How have Small and Medium Businesses coped with the disruptions caused by the COVID-19 pandemic?

Responsible researcher: Viviane Pires Ribeiro

Paper Title: The impact of COVID-19 on sustainable business models in SMEs

Authors: Iva Gregurec, Martina Tomičić Furjan and Katarina Tomičić-Pupek

Intervention Location: Global

Sample Size: 85 articles

Big topic: Companies

Variable of Main Interest: Resilience

Type of Intervention: Analysis of how SMEs operating in the service sector have coped with the disruptions caused by the pandemic

Methodology: Business Model Canvas

Businesses have been exposed to multiple challenges during the COVID-19 pandemic and their response to this shock has affected their resilience as well as their chances of overcoming the crisis. In this context, Gregurec, Tomičić Furjan and Tomičić-Pupek (2021) investigate how Small and Medium-sized Companies operating in the services sector have dealt with the interruptions caused by the pandemic. When comparing the results obtained in the study with those from other research, the authors observed that they all lead to common conclusions, despite the fact that they are dealing with different technologies, sectors and drivers. In other words, the pandemic situation has led many companies to rethink their business models, seek to learn from other companies, in addition to focusing on the environmental, sectoral, economic, technological and social factors that influence the way business is carried out.

Context of the Assessment

The COVID-19 pandemic that began in 2020 has impacted businesses of all sizes and across all sectors. While some sectors have shown a certain level of resilience or even found a new operating niche, the majority of small and medium business owners in the service sector have found themselves in “new normal operating environments”.

To slow down the pandemic, several countries suspended commercial activities and adopted social distancing to reduce transmission of the virus. This led to lockdowns, a drop in consumption and the closure of companies. Many economic experts see this pandemic as a metaphorical “black swan” event, that is, an unpredictable event of great magnitude and serious consequences, which drastically alters the political and economic environment, potentially causing company failures. Technology professionals, on the other hand, refer to the pandemic as a global disruption, which can be seen as an opportunity or a challenge to transform business models or implement new technologies to support business processes.

Intervention Details

New strategic approaches for Small and Medium Enterprises (SMEs) should help increase the likelihood of overcoming the impact of the pandemic, as these companies have been hit financially due to their limited resources and little experience. Based on a common understanding of the factors that may impact the way companies are coping with their survival in the pandemic, a three-dimensional approach may be of interest. Firstly, the operating industry and sectors within the industry influence the exposure of SMEs, as they tend to be more concentrated in sectors that have been directly affected by COVID-19 response measures. Second, various transformation drivers define the course of response and form the direction of transformation. Third, due to the pandemic, SMEs are introducing digital technologies that were not considered a high priority previously, as a way to avoid the total shutdown of economic activities.

Based on these three dimensions of coping with the disruption caused by the COVID-19 pandemic, Gregurec, Tomičić Furjan, and Tomičić-Pupek (2021) seek to provide insights into the following research questions: what drives the transformation of SMEs in the service sector and which Are technologies being selected to respond to this crisis? How do the operational services sector, transformation drivers and selected technology influence the redefinition of sustainable business models in SMEs?

Therefore, the research aims to gain insights into which transformation drivers companies have focused on and which technologies they have selected as a means of responding to disruption. These insights into SMEs are then explored for their influence on redefining sustainable business models. To achieve the objective of finding academic and practical implications for making SMEs' business models more sustainable, a comprehensive literature review was carried out to fill the gap in understanding how the pandemic has affected SMEs' existing business models.

Methodology Details

The literature review was conducted in the following steps: conducting a search of relevant databases and research platforms; construction of a research structure for qualitative analysis; application of the qualitative analysis framework; and exploration of the impact on the business model based on the Business Model Canvas.

The literature collection process began with the identification of databases relevant to the research, in which the following databases and platforms were selected: Scopus, Web of Science (WoS), Emerald, Wiley, Proquest, EbscoHost, ScienceDirect and Taylor and Francis Online. The search strategy was based on a combination of keywords: 'Small and medium-sized enterprises', 'entrepreneurship', 'service sector', 'pandemic' and 'COVID-19'. The search was carried out in December 2020 and resulted in a total of 89 hits. After "merging" all 89 articles, duplicate documents were excluded, totaling 85 different articles for further analysis.

In parallel to the research, the dimensions of the research framework for the study were constructed seeking to investigate the three dimensions of how SMEs are facing the challenges posed by the pandemic. The three dimensions included: (i) scope dimension related to the operational services sector; (ii) driver dimension related to the driving force of change; and (iii) technology dimension related to the technology selected to respond to market disruptions. Relevant metadata and content analysis data on the three dimensions of the 85 selected articles were extracted and coded. Based on the three dimensions, the scientific literature gathered was investigated to identify sub-concepts between the dimensions. Each time a new subconcept was identified, it was added to the framework and recorded. Finally, the content of the articles was extracted and analyzed.

