M Institute

A medium enterprise guide to Windows 7

Does Windows 7 deliver the goods for business? M Institute co-founder Jyoti Banerjee checks out Microsoft's latest operating system.

In our home, October 22 has been the focus of anticipation for some weeks now. Our eldest becomes a teenager that day, and so the days have been filled with a count-down, and many lists of things to do in the build-up and during the day itself, with friends, and with family. Well, the day is finally upon us – may the celebrations begin. But little does my daughter know that this day has been awaited with much anticipation by a slightly larger group of people than her family and friends. In fact, thousands upon thousands have been waiting for this day: a hundred thousand Microsoft employees and the millions more that share the Windows ecosystem, as October 22 ushers in the official launch of Windows 7.

For many in Microsoft, Windows Vista tarnished the brand of the software giant’s most valuable product. Although Vista sought to deliver a new architecture for operating systems that addressed growing security concerns among PC users, the end-result was poor performance on many PCs and numerous security features that annoyed the very users they were supposed to protect. The word on the street was to stick with XP. Although Vista sold in the millions, the vast majority of the Windows installed base, consumer or business, never moved from Windows XP.

Will anything change with Windows 7?

The answer is yes, and here are some reasons why.

Online security for M enterprises

Do medium enterprises need to worry about online security in the same way as large companies do? M Institute invited Martin Mackay, vice president EMEA for Verisign, to lay out the case for security within medium organisations.

Every day, people are finding new reasons to go online to access goods and services, not least because of the convenience and choice transacting online offers. Unfortunately, this growing dependence on online business hasn’t gone unnoticed by opportunists.

Identity theft and online fraud are on the rise. Scams such as account takeover, phishing, spyware and viruses are rife and growing more sophisticated. The most recent figures from the Anti-Phishing Working Group show that the number of unique keyloggers and crime-oriented malicious applications rose to an all-time high in July 2008, reaching 1,519.

In April 2009, Gartner reported a 40% increase on phishing attacks from the previous year, whereby e-criminals use convincing fake emails or web pages to trick consumers into handing over an array of sensitive personal information, including user names, passwords, and credit card numbers. The price can be dear, with Gartner reporting the average loss per attack to be $351. In addition to monetary costs, companies targeted in phishing attacks also suffer immeasurable brand damage.

Given the current threat landscape, an effective online security strategy is essential for any business, no matter what size. That’s not to say that security strategies come with a ‘one-size-fits-all’ tag, and medium-size businesses should look to address security issues in a way that addresses their own specific challenges and requirements.

Medium-size businesses may not have the same budgets as very large enterprises, but they do have a similar need to protect their own Intellectual Property and any personal information customers choose to entrust to them. If you are a medium-sized online retailer, for example, you need to reassure customers that when they hand over their cash online, credit card details and personal information is secured and will remain in safe hands.

Despite the fact that a mid-market company might not be as well known as a larger brand, protecting your reputation is just as critical. Medium-size businesses rely heavily on repeat customers. In order to grow, it’s essential to build up a loyal customer following which will continue to choose your products or services again and again. Mid-market companies need to earn customers' trust and confidence to be successful, particularly during tough economic times when consumers are jittery and the competition just a click away.

Action stations

So what is a medium-size business to do? Several may worry that they don’t have the cash to implement a security program. That doesn’t have to be the case – the current financial crisis has meant that projects are under extra scrutiny, but not necessarily being abandoned. The board will closely examine projects to ensure they demonstrate clear ROI and deliver immediate benefits to the business. Effective security solutions not only protect your customers and safeguard the information that your business holds, but encourage trust and loyalty. If a customer is confident that they are safe when transacting with you, they are much more likely to hand over personal information and cash.

Recent research by YouGov has shown that companies which clearly demonstrate their online security credentials are more likely to be recommended to others by brand ‘promoters’. This means that implementing security solutions can help mid-tier businesses achieve coveted ‘word of mouth’ recommendations, drive increased business and directly impact the bottom line.

The proof is in the pudding. Many mid-size companies have recently managed to reassure customers that their data is in perfectly safe hands when transacting online, and seen sales climb as a result. One way they’ve achieved this, for example, is by implementing Extended Validation (EV) SSL Certificates. These certificates provide an easy and reliable way to verify that a website is genuine and a secure environment for customers making a purchase. Also known as the ‘green address bar’, it visibly shows that the organisation owning the web site has been authenticated as the legal entity it claims to be, using one of the most rigorous industry standards. The green address bar also confirms that any information provided by the customer as part of any transaction will be encrypted on its journey to the company’s website. Direct Line Holidays is one example of a mid-market business which has invested in this kind of technology. For them, implementing EV SSL led to an 8 per cent increase in conversion to sale rates.

Top tips

Here are my five top tips on how medium-size businesses can protect themselves online and increase consumer trust:

1. Put customers and convenience first. Businesses too often enhance their security systems without first taking into account the potential impact those changes will have on the customer experience. That’s a big mistake, as hard-to-use sites or complicated security layers will cut down on the popularity of cost-efficient online services.

