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Do small corporate or SME’s require consultancy services? Research Paper


Introduction

Utilizing consultancy services has become one of the most ignored practices by large corporate and SME’s due to diverse issues which include corporate-style practices, unwillingness and the view that purchasing consultancy services is a risky and expensive investment.

Research done by Antony Buono in his book Current trends in management consulting investigates and compares the practice of business consultancy among small and medium-sized business enterprises (SME’s) with large business organizations. It indicates that the former has thriftily and infrequently used consulting services in their daily operations.

This has been largely attributed to the levels of doubt and mistrust which SME’s have on the reliability and efficiency of consultants’ expertise, and which has greatly impacted on their annual turnover. Sturdy (2009, p. 7) argues that SME’s, just like bigger companies, have consulting needs in areas of developing effective marketing strategies and leadership.

As analyzed in this paper, and with reference to a study on consultancy methodologies done by Executive grapevine International Limited in the book UK Directory of Executive Recruitment, consultation services are imperative for improving the ability of SME’s to perform optimally in the competitive global market environment.

Additionally, research evidences have shown that most SME investors find it cumbersome to cope with the possible risks in the process of improving their businesses (Neumann, Kellner & Dawson-Shepherd, 1997, p.4). For this reason, there is need for SMEs to seek consultation services in order to enhance standard management practices in their operations.

For some time now, it has been perceived that consultancy services are only meant for well established companies (Harrison, 1995 p.40). Further evidence has demonstrated that sole traders and family businesses have not been able to track the techniques and tools that are essential in running sound investments (Block, 1999 p. 34). This has raised controversy on the view and thus the paradigm has highly being criticized.

Due to the fact that the world of business is prone to unremitting changes and challenges, consultancy services need to be incorporated even in small businesses. Indeed, small businesses will be in a position to survive more complex risks and uncertainties such as inflation, natural disasters and recession if consultancy services are embraced and fully adopted (Harrison, 1995 p.44).

It is against this scope that this paper succinctly seeks to determine whether small corporate or SME’s require consultancy services and how the same can impact on business performance.

Definition of Small and medium-sized enterprises (SME)

Reports from statistics by Small Business Service (SBS) indicate that small and medium-sized enterprises offer employment to a majority of workforce in the whole world. In the UK alone, 99.9% of over 4.8 million businesses are SMEs and this provides multinational organizations and the government a target for offering consulting and financial business support.

In the UK, the Companies Act defines a small company or business in sections 328 and 465 as that whose employees are not more than 50, whose balance sheet total is less than £ 3.26 million and whose turnover does not exceed £ 6.5 million.

On the other hand a medium sized company is defined as one whose employees are not exceeding 250 people, whose balance sheet has a total of less than £ 12.9 million and a turnover that is less than £ 25.9 million. However, it is important to note that nations have dissimilar definitions for SMEs and as such, Kakabadse (2006, 499) argues that there is no single definition nationally or internationally.

From the emerging consensus derived from research, it is apparent that all the small businesses in United Arab Emirates (UAE) can be distinguished in terms of size from large companies by evaluating the number of employees. In UAE, an enterprise is defined to be an SME if the number of employees is less than ten.

On the other hand, large companies have an entity of between10 to 100 employees (Obaid, 2011p. 159). It is evident that most SMEs in UAE have workers with limited training as opposed to the case in larger companies.

However, survey evidences has shown that there is a higher probability for SME investors to save and invest regardless of the fact that their entrepreneurial skills are slightly below those of larger companies (O’Mahoney, 2010 p.46). Research has also shown that SMEs are relatively flexible as opposed to large companies when it comes to seeking consultancy services, introducing and implementing changes (Obaid, 2011 p. 170).

Moreover, due to their small size, SMEs managers are able to get into contact with customers. This implies that top managers have a high predisposition to final clients hence it is easier to introduce radical changes (Block, 1999 p. 42). This explains why SMEs hire external consultants temporarily as opposed to large and well established companies that need to have a permanent internal consultant who offer consultancy services.

