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Tuesday, August 29, 2000

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Capability development mission for SSIs

K. Ramachandran

THE GOVERNMENT's decision to de-reserve some and raise investment limits on some other items currently reserved for SSI sector is a clear indication of the shape of things to come. Small firms have to learn to stand on their own feet and fight for their survival in the market. However, the Government has not announced any specific strategy to facilitate this learning. The Planning Commission has recommended allocation of about Rs. 5,000 crores for technology development and working capital requirements of small-scale industries (SSIs). The assumption seems to be that all problems of SSIs can be solved by such measures.

While working capital shortage is more often a symptom, the root cause of most problems and the lack of competitiveness lies in the inadequate match between the capabilities required for success and those available with the firms. The SSIs will wither aw ay in the heat of competition unless some measures are taken now at the national level. What kind of capabilities are we talking about? How do we develop them?

The challenges faced by SSIs can be either categorised as controllable or uncontrollable or as a combination of both; the extent of controllability is relative to the knowledge, skill and confidence level of the owner/manager. For instance, shortage of working capital is widely attributed as an uncontrollable challenge as funds have to come from banks that have their own norms for lending. A closer look would show that working capital is a function of the bargaining power of buyers and suppliers and in ternal efficiency of operations.

These, in turn, are influenced by a number of other variables. Besides, clarity of customer needs and identification of critical success factors have very important influence on the working capital cycle. Many of them are controllable if prudent decision s are taken on areas such as product quality, process efficiency and market positioning. Similarly, lack of awareness about market opportunities and changing technologies is not always due to complete absence of information but because mechanisms for the ir availability are not perfect. In short, many of the so called `uncontrollable' factors are actually controllable, at least partially.

The key to the challenge then is to build firm-level capabilities; while the efforts made to strengthen hardware capabilities including technology and funds are appreciated, not much is done on the software side. This includes understanding of the concep ts and processes of analysis of challenges and skills to tackle them. Entrepreneurs should be able to address the challenges they face from multiple perspectives and evaluate implications for their inputs, processes and outputs. A combination of these sk ills, knowledge and attitude form the capabilities required to enable entrepreneurs to tackle, or at least bring down the negative impact of challenges. Unfortunately, most development agencies and expert committees have assumed that the basket of soft skills is full and there is no need to develop and harness them. They look for solutions elsewhere.

It is in this context that the demand for a new national initiative for capability development has been mooted. A major national-level project to develop management capabilities in entrepreneurs is needed, similar to the EDP revolution of the 1980s and t he 1990s when entrepreneurship development programmes (EDPs) were conducted all over the country, with major involvement of financial and training institutions. Huge amounts of money were spent on EDPs to help start businesses. Since the focus was on the number of start-ups, nobody seemed to bother about the management of those firms.

The emphasis then was on motivating people to start their own businesses. What is required now is to take up the next phase -- that of developing managerial capabilities. The high level of mortality among SSIs shows that supporting entrepreneurs at the s tart-up level may not be good enough; they need further guidance in management too.

Capabilities can be built either experientially or through training. While they need to know some of the basic tools and techniques of management, what is most important is developing skills for analysing any challenge and arriving at solutions. This ess entially involves clear definition of the challenge, evaluation of all possible alternative solutions using a set of criteria, and arriving at solutions accordingly. This needs to be developed over a period of time, and cannot be imparted overnight. Anal ytical skills should become part of the reflex system of an entrepreneur which will enable him to address any challenge systematically. How do we develop such skills?

Drawing from experience with different pedagogical tools, it is found that workshops with heavy participant involvement are most suitable for this purpose. Entrepreneurs should be trained to analyse their business situations and identify solutions. These workshops should have more than one phase. While the first phase can focus on developing analytical skills and use of management tools, the subsequent phases can be used to sharpen them by applying them in their business contexts. Some premier manageme nt institutions are already offering programmes on these lines. Since it is not feasible for a few institutions to take care of the needs of millions of small entrepreneurs, a number of other institutions should also be involved in such an SSI-capabilit y-building project. Already, there are a number of institutions offering SSI consultancy and entrepreneurship development. Because of their constant interactions with entrepreneurs, especially at pre-start-up stage, they are well-positioned to take on th is responsibility. Qualified experts in these institutions can become effective trainers in developing analytical skills and basic management tools. Some of the universities may also be interested in such a project.

The above will be a win-win formula for both the government and the consulting/training institutions involved for a number of reasons. One, this will be a major opportunity to leverage on their existing skills with new inputs added; two, they are geogra phically better positioned to handle the challenges of SSIs which may need frequent interactions with experts; three, they have a pool of EDP trainers whose expertise is not fully utilised currently for want of `real' EDPs; four, participants of such pro grammes can turn to them for management consultancy later; and, five, this will be an important source of revenue for them.

In short, such a national level project on capability development in SSIs is urgently required. SIDBI, as the apex institution for SSI development, and with the experience of supporting a programme for SSI young managers, is probably best equipped to cha mpion this cause, with assistance from the Government and international agencies.

(The author is a professor of strategy and entrepreneurship at the Indian Institute of Management, Ahmedabad.)

Related links:
SSI infrastructure fund mooted
Study Group on SSI to present report today

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