Managing a sustainable SME performance ( 1)

In today’s competitive business environment, where SMEs face challenges in strategic orientation, resource allocation, and adapting to market changes, the sector is hindered by access to crucial data and insights, affecting decision-making and growth opportunities.

If these dynamic changes in the business environment persist, SMEs will need continuous innovation to achieve competitive advantage and remain sustainable.

Accordingly, in this evolving SME landscape where the growing need for cost effectiveness, quality products and services, innovation and customer loyalty are predominantly the measure for sustainable performance, leveraging the principle of best sustainable business practices to ensure SMEs become competitive is considered imperative.

However, for an SME to have a competitive edge over its competitors is to create value in ways that are either distinctive or more cost-effective than those of its competitors.

In addition, for a competitive advantage to be of any significant benefit, customers’ perceptions of the company must be positive and that, they must perceive the company’s identity differently from that of its competitors.

Much more significantly, the idea of Competitive advantage embodies and signifies to a group of characteristics or competencies that give the SME an added advantage over its competitors in terms of its ability to consistently lower its costs significantly below those of its competitors, thus enjoying higher profit margins, or from developing high-end niche products and services that are difficult to find somewhere else.

Having said that, it is important to emphasize that the heart of all SME’s sustainable performance stems from its strategic abilities to effectively improve its competitive advantage over its competitors in the target market.

That, this all-important mediating variable in relationship with business strategies will provide evidence that would suggest that once performance and innovation capabilities are strengthened, SMEs competitive advantages and potentials also get improve.

Research however reveals that the major factors of competitive advantage are technical innovation, professional reputation, and healthy organizational relationships which are regarded as resources.

The mention of SME collection of diverse resources and talents necessarily builds creative skills and capabilities that drive and help the firm capitalize on its core competencies for competitive advantage.

Furthermore, in pursuant to driving competitive advantage as an SME’s ability to create an effective business strategy aimed at achieving protected sustainable growth, the potential to guide this strategic orientation and performance in the competitive business landscape will create the SME advantage.

A stronger business strategy can help companies create new ideas, open up opportunities to penetrate the market and conduct experiments, despite the risk, so they may become market leaders by implementing their long-term strategies and goals.

To that effect, let us mention that the extent to which small and medium-sized businesses (SMEs) leverage competitive advantage to spur economic performance defines its game changing strategy.

Brief Understanding of the SME landscape in Ghana

In a research report issued by Ghana Commercial Bank (GCB) in 2023 on the study of SMEs and their contribution to the economic development of Ghana, it underscored significant findings relative to the challenges and the key factors that contribute to the industry’s success.

In its findings among other things maintain that, accurate financial records and regular monitoring of cash flow, diversifying the customer base and exploring new market opportunities pose significant challenges for the SMEs in Ghana.

Besides, the report advocates several pathways to redeem struggling SMEs for success. That, investing in appropriate technology solutions and ensuring cybersecurity measures are in place, staying informed about regulatory changes and seeking professional advice and support from the numerous regulatory agencies are key.

Much more, building a strong and skilled workforce through effective recruitment, training and employee engagement, establishing relationships with reliable suppliers and maintaining contingency plans for supply chain disruptions greatly influence sustainable SME performance.

Factors that impact SME’s growth negatively

It is said that, though SMEs face unique challenges on their path to becoming sustainably successful and while the sustainability journey may seem arduous for SMEs, it is essential to recognize the barriers and actively seek solutions.

SMEs often face financial risks such as inadequate cash flow, limited access to financing, inability to manage debt, changes in market conditions, competition, customer preference and demand fluctuations pose market risks.

Again, SMEs are exposed to various operational risks as well including supply chain disruption, equipment breakdowns, production delays, quality control issues and inadequate infrastructure. These risks can lead to production disruptions, increased costs, customer dissatisfaction and reputational damages.

The dire consequences indeed for SMEs inability to navigate regulatory and compliance requirements, licensing obligations, industry-specific regulations, non-compliance with applicable regulations normally result in penalties, legal disputes, reputational damage and hindered business operations.

Changes in government policies, economic instability, currency fluctuations, inflation and political instability equally impact the business environment where SMEs are obliged to monitor and adapt to these external factors to mitigate potential risks and identify opportunities.

Determining factors that influence SMEs’ performance

Successful entrepreneurial leadership is characterized by persons with technical competence, initiative, good judgment, intelligence, leadership qualities, self – confidence, energy, attitude, creativeness, fairness, honesty, tactfulness and emotional stability.

Confidence

With Confidence comes knowing oneself and abilities, especially for those who own the business. Where arrogance makes the leader blind to his or her weaknesses, confidence accepts and acknowledges those weaknesses and works on it.

Confident small business owners, understand best skills and biggest areas of improvement and the investment they need to put in to achieve success.

