By Neil Loveday
In a climate where economic growth rates are low and likely to remain so for the foreseeable future, one might think CEOs would look to merger and acquisition (M&A) activity as their most likely route to enhanced revenues and profitability. However, PwC research suggests the vast majority of CEOs remain focused on organic growth –they see innovation as the mechanism that will help them escape the low-growth environment.
In our research, more than nine in 10 CEOs (91%) said organic growth took precedence over M&A for their businesses. And it’s not just top-line returns they’re chasing – more than half see an opportunity to improve profitability through efficiency savings, with 60% currently looking at cost reduction.
The goal, in other words, is to do more with less – CEOs are desperate for their businesses to get smarter about how they use the resources they already have, both to drive revenue growth and to deliver greater efficiencies.
There are all sorts of possibilities, but technology and innovation will underpin all of them. For example, digitisation and automation provide businesses with the means to reduce staff overhead in areas of the business dominated by manual processing work. This delivers efficiency gains and frees up resources that can then be deployed more productively.
It is for this reason that 25% of the UK-based CEOs in PwC’s research say they intend to invest in digital tools and technologies – they see innovation as the key that will unlock organic growth.
So much so that many CEOs are now determined to explore unconventional collaborations that will deliver the innovation they need. One in five (20%) are now actively seeking to build partnerships with start-up businesses and entrepreneurs in order to advance their growth plans.
How should small and medium-sized enterprises respond to these trends? Well, first, it’s important to recognise that many SMEs are facing similar pressures to their larger counterparts. One recent PwC study into family-run businesses found that three-quarters of such companies currently see “steady” growth as their ideal trajectory; the same number say they plan to use their own capital to fund this growth, rather than taking the more aggressive approach of taking on additional funding. SMEs should be looking to work with one another to meet these needs, rather than focusing only on larger customers.
More broadly, however, CEOs’ focus on organic growth presents many SMEs with an opportunity to exploit. For example, specialists in data and other emerging technologies will provide many of the solutions large businesses now need in order to automate and digitise, as well as to grow revenues. That might be anything from smart meters that monitor energy usage to end-to-end supply chain tools, and from predictive analytics that boost sales to new tools for mobile channels.
Another area to explore is CEOs’ determination to explore new ways of working, including reduced office footprints, remote working and flexible employment. SMEs in sectors such as property and telecoms will facilitate this shift, with new ideas in areas such as shared work space and digital conferencing.
SMEs should also recognise that one factor driving the push for innovation is the desire of a new generation of workers for greater work/life balance. SMEs with technologies that promote employee wellbeing, for example, will be in demand.
The bottom line is that CEOs of large organisations now see talent and technology as their best hope of delivering shareholder value in a tough operating climate. Innovative SMEs are well-placed to support them in that drive – and to reap the rewards themselves.
This blog is part of a series from My Financepartner. My Financepartner is a new accounting service for small and medium-sized businesses that puts you in control. You choose the services that you need, module by module, and we'll deliver them. Contact us at firstname.lastname@example.org