Principal investigator: 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
Location of the Intervention: Global
Sample Size: 85 articles
Main theme: Corporate
Main Variable of Interest: Resilience
Type of Intervention: Analysis of how SMEs operating in the service sector have dealt with the disruptions caused by the pandemic.
Methodology: Business Model Canvas
Companies faced numerous challenges during the COVID-19 pandemic, and their response to this shock affected their resilience and their chances of overcoming the crisis. In this context, Gregurec, Tomičić Furjan, and Tomičić-Pupek (2021) investigate how Small and Medium Enterprises (SMEs) operating in the service sector have dealt with the disruptions caused by the pandemic. By comparing the results obtained in their study with those of other research, the authors observed that all lead to common conclusions, despite dealing with different technologies, sectors, and motivators. That is, the pandemic situation has led many companies to rethink their business models, seek to learn from other companies, and focus on the environmental, sectoral, economic, technological, and social factors that influence how business is conducted.
Context of the Evaluation
The COVID-19 pandemic that began in 2020 impacted businesses of all sizes and across all sectors. While some sectors showed a degree of resilience or even found a new operational niche, most small and medium-sized service sector businesses found themselves in "new normal operating environments."
To slow the pandemic, several countries suspended business activities and adopted social distancing to reduce the transmission of the virus. This led to lockdowns, a drop in consumption, and business closures. Many economic experts see this pandemic as a metaphorical "black swan" event, that is, an unpredictable event of great magnitude and serious consequences that drastically alters the political and economic environment, potentially causing business bankruptcies. 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 financially impacted due to their limited resources and lack of experience. Based on a shared understanding of the factors that can impact how companies are coping with their survival during the pandemic, a three-dimensional approach may be interesting. First, the operating industry and sectors within the industry influence the exposure of SMEs, as they tend to be more concentrated in sectors that were directly affected by COVID-19 response measures. Second, various transformation drivers define the course of response and shape the direction of transformation. Third, due to the pandemic, SMEs are introducing digital technologies that were not previously considered high priority, as a way to avoid the complete 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 what technologies are being selected to respond to this crisis? how do the operational service sector, the drivers of transformation, and the technology selected influence the redefinition of sustainable business models in SMEs?
Therefore, the research aims to gain insights into which drivers of transformation companies focused on and which technologies they selected as a means of responding to disruption. These insights into SMEs are then explored according to their influence on redefining sustainable business models. To achieve the goal of finding academic and practical implications for making SME business models more sustainable, a comprehensive literature review was conducted to fill the gap in understanding how the pandemic affected existing SME business models.
Methodology Details
The literature review was conducted in the following steps: performing a search of relevant databases and research platforms; constructing a research framework for qualitative analysis; applying the qualitative analysis framework; and exploring 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, from 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 the combination of keywords: 'Small and medium-sized enterprises', 'entrepreneurship', 'service sector', 'pandemic', and 'COVID-19'. The search was conducted in December 2020 and resulted in a total of 89 accesses. After merging all 89 articles, duplicate documents were excluded, totaling 85 different articles for further analysis.
Alongside the research, the dimensions of the research framework for the study were constructed 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 from the three dimensions of the 85 selected articles were extracted and coded. Based on the three dimensions, the collected scientific literature was investigated to identify sub-concepts across the dimensions. Each time a new sub-concept 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 is setting the stage for the digital environment in which companies operate. A study 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 most frequently selected technologies as tools for transforming communication channels and/or service delivery. 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 can result in greater impact; however, they are not as commonly used by the general public due to the complexity of the technology, lack of public experience in their use, long implementation periods, need for additional equipment, etc. The use of technological solutions with short implementation periods and that are geared towards enabling the desired value propositions would contribute to supporting SMEs in their efforts to respond quickly to lockdowns.
The overall scope and scale were not the focus of the research, but the study succeeded in obtaining timely and real insights into alternative approaches used by SMEs to cope with the pandemic. At the strategic level, strategic approaches that address a highly unpredictable environment and are viable in the pandemic crisis faced by businesses include: followers (adaptive approach), challengers (modeling approach), and total reset (renewal approach). Each of the options for SMEs brings potential benefits and risks:
- A follower SME decides to mirror how competitors in the same service sector operate, which puts a specific driver in focus. It implements similar technologies, just like the others. By implementing the same technology solutions, it can benefit from choosing an off-the-shelf solution. This would constitute a quick response to changes in the market and customer behavior. On the other hand, such "merging" with competitors means that the SME fails to differentiate itself. This is a risk and depends on the company's willingness to apply the same digital technology.
- A challenging SME can differentiate itself and offer a value proposition that differs from others. This personalized value proposition can arise from a different driver focus and/or the application of a technology that others have not considered. Technology solutions geared towards personalization 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.
- SMEs that are "reinventing themselves" (those applying the renewal strategy approach) could rethink their operational services sector if the technology drivers 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 riskiest.
In normal environments, SMEs struggle to decide when and how to balance exploiting existing products/services with exploring new ones. 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 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 and responsiveness of SMEs can be seen as an advantage over large companies regarding strategic ambidexterity. However, they often lack the capacity 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.
Lessons in Public Policy
One limitation of the research, according to Gregurec, Tomičić Furjan, and Tomičić-Pupek (2021), is that the results are based only on secondary sources; that is, the publications reporting on the topic cannot be considered comprehensive. In future studies, this type of qualitative research could be conducted by directly studying SMEs. In this case, the results could also be used to improve the targeting of financial aid initiatives. Mitigation measures in the form of financial aid may contribute to maintaining 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 work environment should be the focus of long-term policies.
Acquiring new skills, enhancing knowledge and gaining experience, as well as building strategic alliances with stakeholders, can all be done during lockdowns, i.e., when businesses are unable to operate. Academia and consulting professionals should also contribute according to their role in the community, offering more learning programs through online course platforms, and conducting Research, Development and Innovation (R&D&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 more intensely and opportunely. Strategic ambidexterity in shorter cycles, balancing measures, and focusing on building innovation are not limited to SMEs. Developing new competencies, improving experience management, and enhancing professionals' expertise in applying new technologies to business models during the pandemic is an essential need for long-term regional development. By focusing on this, SMEs will not only survive this crisis, but they will also be able to adopt new technologies and become more competitive in other challenging conditions.
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.
