5 key insights on the future-readiness of SMEs

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Olivier Woeffray, Practice Lead, Strategic Intelligence, World Economic Forum

• SMEs represent around 90% of all firms globally, contributing to roughly 70% of employment.
• These businesses play significant roles in enabling, constraining and shaping the nature of innovation.
• We share the insights of over 300 CEOs and founders of forward-looking SMEs.

The World Economic Forum has long been at the forefront of recognizing the strategic importance of sustainable value creation objectives for business. A natural place to start driving this agenda was through partnering with the largest corporations. The First Movers Coalition illustrates the relevance of SMEs. Major global companies, including Apple, Airbus, Mahindra Group and Holcim recently committed to invest in emerging clean tech with the objective of significantly boosting their demand and ultimately bring the costs down to help meeting the net-zero goals.

While only a coalition of world leading companies have the clout and purchasing power to achieve this, whether or not we will be able to adopt clean technologies at scale will depend on the ability of smaller companies to roll them out into their operations, services and products. Small and medium-sized enterprises (SMEs) represent around 90% of all firms globally, they make up to roughly 70% of employment and, by some estimates, contribute to up to 70% of global GDP. At an aggregate level, these businesses play significant roles in enabling, constraining and shaping the nature of growth, innovation and sustainability of our global, regional and local economies.

However, SMEs should not only be seen as recipients or “implementers” of existing best practice or innovations developed elsewhere. While resource constraints often limit the possibility for SMEs to lead on research and development (R&D). Their size enables them to be quicker at sensing shifts and execute customer-led innovations. They also tend to have a greater ability to reconfigure and redeploy their resources and business models swiftly.

Given their collective weight, as well as their tremendous potential, making sure SMEs are thriving and future-ready is fundamental. We believe that future-ready SMEs should be able to generate long lasting financial growth, impact society and the environment positively, and achieve high levels of adaptability. Building on the work initiated by the Forum’s New Champions – a community of smaller emerging companies – we analysed over 200 peer-reviewed articles and engaged with over 300 CEOs and founders of SMEs. Here are five things we’ve learned.

1. Top challenges cited by SMEs

SMEs have been overrepresented in the sectors most affected by the COVID-19 pandemic. They tend to have weaker supply chain capabilities, and lower uptake of digital tools and technologies. Many of them have been in survival mode over the last 18 months. The top challenges cited by SME executives include talent acquisition and retention (52.5% respondents), growth and expansion (43.8%), funding and access to finance (35.7%), non-supportive policy environment (21%), and the difficulty of maintaining a strong culture and clear company purpose and value (20%).

2. These areas can help future-proof SMEs

We define future readiness as a set of organizational capabilities and orientations that enable companies to financially grow in the long term, impact society and the environment positively and successfully respond to shocks and seize opportunities that emerge from constant disruption. These are the key drivers of future-readiness.

3. Being smaller gives you an edge

The changing economic landscape and the increased speed required by businesses to succeed provides fertile ground for future-ready SMEs. Having fewer, and more direct, communication channels between departments and leaders in SMEs allows them to react more effectively and quickly to emergencies. When leaders are closer to the ground where problems arise, there is greater collaborative effort and alignment when team members “go back to the drawing board” and proactively solve them. Staying strategically small, investing in and trusting a core group of people, and keeping the organization agile can enable SMEs to identify and quickly act on opportunities.

4. Societal impact is an untapped opportunity

The recent pandemic and subsequent fight for survival made it difficult for SMEs to focus on their triple bottom line of people, profit and planet. While a significant number of SMEs do include societal impact in their mission statement, this gets significantly thinner when we asked them about concrete policies, processes, measurement, responsibility and incentives.

However, some of the most future ready SMEs included in this work have shown the opportunities that come with a clear and measurable focus on social and environmental sustainability. This not only offers multiple value-creating routes for addressing SMEs’ highest-ranked challenges – talent acquisition and retention, access to funding etc. – it also offers them an opportunity to gain reputational benefits as champions of sustainability strategies.

5. Digital transformation is key to survival

While small entrepreneurs might struggle to fund their innovative business models and find talent to execute their vision, recognizing the importance of innovation itself is not a problem. Innovation seemed integral to SMEs’ perception of survival. This research also shows that digital infrastructure has a significant impact on sustainable growth, societal impact and adaptive capacity. Digital innovations have now become relatively inexpensive and widely available. When SMEs equip themselves with the necessary tools and network resources to execute their innovative vision, they stand to compete with larger organizations.

We hope that this report will inspire and encourage SMEs to become the next generation of champions, and that seeing the successful examples of their peers will help them harness their potential. We also hope that it will support our collective understanding about the role and impact that SMEs can have on global challenges and encourage the development of a supportive environment for the most future-ready businesses to thrive.

This article builds on a report published by the World Economic Forum, in collaboration with the University of Cambridge Judge Business School, The National University of Singapore Business School and Entrepreneurs’ Organization.