This claim can be supported by the fact that large number of SMEs in UAE has low level of investment and skill when compared with large companies (Obaid, 2011 p. 171). Moreover, SMEs have relatively simple products and services produced and in most case, labor is produced by family members.

Due to such differences, large companies must have internal consultancy services in order to produce favorable services in all the diverse manufacturing entity (Obaid, 2011 p. 160). However, this should not deny SMEs the opportunity to have internal consultancy services whenever deemed necessary and possible.

Management Consulting

Consultancy and consultancy role

Since there is no clear boundary between a business’ customer related practices like coaching, learning, counseling and mentoring, and business consultancy, it is judicious for this study to provide a definition of consultancy. Kakabadse (2006, 450) points out that consultancy refer to services or other undertakings that a qualified and independent person provides to the public or a business.

Though this definition does not focus on roles played by management consultants, it clearly indicates that it is an advisory service provided to or contracted for an organization by individuals who are trained and qualified.

These individuals assist a business in an independent and objective manner to identify problems related to management and analyze them. They also recommend effective solutions and help organizations in implementing them.

Roles of business consultants

Kakabadse (2006, 452) argues that business consultancy is an important aspect that involves acquiring and sharing information and knowledge necessary for business learning. Due to the fast-changing business environment, top-level managers in SMEs are employing consultancy services with an intention of aiding their businesses devise better strategies of overcoming organizational uncertainties.

This clearly indicates the great need and awareness among organizations on the need for am change and intervention of a professional on business matters. It is important to underscore that a business seeking consultancy services is one which has identified a problem but doe not have adequate knowledge of the nature of the problem and the way out.

Many SMEs in the UAE are prone to such problems, and such uncertainty forms the main reason for a higher demand for consulting services. Therefore, due to persistent organizational problems, managers in SMEs are forced to act innovatively and rationally in seeking consultancy services to reduce uncertainties and restore control of business.

Kakabadse (2006, 455) argues that the roles carried out by business consultants may be singe and similar or different depending on the situation a business is in, nature of client and the plethora of options.

Business consultants may fulfill a variety of business duties depending on a situation and the need to ensure that a client is satisfied. Some academics with the same school of thought argue that business consultants play both resource role and process role which cover a broad client base and which are helpful in solving organizational issues.

Clark and Salaman (1998, p. 26) posit in their publication that the practice of management consulting has become an important aspect in the business circle today since it assists organizations to develop their overall performance through improvement of advancement plans and analysis of problems existing within an organization.

Services of management consultant are drawn and utilized by most organizations which seek to gain access to specialized expertise from consultants and to acquire objective or presumably external advice among many other reasons.

It is important to mention that consultancies play pivotal role in the contemporary business environment by providing businesses with operational improvement services, strategy development, technology implementation, developing coaching skills and assisting in managing change.

Furthermore, consultancies achieve this by bringing in their own frameworks or proprietary methodologies which aid them in identifying problems within a business and which serve as foundations and component parts for recommending efficient and effective methods of carrying out business activities.

Studies indicate that management consulting services given to businesses today are specialized and have diverse specialisms which include virtual management consulting, human resource consulting and information technology consulting. In his publication, Graham (2007, p 17) argues that most of the specialisms overlap, are mostly costly and are provided to bigger businesses by diversified and larger consultancies.

Organizations which may not be able to afford such services opt for boutique consultancies which are smaller in size and offer limited specialism. Currently, many nations have consulting firms of three main types which include boutique firms, medium sized consultancies and the large diversified firms which offer consulting expertise globally, in functional areas and in industries.

From the review of literature, it is definite that consultancy services are essential for small businesses since it assists them to grow. Research evidences derived from surveys in UAE have shown that there is need for SMEs to have an insight toward business management in the emerging market (Neumann, Keller, & Dawson-Shepherd, 1997 p.32).

It has been analyzed that the level of consultancy services has relatively been done away with in business sectors in UAE. For instance, in the banking system, it is has been observed that lack of consultancy services in sole traders has led to the fall of entrepreneurial skills and particularly the customer services provided to clients.