2. Invest in a symbol of trust to show users that your website is secure. Consumers react well to visual cues – marks such as a green address bar and padlock icon guarantee that a website is safe. Online shoppers are encouraged never buy anything without first checking that these icons are present.

3. Look beyond the password. Simple login names and passwords are no longer enough to protect businesses and their customers. Enhanced validation (EV SSL) and strong authentication technologies, including tokens which display a one-time password generated for every transaction or which send a password to your mobile phone via SMS, offer businesses a user-friendly way to make it difficult for fraudsters to seize sensitive information.

4. Know when customers are at risk. Companies should develop detailed profiles of each customer’s typical online behaviour, such as transaction amounts, time spent online, and frequency of funds transfers. Using advanced fraud detection technologies and services, they can monitor customers’ activities against those profiles and be alerted immediately when potential fraudulent behaviour occurs.

5. Stay one step ahead. Any business looking to secure its online operations must be prepared to be bold and stay one step ahead of the fraudsters. Adopting EV SSL Certificates or strong authentication help, but these should be part of a multi-layered approach to online security that everyone with a vested interest must be aware of and prepared to act upon.

Confused over the size of an SME?

The International Federation of Accountants has published a financial reporting standard applying to SME organisations. But, argues M Institute co-founder Paul Druckman, the new standard will only give rise to confusion. Paul explains why.

In July 2009 the International Federation of Accountants (IFAC) published an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs). SMEs are estimated to represent more than 95 per cent of all companies. The standard is a result of a five-year development process with extensive consultation of SMEs worldwide.

This has created a dilemma for countries across the world in reflecting on IFRS implementation in deciding how big is an SME? Leading to a headline in Accountancy Age magazine: Confusion over SME size could complicate international rules.

Clive Lewis, head of SME issues at the Institute of Chartered Accountants in England and Wales (ICAEW), stumbled across the curious accounting issue while in conversation with an African colleague at a function. ‘In a casual discussion we couldn’t find any company that wouldn’t fit the definition of SME in Botswana,’ he said.

Now Clive should know better than that : he should be able to provide a route to the solution, as M Institute has been in dialogue with him and the ICAEW since its formation about this definition dilemma. We at M Institute are very clear on this: it is all about the characteristics of a business, not its size.

When will they learn? When will they listen? Let's have a meaningful conversation around the definition of an SME, and our characteristics model can be a straightforward route to a solution. Come on, people: talk to us!

Dealing with carbon regulations

While the Obama administration is moving fast to break with eight years of "climate denial" under George Bush, the UK government seems to have lost its early focus on introducing climate change regulations. Jyoti Banerjee investigates.

For a time, a year or so ago, it looked as if UK companies would be required to meet mandatory regulations on carbon emissions. But the focus seems to have been lost, under pressure from business lobby groups that are concerned about the impact such regulations will have on British companies. Instead, UK companies are urged to report their carbon emissions following recommended guidelines, and the soonest we will have a carbon regulatory framework will now be 2010, when only Britain's largest companies will have to meet the forthcoming Carbon Reduction Commitment (CRC) mandatory framework.

The Americans are still debating the merits of carbon trading schemes versus carbon taxes, with carbon trading, based on existing EU schemes, gaining ground among policy-makers. Right now, no one really knows what the Obama administration will seek to put in place but it is quite certain that whatever happens in the US will be felt over here in the UK.

While the Obama administration is moving fast to break with eight years of "climate denial" under George Bush, the UK government seems to have lost its early focus on introducing climate change regulations. Jyoti Banerjee investigates.

For a time, a year or so ago, it looked as if UK companies would be required to meet mandatory regulations on carbon emissions. But the focus seems to have been lost, under pressure from business lobby groups that are concerned about the impact such regulations will have on British companies. Instead, UK companies are urged to report their carbon emissions following recommended guidelines, and the soonest we will have a carbon regulatory framework will now be 2010, when only Britain's largest companies will have to meet the forthcoming Carbon Reduction Commitment (CRC) mandatory framework.

The Americans are still debating the merits of carbon trading schemes versus carbon taxes, with carbon trading, based on existing EU schemes, gaining ground among policy-makers. Right now, no one really knows what the Obama administration will seek to put in place but it is quite certain that whatever happens in the US will be felt over here in the UK.

IT decisions in crunchy times

Accountancy Age's Rachel Fielding recently interviewed a panel of experts on a webcast, asking what impact tightening financial reins will have on IT spending. Paul Druckman, chairman of M Institute, was part of the panel and here are some of his comments answering the question "What role can FDs take in IT investment decisions?"

The economic turmoil has tilted the balance and the finance director (FD) is becoming much more involved in IT investment than this time last year. Good FDs think strategically about IT rather than just through efficiencies and that has been one of the failings historically.

There is a different style of IT project evolving. People are looking for the cash implications to be less onerous on the business, but that doesn’t mean that they are shelving projects. The projects that are likely to fail are where the organisation doesn’t understand the change that is going to happen. People are starting to understand that projects impinge right across the business and you can’t just bring in external consultants to do that work in the business.

