The benefit to SMEs of monitoring the economic ecosystem
The term “ecosystem” was coined by the British ecologist A. G. Tanslye in 1935. It has undergone a number of changes since then and acquired a variety of new facets [1], such that it is no longer just used to refer to the environment, but also other fields. For example, increasing digitalization and networking have given rise to internet-based ecosystems [2], while in business, the term is used to describe the environment in which companies operate [3]. This is the basis of the 2020 European Foundation for Quality Management Excellence Model. Dr.-Ing. Günther Schöffner of the Steinbeis Consulting Center for Business Excellence explains how companies can use the model successfully.
The 2020 EFQM Excellence Model © EFQM 2019
The European Foundation for Quality Management (EFQM) has looked at the fundamental trends of digitalization and radically overhauled the EFQM Excellence Model [4], which has been used for decades by a variety of companies to safeguard their long-term competitiveness [5]. The model has long been used by large corporations, although it is suitable for companies of all sizes and in all industries, including SMEs.
The ecosystem as a foundation of success
Key starting points for the 2020 EFQM Excellence Model are the business ecosystem and associated challenges in the future [6]. To prosper, a company must not only improve its performance and enhance added value for customers, it must also pay much closer attention to conditions within its ecosystem [7]. Applied to business practice, this means continually analyzing the company’s own ecosystem and current megatrends, assessing their impact on the company’s mission (purpose), strategy, vision, and results, and as a consequence of this: making appropriate changes [7]. This is only possible if all of the prerequisites of constant change are in place within an organization. This can pose major challenges for SMEs, as they generally have fewer financial and structural resources to fall back on compared to corporations. For them, change is often more about the portfolio or customers rather than on strategy, the organization, or corporate culture.
The factors that EFQM considers relevant for the global economic ecosystem in the upcoming years include climate change, disruptive technologies, societal trends, and the sharing economy. This presents a number of challenges to companies to adapt, especially SMEs:
- Increasing volatility and permanent change: Stability, minimizing risk, and a strong family culture are key success factors for many SMEs. In addition, many hidden champions have enjoyed long periods of continuity in management [8]. VUCA (volatility, uncertainty, complexity, ambiguity) challenges this stability, because avoiding risk can in fact become a high-risk strategy in the face of rapid change [9].
- The pressure to digitalize; disruptive approaches: The pronounced nature of core competences held by SMEs often results in dependency, and skills can easily become obsolete due to disruptive technology [10]. Digitalization is considered mandatory, but SMEs are often unable to embark on, implement, and operationalize it on their own.
- New Work and demographic changes: Future generations see things differently. This also applies to the way Generations Y and Z see leadership and work organization [11]. As a concept of digital work or agility, New Work therefore plays a more central role at SMEs [12], but the corresponding changes that need to be made are often difficult for them.
There are a number of methods for solving these issues and challenges, such as ambidextrous management or changing leadership approaches and the company culture. Ambidextrous or two-handed management involves further development of the core business (exploitation) – simultaneously establishing new methods and ways of thinking (exploration) [10]. Ambidexterity is one of several possible ways to implement the requirements of the EFQM Excellence Model to manage the operational side of the business while undergoing continuous business transformation [7].
The second method – changes in leadership approaches and corporate culture – is aimed at adapting structures and management techniques. SMEs often have pronounced family cultures that leave little room for new management approaches due to organizational rigidity [13]. The family systems that are often encountered generally make it difficult to develop new top performers [14]. In particular, one crucial issue in such situations is gaining sufficient acceptance for the need to change [15].
Without external support, it is usually very difficult for SMEs to introduce these approaches. It’s rare for changes in company culture to succeed on a purely internal level. The exploratory part of ambidexterity – or a systematic strategic approach of EFQM to transformation – often have to be started from scratch [7]. Many SMEs lack the resources to do this, so the solution may be to externalize transformation to some extent by asking for support from experienced consultants, such as the support offered by the Steinbeis Network.
Ecosystem monitoring takes effect
Transformation support by expanding views to include external perspectives
One example of the successful introduction of ecosystem monitoring comes from a small company called Hafner, a specialist in surgical instruments. Now in its fourth generation, the company produces extremely high-standard surgical instruments and forms part of a business cluster in Tuttlingen, considered the global center of medical technology. The company has been a successful international player for many years, with the U.S. accounting for more than 40% of sales. Despite this, management already noticed some time ago that the firm’s business ecosystem was changing.
As a result, despite the coronavirus pandemic, in the summer of 2020 Hafner management had the foresight to seek the support of experts at the Steinbeis Business Center for Business Excellence, who have been helping the company ever since to adapt and implement its strategy as part of a corporate coaching program. The first step involved adapting business processes, which already resulted in visible operational improvements and a significant rise in orders. The next step will be to systematically digitalize the developed concepts.
The Steinbeis experts offer Hafner the assurance of knowing it has a competent partner at its side while adapting to its individual ecosystem. “Steinbeis provides us with valuable support in gearing our company to the future. We’re not just being ‘force-fitted’ with a standard concept; it’s a response that fits the situation and matches our company,” says Jutta Hafner, order manager. All stakeholders at the company are being given close support as they evolve into their new roles, which involve more management tasks. This example clearly shows that SMEs have to meet the challenges of their business ecosystems, not only if they want to survive, but also if they want to prosper in the long term over the next decade. The maxim has to be: Observing the ecosystem is key, not only to survive, but to sustainably thrive.