Lessons In Innovation From Small Companies

This is a segment that has been affected to a very large extent by the vagaries of the market and economic dynamics.

With the onset of liberlisation, the freeing of the trade regime, the large scale entry of transnationals and big players and the greater dereservation of the small scale sector, a large number of them simply dwindled under the pressure. But in every product segment and geographical region of the country, in the last few years, there has been numerous instances of success stories of entrepreneurship and collective will.

These have been backed by the skillful use of technology and marketing finesse. With a modest staff strength and the limited capital that was available, a number of SMEs also started becoming single-source outsourcing hub for the corporate majors. Some of them even struck strategic alliances with many of these corporates. Today a large number of SMEs are ambitious to betting big and attain salability, in their otherwise traditionally low key ventures.

Depending on the nature of their businesses, there are myriad ways by which they are trying to attain that. For example, there are some who are taking to implementing ERP initiatives for enhanced inventory management, cash management and thereby trigger the bottomlines and the overall efficiency of the enterprise. There are still others who try to strengthen their marketing arm by approaching for strategic marketing tips with brand management consultancies.

“In fact, they are now vigorously scripting a new success story”, says Mr Rohit Raman, faculty at the Entrepreneurship Development Institute, Pune. India Inc. peeks into the saga of a few of these success stories of SMEs.

Lean management
Mita Harig India Ltd (MHIL) is a joint venture between Mita Oleodinamica, Italy, and Harig India Ltd.

The company manufactures hydraulic lifts and implements three-point linkages for tractors.

The company currently employs 30 people. A tier-1 supplier to major tractor OEMs including New-Holland, Eicher, Carraro, and L&T John Deere, MHIL started commercial production in the fiscal year 2000-2001 from its manufacturing plant in Ghaziabad, Uttar Pradesh.

Mita Harig subcontracts its manufacturing activities to its strategic suppliers and focuses on assembly of components, testing and customer management. Now when it came to attaining scalability, there were definitely some accompanying challenges that came along.

“The efforts to succeed comes with strings attached”, says Mr Himmat Singh, director, MHIL.

The challenge here was specific to the automotive industry. According to the company, it was marked by the task of balancing widely fluctuating customer demand with declining delivery lead-times and reducing costs year-on-year. Attaining a uniformity in the way our business was managed was the core challenge.

How did the company face it? It undertook an assignment with the ERP consultants to understand how to utilise their dynamics in distribution management and ERP to attain a better business base.

The consulting approach led to the company moving towards a ‘lean’ supply chain, whereby their Tier-1 suppliers are responsible for holding the inventory. Known as Vendor Managed Inventory (VMI), it requires suppliers to implement flexible manufacturing practices supported by a robust information system.

“Even while implementing ERP, the challenges were enormous”, says Mr.Singh. For example, a major issue was the implementation of a Just-In-Time (JIT) practice to keep in-bound and out-bound inventories at the lowest level possible.

The company needed a high degree of integration between its business and production functions, that would support the entire order-source-build-ship process without duplicate data entry or manual processing. Because the company was forming closer supplier-customer relationships with its OEMs customers, the frequency of finished goods shipments was expected to increase dramatically.

To support the increase in information and to insure against stock-outs of components, the company needed an information system with robust functionality for logistics and order management.

The issues were compounded because Mita Harig was also in a business start-up phase. Company executives had considerable responsibilities in the operational areas and hence needed an information system that fully-supported the required functionality, thus obviating the need for costly and less-effective package customisations.

But one thing helped: The company had previously implemented another enterprise-wide information system. But that had not delivered the expected returns, primarily because of product complexity. “So, Mita Harig needed an information system with a rapid time-to-benefit and a strong return-of-investment”, says Mr Singh. The insight: application to be selected would need to be easy to implement, and require a lean project team.

To enable Mita Harig to benefit from the introduction of ‘best business practices,’ and to align its business processes, a project team for strategic focus was deployed. Mita Harig implemented a flexi-hour working model for the implementation, so as to avoid to balance the needs of key functional personnel. This enabled these personnel to manage both their operational responsibilities and that of the project simultaneously.