CSR needs new focus on medium enterprise

M Institute co-founder Paul Druckman is attending the European Multi-stakeholder Forum on CSR (corporate social responsibility) in Brussels from where he sends this note outlining a couple of things that CSR groups could do to help medium enterprises engage with the concept. 

I send this note while attending the European Multi-stakeholder Forum on CSR in Brussels on 10th February 2009. The Forum brings together about 250 people from key stakeholder groups, including employers and business representatives, trade unions, investors, academics, civil society organisations and public authorities. The aims of this meeting are to review progress on CSR in Europe and globally, and to discuss possibilities for future joint initiatives.

From the perspective of the medium enterprise, there was an unexpected focus on medium enterprise during the morning session. Some of the issues raised and proposed included: 

• CSR uses the term “corporate” and this can be a problem in medium enterprise where that term implies large corporates
• The link between CSR and public procurement is essential when thinking about medium enterprises
• SMEs need tools and instruments to implement CSR, this cannot be simply downgraded large corporate tools. 

UEAPME, the European employers' organisation focusing on SMEs, has a CSR focus which seems to be on diversity. Check out  http://www.csr-for-smes.eu. 

The multi--stakeholder forum concept, such as this one, is fascinating as each stakeholder brings such different perspectives, but with the tendency being to focus on society, rather than business issues. This may be unfair, but it is certainly my impression so far today.

Mandelson initiative reaches medium business

As the government announces new support packages aimed at SMEs, M Institute co-founder and chairman Paul Druckman asks if these packages are really addressing the challenges facing medium enterprise in the UK.

M Institute welcomes the business support packages announced by Peter Mandelson, the Secretary of State for Business, Enterprise and Regulatory Reform (BERR). The packages, aimed at the SME sector (small and micro enterprise), actually do raise the game to include many medium enterprises, after much lobbying over an extended period of time by M Institute.

Mandelson’s announcement has three schemes on offer which use company turnover as the qualification criterion. By focusing on size, the government is clearly still not fully embracing M Institute’s characteristics model. However, the size definitions used in the packages show that they are bringing more medium enterprises into their thinking: 

Frail banks corrode market confidence despite public funding

Andrew McErlain is an investor dealing with funding issues in medium enterprises at the coalface. M Institute asked Andrew to comment on the market conditions he is witnessing. Andrew was managing director of outsourcing at KCS Software before its acquisition by Sage in 2007. Here is Andrew's report.

At present there seems to be a considerable gap between the reassuring statements from Government about the freeing up of lending channels and reality at the coalface. It is very difficult to get medium sized acquisition deals funded in the current climate as the banks have little or no appetite for new business.

Judging by recent press commentary about the balance sheet frailty of our leading banks, I wonder if the real exposure to loss here is significantly higher in the banks than has been recognised within official channels. Is it perhaps the case, that because of the underlying complexity of many of the leading banks’ derivative exposures, they still do not know the full measure of their liabilities? This would perhaps explain the constant flow of further bad news from the banks and the increasing realisation that the first round of government funding has proved inadequate.

Trepidation and quiet confidence

Medium-sized businesses’ ability to deploy game-changing IT will help them withstand the recession, as delegates at Information Age’s IT for the M Business conference discovered. M Institute co-hosted the conference and listened in on the discussion.

Information Age's Pete Swabey reports that the current economic crisis will hit medium businesses the hardest. He came to this view listening to the proceedings at the recent IT for the M Business conference. Swabey says, "They have neither the agility of small businesses, which can change tack at the drop of a hat, nor the economies of scale of corporations, many of whom have the cash to sit tight and weather the storm."

As M Institute has often noted, medium businesses (unlike their smaller brethren) are prepared to invest in sophisticated IT, and have a real appreciation of what IT can do to enable the business to scale efficiently. But unlike large organisations, Swabey notes that "mid-sized business don’t have the luxury of getting it wrong or experimenting: IT projects need to be 100% tied to the achievement of business goals, with an intense focus on payback and benefits."

Welcome to M Institute's new website

We hope you like M Institute's new website. It focuses on all the material we have generated since our formation in June 2006. As our focus evolves to concentration on promoting the needs and challenges of medium enterprises, our website has had to change as well. Hopefully, having easy access to contemporary thinking on medium enterprises will be useful to you.

The new platform gives us our own blog space, which we hope you will use to read, comment on and reflect on the leading issues affecting medium enterprises today. An unfortunate side-effect of the transition to the new site is the loss of all the comments you have made on items listed on our old site. Hopefully, new comments will more than make up for that loss.

Do we need the RDAs?

The Taxpayers' Alliance would like the regional development agencies abolished. M Institute co-founder Jyoti Banerjee studies their report - he likes their data but disagrees with their recommendation.

