We could learn a thing or two from Germany when it comes to doing the right thing
Less isn’t always more: sometimes it’s just less. But when it means a strong and unencumbered focus on what you’re good at (provided that is what the buyers of your goods and services want and need) then small can indeed be beautiful.
Big can be beautiful too. Some of the world’s largest companies have enjoyed many years of incredible success, built upon quality and innovative products, with investment supported by falling labour costs and unprecedentedly low interest rates. Their share prices have been buoyed by such helpful dynamics - but also, more worryingly and controversially, by a ‘smart’ approach to tax accounting.
Consider a topical example of a tech company which paid an effective corporate tax rate of just 0.005% on its European profits in 2014, and one can see why the European Commission is looking to recover €13bn in alleged lost tax revenues. Depending on your perspective, this is either a legal, if complicated, focus on maximising profits that any major corporation is bound to adopt, or it is an unfair emphasis of questionable ethics by multinationals that can afford to pay more (in tax and wages).
The rhetoric is all about protectionist policies, and politicians who are putting themselves forward as anti-big business and pro-small business
Investors are starting to sit up, for the future success of these companies will not only be driven by their operational and financial prowess; it will depend upon the political landscape. Increasingly, rightly or wrongly, the rhetoric is all about protectionist policies, and politicians who are putting themselves forward as anti-big business and pro-small business.
I think this reinforces the need for efforts to be focused in the appropriate areas, no matter the size of the business, though (at the risk of coming across as biased) recent research in Germany has shown that their smaller outfits seem to be getting it right. Research has shown that Germany’s SMEs are financially more successful than their larger, more well-known firms such as BMW or Siemens, and the reasons have been boiled down to four factors:
- A dedication to customer service e.g. a firm that still offered replacement parts for 100 year old machines, sending a message of strong commitment.
- A focus on long term value rather than the next quarter’s profits - they take risks, but they are calculated ones that are unlikely to endanger the company’s stability.
- They look after their workers - managers give a good deal of their time and take it to heart that it is their job to help them grow. This builds a collaborative spirit.
- They set ambitious goals. It gives the workers drive and fuels the collaborative spirit noted above.
A previous study has calculated that SMEs in Germany account for 99.95% of all companies, and provide training for 89% of all trainees, so their performance is critical. I’m sure the same can said in many other countries, and for me an attention to the qualities above will see a business through the turbulent times as well as the good times.
And I would add ‘trust’ to the list, because all will be lost if, in doing things right, we don’t do the right thing. In the construction industry as much as any other, ethics has no deference to size.
Iain Parker is a founding partner of Alinea Consulting