SMES DRIVE TRANSFORMATION
In a rapidly evolving business landscape, SMEs can either transform or become irrelevant, warns former Malaysian Trade Minister, Tan Sri Rafidah Aziz.
We live in a time when self-driving cars and trucks are fast becoming a reality, and robotic policemen are set to patrol the streets of Dubai. It is the age of disruption, a time when in the blink of an eye, what once seemed a distant future is now a present reality.
The business landscape is no different, with enterprises of all sizes striving for innovation and strategy to keep ahead of the game. But small and medium enterprises (SME) in particular are increasingly being recognized as conduits for leading transformation in the marketplace.
Addressing both the potential and pitfalls of SMEs in the race for disruption, Tan Sri Rafidah Aziz recently delivered a keynote speech at the Association of Chartered Certified Accountants (ACCA) SME Workminar 2018. Previously the Malaysian Minister of International Trade and Industry, she now operates as the Non-Executive Independent Chairman and Director of AirAsiaX. Frequently dubbed as Malaysia’s ‘Iron Lady’, she presented her SME audience with astute advice on not just surviving, but thriving in the business future to come.
Knowing The SME
While there are a number of definitions for SMEs today, Tan Sri Rafidah felt it necessary to distinguish that when speaking about ‘transformation and disruption’, she is addressing SMEs with US$50 million turnover or more. However these can be of many types, as she notes, “In Malaysia, we know that many SMEs are stand-alone enterprises that go into production of services and sell directly, either physically in the marketplace or online. But increasingly, many SMEs are now, for example, in the manufacturing sector, and constitute integral and key parts of the production value chain in any sector and sub-sector.”
This was precisely the outcome the Malaysian government was looking at when they launched the first Industrial Master Plan in 1995 to integrate such enterprises into the production value chain of bigger companies. “So you become vendors, ancillaries, suppliers – you become supplementary parts of the value chain. Many are now providing specialized services as well as critical parts and components. This is worth mentioning because we are talking about real, necessary services and suppliers,” she observes.
With the right environment and strategies, SMEs themselves hold the potential to evolve into larger businesses. “When I was a minister, we always spoke about helping SMEs graduate to big enterprises. And we are seeing this already, as they enter services and sectors like manufacturing that were previously the domain of big companies. That is something we should be proud of,” Tan Sri Rafidah asserts.
However, as SMEs increase the scope of their operations, supplying services and products to both regional and global markets, it is becoming increasingly important for them to stay on par with sophisticated and cutting-edge digital modes and platforms. “Sometimes, when you are able to supply principals, you as the supplier, as the ancillary, as the vendor, and do not keep pace with technological developments of your principals. Then you become irrelevant,” she warns.
In order to expand their operations, it is important for SMEs to anticipate the needs of their principals and equip themselves with the technological upgrades needed. This holds particularly true in a time where robotics and artificial intelligence (AI) can be considered as viable alternatives to ancillaries and vendors. “Robotics can take the place of SME suppliers. Watch out for this. The moment a principal manufacturer understands they can cost-efficiently build in- house, why would they need you to supply the components and parts? I know, because I see this happening.”
This is the stark future SMEs are moving into, according to Tan Sri Rafidah; and the only way to stay relevant, is to transform.
While it is common to use words such as transformation, disruption and innovation colloquially, Tan Sri Rafidah urges SMEs to probe deeper into the precise meanings and implications of these practices. She opines, “Business transformation is the process of profound and radical change. We are not talking about rebranding, new promotional strategies, repackaging, or turnaround. Transformation is not a business makeover. It is a total restructuring of your business.”
Furthering this notion, she presents two different approaches: the first is the inevitable IT overhaul necessary for a company to keep in line with the needs of the marketplace. “This means major changes to your network infrastructure, hardware, software, and how your data is stored and accessed. It could even require a total replacement of older systems. We are doing this at AirAsiaX; we are going digital,” she shares. However, she also notes that with more accessibility comes the danger of vulnerable data and cyber-attacks. Preparing for threats by
implementing cyber security goes hand in hand with upgrading technological capabilities, she advises.
The second is the transformation of the actual business, which requires human resources, business processes and technology to be closely aligned with the new direction of the company. “You may have the latest IT processes and technology but the mentality needed for employees to implement these novel practices may be missing. One must ensure that the transformation mindset is pervasive throughout the enterprise. You do not want to have key people on the ground level not understanding what you want to do.”
In this respect, SMEs may have the advantage owing to their relatively smaller staff numbers and size. But Tan Sri Rafidah warns against being complacent or apathetic. “Make sure that you are just not chairmen. You might make the best decisions at the top but people at lower levels may not implement properly because they do not feel involved in the company or feel underpaid. Encouraging positive mindsets will trigger transformation.”
Innovation is a key driver for transformation in all areas, notes Tan Sri Rafidah, be it in industrial business, technology, processes, business transactions or financial transactions. Taking the emergence of fintech as an example, she comments, “SMEs must understand that such innovations may not affect you in terms of operations, but they will affect you in terms of how you deal with customers, bankers, or the way you deal with transactions that are financial. It is important to remember that technology is changing the business to business connectivity as well as business to customer.”
Whether it is a process, technology, or business model, innovation comes into the market to serve a new product or service that existing players could not deliver, she explains. “Like Air Asia – decades ago, who would have known that tens of millions of people could fly? Now they are flying. These new business models can make other, older players completely irrelevant because they are more cost-efficient, and can adapt to new market demands. That is innovation.”
An exciting innovation avenue for SMEs to examine is the Internet of Things (IoT), says Tan Sri Rafidah, which includes smart devices and appliances. Vendor SMEs can use the IoT network to champion disruption and operationalize not only new business models, but also the way things are being done. “Young people today cannot be bothered to find out what button is for what function. They prefer to work from one station – press one button, the lights are on; press another button, the air conditioner is on. SMEs must think like that, otherwise they will lose out.”
MEs have been at the core of Malaysia’s transformation since the 1990s, and will remain a central focus in driving a strong economy as we enter Industry 4.0.
Entering Industry 4.0
“This is the fourth phase of industry revolution,” she declares. After mechanization, mass- production, and automation as antecedents, Industry 4.0 requires enterprises to incorporate AI,
end-to-end digital supply chains, and the requisite digital infrastructure into their operations. But this infrastructure can only be implemented if employees are empowered with the skills necessary to facilitate digitalization, she asserts once again, calling for skills training to be prioritized and imparted at both schools and companies.
She also advises SME leaders to hire the right people to operationalize the transformation process, and maintain an environment of motivation to keep them challenged. “It is the entrepreneur that has to trigger this innovative mindset. Provide an enabling environment where they can learn new information to help you to transform.”
With this advice, she concludes, “We hope that with the continued support of the stakeholders in the country, SMEs can transform to new levels of efficiency and performance that is befitting of the regional and global marketplace.”
This article was first printed in MillionaireAsia Issue 50 - Dec 2018