This month a report from the TaxPayers’ Alliance claims that the £15 billion spent on the Regional Development Agencies since their creation in 1999 has been a total waste as the RDAs have contributed absolutely nothing to the economic performance of the regions in the UK. The TPA report has three main planks of evidence: 1) The RDAs were created to improve the performance of the regions, particularly those outside London and the south-east. In 1992, London and the south-east contributed 36% of the UK economy, a figure that has grown (in the wrong direction) to 48% in 2006. 2) Employment across the country grew by 9.5% between 1995 and 2000, while it only grew by 3% between 2000 and 2005. 3) Regional inequality worsened: apart from London and the south-east, England’s regions grew faster before the RDAs were around, compared to the seven years after. To add to this lack of performance is a long account of RDA waste. For example, 39 RDA bureaucrats earn over £100,000 a year, one part-time RDA chairman had a travel expense bill of over £50,000 in a single year, and one RDA managed to spend £20,000 sending some of their team to a film festival in Dubai.

Flexible working works for medium business

Employers have given their backing to flexible working in a new survey. Carried out by the Institute of Directors (IoD), the survey of 500 firms found that 86 per cent of respondents operate flexible working practices and that 93 per cent reported they would use flexible working even if there was no regulatory requirement to do so. This fits in with an M Institute workshop held in June where a number of business leaders reported that flexible working was proving important in hanging on to good staff, and more efficient in terms of using resources such as office space.

In the IoD survey, a half said that flexible working had had a material and positive effect on the bottom-line. Productivity, profitability, customer service, recruitment, retention, absenteeism, overhead costs, morale, team working and knowledge sharing had all improved as a result.

Medium enterprise and the low-carbon economy

Climate change, whether you believe in it or not, is going to change every business on the planet, either by force of regulation, or by a competitive drive towards low-carbon business models. Medium enterprises have a great opportunity to be the next generation of big winners in a future low-carbon economy. Or big losers. M Institute co-founder Jyoti Banerjee investigates the balance of probability.

Last week BBC Radio 4 featured an interview with a Canadian academic who has developed a prosthetic knee that generates electricity every time the knee flexes. It’s a great idea for helping provide power to disabled people but it turns out that there are other applications as well. The military could generate electricity for their communications devices while walking. And the rest of us could walk around to power up our iPods, mobiles and GPS units.

Walking to generate electricity is not going to turn back the tide on climate change but it is just one more example of the way clean-technology approaches are gaining traction in the market.

Medium enterprises are probably as concerned as everybody else about climate change but many executives of such organisations that I have met wonder what they can do to really make a difference. After all, the industries that have to make the biggest changes to their carbon productivity, such as energy, transport and heavy industry, are usually not populated with medium enterprises. Executives in medium enterprises agonise over installing efficient heating, or motion sensors to switch lighting in less-used locations like toilets because they know that these things make good business sense anyway, but surely none of these are going to tackle the problem of climate change.

Perceptive processes: making sense of business as it will be

Businesses are getting better and better at providing technology to support "doing" processes. But what happens when managers need to undertake "thinking" processes, asks M Institute co-founder Jyoti Banerjee? In answering the question, Jyoti proposes that we recognise a distinct group of business processes that he calls perceptive processes.

There are many different kinds of processes in an organisation. Traditionally, processes have been divided into two categories: transactional or non-transactional. Although that is helpful in terms of identifying which processes need to dealt with by computerised transaction-processing systems, the distinction seems incomplete in an era when almost all processes can be handled by computers.

It is still useful, though, to distinguish between different types of processes. This paper suggests that all kinds of processes in an organisation may be categorised into two different types: 
* Learned processes
* Perceptive processes

These two modes of processes are rather analogous to the distinction that psychologists make between experiential cognition and reflective cognition in human thinking. To put it differently, this categorisation separates "doing"€processes from "thinking" processes.

Modernising business processes

Formalising what may previously have been ad-hoc business processes is a key issue when differentiating medium-sized organisations from small ones. Yet figuring out which processes need to be formalised or modernised, and in what priority, is a difficult task for leaders of medium organisations. M Institute co-founder Jyoti Banerjee checks out the options.

Processes new and old
Companies that want to exercise a competitive edge in the market, whether by launching an e-commerce channel or being first to market with a new product, have found that they are dependent on the state of their business processes if they want to succeed. Typically, their business processes are a mix of new and old, with only brand-new well-financed companies having the luxury of fully modern processes. Good processes do not guarantee success, though bad processes will certainly guarantee failure.

Modernising business processes research paper

Formalising what may previously have been ad-hoc business processes is a key issue when differentiating medium-sized organisations from small ones. Yet figuring out which processes need to be formalised or modernised, and in what priority, is a difficult task for leaders of medium organisations.

Modernising business processes is a new white paper from M Institute that seeks to provide some fresh thinking on the business process challenges that medium organisations face so that they are better equipped to make the judgements on how to develop and grow in a way that takes advantage of their growing maturity in the exploitation of technology, innovation and new opportunities in the business landscape.

Green issues climb medium corporate agenda

As large enterprises jump on the sustainability bandwagon, is it time for medium companies to engage on green issues? M Institute correspondent Joe Lickens looks at some corporate announcements to see how much is for real, and how much is flim-flam.

