How to program SMEs' development

The taxpayer expects that spending of public funds will result in a noticeable and long-term economic development of the country.

Author: Stanisław Pisarski, President of the Board, Corporate Strategy Adviser, Factor Consulting

Traditional ways of supporting SMEs are inefficient

The traditional way of supporting sector and enterprise growth using public funds is widely considered ineffective. It is often referred to using a derogatory term burning through the funds. That is, the funds' administrator requires, first of all, correct accounting for the project and demonstrating the one-off effect which means achieving the project objectives just once. The medium and long-term effectiveness of the project is not taken into account, instead, the system focuses on narrow, superficial, and often temporary effects and does not reward above-average and outstanding results.

Above all, however, the development projects implemented traditionally do not take into account the real needs of the beneficiary and meeting them in the context of its direct market and the entire value chain. Besides, their frameworks are formalized by the requirement to implement the project following the assumed plan, and not concerning the assumed objectives related to the effectiveness and efficiency of the project. Therefore the beneficiaries lack the freedom to flexibly control the project based on experience and changing situations.

Also, there is the problem of the very concept of the project and its implementation process. The lack of appropriate competencies in modeling the development of an organization and lack of experience in the processes of change, project, and effectiveness management lead to highly unsatisfactory results, raising questions about the sense of spending public funds on this type of support.

Meanwhile, the taxpayer expects that spending of public funds will result in a noticeable and long-term economic development of the country. The fulfillment of such a condition requires, among other things, the professionalization of the process of developing and implementing pro-development solutions, flexible project management in relation to the project's goals, and not to a schedule, and continuous monitoring of project implementation in relation to the assumed milestones and key success indicators (see more Fig. 1).

Fig. 1. Assumptions for SME support projects financed from public funds.png

Modeling in 5D

Referring to the above comments, I propose a five-dimensional model of programming the development of the SME sector as a response to the needs of the Polish post-covid economy. This model reflects a certain pattern of thinking about designing support for SME enterprises. It also identifies the important dimensions of this support, presented as steps in the development modeling process. The individual steps in this process may occur iteratively, and the process itself may be a cycle (Fig. 2).

Fig. 2. Five-dimensional model for programming growth of SMEs.png

The key element of my model and its starting point is the breakout stage. While the typical anti-crisis assistance is universal within selected industries, the pro-development impulse should apply to selected enterprises, regardless of the industry. The leading selection criterion in such a system is the verified potential for a significant increase in productivity, the creation of new and sustainable jobs in future-proof occupations in the organization itself or its cooperation network, and greater diversification of the customer base towards international markets. The choice of solutions that are to be a tool for achieving the assumed development goals is important here. These tools and solutions must fit within documented global trends in technological, social, and economic terms and respond to the challenges of an environment characterized by volatility, uncertainty, complexity, and ambiguity (VUCA).

The consequence of defining the breakout threshold is the whole mechanism of support, development, and implementation of solutions confirming the achievement of the assumed project values. The sine qua non requirement for the success of such an approach to modeling SME development is to combine financial support with professional, reliable consulting support, which is normally unavailable to enterprises from this sector. The multi-faceted control mechanism built into this model guarantees effective use of the aid funds. It allows for immediate reaction to any deviations from the project objectives, reorganization of the project, or its termination at every stage determined by milestones, stimulating effectiveness through the success fee mechanism depending on the value of the achieved effects. This mechanism and the method of project management make it possible to minimize most of the weaknesses of the aid projects implemented so far, significantly increasing the effectiveness of public expenditure and increasing trust in the central administrative apparatus that manages public funds on behalf of taxpayers (see Fig. 3).

Fig. 3. Modeling of the development of enterprises from the SME sector supported by public funds.png

What path will we choose after winning with the pandemic?

In highly developed and democratic countries, including Poland, the SME sector is fundamental to economic stability and development, as well as for economic freedom, increasing the standard of living and building a civil society. In many countries, this sector is also a generator of innovation and a job provider for millions of employees. It is this sector that primarily acts as an economic shock absorber. We now have a unique opportunity to give the SME sector in Poland the importance it deserves and to support it with precisely and effectively targeted support. It will result in predictable growth in productivity and efficiency in the sector that will spread rapidly across the economy and society as a whole. But we must act now because the world will not wait for us.

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