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Abstract
This paper will discuss management consultancy practices and will explore the benefits that SMEs will obtain from adopting management consultancy practices. Moreover, it will review various definitions of SMEs and compares management consultancy practices employed in Sri-Lankan SMEs and UAE. There are two types of research methodology employed in this paper. These include qualitative and quantitative methods. However, more emphasis will be put on qualitative research. The method of data collection employed in this research will be one to one interviews that will be conducted on selected five UAE small and medium-sized enterprises (SMEs). The conclusions that will be drawn from the research will offer some insight on whether SMEs should adopt management consultancy practices or not.
Introduction
Presently, the world of business is facing constant transformations and challenges. For small micro-enterprises to thrive in a more complicated environment, they will need to engage consultancy services in their businesses to help improve their performance. In every business, there comes a time when the management will require to expeditiously seek external expertise due to limited resources or when the available resources are being utilized maximally. The small micro-enterprises are faced with difficulties in trying to decide whether to hire consultants or not. This is largely due to the fact that they may not be sure of the costs involved, are not familiar with the business, they dont understand how to go about it or they are not certain whether they will get time to ensure that the work is done or not. Small businesses will need to hire consultants so as to get in touch with specific expertise that cannot be accessed within the organization. Qualified consultants have various skills, individual attributes as well as knowledge which they can pass to the regular employees. Every small business has special needs and necessities. However, there are several advantages that a business advisor can inject into a small business regardless of the sector or industry.
This paper will discuss management consultancy practices and also explore the benefits that SMEs will get from adopting management consultancy practices. Moreover, it will also review various definitions of SMEs and compares management consultancy practices employed among SMEs in Sri-Lanka and UAE. There are two types of research methodology employed in this paper. These include qualitative and quantitative methods. However, more emphasis will be put on qualitative research. The method of data collection employed in this research will be one to one interviews.
Definition of SMEs
Analoui and Karami (2003, p.24) confirm that there are several definitions of Small and Medium sized Enterprises (SMEs) due to a wide range of businesses that fall under this portfolio. The best definition of an undersized firm is still the one employed by the Bolton commission in its report on micro firms written in the year 1971. This report stated that an undersized firm is an autonomous business that is run by its owner (s) and possess a little market share. This report additionally adopted several statistical descriptions and approved that size is related to the sector. This implies that a firm of a specified size may be small in connection to a specific sector whereby the market is well established and there are several competitors; while a firm of corresponding size may be termed as large in different sectors with smaller number of competitors or fewer firms inside it. Moreover, an SME can be defined as a venture that has completed trade registration or corporate registration in agreement with law requirements and in conformity with the following criteria:
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In the mining, construction, quarrying and manufacturing industries, an SME can be a paid-in investment of 2.42 million US dollars or a smaller amount.
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In the fisheries, forestry and agriculture, gas, electricity and water, commercial, warehousing, communications and transportation, finance, real estate, and insurance, commercial and industrial services or personal or social services industries; a sales income of 3.03 million US dollars or a small amount in the previous year for an organization may qualify it for an SME.
The key factors that determine if a company is an SME include the annual revenue or the balance sheet and the number of staff. In the event that an organization has employees below two hundred and fifty, then it can be categorized as an SME. In addition, the yearly revenue for such an organization should be approximately 50 million Euros. it is also worth noting that there are business organizations that still employ less than 50 workers and as such, they may not be categorized as SMEs. They are rater referred to as small scale businesses. Hence, SMEs have a particular classification since they are not necessarily small businesses.
A firm is termed to be micro if it has employed less than ten employees and realizes annual income of two million Euros or less or a balance sheet sum of the same amount. In reference to the kind of business the government organizations are providing leadership, an SME is defined in relation to the number of regular staff as described below:
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In the construction, quarrying, manufacturing and mining industries, the number of constant employees must be lower than two hundred.