Recently, in-depth interviews conducted among marketing experts have shown that there is need for SMEs to apply consultancy services in their business (Obaid, 2011 p. 160). Research survey has indicated that due to lack of consultancy services among SMEs traders, investors have not been able to provide customers services satisfactorily.

Most of the areas focused by the literature review include overall service provided such as management services, customer Service and resolution of complaints from clients.

However, despite the fact that SMEs in UAE lack consultancy services; satisfaction was achieved in some areas (Obaid, 2011 p. 167). For instance, on the manner through which customers responses, resolution and encouraging lodging of complains by customers.

On the same note, it has been observed that there are some significant efforts being made by small business to execute satisfying services to clients. Nevertheless, research has shown that few of the businesses in UAE still lag behind. Recent survey has shown that the annual benchmarking index in the banking system has advanced in excellence since2010.

For instance, 21 banks were surveyed in Dubai and the results indicated that customer service has been improved and thus the annual performance has gone up (Obaid, 2011 p. 162). Further studies have demonstrated that the significant improvement could be as a result of some of the SMEs applying consultancy services to improve their customer care services.

On a relative note though, researchers claim that consultancy services could be preferred as the best practice to overcome concurrent crises in financial, banking and other institutions in UAE (Obaid, 2011 p. 158). For this case, analysis done indicates that consultancy services have become popular tools amongst SMEs thus improving their administration and coordination of management-related activities.

From the review, most of the areas where consultancy services have been applied include data storage, and customer care service department. Further findings from the literature review indicates that increased application of consultancy services would lead to better relationship and customer retention in SMEs business(Grint & Case,1998 p. 102).

Management consultancy practices in SMEs would actually require a sophisticated process in order to have outstanding outcomes in business operations. In this case, when determining the consultants for the business one needs to consider persons who are knowledgeable to the business being undertaken (O’Mahoney, 2010 p.24).

For instance, SMEs investors in banking systems need to hire consultants who are well conversant to banking services (Grint & Case, 1998 p. 62). Furthermore, from a theoretical perspective, research has emphasized on the need to have consultants who are well connected to the business. This can be considered by evaluating their publicity and experience in the respective industry.

Research has confirmed that applicability of consultation services in SMEs should be derived form persons who are effective in communication (Block, 1999 p. 12). This can be derived from the fact that some of the SMEs business managers in UAE have often been unable to derive advices from consultants due to miscommunication.

Organizational learning

The process of business consultation underpins the idea of organizational learning through transfer of skills. This, as Kakabadse (2006, 460) points out is observed in the role of a consultant in helping a business manager to be a sufficiently competent diagnostician. Consultants provide organizations with an opportunity to learn hoe to improve their performance and solve certain organization problems themselves.

Grint and Case, (1998 p. 62) agree with Kakabadse ’s argument and point out that the role of business consultants to SMEs does not only stop at problem solving but helping managers to understand the cause and nature of the issues. As such, they facilitate organizational learning through building the capacity of business owners to diagnose situations and carry out effective management.

SMEs in the UAE having projects seek consultancy services not only for survival, but to also facilitate organizational learning. Learning in these organizations in essence forms part and parcel of consultation process.

Kakabadse (2006, 470) points out that due to the rapidly changing business environment learning has become an important component for the survival of businesses. Organizational learning is brought about by a problematic situation that leads a business through a consultant to restructure their activities and improve its outcomes and expectations.

The question of whether corporate or small and medium-sized enterprises require consultancy services is that of either adapting or dying. The business environment in the UAE and in most parts of the universe is increasingly changing and becoming competitive.

As such consultation services for organizational learning among SME’s are required, and this is not to create change, but to aid managers to organically manage change (Mughan, Lloyd-Reason & Zimmerman, 2004, p.425). One important factor about SME’s in the UAE is that with consultations services, they are able to quickly adapt to the changing environment in the market place.

The challenge they are faced with comes from traditional consulting firms that sell them business process re-engineering projects, change management and continuous improvement initiatives which are inappropriate.