Persistence

It is a well-known business facts that, running a business does not always go as planned. Whether it is a setback on a project timeline or a rejection for financing from a traditional lender, entrepreneurs have to be persistent to make it work.

Every time something goes wrong with the business, persistent business owners ought to look for solutions to the problem. Sometimes this means pushing forward through barriers until one gets through and sometimes it means finding a completely new route to the goal.

Goal-Oriented

As SMEs, knowing what the customers want from the business and having a plan to achieve that goal is critical. Being goal-oriented works directly with persistence to keeping the business heading toward success.

Creating goals, however, includes more than just the final outcome but most importantly to carefully plan, research and honestly communicate with everyone involved the outcomes at every stage of SMEs development.

The function of goal-setting makes the business more organized and unified whether with a number of team members or not. With attainable goals in place for the business, one knows exactly what the next step needs to be and what to be done to address the future which sometimes looks murky.

Availability of Resources

These resources refer to the attributes, capabilities that the business possesses, enabling it to stand out and have favorable position in relation to its competitors. These resources may come as advantages to boost product or service quality, innovation, operational efficiency, recognized brand or customer loyalty.

Understanding the principle of Competitive Advantage?

Competitive advantage arises from the various activities a firm performs in designing, producing, marketing, delivering and supporting its products.

Competitive advantage is fundamental in the business world as it helps a company differentiate itself and stand out in the market which can result in greater long term success and profitability.

Without a competitive advantage, a company will only be able to enjoy normal returns, namely the level of profit that can be expected from other investments that have the same level of risk.

Companies that can create a sustainable competitive advantage depend not only on the strength of the company, but also strive to design strategies that cover all aspects.

The way to obtain this competitive advantage has been planned in strategies such as cost leadership, differentiation, and focus. Cost leadership is the most obvious of the three generic strategies, where a company aims to be the lowest-cost producer in its industry.

In a differentiation strategy, a company seeks to be unique in its industry along several dimensions that buyers value. A company is valued at a premium price because of its uniqueness.

On the other hand, a focus strategy selects a segment or a group of segments within the industry and adapts its strategy to serve customers to the exclusion of others. The focus strategy seeks cost advantage in its target segment as well as differentiation in its target segment.

Leveraging competitive advantage to overcome SME challenges

A business organization has a competitive advantage when it can provide relatively similar economic advantages of competing companies at a relatively lower cost or when it can provide economic benefits that exceed the normal benefits or satisfaction given to customers.

Therefore, the basic component of a competitive edge ought to be something that the business organization does that is completely unique, new, or extremely difficult to replicate.

Essentially, competitive advantage must be created and preserved while satisfying customer requirements. Acknowledging how much competitive advantage is pertinent to resource base and technological capabilities influence costs and uniqueness of the business, determining whether the advantages add value to the overall performance of the business.

Goal Alignment and integration

SMEs can begin their journey toward sustainability by aligning their business practices with specific SDGs relevant to them. In essence, integrating involves incorporating these goals into the core values, mission statements and strategic plans of the company to re-enforce the focus on responsible production, gender equality and affordable clean energy as part of their commitment to the SDGs and leveraging for competitive advantage.

Employee Engagement and Inclusivity

When SMEs empower their employees to contribute to sustainability efforts through training programs on environmental conservation, diversity and inclusion initiatives and support for social causes, they are not only entrenching its advantage for competitiveness but creating a sustainable path for growth.

By fostering a workplace culture that values sustainability, SMEs not only contribute to SDGs related to decent work and economic growth but also a means to attract responsible talent as well.

Partnerships and Collaboration

Collaboration is key to achieving sustainable SME growth. SMEs that form partnerships with other businesses, NGOs and Government agencies amplify their impact through the benefits received from joint efforts of shared resources, knowledge exchange and the development of innovative solutions.

Much more, by working together, SMEs can address complex challenges that extend beyond the scope of individual organizations.

Cost as a competitive dimension

The primary emphasis on competitive cost discounts is perhaps the most important factor in predicting commonly used components by organizations, particularly those in markets where employees and customers appear to be responsive to price changes.

Today, enterprises with this particular dimension frequently have monopolistic tendencies and the ability and willingness to develop a competitive advantage. Furthermore, organizations achieve this competitive advantage because their aggregated costs for economic activities are lower than those of competing companies.

Competitive dimensions of increased flexibility

This explains where the business organization’s innate ability and financial power to provide the same wide range of important distinctions, as well as changes in the level of the customer base, result from its willingness to manage technological advancements.

Under such circumstances, SMEs ought to design goods and services based on consumer expectations and react quickly to changes in consumer preferences, whether they rise or fall, and this is an essential component for competitive reasons because it allows for quickly serving customers’ basic needs.

