of non-availability.
  • Functional Expertise – Each support function of a business is SSC’s core business. They have to maintain their expertise on these functions as much as MSMEs keep on their core business. SSCs strive to provide best in class continued services for these functions. And because of large teams for each process, technology integrated already, there is no person dependence too. The show goes on..
  • Best Practices – As businesses always strive to keep the core of their business matched up the pace of the industry, SSCs ensure that they follow all best practices to keep themselves ahead in the industry. MSMEs, being their clients, get best practices for all functions, as an additional advantage.
  • Visibility & Reports – SSCs are in practice of sending periodical reports for all work done, thus keeping their clients informed enabling them for any strategic decision making, which comes handy for MSMEs for their business planning.

All in all – Unified Processes PLUS Subject Matter Expert People PLUS Suitable Technology together build a shared service and collaborating with a shared service centre offers the flexibility and scalability of business as might be the need of the hour for MSME sector. This the time of for getting into partnerships with enablers. Do not invest into ever changing technology, but in a partner who can facilitate latest technology from the back-end, who can keep you free from operational chores so you focus on where you need the most. Partner with the Shared Services Providers!

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