For those who were unsure of the need for decisive action against climate change, last year’s Stern Review was pivotal. At last, the potential ramifications of climate change were spelled out in business terms – as “the greatest and widest-ranging market failure ever seen”. Public pressure on businesses mounted accordingly. But, while some companies are adopting green strategies that are genuinely impressive, others are still dragging their heels.

Since the issue of climate change was finally admitted to the corporate agenda, the pace with which it has risen up the priority list is remarkable. In the most recent Ipsos Mori poll, eighty percent of respondents said that a company’s environmental reputation would affect their purchasing decisions. As M Institute co-founder and chairman, Paul Druckman points out, “You can take competitive advantage by showing that you are becoming a greener company.” Druckman is involved in a number of initatives exploring how organisations will account for sustainability issues.

Which regulatory burdens are the most tiresome?

87% of UK businesses believe that reducing regulation should be on the government agenda, according to the ICAEW Enterprise Survey Report 2007. Furthermore, over a third of businesses think this should be the top priority for government action to improve the business environment. But which regulations are most burdensome for medium business? M Institute knowledge partner, the ICAEW, has done research on this.

Across all sizes of business, employment legislation and health and safety regulations are the most likely areas to be considered troublesome, with 15% of businesses singling each out as the biggest administrative burden they face. However, it appears that employment legislation may be getting less onerous: in the 2006 survey, 28% of businesses pointed to it as the biggest administrative burden.

Unfortunately, this change is not reflected in the response of medium-sized businesses, of which 26% still identify employment legislation as their single biggest administrative burden. The report suggests that this may be because they "are starting to build up a significant workforce but may not yet have the critical mass for an established HR function".

Health and safety regulations and VAT are the two next most burdensome requirements for medium business, identified by 19% and 13%, respectively, as the biggest administrative burden. At the other end of the scale, business taxation and planning regulations are two areas in which medium businesses are considerably less concerned.

Aside from the 34% of medium business that believes reducing regulation should be the government's top priority for improving the business environment, 19% thinks improving the skills and qualifications of the UK population is most important and 12% thinks lowering interest rates should take precedent.

UK drifts to 11th in competitiveness league table

The UK slipped nine places to the eleventh spot on the closely-watched table of global competitiveness put forward last week by the respected World Economic Forum (WEF). United States regained the top spot, despite the current turbulence in its economic performance, thanks to its ability to innovate and the efficiency of its markets. M Institute co-founder Jyoti Banerjee checks out the league tables in competitiveness.

Coming 11th out of 131 competing countries does not sound too bad – probably a better performance than the collective achievement of the highly-paid elite that make up England’s football team. What is disappointing is the basis for the fall from second to eleventh place. According to the Global Competitiveness Report for 2007-08, four of the most problematic factors in doing business in the UK are tax rates, tax regulations, an inadequately educated workforce and inefficient government bureaucracy.

Just take a moment and read that list again. In every instance, the finger of blame points to one culprit, the government.

Now that’s disappointing.

It was only in February that this blog pointed to the deterioration in the UK’s tax environment, as we slipped from 7th to 13th spot in the WEF’s tax competitiveness league. Less than a year later, we are being told that tax has become one of the biggest problematic factors in doing business.

To grow or not to grow - that's an IT question

Durham Business School and Microsoft (both partners of M Institute) have collaborated on a piece of research that has an important finding: growing companies make greater use of IT to meet their key business challenges compared to companies that are declining. M Institute co-founder Jyoti Banerjee investigates.

The research, carried out among 401 businesses with up to 100 employees, does not attempt to distinguish cause from effect. But it does claim that growing companies are more likely to invest in IT in order to better manage customer data, better manage business processes, comply with regulation, and access business information when out of the office.

Although much of the report is focused on analysing the different size cohorts, its writers, Bill Snaith and Ian Stone of Durham, have done an interesting thing in maintaining a constant thread in the report which analyses the research findings by growth performance. Compared to declining companies, growing companies are more likely to:
* Use more diversified sources for IT advice
* Have more software and arguably more sophisticated systems 
* Have more appreciation that IT can (and has) delivered benefits to their business and how it might help them overcome challenges
* Talk about IT in terms of what it can do for employees, and so have a people-centric attitude to IT
* Display greater willingness to spend more on IT in future to generate competitive advantage and growth

IFAC explores growth challenges in medium enterprises

A draft paper from the International Federation of Accountants has identified the challenges associated with different growth trajectories experienced by medium-sized organisations, writes M Institute correspondent Joe Lickens. The paper, entitled "Typical Challenges for Medium-Sized Enterprises and Responses of Professional Accountants in Business ", is based on the premise that there are three archetypes of medium-sized business: "fast growing", "stable" and "under pressure".

The paper is part of a work program providing international good practice guidance to professional accountants in business (PAIB), but is very useful to senior managers in medium-sized organisations as well. According to the technical manager of the PAIB committee, Vincent Tophoff: "Feedback has so far been very positive. PAIBs from around the globe who have experience with M companies have been interviewed and the lessons learned will be used in conjunction with the paper when it is published."

Banks have better things to do with their money...

... than to invest in the growth plans of medium organisations. M Institute co-founder Jyoti Banerjee asks if the investment preferences shown by banks are really the results of market imperfections that need to be dealt with by policy-makers.

