Why SMEs do or don’t use advisory services

Time to time, a small or medium-sized enterprise (SME) faces a task it cannot accomplish with the resources it has. In such cases, external resources are needed, either technology or human resources. When speaking about human resources, in some cases, the resources will be needed for longer period of time and the SME will hire new employee. However, sometimes human resources are not needed permanently, and in such cases the SME will hire an external expert for a limited period. All seems rational, but project experiences show that SMEs are not always willing to use external consultancy services, which then makes projects difficult to implement. Why is it often such a struggle with advisory services for SMEs? 

Observing reasons why SMEs use external services may clarify things. SMEs engage an external provider, advisory services included, mostly in three cases:

1) they must react and introduce changes required by relevant regulations,

2) they are facing a task where they have technology and know-how but not enough capacity to deliver result requested by the client, and

3) they do not have knowledge needed for completion of tasks they are facing, where the task may be              

3a) a requirement from the client, or

3b) an endeavor of the SME to introduce innovations.

Requirements coming from regulations are specific, being mandatory for SMEs, and common for the other above-mentioned cases is that the initiative, even if it comes externally, is well-understood and accepted by the SME, which being aware of the possible benefits, is ready to use the respective advisory services.

However, sometimes initiative for change in SMEs operations comes from projects and subsidy programs, which are defined on the basis of analyses, decisions, and opinions of the project funding/subsidy providing entity on what SMEs should do. This may be seen by SMEs as needed or not needed.

Accordingly, it seems there are three groups of consulting services:

1) those helping SMEs to meet requirements defined by law/rules, such as quality standards, which generally are seen by SMEs as a must and are therefore in demand and welcomed by SMEs;

2) those helping SMEs to respond to requirements coming from clients or to implement SMEs ideas generated internally, that are seen by SMEs as something that they can profit from in the short period, such as advising on new technology, recipes in food industry and similar, and thus SMEs are often ready to use them and to pay for that, and;

3) advisory services focused on changes in SME operations initiated by projects and subsidy programs, that, in current situation and according to SME’s understanding, SME cannot make profit from in short term, mostly because there are no necessary mechanisms and capacities (e.g. advisory in industrial design resulting in new product, but with no distribution and sales solved) and thus SMEs are rarely ready to use them.

Also, the new tasks may be required and defined by authorities, the demanding client or by the company itself, when trying to introduce innovations, i.e. to develop new products, improve business processes, introduce improvements in marketing and similar. According to SME’s understanding, all these include quite clearly visible and likely benefits for SMEs, achievable in rather short time and thus SMEs are interested in these changes and in services enabling the change. At the same time, projects are quite often designed with the future in mind, focusing on changes that, according to analyses and opinions of experts, are to come, and include respective advisory services, which are often not seen by SMEs as beneficial in short term and seem to have uncertain outcomes. And therefore, there’s a struggle.

How to overcome this situation? Apparently, SMEs readily use advisory services that they see as beneficial in the short term. So, the challenge is use of advisory services by SMEs that SMEs see as some kind of distant and uncertain future, thus not being willing to use them in short period of time. They may be more ready to use advisory services that they can benefit from in the long term, if they see that benefit as quite certain and achievable. Also, it may be good to provide information to SMEs, to explain why some services are proposed, why they are seen as needed, what benefits they can bring, and thus increase SME’s interest in these services. If even after the information is provided there is no interest of SMEs, then there is likely something wrong with assumptions and findings, or it is simply too far away in time. Either way, if one keeps such services in the project, there will be a struggle to get SMEs on board. On the other hand, the first steps in certain areas, such as digitalization and energy management, need to be taken and in some cases are well justified. So, this point of view should not lead to giving up promoting topics that, by all information and relevant opinions, are beneficial to SMEs in the long run, but rather to see things more clearly at the project design phase, to minimize struggles with participation once implementation starts. So, if the project is focused on advisory support that is in the third group described above, initial interest of SMEs will most likely not be high and stronger promotion will be needed. This is a pattern that seems to repeat with every topic new to SMEs.  

Partial solutions are not solutions

Solving a problem requires observing the problem from various points of view. If the problem is observed from only one point of view, regardless of how important that point of view may be, solution designed on basis of that observation will likely not be sufficient.

For example, an identified problem may be lack of cooperation between research & education institutions and enterprises. Often, as the main cause, lack of equipment is identified, i.e. these institutions do not have equipment needed for providing services to enterprises. It may be equipment needed for producing specific parts of prototypes or testing the product. Starting from there, interventions are focused on providing equipment for the institutions, so that their capacities are built to the level needed for providing support to enterprises.

And that is needed. But, most often, that is not enough. Having equipment is only one precondition that needs to be fulfilled in order to start providing services to enterprises. It is necessary, but not sufficient. There are also other preconditions that need to be fulfilled. And often these other preconditions are considered as if they are already fulfilled, without further considerations. In fact, assumptions are taken as facts. The assumptions, in this case, include that enterprises have a need for support, that research & educational institutions are willing to engage in providing the support, that they have human resources and procedures that enable this cooperation with enterprises.