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Ventures with lower than one hundred constant employees are grouped as SMEs in the following industries: leasing and real estate industries, forestry, agriculture, animal husbandry and fisheries industries, gas, electricity and water industries; retailing and wholesaling industries; restaurant and hotel operation industries; insurance and finance industries; communications, warehousing and transportation industries; technical, professional and scientific industries; medical, social welfare and healthcare service industries; leisure, cultural and sporting service industries; educational service industries in addition to extra service industries. Small micro-enterprises also refer to businesses with less than five people who are working on regular basis.
The European Commission defines SMEs as small firms with maximum of ten employees who are employed on full-time basis. Additionally, the firm must realize annual revenue of a maximum of two million Euros or have a balance sheet of the same amount. The European commission also defines SMEs as micro firms with maximum of fifty employees who are employed on full-time basis and with a balance sheet of up to ten million Euros or annual revenue of the same amount (Johnston & Beaton 1998, p.200).
SME family business Vs non family business
There is no clear definition of what comprises a family business. However, a business with one family associate who is actively engaged in the business is considered to be non-family business, while a business with more than one family associate who is actively engaged in the business is perceived to be a family business.
Jones and Haven-tang (2005, p.74) emphasize that governance and competency are issues to be put into consideration for a family business to excel and for a plan for succession of management and leadership to continue. There is need for family businesses to constantly build up competencies and attract managers who possess managerial competencies for the businesses to excel because starting and managing a SME may face several challenges just like running a big firm. Individuals who own small businesses lack managerial capabilities which may lead to business failure. Studies demonstrate that family businesses are more likely to depend on networking rather than relying on formal education or on the job experiences in establishing successors. Business performance may also decline when family ventures concentrate on family visions of the business instead of focusing on maximizing profits. Family businesses are usually concerned with improving the lives of family members across generations (Poutziouris 2006, p.80). Therefore, the vision of family business differs with that of non-family business. In most cases, the aim of family business is to employ members of a family in the administration team and guarantee independent possession of the business.
Comparing SMEs and big firms
Harvie and Lee (2002, p.241) argue that there are operational disparities between large and small companies. Big and small firms vary on how they practice quality enhancement. These differences include structures, procedures of developing policies, and use of resources. The major distinguishing element of big firms is the presence of hierarchy with many levels of management. Big firms have high rank of standardization, specialization and formalization which small firms lack. SMEs are more advanced in developing improvement ideas due to their low extent of specialization. Large firms are bureaucratic while SMEs are mostly organic. The chain of arriving at decisions in large firms is extended as compared to small firms. It is evidenced that smaller firms are moderately and completely less likely to offer external training to all levels of employees as compared to larger firms.
Management consultancy practices and origins
Management consulting refers to the process of assisting organizations to enhance their performance mainly through studying the problems that are currently facing the business and coming up with enhancement plans. Businesses may rely on management consultancy services for several reasons. These encompass access to special skills offered by consultants and getting external (and most probably objective) opinion. Due to the fact that consulting firms are exposed to and linked with several organizations, they are informed of the best practices in the industry. However, the transferability of these practices from one business to another could be restricted by the nature of situation at hand. In addition, consultancies can offer assistance in transforming the management of an organization, implementing of new technology, establishing training skills, developing policies, or operational enhancement services. Management professionals frequently bring their personal proprietary frameworks or methodologies to direct detection of problems besides serving as the foundation for proposing more efficient methods of doing job tasks (Czerniawska & May 2004, p.211).
The origin of management consulting is attributable to the emergent of management as a special area of study. Arthur D. Little was the earliest firm to be established in the field of management consulting. This firm was established way back in 1886 by MIT don and was incorporated in the year 1909. Although this firm initially specialized in scientific research, it later developed into a universal management consultancy firm. Later on, Booz Hamilton was incepted before the start of 1915.This was the first consultancy firm to provide services to both government and industry customers.