A few months ago, I took part in a meeting at HM Treasury organised by M Institute where a few leaders of medium organisations were invited to present their stories: how their companies became medium-sized, and the challenges they had to overcome and still have to deal with. A recurring theme for these business leaders was the way in which problems relating to access to capital impair their growth performance.

Should government be doing something about it? Clearly, the Treasury officials we spoke to did not think so as there is no evidence in their eyes of market failure. Without evidence-based market failure, how can the government generate its favoured route of evidence-based policies? (One wag recently commented that it is not evidence-based policy-making at work here – simply, policy-based evidence-making).

There is urgent need for a formal research study that can show if the evidence exists that access to finance is slowing down the growth of medium companies. This is particularly apposite in the context of a Brown government that has shifted attention from start-up enterprises to existing companies that demonstrate growth – an arena of business where medium companies are very successful. M Institute may not claim credit for engendering this shift in policy, but it certainly fits our policy recommendations. In this context, please see an earlier blog item commenting on Margaret Hodge’s enterprise policy.

Flat world vibrations: A study of Audio Partnership

When asked to identify good quality hi-fi brands, most Britishers are likely to pick mass-market Japanese brands such as Sony or Panasonic. It would be news to them that British hi-fi brands are at the top of the tree when it comes to audiophile cognoscenti around the world. One company that has taken advantage of the high standing of British brands in international markets is Audio Partnership, a medium-sized British electronics firm that is attempting to exploit globalisation’s opportunities in its march for growth. M Institute co-founder Jyoti Banerjee investigates.

It was in the 1990s that Audio Partnership realised that although British hi-fi companies were being beaten by the Far East when it came to low-cost manufacture, their reputation was built largely on good design and excellent sound quality. The company took over struggling British brands such as Cambridge Audio and Mordaunt-Short, strengthened their design prowess but outsourced all manufacturing to China – possibly the first Western audio company to do so. Plus, they built strong marketing campaigns that enabled them to sell these British-designed products across the world.

Today the company reports annual revenues in the region of £25 million with 60 employees in the UK and a number of strong relationships with Chinese electronics manufacturers. Although the audio market world-wide is in steady-state mode – it is flat screen TVs and iPods that are the growth engines in consumer electronics – Audio Partnership is still able to grow at a consistent rate because of market concentration in traditional audio markets where its combination of British design and Chinese manufacture is proving to be a winner, and because of entry into new international markets, where traditional British audio companies never trod.

Business process outsourcing for midmarket companies

Nobody can be a specialist in everything: hence the growth in outsourcing of standard business processes. So far business process outsourcing (BPO) has been dominated by large enterprises. Now M enterprises are moving to exploit its benefits.

Growing maturity of the BPO market is enabling medium enterprises to take advantage of new opportunities. Phil Fersht, at the time vice president of the BPO Group at Everest Research Institute, lays out the case for how BPO works for medium enterprises.

UK slips against global competition

The Institute of Chartered Accountants finds that 77% of all British businesses are engaged in international activities. M Institute co-founder Jyoti Banerjee explores this finding in the light of UK plc's competitiveness in the global marketplace.

The tenth annual Enterprise study from the Institute of Chartered Accountants in England and Wales (ICAEW) has found that 77% of all UK businesses are currently engaged in globalisation to some extent. Filtering this finding to companies with less than 1,000 employees, the research indicates that as many as 44% are engaged internationally, either through having customers overseas, outsourcing, or running operations abroad. |Its higher than I would expect

Of the 1100 companies taking part in the study, 42% view globalisation positively, and 18% are concerned about it. Possibly unsurprising is the fact that it is the financial services sector that is most positive about globalisation, and manufacturing the fastest to recognise the risks, reflecting the relative strengths of these industries in the global marketplace. London continues to be a powerful global finance centre, while Britain's manufacturing is sliding away, except in certain specialist sectors such as racing cars, boats, and defence.

Empowering medium enterprise - a guide for policy-makers

A new research study, from M Institute, sets out challenges facing medium organisations and asks policy-makers to respond.

The UK government wants to see Britain as the best place in the world to start and grow a business. Yet most of its attention is on policies and measures aimed at starting businesses. A new research study from M Institute, Empowering Medium Enterprise: A guide for policy-makers, seeks to focus government attention on the challenges facing medium businesses, and the actions government can take to support their continued economic growth performance.

The research, released October 2006, was carried out by M Institute, and received support from Microsoft and the Institute of Chartered Accountants in England & Wales (ICAEW).

Key themes emerging from the research study:
• Medium business is very different from large or small business
• Medium enterprise growth is held back by certain economic factors

 

Outsourcing business processes for M enterprises

Nobody can be a specialist in everything: hence the growth in outsourcing of standard business processes. So far business process outsourcing (BPO) has been dominated by large enterprises. Now M enterprises are moving to exploit its benefits.

Growing maturity of the BPO market is enabling medium enterprises to take advantage of new opportunities. I asked Phil Fersht, a former colleague of mine, to define BPO and explain its workings for M organizations. Phil is vice president of the BPO Group at Everest Research Institute, and is well-regarded around the world for his expertise in the matter. Over to you, Phil.