Results

The development of technology is growing exponentially and sets the stage for the digital environment in which companies operate. The study carried out by Gregurec, Tomičić Furjan and Tomičić-Pupek (2021) shows that SMEs have shifted their focus from technology-driven transformation to more socially driven transformation initiatives. Social networks and platforms, as well as mobile technologies, were the technologies most frequently selected as a tool for transforming communication channels and/or service provision. A possible explanation for this can be found in the common use and experience of service providers and consumers with these widely available technologies. However, other technologies may result in more impacts, however, they are not as commonly used by the general public due to the complexity of the technology, lack of public experience regarding its use, long implementation periods, need for additional equipment , etc. The use of technological solutions with short implementation periods and that are geared towards enabling desired value propositions would help support SMEs in their efforts to quickly respond to lockdowns.

Overall scope and scale were not the focus of the research, but the study was successful in gaining timely and real insights into alternative approaches used by SMEs to deal with the pandemic. At the strategic level, strategic approaches that address a highly unpredictable environment and that are viable in the pandemic crisis faced by companies include: the followers (the adaptive approach), the challengers (the modeling approach), and the total reset (the renewal). Each of the options for SMEs brings potential benefits and risks:

1. The follower SME decides to follow the way competitors in the same service sector operate, which puts a certain driver in focus. It implements similar technologies like the others. When implementing the same technology solutions, she can benefit from choosing an out-of-the-box solution. This would constitute a rapid response to changes in the market and customer behavior. On the other hand, such “mixing” with competitors means that the SME is unable to differentiate itself. This is a risk and depends on the company's willingness to apply the same digital technology.
2. The challenging SME can differentiate itself and offer a different value proposition than others. This personalized value proposition may arise from a different driver focus and/or the application of a technology that others have not considered. Personalization-oriented technology solutions represent a short-term risk, but they also offer the development of skills and competencies. Thus, it can benefit from long-term resilience and sustainability.
3. “Reinvent themselves” SMEs (those that are applying the renewal strategy approach) could rethink their operational services sector if the technology driver and niches, as well as existing specific skills and competencies, could be identified. This approach has the potential to bring great benefits, but it is also the most risky.

In normal environments, SMEs struggle to decide when and how to balance between exploring existing products/services and exploring new products/services. Unstable and unpredictable environments force SMEs to rethink their business strategy and change their operating model. During the pandemic, strategic ambidexterity spread to operational processes in terms of changes in input purchasing and logistics scenarios, new ways of providing services and the development of alternative delivery channels. SMEs rely on existing paradigms but are also exploring new possibilities. The flexibility of SMEs and their agility to respond can be seen as an advantage over large companies when it comes to strategic ambidexterity. However, they often lack the training and competence to take advantage of the situation. Building capabilities and competencies for future growth opportunities should be a priority when business activities are reduced due to health measures.

Public Policy Lessons

A limitation of the research, according to Gregurec, Tomičić Furjan and Tomičić-Pupek (2021), is the fact that the results are based only on secondary sources, that is, publications that report the topic cannot be seen as comprehensive. In future studies this type of qualitative research could be carried out directly studying SMEs. In this case, the results could also be used to improve the targeting of financial aid initiatives. Mitigating measures in the form of financial assistance may help to maintain employment and the continuation of business activities only temporarily. Non-financial measures in the form of improving digital skills, developing new more sustainable strategic alliances, creating new value propositions oriented towards quality of life and a safe and sustainable working environment should be the focus of long-term policies.

Acquiring new skills, improving knowledge and gaining experience, as well as building strategic alliances with stakeholders can be carried out during lockdowns, that is, when companies cannot operate. Academia and consulting professionals must also contribute in accordance with their role in the community, offering more learning programs through online course platforms, carrying out Research, Development and Innovation (RD&I) projects in cooperation with different stakeholders.

The influence of COVID-19 motivates SMEs to rethink their core competencies, seek new opportunities and redefine sustainable business models in a more intensive and timely manner. Strategic ambidexterity in shorter cycles, the balance between measures and the concentration on building innovation are not limited to SMEs alone. Developing new skills, improving experience management and improving the experience of professionals in relation to the application of new technologies in business models during the pandemic period is an essential need for long-term regional development. By focusing on this, SMEs will not only survive this crisis, they will be able to adopt new technologies and become more competitive in other challenging conditions as well.

References

Gregurec, I., Tomičić Furjan, M., & Tomičić-Pupek, K. (2021). The impact of COVID-19 on sustainable business models in SMEs. Sustainability , 13 (3), 1098.