The Glass-Steagall banking act paved way for various business ideas that were attached to offering consultancy services. Although consultancy services had been in place for long even before the start of 1930s, lack of well defined rules and regulations often led to conflicts when conducting the business. Since 1950s and beyond, consultancies expanded their businesses in America, Europe, South America and Asia. After the Second World War, several fresh firms in management consulting were established. This brought a scrupulous systematic move towards the study of strategy and management. In addition, several firms that were already running consultancy services during the1960s and 1970s were mainly motivated by knowledge obtained from various centers of excellence. Some of these centers included the Harvard school of business and Mckinsey. These learning centers were indeed instrumental in offering guided and practical knowledge on various consultancy related fields such as Strategic administration. Several other professional scholars also acted as impetus towards knowledge acquisition in the field of consultancy bearing in mind that they were also part and parcel of most consulting teams.
Sadler (2001, p.400) confirms that the industry marked significant development in the 1980s through 1990s by obtaining substantial significance in connection to state GDP. It is worth noting that firms which had engaged themselves in consultancy were quite small during the 1980s. However, there were about 30 firms that were in this business during the 1990s. This number had risen from merely five firms. At the start of 1980s, the industry experienced tremendous growth that was facilitated by the demand for organization and strategy consultancies. It is worth noting that information technology was largely responsible for myriads of development that were witnessed during the 1990s. In mid 1980s, the large accounting firms penetrated the information technology consulting sector.
Ernst & Young, PWC, Deloitte Touché Tohmatsu and KPMG were classified as the large four bookkeeping firms. These firms frequently provided advice plus their regular services. However, towards the end of 1980s and onwards, consulting services became more crucial in connection to the advancement in the market of auditing and accounting. Towards the mid 1990s, the above firms had developed more than the service providers interested on organization and corporate strategy. The consulting business went on as usual notwithstanding the case scenario whereby some of the well established firms divided their lines of service. The latter division was largely caused by Enron scandals. The situation was worsened when Arthur Andersen declined in terms of performance. The industry declined in the year 2001 prior to improving the previous year with a present inclination towards a clearer division of executive consulting firms.
Management consulting practices of SMEs in Sri-Lanka
The SMEs in Sri-Lanka contribute significantly towards the economy of this country by creating more employment opportunities, bridging the gap between sector growth inequalities besides income generation, modernization and technological improvement. Research indicates that Sri-Lankan SMEs add up to eighty- ninety percent of the total businesses and contribute twenty percent of the industry value. SMEs account for seventy percent of employment created in the trade sector. However, this sector is currently facing many challenges that are limiting faster development; especially difficulties in accessing finances, expertise development and entrepreneurship, market significance and enhancing competitiveness. For SMEs to remain competitive and strive for growth, they need to employ consultancy services. Management consultancy practices will help SMEs to formulate good policies that will enhance their effectiveness and efficiency. It is crucial for Sri-Lankan SMEs to consider the strategies implemented by adjacent regions, especially in Eastern parts of Asia. This is because SMEs in East Asia share similar constraints with Sri-Lankan SMEs that hamper their development (Annandale 2005, p.100).
There is an urgent need for SMEs in Sri-Lanka to seek management consultancy services which include business planning and strategy. This is because advice and support for SMEs in medium and low income states are faced with global challenges. There are a number of consultancy firms in Sri-Lanka that provides services to SMEs for instance, the Enterprise Development. This firm provides services particularly in remote areas. The objective of Enterprise development is to establish mentoring and training program that are sustainable. This program aims to develop and spread out several skilled business consultants who have the potential to deliver a wide range of services tailored to meet the needs of small micro enterprises in Sri-Lanka.
The business advisers in Sri-Lanka provides mentoring and on the job training to the local employees and trainees. They also help SMEs to come up with rational business evaluation plans. They moreover offer direct mentoring to help customers to develop essential skills such as marketing and financial reporting.