Quality as a competitive dimension

Business organizations that provide goods and services have always been concerned with the perceived value of those goods and services, which would, in turn, manage to achieve some level of service quality and reasonable and fair customer demand expectations through the visual structural design of the goods and services, particularly in terms of the perceived value of the customer’s new company’s products.

Numerous business organizations strive for continuous improvement in the overall quality of their goods or services to compete with competitors. Overall, service quality as a competitive tool requires organizations to view service quality as a means of satisfying their customer base rather than as a means of solving structural problems and keeping costs low.

An SME can achieve a larger presence, a significantly higher rate of profitability, a higher sense of fulfillment to properly manage market value prices, and significant increases for services performed while also providing excellent goods or services.

Building a Sustainable SME Business through Effective Strategic Implementation

An SME performance may result from the strategy adopted by the organization. Every organization has a strategy and a good understanding of the strategic concepts determine the success of drafting or conceptualizing better strategies geared towards addressing performance.

Strategies are used by businesses to achieve and maintain competitive capabilities. That business strategy has a positive influence on the business performance, innovation, and competitive advantage of SMEs.

Most businesses however are oriented to the functions of management activities, such as marketing strategy, production or operational strategy, distribution strategy, organizational strategy, and strategies related to financing.

The right business strategy can provide a wider scope for producing products or services that are more valued and considered unique than other competing companies.

The strategic concepts again help evaluate how to achieve goals, how the company can advance and develop, and how to enlarge market shares amid increasingly fierce business competition. This explains the idea that competitive advantage can be achieved through various strategies.

A good business strategy is the one which can help improve the SME performance by implementing the company’s business processes. In addition, a good business strategy must be correct, which is also influenced by the existence of accurate information about the situation and condition of the company.

Meanwhile, implementing the right business strategy so that the organization’s sustainability period can survive in the long term must follow certain key solutions. Let us consider the following key strategies as applied:

Competitive Advantage as a Strategy

Competitive strategies can be used by business actors to face their competition. This strategy can be interpreted as a process by which companies build and develop various strategic resources with the potential to generate competitive advantage.

These advantages have two roles: to be a tool to generate performance and a tool to neutralize assets and competitive competencies owned by competitors.

By this, SMEs must be able to integrate strategy and various resources in creating superior competitiveness. Porter identifies two strategic competencies for the SME that are considered quite important and that is product differentiation and product pricing.

A cost leadership strategy can inhibit competitors by reducing the cost of the production process, which offers lower prices to buyers. In terms of competition, companies that use a low-cost strategy face threats from both similar companies and those companies that produce substitute goods by bringing low prices as an advantage.

This strategy emphasizes customer loyalty, thus from an entry barrier perspective, companies can gain easier access to marketing.

Product differentiation on the other hand, helps increase a company’s competitiveness in the presence of substitutes and the threat of similar companies.

Innovation as a Strategy

Due to the rapid development of technology, companies are required to maintain their competitive advantage in various ways so that they can continue to compete in the market and not lose to their competitors.

The concept of innovation is defined as an unknown element introduced in the operation of products and services within a company, such as raw materials, task specifications, mechanisms, and equipment used to produce products or services.

By making careful innovations, companies can create products that improve their business performance. The need for innovation variable as a mediator and the influencer of business strategies on competitive advantage cannot be overlooked. Innovation is key to gaining competitive advantages and improving operational reliability.

Innovation is key to a company’s quality on product and operational performance. While the ability to innovate does not directly affect a company’s financial performance, but rather an indirect effect on its operational performance, companies have an opportunity to improve their overall performance through innovation strategies.

As an important driver of business competitiveness and improvement innovation guarantees SMEs sustainable growth and success.

Innovation can be used as a strategy to improve business performance. Customers want innovative products according to their wishes.

Rapid technological advances and high levels of competition require every company to continuously innovate products, which ultimately increases the company’s competitive advantage.

For companies to have a competitive advantage, every company must be creative with the products they market regularly.

In conclusion, competitive advantages that every company needs to compete in the global market are the mastery of technology, high-quality human resources, high creativity and motivation; a high level of efficiency and productivity in the production process; the production of good quality goods, good management systems and organizational structures; a high level of entrepreneurship; a broad vision of the products and the environment around the business and the ability to face fierce competition in the global space.

Once these key imperatives are met, SMEs could leverage on them to build a competitive advantage for an SME superior performances.

Frank Anim  is the CEO and Strategic Partner of AQUABEV Investment and Discovery Consulting Group. He is an Executive Director and the Lead Coach in Leadership Development and best Business Management practices for Discovery Leadership Masterclass. Email: frankanimgh@yahoo.com or aquabevinvestments@gmail.com

With 17 years of significant experience, Ransford is currently an Account Manager (Commercial Banking, Eco bank), LLB with significant experience in Environmental Management, Sustainable Development and Business Growth. He can be contacted through:

ransforddegraftasante@gmail.com