However, Drucker points out in his model on management by objectives that reflects on the extended nature of consultation services in the UAE that there is potential danger to a business when consultancy services extends beyond the duration a CEO takes in a business.

The inherent and dynamic nature of SME’s can make them adapt to the changing environments, but require consultation services to effectively manage resources, create better organizational structures and add considerable value to the business (Soriano, 2003, p.411).

Organization traits that ensure small corporate or SMEs demonstrate the benefit of consultancy

As mentioned above, there are organizational aspects that make SMEs to benefit from the consultancy services. In this case, the facts that SMEs are small in size make them easier to organize (Clark & Fincham, 2002 p. 44). Research has shown that complex mechanics in organizations make consultation task complicated.

SMEs size helps to easily improve the performance of the business since consultants can be able to understand their design at a glance. Moreover, SMEs are easier to determine the overall performance and how it can be improved as opposed to large companies (Clark & Fincham, 2002 p. 47).

Furthermore, the other aspect that makes SMEs to benefit from consultancy services is that they are easier to evaluate and analyze the impact of change within a short period of time. For this reason, consultants can easily identify significant strategies to be implemented from their potential impacts.

Additionally, the fact that SMEs deals with simple products makes it easier to prepare sales proposals (Clark & Salaman, 1998 p.91). For this case, consultancy services act as a booster on how to adequately define the produc9ts and capture customers.

Why both small size corporate and SME’s require consultancy services

They play major economic roles in the business arena

Small corporate and medium sized enterprises are some of the leading and commonly recognized that pose enormous impacts on both economic and social environment due to the their economic activities.

Neumann, Kellner, and Dawson-Shepherd (1997, p. 45) indicate that many companies in the UAE fall under the category of SME’s and offer diverse goods and services as well as carrying out the important role of supplying large enterprises.

They add that the performance of SME’s in the UAE, whether negative or positive, has been considered as influential as those found around the Asia-Pacific region owing to the massive economic growth being experienced in the region. Indeed their strong influence on social and economic matters as well as their impact on the environment is very significant not only in diversity, but also in magnitude.

However, their level of access and use of consultation services from consultancy services have not been efficient and have as such failed to yield impressive results they need especially when they are compared with larger companies.

Clark and Fincham (2002, p. 65) strongly support the argument above and point out that their failure to effectively utilize consulting services has made SME’s in the UAE and most regions of the world to remain weak (Sandberg & Werr, 2003, p.61).

While economists widely accept that the role being played by SME’s are significant for the development of the economy in the UAE, they exert considerable pressure on the need for them to seek consultancy services individually and not collectively (Schein, 2002, p.86).

Business management analysts in the UAE hold a similar view that when it comes to energy and resources, the SME’s are voracious consumers and this has a significant impact on the generation and production of waste by-products.

However, without consulting services to obtain expertise and advice, the SME’s are deprived the opportunity to achieve full potential. O’Mahoney (2010, p. 120) argues that this is because most SME’s in the UAE use obsolete technology, are resistant to changes, lack marketing information, cannot access export markets and lack finances.

These problems are majorly contributed by the fact that there is a little consultations service given to them, and owners of the companies carry out decision making activities on their own.

Consultancy services will definitely have positive impacts on small business owners since they will be able to improve their management practices in business (Caulat & DeHaan, 2006 37). This implies that wrong business decisions will be decimated and only the helpful solutions will be adopted to improve and sustain small businesses (O’Mahoney, 2010 p.56).

One of the possible impacts of consultancy services in SMEs if that it will be possible to manage changes occurring in the business environment. An in-depth survey done in UAE has shown that SMEs investors are able to amake commitments on how to dynamically expand their businesses amid risks such as inflation and recession (Critchley, Higgins & King, 2006 p.112).

Moreover, the service help managers to review the operation of their businesses independently thus making suggestion on how to improve them (Caulat & DeHaan, 2006 39). Besides this, consultancy services results to dynamism and growth of businesses on regular basis. In this case, they act as the guidelines through which foundation for SMEs businesses are set.