Annandale (2005,p.100) confirms that though a number of special credit schemes for small micro-enterprises have been initiated in Sri-Lanka, amid the policies instigated to enhance access to money, the preparation of business plan seems to be slow and thus, there is need for concern. At present, the Sri-Lankan small micro- enterprise toolkit offers some data on its website concerning the design of, and the motivation for, coming up with a business plan that is successful. For this to be achieved, management consultancy practices for SMEs in Sri-Lanka need to be improved to increase the efficiency and effectiveness of this sector.
Small micro- enterprises are more innovative and development oriented, thus they need more attention and joint support. Additionally, these firms have improved prospects for achievement because it is easy to manage their finances and administration. Moreover, SMEs would be more approachable to policy aid and facilitation. Lastly, if small micro-enterprises are provided with initial help and facilitation, they would have improved success.
Management consulting practices of SMEs in UAE
The SMEs sector in United Arab Emirates creates employment opportunities for more than fifty percent of UAE labor force. Small micro enterprises that employ below two hundred and fifty workers, conversely, lack appropriate business and marketing power to remain competitive. There are a number of consultancy firms in UAE that help SMEs to improve their businesses. For instance, the Flagship is the chief marketing and management firm in Dubai and is instrumental in this area. This firm helps SMEs to improve their marketing expertise by highlighting new global practices in addition to tailoring international practices for the domestic market that is increasing competence and outcome oriented. The SMEs in UAE need to engage consultants to get solutions and techniques that would allow them to get a bigger market share and establish better connections with their customers through effective management and marketing techniques (Biggs 2010, p.200). Marketing plays a significant role in the growth of SMEs. However, the need for advertising events to maintain and develop these organizations in a competitive corporate environment was never evident in the UAE.
Internal vs. external consultants
External consultants are people who help business organizations to come up with business strategies, lay out plans to reduce costs and create business plans, in addition to solving wide range of intricate issues. On the other hand, an internal consultant can be described as any group or individual that provides services to internal customers in a consultative ability. Secondly, external consultants provide business solutions which range from business plan to reorganizing operation procedures. While internal consultants provide services to internal customers in a consultative ability which include bringing a specialized administration advisory skill to enhance the base line performance of the organization or company: working within the corporate structure to resolve business problems and implement remedies in fields that encompass organizational efficiency or growth, improvement of the processes, or strategic scheduling: playing the role of a facilitator, change representative, educator, or instructor within your organization: aiding internal customers in a joint service group business, for instance finance; information technology; human resources; and quality management.
Moreover, external consultants usually take duration to comprehend the organizational culture, assess the situation, and come up with the best solution while, on the other hand, internal consultants are familiar with the organizational culture and its easier for them to solve problems (Lukas 1998, p.78). External advisors could be valuable in developing strategies and suggesting the way out. However, these advisors mostly lack an indulgent of the customer culture and more significantly how to incorporate change administration in the existing society as compared to internal consultants. The external advisors could be a valuable resource when an organization wants an objective scrutiny of skill or condition in a particular field while, internal advisors are employed across the organization from business planning/ corporate development to diverse human resources and additional service or support roles.
Lukas (1998, p.78) argues that despite the differences between external and internal consultants there exist similarities in the roles they play in business. These include: advisory firms mostly share a general move towards delivery entailing: understanding the condition and difficulty or opening that need to be tackled; developing the company case to sustain the general plan: defining the planned framework, launching baseline and recognizing and prioritizing openings: planning and building the key and creating execution plans: building up detailed execution plans, deliver payback and oversee optimization process.