Wising up to crowds

In the consumer world, we have learned to exploit the collective wisdom of a community as part of our on-line buying experience. Can this "wisdom of crowds" apply to business communities, asks M Institute co-founder Jyoti Banerjee?

Tomorrow we will go to the Christmas fair at my daughter's school and attempt to guess how many jelly-beans are in a glass bowl. It's what you do at school fairs. What is certain is that no one will guess the right number. What is also likely is that almost all the answers given by the individuals entering the contest will be far off the mark. Yet, if it were possible to average the answers across all participants, the resulting mean will be about as good an answer as we can expect all day. One or two of the girls may improve on the mean score but they will represent a tiny minority.

How can I be so confident of this result? Just over a century ago , Francis Galton, polymath inventor of the idea of a statistical mean, found that the sort of aggregation used by measures of central tendency (such as the mean, median, etc) results in the removal of errors that individual datapoints could suffer from. At a country fair near Plymouth, he found a large group of people guessing the dressed weight of a slaughtered bull. The average across 787 entries turned out to be 1,197 pounds, which turned out to be within a pound of the actual weight of the dressed bull. Given that the crowd had a few smart people, a few informed people, and a bunch of no-hopers, what right did the average answer across the crowd have any right to be anything but dead wrong?

Software joinery at work

Bill Gates calls the gap between personal productivity and business application software the "last mile" in productivity. M Institute co-founder Jyoti Banerjee has been waiting fifteen years for this bridge to be crossed.

I have learned (and continue to learn) a new way of working. Through the use of portable computing, mobile connectivity and the Internet, my working life has been transformed – and so has the organisation of the rest of my life. And I am not alone in this, because every single one of you reading this blog will have a similar story to tell.

However, the organisations we work in, with few exceptions, still work in the same way as they used to ten years ago. Business processes may have got automated along the way, but the engagement between person and process has not changed as much as the changes in personal productivity.

Although I have talked much about this for the past five years, I have felt this was largely a lonely crusade. Frankly, nobody seemed to care much about the gap between person and process.

This week my crusade acquired a very big gun. Bill Gates, no less, speaking at the Convergence 2006 event in Munich, trained his rather punchier firepower on what he calls the “last mile of productivity,” which he describes as the gap between personal productivity software and back-end business systems. Gates’ phraseology may be borrowed from telecoms, and his ambition is certainly shared with every other vendor that has used an Excel link as a fig leaf to paper over the disconnect between personal productivity software and the software that runs the enterprise.

Hodge has high hopes for enterprise

Margaret Hodge is keen to kick-start the spirit of enterprise among Britain's young people. M Institute co-founder Jyoti Banerjee asks if this is wise.

Let me place my cards on the table right at the outset. Fewer than one in eight start-ups make it to their third year in Britain. In other words, seven out of eight are doomed to fail. Do we really want to get people out of jobs and employment, give them some government grants and then sit back and watch them fail?

Margaret Hodge, minister of state for the Department of Trade and Industry, will vehemently disagree with me on this but that, ladies and gentlemen, is her recommended course of action. OK, I grant you that she would not sit back and watch, but whatever she, or anybody else from government does, the rate of failure of business start-ups has been pretty steady for nigh on three decades.

Should M organisations be listening to Nick Carr?

Nicholas Carr wants companies to spend less on IT. M Institute co-founder Jyoti Banerjee ponders that advice on behalf of medium enterprises.

At last week's London debate with Bob McDowell of Microsoft, Nicholas Carr restated his well-known perspective: IT does not add strategic value to an organisation, so companies should spend less on it, and business leaders should intentionally choose to be IT followers, not leaders.

What was different about this debate from many similar ones was the focus applied to medium organisations. Carr's usual analysis is based on large enterprises But does this approach work for medium enterprises as well?

My instinct is that Carr's ideas work better for medium enterprises than they do for larger organisations.

Typical medium enterprises don't have the budget, bandwidth or business practice to justify expensive investments in what Carr calls distinctive technologies. Instead, they prefer their tech to be low, and their infrastructure commoditised.

Of course, there are at least three caveats that are worth pointing out.

Laying down regulatory burdens

As far as business is concerned, regulation of any sort is a burden. How burdensome is the burden, asks Jyoti Banerjee? And what should government be doing about the burden?

The burden of regulation shows itself in three ways.

One, business carries the burden of much of the interchange between government and its citizens, whether processing tax, tax credits, maternity pay or even alimony payments. This represents anadministrative cost on businesses for the privilege of being employers.

There is a separate regulatory burden that comes from meeting government policies that relate to public safety, correction of market failures or the promotion of a fair business environment. This is usually referred to as the policy cost of regulation.

Finally, there is a cost borne by business that relates to the policy cost – this is the administrative cost of complying with policies: getting to know the policies, keeping records on policy issues, reporting on compliance, and costs relating to government inspection and enforcement.