This is essential in establishing the best management processes in a business. That notwithstanding, consultancy services impact on the experiences in the sense that SMEs managers are able to successful learn their businesses on their own (Caulat & DeHaan, 2006 p.51). Such experiences help investors to overcome failures and challenges and also promote indiscriminate exchange of various levels of experience.

To enhance GDP distribution, export and job creation

The effective and efficient performance of SME’s in the global business environment can be enhanced through continuous consultation with expertise on business matters. Statistics indicate that corporate and small and medium-sized businesses represent a GDP growth of over 54.3% in the business sector (Binns, 1993, p. 203).

In terms of exports, the small and medium-sized businesses play a significant role in the global economy by adding to the growth of the economy. For instance, a considerable percentage of exporting companies with an employee base of less than a hundred people are by SME’s while over 57% of exports are done by large firms.

Moreover, in the employment sector, about 64% of employees in the private sector are SME employed (Binns, 1993, p. 90). Critchley, Higgins & King (2006, p. 100) argue that this can be enhanced when SMEs conduct more consultations. Indeed, since the SME’s drive most economies in the business environment and as such need more management consultancy services than larger firms.

Critical arguments on SME’s and consulting services

Consulting services may be a risk to SME’s in terms of cost

The cost of using consulting services among small and medium enterprises may be high and may impact on the growth of a businesses due to the nature and type of a consulting firm they go to.

One of the major criticisms regarding management consulting which Schein (1995, p. 17) posits in his article Process consultation, action research and clinical inquiry: are they the same? is the overwhelming tendency that consultancies have that focuses on an organizations operational performance with little consideration on the context of their operation.

These bench consultants, as Schein refer to them, fail to consider the context of SME’s and as such make their services inaccessible due to cost issues. His argument hinges on the fact that this kind of consulting service reflects body shopping and is a common approach prevalent in larger consulting firms.

Such consultation firms target both big companies and smaller ones but aim at providing large teams of consultants to work for a lengthy period time and to undertake complex projects. Even though small and medium-sized businesses deserve more consultation services, the methods that consultancies use involve continuous use of corporate-style practices on sometimes unwilling and unsuspecting clients.

Consequently, this makes purchasing of consultation services by the SME’s to be expensive and to be seen as a risky investment.

In his publication, Caulat and De Haan (2006, p. 25) argue that for SME’s consultation services should target creation and addition of value to business. Neil Smelser echoes Caulat and De Haan’s sentiments in his value adding theory that the ability of a business to perform well economically requires addition of value which may in turn enhance its ability to become productive.

As one would expect, this requires creativity on resourcing consultants and innovation in content and delivery of consulting services. However, small consultancy firms argue that they lack marble atriums and as such prefer big companies that they provide to a fraction of service for complete payment does not serve the ever growing needs of corporate and SME’s in the marketplace.

Caulat and De Haan (2006, p. 26) further point out that the perspective held by the small cannot solve different issues SME’s have. As a matter of fact, business leaders in the SME deserve consulting services that are more focused and which are cost effective.

Block (1999, p. 90) concurs with Caulat and De Haan’s arguments and indicates that these prevents SME’s from accessing important services necessary for boosting their performance and add value to their activities.

Consultancy services may increase the ability of SME’s to compete favorably in the global market arena

Mary Jo Hatch posits in her model of business dynamics that the ability of an organization to compete favorably in the competitive market environment rests on its ability to sustain competitive advantage over others (Wood, 2002, p.88).

Hamel Prahald echoes Hatch’s opinion in his model of core competence by indicating that consultancy services are key components that a business requires to gain management strategies and technological know-how imperative for businesses in the market today.

Indeed, in the industries in the UAE and other economies of the world, technology plays a major role in the growth of businesses and attainment of competitive edge key in business success. However, Blake and Mouton (1976, p. 45) posit that many SME’s are lagging behind due to the fact that they lack consultancy services on the use of technology to build social networking and internet capabilities.

Even though their argument is bias and tend to indicate that the knowledge to use technological by a business comes from consultation services, one aspect that clearly emanates from their argument is that consultation services can introduce SME’s to technologies which are new and proven. Consequently, this can provide SME’s with platforms which are cost effective and stable for their business growth.