Benefits of consultancy services
Indentifying of gaps and challenges within the businesses
From a careful review of literature, studies have shown that consultancy services play a significant role in ensuring victory and survival for small businesses (Sturdy et al 2009, p. 3). Notably, consultancy services help business owners to identify the gaps that exist within the numerous sections of their business. For this case, it is arguable that consultancy services also help small entrepreneurs to fill the gaps in their businesses in order to meet the interests of their clients. Needless to say, Smallbone and Welter (2001, p. 1 2) comprehend that most of the SMEs fail due to lack of know-how in certain areas, a factor that is attributed to limited skills and unfavorable organizational challenges. According to McKenna (2006, p. 23), it is evident that consultancy services help to improve the overall management of small businesses. This has to do with matters of rendering primary services to small scale consumers. In line with this, one can therefore, infer that such services are the core tools of marketing products and services provided by small and medium enterprises (Smallbone & Welter 2001, p. 17).
I agree with McKennas (2006, p. 72) arguments that SMEs should understand the market trends better in order to seize infrequent opportunities. Additionally, it is certain that consultants might know the market better than business people. For this reason, they help them to obtain a fresh look on the existing situation from a business point of view. Consequently, this helps SMEs to be able to identify goods and services that are on high demand at a given season. In addition to this, they help entrepreneurs to get a direction for running their businesses (Andriejute & Snieska 2004, p. 14). For this reason, consultants aid entrepreneurs to develop an organized thinking through which they are able to utilize their assets to meet the sales targets in a given time frame (Sturdy et al 2009, p. 5).
Aids the businesses with marketing skills
Shaw, Shaw and Turley (2000 p. 81) argue that in as much as a small and medium business would desire to grow, marketing is not an easy task. This is due the fact that it needs sophisticated strategies to allow business operators to reach out a large number of people within a short period of time. Sturdy et al (2009, p. 3) note that in order to be competent marketers, SME operators should have the skills to convince customers about the goods or services rendered in order to make their business competitive. For this reason, every small and medium entrepreneur should be convinced that consultancy services will help to boost and add value to their products in the market (Smallbone & Welter 2001, p. 43).
In connection to the above, empirical surveys have revealed that approximately 35% of SMEs collapse due to failure to examine the feasibility of their business ideas before implementing them (McKenna 2006, p. 34). Therefore, it has been proved that consultancy services benefit SMEs by helping them to examine the feasibility and viability of the businesses ideas before they implement them. At this juncture, feasibility test has to do with matters related to examining the technological, personal, legal, environmental, market and financial viability of a business (Andriejute & Snieska 2004, p. 13).That notwithstanding, economic scholars are quite unanimous that consultancy services help SMEs to conduct and carry out financial review, a factor that prevents premature failure of their businesses. Research has revealed that more than 50% of small and medium-sized entrepreneurs often give up running their business after realizing that they are not feasible financially (McKenna 2006, p. 42). Moreover, they lack better strategies of financing their businesses. For this reason, it is argued that consultants play a significant role in not just examining feasibility of a business but also on effective management of such businesses (Shaw, Shaw & Turley 2000 p. 81).
Impacts businesses with specific skills
According to Sturdy, et al (2009, p. 4), obtaining specific skills is one of the benefits that is derived from consultancy services. It is imperative to note that there are some skills that are non-existent or scarce in businesses. Therefore, hiring consultancy services acts as an eye opener for entrepreneurs to embrace the benefits of such skills. Notably, as the business expands it reaches a point where an entrepreneur and his management team need to consider external expertise in order to expand it fully (Andriejute & Snieska 2004, p. 14). Succinctly, this has to do with consideration of expertise such as skills, knowledge and resources that are limited or partially utilized, a factor that creates an opportunity for further investment. It is important to note that though some business has what it takes to grow in terms of skills and resources, there is need to look for better options within the external environment (Sturdy, et al 2009, p. 6).
