What small businesses must do to survive

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small to medium enterprises

By Cathrine Denga
MORE and more products are now coming with an after-sale follow-up service, which is why micro, small to medium enterprises (MSMEs) need to improve their game.

Academic literature refers to this as the “servitisation” of products, or a product-service system (PSS).

Practically every product today has a service component tied to it, mainly due to reasons associated with improving the value proposition of a product in order to derive more value than what a single sale normally brings.

The economy is now thriving on service and service-related offerings which is why MSMEs now need to put customer satisfaction and customer experience over everything else.

The service economy in developing countries is mostly concentrated in financial services, hospitality, retail, health, human services, information technology and education.

The same is true for Zimbabwe as documented by the Nations Encyclopaedia.

“The services sector accounts for about 64% of Zimbabwe’s gross domestic product (GDP) and is increasingly becoming an important driver for growth and employment,” one of its reports read.

“Distribution, hotels and restaurants account for 14,8% of GDP while transport and communication account for 13,2%. Tourism is estimated to account for about 10% and is important for generating foreign exchange. The financial sector accounts for 7% and is critical to the competitiveness of all other sectors of the economy.”

The report also shows that agriculture generated about 88% of GDP in 1997, but interestingly the services sector rose significantly in 1998 contributing more than 58% to GDP.

The 2016 Zimbabwe national competitiveness report by the National Economic Consultative Forum (NECF) confirmed these developments and reported that the services sector was fast becoming the main driver of economic growth and employment.

Internationally, the current list of Fortune 500 companies contains more service companies and less manufacturers than in previous decades, proving that servitisation is definitely where the world is leaning towards.

How does this pertain to the sustainability of MSMEs?

In an economy where 70% of the businesses fall under MSMEs, the increase in their participation levels when it comes to providing seamless customer experiences through exceptional service is of paramount importance.

MSMEs need to grasp the PSS concept because among other causes of business failures for such entities, is the lack of a sustainable business strategy which should include a clear customer service strategy.

In highly competitive markets, businesses can only improve operations  when their market share grows, and this is made possible by customer retention. Failure to provide great service results in customer attrition and a damaged brand reputation.

It is more expensive to lose or acquire new customers than it is to invest in service training and other necessary interventions.

Some easy ways to improve service delivery and customer experience that are missing in local MSMEs include listening to customer needs, respecting customers’ time, keeping promises, incorporating competitive communication tactics like social media presence, and building an effective problem-resolution system among many others.

In Zimbabwe, many MSMEs in the retail sector are mainly focused on the provision of products/goods only as this is a quick way to realise profit in an environment where a large number of products are not being manufactured but imported.

Of course, the bottom-line matters but due to the drastic change in consumer behaviour as well as market trends, this might not be attainable without considering customer service.

Granted, the financial resources of these entities are usually stretched too thin as most of these are family businesses running on the “hand-to-mouth” model but there is need to grow from that position.

Growth in the services economy is most likely to be impossible if attention is not paid to long-term sustainable growth requirements.

When it comes to sustainable development goals which include the topical climate change debate, a thriving services economy can contribute greatly towards the achievement of these goals.

Many intellectuals assert that product service systems will improve eco-efficiency by what is termed “factor 4”, that is an improvement by a factor of four times or more, by enabling new and radical ways of transforming what is called the product-service mix. Essentially, this satisfies consumer demands while simultaneously improving the environmental impact.

Different stakeholders like the United Nations, regulatory authorities, as well as academics acknowledge servitisation as part of efforts towards achieving sustainable business practices. Academics like Baines explain that “when the original equipment manufacturers extend their line of influence beyond maintenance, it will lead to dematerialisation and a decrease in energy consumption”.

In turn, this already addresses carbon footprint issues that have caused a myriad of challenges for our planet. There are many ways of doing this and they vary per company and by industry, innovative businesses will obviously figure it out quicker than their competition.

Another way of cultivating environmental benefits in a services economy is through the product-service system implementation of product stewardship or product take-back.

This refers to a specific requirement or measure in which the service of waste disposal is included in the distribution chain of an industrial product and is paid for at time of purchase.

That is, paying for safe and proper disposal when you pay for the product, and relying on those who sold it to you to dispose of it.

A great example of this is the empty-deposit system implemented by Delta and other beverage manufacturers on certain types of glass bottles, which makes it an exchange system to manage the number of empty glass bottles in circulation. MSMEs can also take such responsibility for the waste generated by their products.

The Standards Association of Zimbabwe (SAZ) plays a great role in highlighting these guidelines and where they apply, which is why MSMEs must be aware of them and align with these set standards for their growth and sustainability. Perhaps there is need for such organisations to improve their communication strategies to reach such groups with relevant education and information.

What do MSMEs need to know?

A services economy thrives on recognised value drivers, like efficiency, novelty, lock-in, complementarity, and accountability. Policies, laws, regulations, professional bodies etc, are not for large corporates alone.

MSMEs should consider them as part of the endgame, which is customer acquisition, satisfaction and retention. The increase of players in the services economy potentially leads to efficiency, value for money and customer satisfaction, therefore, it is inevitable. There is need for MSMEs to scale up for growth and sustainability of their business ventures through adoption of the PSS in the services economy if they are to avoid losing and folding.