David and Goliath: How to understand each other and work together effectively
Small and Medium-Sized Enterprises (SMEs) play a vital role in everything we do within the QinetiQ Group. Hugh Griffiths, CEO at Inzpire – part of the QinetiQ Group – shares his thoughts on how SMEs and Primes can work together in the defence market and how these partnerships can come to benefit all involved.
There are just so many great things about Small and Medium-Sized Enterprises (SMEs): the agility, the passion, the energy, the flexibility, and the entrepreneurial culture, to name just a few. SME’s are an engine room of innovation and growth. They are also key to the UK export and prosperity agendas. According to the Federation of Small Businesses there were 5.9 million private sector businesses in the UK at the start of 2019 and well over 99% were SMEs! 60% of all private sector employment is actually with SMEs and the combined annual turnover of SMEs was £2.2 trillion, which is over half the total UK business turnover. SMEs matter!
The Government realises this and has established a target of ensuring that 33% of all Government expenditure passes to SMEs, directly or indirectly, by 2022. It has set up a Cabinet Office SME Panel to advise it on how best to achieve this. Large prime contractors (particularly in Defence) probably need to get better at understanding SMEs and working with them because change is coming. Equally, Small and Medium-Sized Enterprises (SMEs) need to get better at working with and understanding primes, because they have to coexist with them and they are a route to growth and expansion.
Competition is not necessarily the best way. Working together, so much more can be achieved. It is possible to have a truly symbiotic relationship in which the relative strengths of both types of organisation are combined in an incredibly powerful fusion. This is what is currently happening with QinetiQ and Inzpire, but more of that later. Both SMEs and primes can, and should, learn off each other. This requires mutual understanding, mutual respect, and a willingness to avoid mirror imaging on both sides. The worst thing either organisation can do is to try and turn the other organisation into a clone of itself.
Let’s explore that a bit. SMEs tend to attract a particular type of person. This type of person probably does not want to work in a prime contractor (otherwise they would be doing so). Those who prefer to work in an SME are no better or worse than those who prefer to work in a larger organisation, just perhaps different. Humanity is a rich, multi-coloured, tapestry and it takes all sorts. An important factor in achieving effective prime-SME collaboration, therefore, is respecting the different motivations and personality types in each organisation, and resisting the natural desire to impose conformity and control.
People who work in SMEs should appreciate the vast wealth of talent, passion, commitment and deep experience that resides in prime contractors. Employees of prime contractors should understand the sheer breadth of experience that anyone working in an SME acquires very quickly. You learn lots of things in an SME because everyone essentially does everything. Employees are immersed in just about every aspect of business on a daily basis: finance, bid writing, marketing, grand strategy, operations strategy, HR, and more. This creates talented generalists who can turn their hand to just about anything. In primes, people tend to be more confined to specific areas (and are therefore perhaps more expert in them).
Returning to the issues of conformity and control, it is really important that primes do not suffocate their SME partners with their own externally imposed processes, or make SMEs comply with policies that undermine the very basis of their competitive advantage. Just let SMEs be who they are, and let them do what they do - everyone will benefit that way. Forcing the process and structure of a prime onto an SME can destroy the very source of value that they are trying to give you. Do not make them operate like you. They probably don’t have the capability to do so and you risk killing the goose that may lay you a golden egg.
SMEs on the other hand must accept that, without a willingness to collaborate, compromise, and work in ways that may feel unnatural; an effective prime-SME relationship becomes impossible – which means there is no point having the relationship with the prime in the first place. It can be frustrating for an SME to have to adjust to the ways of a larger organisation but it can be worth it. Having a big muscular friend is often useful. Niche is fine but, as the Russians used to say in the cold war, “quantity has a quality all of its own”.
Any ambitious SME is going to want to scale up and a healthy prime-SME relationship is going to be critical in achieving this. The right relationship – one that that respects appropriate red lines on both sides - can be transformational and give an SME access to so much more than it would be able to achieve itself: international distribution channels, R&D capabilities, enhanced marketing, reselling opportunities, lobbying, economies of scale and scope and a vast pool of committed and dedicated people within the prime.
Dealing effectively with cultural mismatches is also critical. Most prime-SME relationships fail because of a fundamental mismatch of cultures. This is a well-documented, and well understood, phenomenon. Business school case studies are full of examples. SMEs are generally much more risk-tolerant than primes, move quicker and operate in ways that can feel anarchic and apparently chaotic to larger organisations. They can seem a bit ‘Wild West’. This can feel uncomfortable for larger organisations, with institutional shareholders, since they tend to value predictability, stability, a methodical approach, and risk reduction through data-driven decision making. They also tend to be better resourced. In my experience, SMEs tend to work in less structured, quicker, more intuitive, less hierarchical ways and are highly opportunistic. For an effective prime-SME relationship to exist, a way has to be found for both these approaches to coexist.
However, a prime-SME relationship can work brilliantly. The relationship between Inzpire and QinetiQ is a great example. QinetiQ is the majority shareholder in Inzpire but, despite this, Inzpire continues to operate with operational independence and in much the same way as it did before QinetiQ’s involvement. This is a highly intelligent approach from QinetiQ since both Inzpire and QinetiQ are thus able to extract maximum value from the relationship. The way the QinetiQ investment into Inzpire has been handled has been, from the outset, incredibly thoughtful - seeking to preserve the essence of a niche player, while scaling it up, and ensuring that it makes a full contribution to ever expanding QinetiQ Group.
The proof is in the pudding. Since the 2018 investment by QinetiQ, Inzpire has grown by around 50-60% and has become involved in several projects that it would not have attempted alone. Equally, QinetiQ has benefitted from Inzpire’s niche capabilities – which have enabled some big wins. Throughout all this, Inzpire has retained its brand, culture, values, ethos and operating independence. Neither organisation has lost anything, both have gained tremendously, and our mutual success is accelerating rapidly. This is how a prime-SME relationship should work. Long may it continue!
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