How Midsize Companies Can Turn Talent and Technology Challenges Into Transformative Change

In many ways, medium-sized companies are more vulnerable to the disruption caused by the pandemic than large corporations. However, they can chart a path to recovery by infusing agility into their talent management and technology.

Jillian Ogawa August 18, 2020
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All businesses took a hit at the onset of the pandemic, but for many midsize companies, the impact felt like a head-on collision.

A recent SMB Group survey measuring the initial scope of disruption on small to midsize companies had a staggering 75% of respondents saying COVID-19 negatively impacted their business. That’s a sharp contrast from a digital transformation study conducted a year ago when 64% of small to midsize businesses said they were optimistic about revenue growth.

But despite the unfavorable outlook, midsize businesses quickly made adjustments necessary to navigate the unprecedented landscape. In the same SMB Group survey, co-sponsored by Workday, 83% say cloud-based business applications have been valuable in sustaining the business during the pandemic, and 34% say COVID-19 accelerated their technology investments and adoption. As much as 67% of respondents say they expanded or established a new work from home program due to COVID-19, and 57% say they plan to increase their budget to support working from home over the next year.

That’s indicative of a key way midsize companies can navigate a path to recovery: ensure they have agility in their talent and technology. 

“Sometimes we embrace change, and sometimes we're forced into change,” says Debra Ferguson, an IBM partner and head of the North American HR offering for talent and transformation. “COVID has forced us all into change as we never imagined. You have to make a decision about whether you're going to allow this to happen to you, or are you going to ride this wave and be ready and agile enough to embrace it and come out on the other side.”

Why Midsize Businesses Are More Susceptible

Compared to large companies, medium-sized companies are more vulnerable to the disruption caused by the pandemic, says management consulting firm McKinsey in its report, “Setting Up Small and Medium-size Enterprises for Restart and Recovery.”

For example, midsize companies typically have limited cash reserves, which means they have less cushion to withstand plunging revenues due to weeks-long government orders to shelter in place. 

“At the start of the outbreak, two-thirds of SMEs (small and midsize enterprises) in China reported having enough cash to cover fixed costs for no more than two months. In the United States, an average small business has only 27 days of cash flow,” says McKinsey.

Also, many midsize companies lack the bandwidth to quickly adapt their supply chain and production processes impacted by the pandemic. 

Another factor is the prevalence of midsize companies in the hardest hit industries. In countries that are part of the Organization for Economic Co-operation and Development, 70% of businesses in the walloped industries, such as retail and hospitality, are midsize companies, says McKinsey. 

The pandemic also magnifies the challenges of attracting and retaining talent. Prior to COVID-19, medium-size firms were already competing for talent against larger firms that likely offer better salaries or more name recognition. Also, midsize companies tend to lack an internal HR infrastructure to develop strong recruitment and retention programs, which can have a major impact on a company’s growth.

But the lost business caused by the pandemic adds complexity to how medium-sized firms manage talent, especially since many small to midsize businesses are also having to lay off or reduce the hours of their employees.

Yet, what makes midsize companies vulnerable to the pandemic are also opportunities to emerge stronger after the downturn. 

“You have to make a decision about whether you're going to allow this to happen to you, or are you going to ride this wave and be ready and agile enough to embrace it and come out on the other side.”

Debra Ferguson IBM partner and head of the North American HR offering for talent and transformation

Opportunities Ahead to Emerge Stronger

Plans for returning to the office tend to focus on ensuring the health and safety of employees, but the strategy for workplace recovery should also include strengthening and reskilling the workforce. 

“Workers across industries must figure out how they can adapt to rapidly changing conditions, and companies have to learn how to match those workers to new roles and activities,” McKinsey says.

For midsize companies, closing the skills gap was already a concern before the pandemic. The coronavirus has accelerated that sense of urgency. And even though midsize companies are experiencing acute challenges related to the pandemic, the changed landscape also gives them advantages that weren’t available before. 

