Special features and characteristics of SMEs in contrast to large companies

In my PhD I research with a focus on SMEs and I am often asked what the difference is and why SMEs have to be researched separately. Many also like to exchange ideas with me about SME 4.0 and ask themselves why I sometimes strongly separate my articles into SMEs and large companies. I would now like to give you an answer to that.

Characteristics of SMEs

The entire German corporate landscape is predominantly dominated by small and medium-sized companies (99.3% of all companies are SMEs in Germany), which are an important pillar of the German economy due to their innovative ability and experience. According to the definition of the EU (IfM Bonn 2018), SMEs are divided into three categories:

• Small business (up to 9 employees and 2 million euros in sales)
• Small companies (up to 49 employees and 10 million euros in sales)
• Medium-sized companies (up to 249 or 499 employees and 50 million sales)

There are two definitions. My experience has shown that many companies up to 499 employees still count themselves as SMEs. Overall, the term SME and medium-sized enterprise is initially the same. Furthermore, most of the small businesses are more traditional businesses with a focus on handicrafts such as carpenters etc. are. Small and medium-sized companies are also predominantly manufacturing companies and are thinking about the vision of Industry 4.0. A small number are software houses and consulting companies that offer knowledge-intensive services. This distribution can be deceptive. Most of the companies are very small, but the picture is very different when it comes to the employment rate.

Special features of SMEs and large companies

But what exactly is the difference between SMEs and large companies? On the one hand, I like to distinguish these from the fact that they have a low budget as a large company and often pursue long-term planning and sustainable strategies. Furthermore, these are often represented in a niche and have a high level of expertise, which is based on long-term employees. These are usually more flexible due to shorter decision-making paths and find themselves in a field of tension between tradition and change. Has another distinction Dr. Winfried Felser made in an article. So he contrasts large companies and SMEs. I have taken over parts of his table and will explain them briefly.
Limitation: Some points in the table sound a bit harsh or could be interpreted negatively. However, that is not the case. For example: “away from the customer”. In large companies there are many internal issues that are necessary from a certain point on. Longer coordination with many stakeholders and employees is also simply necessary. In any case, I would like to limit the fact that this is not to be interpreted negatively.

This shows that large companies often have more budget and that change support is often provided by a special focus team. In SMEs, on the other hand, money is often tight and the employees have to manage the change work alongside day-to-day business. Large companies also have the opportunity to purchase consulting services that are of little use in SMEs due to the low budget. In SMEs, there is often a much higher orientation towards day-to-day business, as this brings in sales and profit.  This also means that there are few internal topics. (Example: Large companies have a data protection department – SMEs often only have data protection officers who carry out this activity in addition to day-to-day business).
Also in SMEs, all employees are close to the customer (day-to-day business) and often even on-site with the customer. Due to the often short line to the managing director (especially in owner-managed companies), decisions are often made and implemented quickly. The focus is often on a sustainable strategy and maintaining sales. In large companies, on the other hand, there is more of a strategy depending on the current board of directors, which has to coordinate with many committees.

Digitization and agility in SMEs

In my doctorate, I checked SMEs for the difference in agility and digitization. There are numerous case studies on digitization, such as by  by Arbussa et al. (2017) as well as studies on the potential of digital change such as  Data analysis tools (O’Connor and Kelly 2017). As already stated by Lindner and Leyh (2018), it is  on the lower budget and the fact that SMEs are often less digitized than large companies. Therefore, according to the two authors, there is often a centralized and rather inflexible IT in SMEs, which, however, is often built up gradually and slowly due to the lower budget (Essers and Vaneker 2016).
There are also numerous articles on the subject of agility. Lindner and Leyh (2018) state the following: It is clear that SMEs are often seen as more agile and flexible due to their small size and often shorter decision-making paths (Arbussa et al. 2017). However, one thing applies to SMEs: rapid growth, which  can reduce this flexibility and agility. This is how agility is examined in the context of growth. Authors like  Branicki et al. (2017) speak of maintaining the so-called “entrepreneurial spirit” or authors such as Ng and Kee speak of post-agility in grown SMEs.
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Conclusion

There are numerous SMEs in Germany and they dominate the German corporate landscape. They are characterized by low budgets, short decision-making paths and a just do it mentality. They are also often players in a niche and have a long-term thinking and sustainable strategy that is based on long-term employees. SMEs are fundamentally more agile than large companies and, from the point of view of digitization, more retrograde, which is often due to the low budget.
I find the study of SMEs very exciting and I believe that SMEs in particular will become even more important. Since I have been working in SMEs myself since the beginning of my career (3 years), I can also say from my own experience that it is really worth recommending to look at SMEs in addition to large companies.
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