A study by the European Commission (0.6MB PDF) in 2002 identified 4 key drivers of entrepreneurship and small firm development in Europe. These were:

• Continuous technological developments
• Shorter product life-cycles
• Increasingly demanding consumers
• Global competition

Research in 2006 by the Institute of Chartered Accountants of England and Wales (ICAEW) (based on a survey of 1,000 companies) revealed that 60% of companies with 49 or fewer staff bought goods or services from abroad or had customers or operations there.

“Increasingly, small businesses do not start off trading locally as they did in the past,” said Clive Lewis, ICAEW head of enterprise. “If you have a website you can think globally from the beginning”.

[from Small companies look beyond local to go global in the Financial Times, Thursday October 12, 2006, page 4]

The drivers of this trend according to the ICAEW have been globalisation together with the spiralling cost associated with red tape. Increased staffing costs were also becoming a problem for UK SMEs and was a primary reason for the outsourcing of back office jobs to the low cost economies in Eastern Europe and Asia . This is a trend that is likely to double over the next five years.

It is not just in the area of back office support services that SMEs (Small and medium enterprises) and small business start-ups are seeking overseas resources. If a business’ core product or service is information-based then virtual structures, using the Internet as a conduit, may have spawned new form of mini-multinational. For example, GNI is a biotechnology start-up that carries out research in Cambridge UK, data analysis in Japan, clinical trials in China and sells its outputs in the USA to large pharmaceutical companies.

“We take the best of what is available in each country and put them together,” says Mr Savoie GNI’s founder

[from March of the mini-multinational in the Financial Times onThursday May 4, 2006, page 12]

Video conferencing is used to link up personnel and the organisation is able to exploit national differences, cost and expertise to operate as a mini-multinational. Carol Cherkis, Vice President of GNI says that GNI is not a virtual company but a real company “It’s just that we are not all in the same place” [from March of the mini-multinational in the Financial Times on Thursday May 4, 2006, page 12].

Another example of a virtual mini-multinational is Lingo 24 which is a translation company  employing 40 staff in China, New Zealand and Romania with a turnover of £1.5 million and profits of £120,00 (as in 2004). The company’s headquarters are a two bedroom house in Deptford where clients ranging from BP, Honda, Ikea Orange and Travelex are served. Instead of having to physically travel to expensive offices employees can simply log on to a Lingo 24’s central database to obtain all the necessary information relating to translation projects. Homeworking and using international staff reduces overhead costs by 30% and permits a 24/7 service to be offered. Lingo 24 communicate on a daily basis using Skype and e-mail whilst the company intranet is used to monitor quality and provide an editorial oversight.

Richard Portes, an expert on globalisation at London Business School, said: “Small businesses are now operating on a global scale. They could not have done [this] 15 years ago.” Professor Portes added: “The advantage small businesses have is that they are not burdened with long lines of command, where important pieces of information come from operations in one country [back to the centre] then travel up and down chains of command”.

[from Small companies look beyond local to go global in the Financial Times, Thursday October 12, 2006, page 4]

So has the Internet spawned a new form of organisational structure and a new source of competitive advantage for agile and responsive entrepreneurial companies? Are the “big boys” shaking in their boots and would it be premature to start throwing out the textbooks on downsizing, delayering and business process re-engineering…….. or is this just a passing fad?

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

Two of the leading technology web sites, silicon.com and its sister site, ZDNet.co.uk, recently reported that spending on consultants by the Home Office had reached £147m in 2006/07 – up from £7.6m when new Labour came to power in 1997. This figure includes spending by the Identity and Passport Service (IPS) – responsible for the soon to be launched ID card – of £30m. The two reports quote Home Office Minister Liam Byrne’s response to criticism of this huge increase. Byrne argued that it was necessary to buy in ‘…specialist knowledge, skill, capacity and technical expertise that would not otherwise be available.’ and that the vast majority was attributed to large outsourcing contracts and IT projects.

Photograph by stevecadman, used under Creative Commons license

The Home Office’s spending on consultants is only a small part of the total amount of public money that flows to the consultancy industry, of course. In its 2006 report Central Government’s use of Consultants, The National Audit Office (NAO) stated that spending hit a high point of £2 billion in 2003/04 – up from £217 million in 1997. The authors of Plundering the Public Sector estimate that around two-thirds of this amount goes on IT systems consultants; a claim borne out by the NAO’s finding that the five consultancy companies with the highest earning from government are all primarily IT focused.

There are understandable reasons why the consultancy industry occupies such a powerful position in government and public services in the UK – particularly in IT. One of the most significant, as Helen Margetts points out in 'E-Government in Britain — A Decade On' (in Parliamentary Affairs), was the 1990s pursuit of ‘…a particularly radical form of IT outsourcing (or “totalsourcing”), in which government agencies retained very little expertise internally.’ The upshot, as Margetts goes on to note, was that by the early 2000s this had created a situation where five IT services and supply companies held 90 percent of the government market in the UK.

