Leveraging the Growth from Midsized to National ChampionBy Gabriela Mastache | Fri, 12/27/2019 - 10:00
The passage from a small to a medium-sized company and then becoming a relevant player in the big leagues is never easy. Many fail, but if they can withstand the process, they can succeed. “Medium-sized companies are often in a harsh position. They have to compete with big companies without having the same resources, and at the same time they have to maintain the structure of a medium company, rather than the structure of a small one,” says Pilar Ruiz de Chavez, Director of the program Best Managed Companies (Mejores Empresas Mexicanas) at Deloitte Mexico.
The Best Managed Companies program is run by Deloitte and alongside Citibanamex and Tecnológico de Monterrey, it provides assistance and consulting to medium-sized companies that want to boost their growth. “The medium-size segment is very important for the country’s economy. According to INEGI, these companies generate 70 percent of employment and contribute with more than half the country’s GDP. However, they are seriously unattended.”
Since defining a medium-size company on the road to becoming a national champion can be complicated, Ruiz de Chavez says that among the program’s established filters and that the companies must have Mexican capital and sales between MX$100 million and MX$5 billion. With 10 years of experience in the Mexican arena, Ruiz de Chavez says that over 2,300 companies have registered in the program. “In 10 years, 140 have gained the MEM certificate and about 10 percent of them have graduated, which means surpassing the MX$5 billion mark in sales to become large companies.”
Though boosting growth is the ultimate objective of the program, Ruiz de Chavez says that is not an easy feat and companies face significant challenges that range from financing to improving everyday operations. “We had a case, where the company had to stop receiving sales orders because it lacked the funding to increase its operations.” Ruiz de Chavez says that this is among the most important challenges that these companies face, “since access to funding is needed to be able to grow their operations. The good news are that as a result of this process, companies have the opportunity of accessing traditional funding options with one of our partners, or even find other alternatives such as private equity or debt issuance. This represents a plus for them since it forces them to go through an institutionalization process”
Other challenges that medium-size companies often face include economic difficulties that go beyond funding, such as the negative impact from exchange rate fluctuations and a lack of formal planning processes. “Within the companies that participate in the program, we have found that only half the companies make a formal planning process. In most cases, they are done but stay only in the head of the owner.” Another important element to consider is risk planning, which entails regulatory constraints, taxes or even unfair competition.
Despite the difficulties these recognized companies often face, Ruiz de Chavez says that most succeed in a key feature: delivering value for their client. “The process of delivering value for the client must be focused on three pillars: processes, technology and people.” As part of the effort companies make to improve and transform their pillars, Ruiz de Chavez mentions that around 83 percent of the program’s companies use digital media, 72 percent have implemented an ERP, 47 percent have a CRM and more than 82 percent have established training plans for their personnel. “These companies have realized that technology, data usage and having the right talent is necessary for their success.”
Despite their understanding that technology is needed to ensure success, Ruiz de Chavez says that there is still a significant gap when it comes to innovation. “Only 5 percent of MEM companies invest formally in innovation.” While the lack of innovation is a challenge not only for MEM companies but in general for the country, Ruiz de Chavez says that innovation in most cases can be misunderstood. “For a company to innovate, it does not mean it has to create a new product. Innovation is not only in the productive process. It addresses how they are going to market their products, or rethinking the way they deliver a product or service or even their after-sales service.”
Ruiz de Chavez says that the impact and success of the MEM program, and of its counterparts in other countries, has reached such levels that Deloitte aims to have the same program operating in 20 countries by 2020. “So far, the program has been implemented in Canada, the Netherlands, Ireland, Mexico, China, Turkey, Italy, Germany, Chile and the US, among others. We are sure that we will surpass the goal we have for 2020.”
In Mexico, Ruiz de Chavez says that the program’s most important impact is its contribution to the growth of member companies and of the country. “Companies that have participated with us for the last 10 years have seen a continuous improvement in their operations; since the program assesses all the operational areas of a company, including commercial, financial, talent and sustainability elements, they are able to learn about their strengths and weaknesses with the help of our proven methodology. Even more, this is where our experienced coaches from each sponsor come in to share their knowledge of the market”.
“At the end, the objective of the program is for the companies to eventually leave us. This means that they have done the job and have grown. By supporting these companies, we hope that the country’s GDP continues growing.”