The economic and social impact of the Covid-19 pandemic has been well documented. As SMEs were navigating their way out of the uncertainty created by Brexit, the pandemic has further amplified the extent of uncertainty and posed new challenges to businesses.
During the period of this crisis, several business norms are being challenged for their feasibility in terms of yielding results and providing sustainable growth during and post Covid-19.
The blog will explore a few ‘Effectual’ Strategic Planning measures (Sarasvathy, 2001) that UK SMEs can leverage to be better prepared to respond once the economy and market resumes full activity[1].
Revisit your goals
Uncertainty and resource scarcity are the two common factors populating the context of SMEs. With the business environment becoming increasingly complex and dynamic due to external factors, long-range strategic planning and resource acquisition is being questioned. For example, goal setting is a common practice among entrepreneurs and is considered crucial. However, the effectiveness of a goal-setting exercise in a dynamic and uncertain environment will be limited as goals are future-based.
The question, hence, is whether goals should be pre-determined, or should they be emergent in an uncertain scenario such as this pandemic? When there is growing uncertainty about lifting of lockdowns and resumption of full-scale business activities, a pre-set goal may be unnecessarily ‘resource heavy’.
However, a goal can be emergent if we use our “available means” to drive business. Every entrepreneur can assess these means by posing three simple questions, Who am I? (individual background, experience) What I know? (education, expertise, hobbies, interests) and Whom I know? (personal, family, professional and community networks), and use these means to set “emergent goals”. As individual means evolve, so should the goal. This approach equips businesses to react to changes in the external environment more quickly.
Re-evaluate your risk appetite and leverage social capital
The pandemic exposed the cashflow management problem among businesses. In March 2020, Forbes via an article titled “Are we doing enough to help UK SMEs with Covid-19?” reported that advanced payment of supplies and stockpiling as a response to disruption of supply-chains, and reduced demand due to lockdown, has together dealt a severe blow to the survival prospects of many SMEs[2]. Such times require entrepreneurs to leverage their social capital.
In simple terms, Social capital is defined as a ‘store’ of value generated in a social network which generates benefits at a later period (Putnam, 1995). [3]
Entrepreneurial social capital can be generated from a variety of networks ranging from professional business forums, institutional networks and even community-based networks. For example, risk-taking ability is a celebrated entrepreneurial quality, but in times of uncertainty, it is ‘affordable loss’ that needs to drive one’s risk-taking approach and not predicted gains. Risk should only be taken to the extent to which it is affordable, and one way of ensuring risk remains affordable is by spreading risk and investments.
A business can spread risk by either diversifying based on existing resources and capabilities. Or by using social capital to leverage resources from within the available means stated above. For example, entrepreneurs can combine financial resources for acquiring new business or key capabilities so that individual risk is lowered to affordable levels and combined investment capacity increases.
Research conducted on UK SMEs by Dr Amoncar and Prof Marc Cowling in January 2020 using the Annual Small Business Survey (2012) UK, of the University of Derby, shows that ethnic groups, in particular, are effective in using their social capital to drive process innovation within their firms and thereby increase their growth orientation.
The ethnic ties are an antecedent to inherent trust, which is a central construct of social capital. BAME businesses should leverage this ethnic social capital to share resources by following intra-community partnership-based business models. Ethnic communities in particular can have their social capital generated on the basis of their national, religious, or caste-based identities. This will not only help make individual loss affordable, but also increase the overall investment capacity of an entrepreneur.
Similarly, non-ethnic businesses should leverage social capital to combine resources and gain competitive advantage. For example, the reduced valuation of several enterprises due to pandemic make an acquisition strategy more lucrative.
A merger or acquisition approach at this time can help solve deficiencies in key functional areas of one’s business and also help gain access to missing resources and capabilities, thereby reinforcing competitive advantage.
Create social value
Although economic performance is considered to be the basis of business survival, the social value that a business generates is becoming more prominent than ever considering the pandemic. For example, research suggests Gen Z entrepreneurs value the social impact of their businesses as more important than economic performance.
This is the right time to evaluate the social value your business creates and communicate this effectively with stakeholders of the business.
Evaluate your resources and capabilities
The pandemic may lead to shrinking of resources within a business, however it is crucial that businesses spend time to analyse and evaluate their existing resources and capabilities to identify which of them are their critical success factors and which can become key drivers of change post pandemic.
Protecting key resources and capabilities is not only important for survival but also to enable steady growth in the future. In times of reduced demand and market uncertainty, a resource driven strategy may prove more effective.
Go local
The pandemic has further exposed the vulnerability of global supply chains which were already under pressure due to forces of de-globalisation. Businesses need to re-examine their supply chains and focus on developing long-term relationships with local suppliers.
Besides benefiting the UK economy, this approach will also build confidence among British suppliers in terms of long-term sustainable demand and provide them with resources to expand and grow their activities to compete against global suppliers.
References
[1] Sarasvathy, S. 2001. “Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency”. The Academy of Management Review 26 (2): 243-63.
[2] Prosser, D. (2020). Are We Doing Enough To Help UK SMEs With Covid-19?. Last accessed 18 June 2020.
[3] Putnam, R. D. (1995). Bowling Alone: America’s Declining Social Capital. Journal of Democracy 6 (1), 65-78.