However, there's a second dimension to this relationship that lies beyond the often reported scale and scope of operations. This is the rise of what's been called the ‘consultocracy’: the number of senior personnel in government and the civil service who have a consultancy background and/or interests. In fact Liam Byrne will be familiar with this situation as he previously worked for Accenture (formerly Andersen Consulting), as did James Hall, the current Chief Executive of the IPS. There are many other past and present examples I could cite but space prevent this. Suffice to note that this is not a new development. The process started in the late 1960s through the Fulton Committee’s review of the civil service. By the early 1980s the relationship had developed to such an extent that the Management Consultancies Association (MCA) had begun to arrange a regular series of meetings between its representatives and senior civil servants. And by the early 1990s the head of the Prime Minister’s policy unit was a consultant from McKinsey.

There are several ways in which we can examine the significance of this relationship. One relatively straightforward approach is to analyse how many of the bases or sources of organisational and institutional power the industry and its stakeholders and supporters in government can utilise. I’d argue it’s all of the following: formal authority, the use of organizational structure, rules and regulations, the ability to cope with uncertainty, symbolism and the management of meaning, structural factors that define the stage of action and interpersonal alliances, networks, and “informal organisation”. Six further bases relate specifically to control and of these the control of scarce resources, decision processes, knowledge and information, boundaries, and technology are also highly significant.

In short, when both dimensions of the relationship are combined it's doubtful whether any other stakeholder group enjoys such a potentially influential position in central government policy making and implementation, particularly if it's IT related - which is nowadays pretty much everything. This raises a number of significant questions, two of which I’d highlight.

The first stems from comparative research reported in Digital Era Governance, that ‘…the greater the overall power of the IT industry in a country, the lower the performance of government IT systems.’ The question posed, therefore, is whether in countries where we also have to contend with the power and influence of a largely IT-centred consultancy industry  does this create a double wammy - aggravating this situation further, therefore making the development and implementation of best value, effective, government and public sector IT systems even less likely? 

The second relates to a long standing concern of scholars of policy studies and political science, and a good number of ordinary citizens as well: is the credibility, legitimacy and function of the policy process in a democracy undermined when the formulation, implementation and evaluation of public policy is dominated by one set of stakeholders? Furthermore, is this situation compounded where the basis of this relationship is such that transparency and oversight - even by Parliamentary bodies - can be significantly restricted by claiming commercial confidentiality? Call me naive or lacking a grasp of real politic but my reading of the evidence suggests the answer is yes, yes and yes. 

About the author

Ivan Horrocks is a lecturer and member of the Technology Management Group at The Open University. He has written many publications about the relationship between information and communication technologies (ICTs) and government and politics.

In these turbulent times, almost every firm is affected by factors beyond its control. The credit crunch and plummeting consumer confidence are behind a raft of recent reports of job losses and profit warnings. Yet three recent but very different examples show how some firms cope with market turbulence better than others. JJB, the UK chain of sports shops has announced big job cuts whilst General Electric, that exemplar of US business excellence, failed to meet its earnings forecasts. By contrast, Experian, the credit-checking firm, saw sales rise 21% even though its big bank customers pulled in their horns a lot. These differences, and what they can teach the rest of us, can be understood by management research.

The simple explanation is that firms like Experian had more foresight than the others. They read the runes of economic, political, social and other changes to anticipate the market and acted accordingly. Academics call these things the “remote environment”, in contrast to the “near environment” of customers and competitors. But the broader and more practically useful question is how did they do this; how do some firms manage to draw sense from the cacophony of the business environment?

There are three sets of management research ideas that help us to answer this question:

The first is that about how managers “scan” the market. This shows that we all do it differently. For example, some of us are ad hoc, whilst others are systematic. This research also tells us that complex environments need more rigour and process and that management teams need a blend of scanning styles.

The second is about how firms make sense of what they see. This shows that data, information, knowledge and insight are different things and the core skill is converting data into information, then into knowledge and then sieving valuable insight from a mountain of knowledge.

The final idea is about how managers create strategy from insight. This shows that it is a much intuition as analysis and that it often comes in a flash of inspiration. Managers need to gather relevant past lessons and synthesise them into a new vision of the future. To do this, they have to have clear minds and not get lost in the detail.

Put like that, it all seems common sense but, as Voltaire said, common sense is not so common. Many firms think market insight can be made just by throwing enough computing power at enough data. They get obsessed with algorithms and data collection and lose sight of the unique power of human beings to synthesise information from many different sources. Good firms, by contrast, follow some simple rules to avoid this trap, such as combining quantitative and qualitative data and using that data testing their long-held assumptions.

And the practical moral of the story? Don’t be fooled by the patter of the IT salespeople. There are mountains of good, and unbiased, management research about how to make sense of the market, research that helps you to be both forewarned and forearmed.

Further Reading

• Open University Course B201 - Business Organisations and their Environments.
• Strategic Intuition: The Creative Spark in Human Intuition by William Duggan, published by Columbia Business School Publishing,
• Creating Market Insight: How Firms Create Value From Market Understanding. By Brian D Smith & Paul G Raspin from Wiley.
• The Marketer's Stone by Dr Brian Smith, Dr Hugh Wilson and Professor Moira Clark, published in The Marketer, 2006 (article  available free on request)

About the author

Dr Brian D Smith is a Visiting Research Fellow in The Open University’s Marketing and Strategy Research Unit. He is the author of over 100 books and articles and runs PragMedic, a specialist strategy consultancy.