Conclusion

To sum up, the arguments in this paper support the thesis statement that “utilizing consultancy services has become one of the most ignored practices by small corporate and SME’s due to diverse issues which include corporate-style practices, unwillingness and the view that purchasing consultancy services is a risky and expensive investment”.

From the discussions, consultancy services have been brought out as important components not only for solving organizational problems, but also for organizational learning through providing managers with solutions and capacity to tackle business issues. it is also evident that all business oriented organizations do require consultation services in order to obtain expert advice for the sole purpose of their growth and development.

Most importantly are the SME’s in the United Arab Emirates (UAE) which need such services to adapt to the changing needs in the business environment. As pointed out in the analysis, consulting firms should provide small corporate with guidance at product and strategic levels and act as credible investment vehicles for them.

Furthermore, research evidences have shown that SMEs should have consultancy services in order to improve on their performance on customer care and management services.

It is definite that companies all over the world need to have consultancy services in order to enhance sustainable growth in spite of the spontaneous changes experienced in the business world. Essentially, consultancy services aid businesses to incorporate necessary changes in order to overcome challenges and risk such as recession, inflation and natural disasters

References

Binns, P 1993, “Some reflections on parallel process, shadow consulting and learning laboratories”, ACG Shadow Consulting day.

Blake, R.R & Mouton, J.S. 1976, “Consultation. Reading, Mass”, Addison-Wesley. Block, P. 1999. Flawless Consulting. A guide to getting your expertise used. San Francisco: Jossey Bass.

Caulat, G. & DeHaan, E. 2006. “Virtual peer consultation: How virtual leaders learn.” Organization & People 13(4): 8.

Clark, T & Fincham, R 2002. “Critical consulting: new perspectives on the management advice industry”, Oxford, Blackwell.

Clark, T & Salaman, G. 1998. “Creating the right impression: towards a dramaturgy of management consultancy”, The Service Industries Journal 18(1): 18-38.

Critchley, B, Higgins, J & King, K 2006, “Field Research into the Practice of Relational Consulting”, Ashridge Consulting.

Graham, P.R. 2007, “Management consultants: How to win friends and influence people?” Ashridge paper.

Grint, K., & Case, P. 1998. “The violent rhetoric of re-engineering: management consultancy on the offensive.” Journal of Management Studies 35(5): 557-577.

Harrison, R. 1995. Consultant’s Journey. Maidenhead: McGraw-Hill.

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Mughan, T., Lloyd-Reason, L., & Zimmerman, C. 2004. “Management consulting and international business support for SMEs: Need and obstacles”. Education & Training, 46(8), 424-432.

Neumann, J., Kellner, K., & Dawson-Shepherd, A. 1997. Developing Organizational Consultancy. London, Routledge.

Obaid, H. 2011. “Potential for the application of emerging market Z-score in UAE Islamic banks”. International Journal of Islamic and Middle Eastern Finance and Management, 4(2), 158-173.

O’Mahoney, J. 2010, “Management consultancy”. Oxford, Oxford University Press.

Sandberg, R. & Werr, A. 2003, “The three challenges of corporate consulting“, MIT Sloan Management Review, Spring, pp. 59-66.

Schein, E. 2002, “Consulting: what should it mean?” in Clark, T. and Fincham, R. (Eds), Critical Consulting: New Perspectives on the Management Advice Industry, Blackwell Business, Oxford.

Schein, E.H. 1995, “Process consultation, action research and clinical inquiry: are they the same?” Journal of Managerial Psychology 110(6): 14-19.

Soriano, D.R. 2003, “The impact of consulting service on Spanish firms”, Journal of Small Business Management, 41(4): 409-416.

Sturdy, A 2009, “Popular critiques of consultancy and the politics of management mearning”, Management Learning 40(4): 7.

Wood, P. 2002, “The rise of consultancyand the prospect for regions“, in Clark, T. and Fincham, R. (Eds), Critical Consulting: New Perspectives on the Management Advice Industry, Blackwell Business, Oxford.

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