However, in practice, this is often not the case. Even if the institution has the equipment, it still needs to develop procedures to make that equipment available to enterprises. They usually have staff with needed knowledge, but with no time and motive to engage in providing support to enterprises. Also, it must be defined how the enterprises access the equipment, who operates it, at what time, who covers the costs, how are human resources engaged. Of course, enterprises must be informed on these possibilities. Again, this is often not done. Therefore, providing equipment to research & education institutions does not entirely solve the problem of lack of cooperation between research & education institutions and enterprises, and consequently it doesn’t contribute significantly to solving the problem of enterprises lacking capacities for introducing innovations. Observing the problem from various points of view, may be a step towards the solution. Sometimes it will require safe to fail experiments to get all needed insights, and experiences from previous projects may also be helpful to get the clear and comprehensive picture of the problem. The next step may be to coordinate efforts of different stakeholders, so to ensure that designed solution is comprehensive, covering all key aspects of the problem. Only then, solution will work in practice, producing desired change.

At least, let’s stop making conclusions based on assumptions.

How strong innovation systems affect strategic and operational planning

Modern society is characterized by rapid changes in different areas of life. Different stakeholders are investing efforts to manage processes of changes, to achieve development and benefits for the individual stakeholders and consequentially for the society. There are also efforts to harmonize and coordinate activities of different stakeholders to achieve the best results on the level of society. However, it is not easy. Therefore, plans are being prepared and implemented, with monitoring and evaluation, lessons learned and proposed adjustments. This points out that strategies and their implementation is considered important, taking into account that preparation of a strategy, as a specific plan, requires significant resources and that strategies are often prepared in various areas. At the same time, development requires ever new solutions and innovations are more and more often considered one of key, if not the most important, factors in development. This brings to questions about relations between strategies and innovations, how to plan interventions that foster innovations and what are specific aspects of such plans and their implementation.

The word strategy comes from military area and includes high-level goals and plans to achieve these goals, both resulting from strategic planning processes, while tactics is focused on engaging resources to achieve these goals on operational level. Innovation system, innovations ecosystem or national innovation system, whatever term is used and whatever level is observed, is a concept focusing on interactions among companies, education and research institutions/organizations and other stakeholders in introducing innovations.

In conditions of dynamic changes and more and more complex interactions in society, defining strategic goals is an extremely difficult task, since it focuses resources on certain areas thus bringing also risk of missing opportunities for achievements in other areas, so that it may or may not bring desired effects. There are different approaches applied in preparation of strategic plans, that include different analyses in introductory phases, different levels of participation of various stakeholders, and different structure of strategic documents. One of key differences is in the structure of strategic documents, i.e. how deep in details it goes in defining how strategic goals will be achieved. Some strategic documents give strategic goals and broad, but still precisely enough defined, directions, while other develop detailed operational plan, with interventions, resources, allocation of responsibilities and other details, including monitoring and evaluation mechanisms. Both, strategic goals and broad directions and operational details are needed for achieving the change. So, why is the structure of documents different?

Recently, I have participated in the study visit to Germany, Berlin area, where we had an opportunity to get acquainted with SME support mechanisms, in different areas. My impression was that state-level institutions define strategic goals and directions towards them, which are ambitiously and precisely defined (e.g. https://www.bmwi.de/Redaktion/EN/Publikationen/aktionsprogramm-zukunft-mittelstand.pdf?__blob=publicationFile&v=7 emphasizing importance of innovation networks or https://www.de.digital/DIGITAL/Redaktion/EN/Publikation/digital-strategy-2025.pdf?__blob=publicationFile&v=9 ), but operational planning, i.e. developing interventions that will ensure reaching these goals is left to other stakeholders, such as enterprises, educational and research institutions. Even programs that initiate movement towards desired goals, financially supported and monitored by the government, are administered by transparently selected and contracted private agencies. Documents on level of federal states contain more details (e.g. https://digitalesbb.de/wp-content/uploads/2019/08/190529_Broschüre_A4_Gesamtstrategie_web.pdf ), but still do not go into all details, such as identification of responsible stakeholders for implementation, financial values and sources of funding. So, higher levels of authorities define what to do, and other stakeholders provide ideas how to do it. On the other hand, strategic documents in BiH often contain detailed operational part, as defined by methodologies such as Standardized Methodology for Strategic Planning and Managing SME Development. Methodologies also suggest that strategic planning process should be followed by establishing structures and procedures for implementation. So, the strategic document not only defines what to achieve, but also how to do it.

What is the reason for this difference? Like in the military, commanders who have well-trained and equipped units have the luxury, so to speak, to define task and rely on lower levels of command for tactical application in the field (an approach well-known for a long time, applied by, for instance, Helmuth von Moltke the Elder). So, one of the reasons may be in availability of capacities and interactions. Namely, Germany has well-developed innovation system, with strong individual capacities of stakeholders and with developed interactions, both of which they are further developing. So, government can count on the innovation system to create solutions to reach defined strategic goals. They also have financial resources to support development processes identified as priorities. On the other hand, less developed countries do not have so well-developed innovation systems, neither from the point of view of individual capacities of stakeholders, that are often lacking resources, nor from the point of view of interactions. Therefore, stakeholders who develop strategic plan, in order to increase probability that it will be implemented and thus create desired change in reality, define all details they can, with precise descriptions and allocation of tasks and responsibilities. It is understandable, since it is less likely that concepts will come from stakeholders that still lack resources and from the environment with underdeveloped interactions. This approach may be necessary steppingstone in development of underdeveloped countries and their approach to innovations, since a number of interventions in strategies is focused exactly on developing capacities and interactions, thus creating conditions to engage wider circles of stakeholders in developing solutions for achieving strategic goals. This way, less developed countries are creating conditions for applying similar approach to the one currently applied by developed countries, thus enabling creative potentials of many to contribute to future development processes in economy and in social development in general.