4 Lessons Large Companies Can Learn From Smaller Businesses02/17/2021
Having worked in corporate finance within large and small businesses, I have experienced the pros and cons both environments have to offer.
In large organizations, you benefit from defined roles and responsibilities, well-established and standardized working processes, career mapping and employment structure, along with a sense of job security. Yet, they often lack flexibility and the ability to move quickly with change.
However, smaller businesses benefit from a less refined structure, providing room for agility, creativity, and streamlined operations without the cumbersome processes.
As the market changes, it would behoove larger organizations to learn from small to mid-size companies in these four critical areas.
Leverage ERP to simplify processes and save time.
Most Enterprise Resource Planning (ERP) processes have been established over several years, allowing employees at different levels to feel comfortable and get used to what they are doing.
Real-Life Example: A Fortune 500 company had their financial analysts spend an entire day generating different reports (containing an abundant amount of duplicated and redundant information) and could have been consolidated into just one or two reports. Their employees were accustomed to performing routine and repetitive manual work, reluctant to jump out of their comfort zone by learning a new system.
Instead of pulling multiple reports for data required by management, employees can simplify their work by leveraging an ERP (Enterprise Resource Planning ) tool to review the content of existing reports, modify and consolidate into just one. Smaller organizations often utilize this tool, working more effectively with resources and lower headcount.
ERP systems can produce various simplified and automated processes allowing for better data and time saved. Leadership teams would benefit by investing in employee growth around tools to streamline their organization’s operations, providing greater accuracy, efficiency and usefulness.
Shift focus from analyzing retrospective data to proactively understanding consumer purchasing behaviors.
Traditionally, finance departments relied heavily on historical data to make decisions with forecasting and budgeting. However, under such turbulent business environments, what happened in the past will remain in the past. It is essential to focus on the current market demands proactively. Among other factors that determine a business’s success, consumer purchasing behaviors play a vital role.
Real-Life Example: When I worked in the retail industry, one of the studies I conducted was to analyze neighborhood demographics and spending trends. This activity helps retailers — especially smaller businesses — make informed decisions on what items their store should carry.
According to guidance by the U.S. Small Business Administration, gathering demographic information can help you better understand opportunities and limitations for finding customers. Collect population data on age, wealth, family, interests, or anything else relevant for a business to be successful. The SBA suggests keeping up with the latest business trends to gain a sense of the specific market share that will impact profits. The information you find as a result and the decisions you end up making would not be possible if you only relied on historical data. We need to learn today’s market to make decisions for tomorrow proactively.
Don’t let the Finance Department work alone.
In any company, the Finance department plays a critical supporting role. It cannot make accurate decisions without working with different functional teams. Take budgeting as an example. The Finance team needs to work with the Marketing team to understand the product performance and brand awareness, the sales team to understand consumer purchasing behaviors and market trends, and the operations team to understand inventory turnover.
Real-Life Example: I was lucky enough to learn zero budgeting strategy when I worked for a Fortune 500 consumer packaged goods company. This company made their budget from scratch each year by working with cross-functional teams to understand current market trends, cost structure and by determining their capital investment strategy together. A collaborative environment improves the accuracy of budgeting and enhances its return on invested capital (ROIC).
Reduce the impact of hierarchy and advocate for people to jump out of the box.
A senior director once told me that it does not matter how detailed or dynamic reports are; if the numbers do not make sense or cannot facilitate decision-making, it is unnecessary to generate them. It is crucial to inform employees at different levels of various business aspects, rather than confining them to a defined responsibility area. Most financial analysts and senior financial analysts take ownership of reporting systems; however, they need to understand the business stories and why people need to rely on this information. The why behind the data gives them the chance to improve their strategic decision-making skills.
Real-Life Example: I once had a conversation with a CFO with many years of experience in different organizations. He shared a lot of great strategies or ideas that seemed new and creative. However, most of those great ideas had been brought forward by different people, year over year, without action. These ideas are often implemented less at larger companies with well-defined processes that have been in place for years. Still, they would do well to follow smaller organizations’ lead allowing them to adapt and remain competitive.
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As we dive into 2021, large financial organizations face new challenges, from increases in cybercrime to a greater need for developing automated processes. Stay ahead of the competition by leveraging these and more of our key insights. DLC’s dedicated team of consulting professionals is here to help you navigate this dynamic landscape, from revamping your business strategy to executing essential finance and cash management initiatives. Ready for a solution? Need some guidance? Let’s have a conversation.
About the Author
Binbin Xiao is a DLC Consultant based in our San Francisco office. Binbin has an MBA from University of Notre Dame’s Mendoza College of Business and 8 years of hands-on finance experience. Prior to joining DLC in January 2019, Binbin held finance roles at Mass Mutual Financial Group, Sears and Kraft Heinz. Binbin is currently enjoying her third client engagement at DLC.