The proof of the success of this strategy is that Mita Harig achieved a wall-to-wall implementation of MFG/PRO, an ERP software, in four months. The results in terms of making ERP tread the path of accelerated business success were manifold. “We work at one-fifth the manpower resources of our competitors today,” says Himmat Singh, Director of Mita Harig.

The company has also seen a sharp drop in transaction costs and a greatly reduced burden of working capital. Thanks to the integrated functionality of MFG/PRO, the costs associated with typical company transactions had dropped by more than 15 per cent.

“Our inventory levels have also gone down to about 15 days as against 60-90 days for our peers. Not only that, our exposure to working capital is also low,” adds Mr Singh.

The net result: Here was an SME that created a robust business plan that can compare with the established corporate majors.

“Our initiatives have meant that our business is now on the fast track”, sums up Mr Singh.

Brand management for business salability
While SMEs like MHIL have taken to ERP initiatives as a part of the “strategic fit” to attain salability, for some others, the holistic marketing support in brand management has been the way forward. For, consultants inform that many SMEs have strong distribution and customer management systems. But what they prominently lack is a strong marketing backbone. Take the case of Ahmedabad-based Shader India Ltd, which is into the manufacturing and marketing of garments.

Here was an SME that had ploughed back their bottomlines in setting-up state-of-the-art garment manufacturing systems and distribution processes. “Our key gap was in our inability to go the extra mile and communicate with the leading corporates about our existence”, says Robin Mathew, director, SIL.

It’s not that it never had revenue-generating client portfolio. “We are talking of growing bigger and that’s where the need for brand management plans becomes imperative”, adds Mr. Mathew.

So, as a part of the business initiative, the company then hired the marketing consultants to study the challenges in garnering large-sized clients. According to the company, the study revealed that the best way to reach the untapped market was to conduct regular networking through visits and presentations and also take to direct marketing initiatives.

“This is because, for us the only way to talk to companies was to make a more personalised effort in our communications”,says Mr Mathew.

With the a good part of the year into this initiative, the company affirms that it has definitely been able to establish the initial level of awareness.

“We have started generating inquiries about our various garment brands”, says Mr Mathew.

Cost management initiatives
On the other hand, some SMEs are also utilising holistic management initiatives to attain greater business benefits. Take the case of Ahmedabad-based Max Enterprise Limited for instance. This was an SME that is into supplying telecom equipment.

“Companies were merely soliciting our services but still the business was on a low margin”, says managing director Mr Ravi Ranjan.

That’s where they took the support of business consultants who could lend them the appropriate strategies for salability.

The deliberation led to the enterprise getting into optimising the costs on manufacturing low margin equipment and also expand their capacities to selling high margin equipment.

“By this, we were cutting costs on the existing production and enhancing the profit advantage by foraying into high margin productions”, says Mr Ranjan.

They aligned the initiative with service awareness initiatives for the existing telecom players alongwith setting up a target centric task force of professionals. “Now we receive a large gamut of service orders from the same set of clients. And the road to success is already laid out”, he remarks.

The long term answer
Despite SMEs getting into initiatives that are all about accelerating the pace of their business, some consultants are however of the view that the impact can be judged only in the long term.

Says Mr.Jacob John of the National Council for Entrepreneurship: “When the market itself is posting a tardy growth, the task for SMEs to breakthrough to a higher plane will happen only in the days to come”.

Says Mr Pradeep Erinjery, director, Thirdware Solution Limited Pvt. Ltd, a leading ERP consultant who are into providing business solutions for SME’s: “A sound and robust system in place will help address growth through volumes and segmentation by virtue of geography, channel, product line.

Quite a few businesses have a month end skew. That is almost 60 to 80 per cent of the business happens towards the month-end. Hence a fast transaction system will improve ability to deliver more in a shorter time frame”.

Despite all the challenges, as some of these SMEs have demonstrated, innovations in management have demonstrated that they can actualise their aggressive ambition.