Each of these costs represents separate strands of regulatory burden. Although it is important to understand the components of the burden of regulation, it is fair to state that, as far as business is concerned, all these costs are taken together when it considers the costs of regulation.

Counting the uncountable

How many M organisations are there in the UK? M Institute co-founder Jyoti Banerjee ventures an estimate.

In a recent blog, Philip Woodgate opines that that there are 26,000 medium organisations, out of an SME population of 4.3m altogether.

Question: Is Philip right?

To answer that question, we need to ask what a medium enterprise is. How do we identify one that we can count it? The trouble is that different definitions give us different answers to the question of how many M enterprises are out there. But right at the outset, let me commend Philip for taking on the challenge of figuring out how many there are.

Growth in the regions

Three-fourths of British medium-sized organisations are not aware of their regional development agency, or RDA. Who cares, asks M Institute co-founder Jyoti Banerjee? Well, the RDAs should, and the government should, and - surprisingly - so should mid-sized companies.

We think of the Chinese as growing unbelievably fast. India is no slouch either. Nor is Ireland. But looking at growth stats for a country as a whole is misleading. It's not countries that grow fast - it is individual regions that grow.

All over the world, we see certain regions performing so spectacularly that the entire country seems to be glowing green with growth. But other regions in the same country lag behind. China is a case in point. In China's coastal regions, such as Dalian, Beijing, Shanghai and Zhejiang, per capita income is around $5000 per year, a figure already surpassed by Guangzhou. But in the hinterland, incomes fall away to between $2000 and $1000, and lower. If we treat regions as countries, then nine of the top fifteen Asian countries are actually Chinese regions.

Growth and finance: an imperfect relationship

Growth needs money, and money looks for growth. But the two often don't find each other in the M segment of the market. Jyoti Banerjee gives credit where credit's due...

There seems to be this special bond between growth and mid-sized organisations, or M organisations as I like to call them. Talk to most leaders of M businesses and they will tell you that they expect to grow at around 20% per annum for the next three years or so. What’s so remarkable about that anyway? After all, most small and start-up businesses probably expect to grow at around 200% per annum. Why should we care about the twenty percenters?

We should, for a number of reasons.

Carr refines "IT does not matter" argument

At the recent Effective IT conference in London, industry sceptic Nicholas Carr kicked off proceedings with amodified version of the attack on IT in his book, IT does not matter. Jyoti Banerjee assesses whether the new version stacks up in the light of current IT experience.

It was the Nobel Prize-winning economist from MIT, Robert Solow, who quipped that you could see computers everywhere except in the productivity statistics. In writing his book, Nicholas Carr was simply following in Solow's distinguished footsteps by attacking the value business has got from the massive investments it has made in IT. His argument was that IT does not provide competitive advantage to a business as there is little or no differentiation in the bulk of the technologies used by modern businesses.

Those for and against the argument have had a field day in the IT press, with both sides claiming victory through case studies and stats that prove their point and disprove the opposition. With Carr given the opportunity to rehearse his arguments in front of an audience of IT professionals in London, it was clear that the heat has not gone out of the debate, though one wishes for a little more light all around.

To differentiate or not

Let's explore the debate a little further. One could ask whether it matters that 70-80% of all IT is undifferentiated. After all, the implication could well be that at least 20-30% of all IT is strongly differentiated. Although the two statements are two sides of the same coin, they actually present quite different arguments.

Extracting M from SME

Why are mid-sized businesses so invisible, asks Jyoti Banerjee? Its because they get grouped with small and start-up organisations that they are absolutely different from.

Mid-size enterprises are the powerhouse of the UK economy.

Although only 6% of UK companies are in the £10-£250 million revenue bracket, these businesses employ 30% of the British work force, and generate 20% of all corporate profits. Their annualised growth rate is at 8%, which is well above the national growth rate.

Despite this sterling performance, mid-size enterprises are nearly invisible. They have no profile in the market, government does not pay them any attention, and they are usually lumped together with small and micro enterprises via the SME label, although they are significantly different from those companies in almost all respects.

Mid-size businesses are in a different ballpark from small businesses
Mid-size businesses are categorised in most UK analytics as part of the SME grouping. This is certainly tautological in terms of size as SME seems to cover any companies that are not large, but it does not provide any analytical insight on the behaviour of such companies as they are different from small and micro enterprises in a number of significant ways.

Digging for M content

Readers of this blog will be aware that the mid segment in the British economy is badly in need of definition and recognition. Jyoti Banerjee identifies three layers of information that will help in this process.

The M sector is remarkably well-hidden in the British economy despite its sterling performance as a growth engine. Its features are well submerged under the SME definition. In order to get better definition of the M sector, we need at least three distinct layers of information, which in turn need to be configured in a way that will help two key stakeholders: executives of mid-sized organisations, and government.

Layer 1: Macro analysis on economic performance of the M sector
Macro-economic analysis needs to be generated to help policy-makers understand the benefits that the M sector brings to the economy, particularly in terms of growth, jobs and innovation diffusion. It would also cover the challenges that they face, particularly where the issues are such that policy-makers can impact on them through their actions and prescriptions.