Provide entrepreneurs with an independent view
In addition, empirical studies have revealed that consultancy services help small entrepreneurs to obtain independent view from consultants (Sturdy et al 2009, p. 11). It is essential to consider the fact that most of the consultants are non-members of the business and hence they bring in their objective and independent view related to the impending problems facing the business (McKenna 2006, p. 52). In connection to this, research has revealed that most businesses face challenges due to poor strategies of making decisions. In this case, difference in opinions causes chaos and conflicts, a factor that is likely to affect the growth and management of a business (Shaw, Shaw & Turley 2000 p. 83). To avoid such cases, consultants act as the best alternative to help the business to make decision on crucial matters. Note that consultants are never involved in internal politics and for this reason; they are likely to provide opinions and views that are unbiased (Andriejute & Snieska 2004, p. 15). In line with this, consultancy services assist entrepreneurs to obtain external perspectives and this encourages imagination and creativity.
Acts as a drive for change
McKenna (2006, p. 60) asserts that there comes a time when a business requires unique drive in order to change. In line with this, this author analyzes that comprehensive change in SMEs is crucial since it brings about growth and development. Nevertheless, management of change in a business is crucial and highly valuable in order to monitor the performance of a business. According to Smallbone and Welter (2001, p. 45), change management in business is crucial and its one of the most useful services rendered by consultants. In this case, studies have shown that 70% of the SMEs have benefited from consultancy services where they are able to structure and employ coherent approaches in realizing growth and development (Sturdy et al 2009, p. 14).
In order to experience such changes, there is need to conduct an assessment in the business in order to come up with recommendations related to areas that deserve changes. In this case, consultants are the best people to use while conducting such assessments. This is due to the fact that they are neutral and hence they will make recommendations that are not subjective. Note that whenever, employees happen to conduct such assessments, they are likely to make recommendations that will favor them in their areas of work. Moreover, such recommendations might not even be beneficial to the business. In this case, consultants will not only make recommendations just for the sake if improving the organizational structure but they will also ensure that the changes help to maximize productivity. McKenna (2006, p. 61) refers to consultancy services as catalysts for change. This is due to the fact that they also advise small scale entrepreneurs on how to implement recommended changes.
Acts as a tool for identification, classification and solving of problems in small businesses
Additionally, studies have shown that a large number of consultants watches over the process of problem solving and also advise the entrepreneurs on effective means of affecting a long-lasting solution. It is important to mention that most of problem solving techniques calls for the management to make major changes in businesses (Shaw, Shaw & Turley 2000, p. 84). For this reason, consultants play a significant role of making the managers to understand the effects of the changes made their value and benefits to the business. In line with this, McKenna (2006, p. 64) asserts that problems that affect small and medium entrepreneurs can be diagnosed and classified in levels. In most case, entrepreneurs fail to do this by themselves, and this causes multiple problems in businesses. Therefore, to avoid the hurdles, small and medium entrepreneurs employ consultancy services in order to help them change their course of thinking. According to Sturdy et al (2009, p. 9), failure to recognize and rank problems compels entrepreneurs to apply a common measure to all of them. In most case, this might be ineffective and uneconomical since different cases require distinct measures. Shaw, Shaw and Turley (2000, p. 82) comprehends that with the aid of consultants, it is easier for entrepreneurs to diagnose, classify and determine appropriate measures to be taken to solve each problem.
Acts as source of temporary and professional services in small businesses
Another benefit of consultancy services is that they provide small business entrepreneurs with temporary and professional services. It is imperative to note that small businesses often get themselves in a position whereby they lack adequate expertise (Shaw, Shaw & Turley 2000, p. 82). In this case, they are unable to hire or employ extra managers and employees. Therefore, studies have shown that most of them use consultants as temporary professionals. Notably, this helps the businesses to run well rather than breakdown due to lack of professionals.
In addition to this, evidence has shown that those businesses that use consultant services often perform well than those who decline such services. This is due to the fact that, whenever an entrepreneur engages some of the activities such as assessment to consultants, the managers are relieved. In this case, they are able to concentrate on core business activities such as controlling resources and monitoring the staffs. Besides this, consultancy services provide small and medium-sized entrepreneurs with interim management services. This entails temporary resources, skills and techniques that can be used in management. Notably, is normal
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