For example, the wide adoption of remote work has empowered not just employees to continue to do their jobs amid shelter-in-place orders; it’s also lifted location-based obstacles that prevented midsize companies from recruiting the best talent to grow their business. 

Because the pandemic accelerated the need for businesses and employees to quickly learn new ways of working, reskilling and upskilling are top of mind.

“The focus on skills is starting to come to the forefront,” says Matthew Gregory, associate partner and market leader for Distribution and Industrial Sectors in the IBM Workday Practice. “And I think what you're going to see is that it's going to become more of an expectation for all companies to go through that process of categorizing their skills and the jobs, and understanding where they have gaps.”

Path to Recovery: Investing in Data 

For many midsize companies, the disruption confirmed the value of cloud-based technology as a critical tool to sustain the business, as highlighted in the SMB report, “Navigating a Path Forward: How Will SMBs Get to the Next Normal?”

But the value of cloud-based technology goes beyond helping companies survive the global crisis—the technology sets up businesses for future success. After all, times of uncertainty heighten the importance of making insights more accessible across an organization. And bringing together financial, workforce, and operational data will help organizations uncover ways to cope with the pandemic while building a future business model.

In other words, midsize companies that continue to invest in digital transformation put themselves in a stronger position to thrive in whatever the next “normal” looks like. 

Investing may feel counterintuitive to midsize companies, especially since many are having to reduce their expenses as a result of lost business stemming from the pandemic. But, some midsize companies might still have an opportunity to create a future-proofed workforce plan by using data accessible through cloud-based technology. 

Ferguson describes how it could work: “One of the things we find in medium-size firms is that knowing your people is not just knowing them because you're a smaller firm,” Ferguson said. “Knowing them is having the data that supports ‘do I know what job they have? What skills and competencies are associated with that job?’” 

Those data-driven talent profiles can be used to identify skills gaps in the organization, helping companies make informed decisions that are aligned with long-term goals.

“All of that has to come from having the right data at hand to make sure that you're making very informed decisions,” she continues. “So when we get onto the other side of this, you're ultimately having a future-proofed workforce plan in place, which gets your organization out of that wave a lot faster than others who don't have the technology.”

When the economy picks up again and small and midsize companies need to turn to recruiting and retaining talent, it’s a fact that data helps midsize organizations identify opportunities to shape the workforce they need for the future. 

“Coming out of this, there's going to be a lot of talent out there,” says IBM’s Gregory. “And being able to take stock of what you have within your organization, understand where your business is going, and upskill or reskill your talent aligned to that direction, is going to be a real game-changer for the companies that are able to absorb the data to make decisions. They'll be ahead of the curve.”

Midsize companies still have an opportunity to create a future-proofed workforce plan by using data accessible through cloud-based technology.

What’s Next for Midsize Businesses: HR as a Partner

In small to midsize organizations, individuals tend to fill many roles. Midsize businesses can leverage that strength in their path to recovery, especially in how they utilize HR.

“Free [HR] from the administrative tasks and let them be more analytical so that they are a partner to you, embedded in your business, and can help you grow when we exit the pandemic,” Ferguson says.

The disruption has accelerated this need. As highlighted in the aforementioned SMB report, many midsize companies were already using the most necessary online solutions before the pandemic, and since the onset of the crisis, many more are putting cloud-based solutions in place. 

It’s why midsize companies must take stock of how their HR applications enable their HR teams to identify opportunities amid uncertainty and build a workforce that will thrive in the next normal. For example, some organizations have overengineered their processes with multiple disparate smaller systems or manual processes, which limits the agility necessary for emerging stronger.

“HR is there to help with growth, productivity, making sure people are engaged,” Ferguson says. “Taking stock, breaking down the processes, and creating as much efficiency as possible will give you resiliency and flexibility moving forward.”

Learn more about solutions for midsize companies by visiting "Getting the Basics Right" series and viewing our webinar, "Navigating the Changing Business Landscape for Midsize Organizations."

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