For a mid-sized fashion business, “Managing stock across multiple channels, ensuring fast and accurate order fulfilment, and handling a higher volume of customer data have all added more complexity to our operations,” says the CTO. So the company is seeking ways to streamline stock management and utilise customer data with new technology tools.

Many medium-sized companies are on a similar path, according to a recent SAP Insights global survey of 12,003 senior business leaders in companies with 250–1,500 employees. These executives and managers reported that they are working both to grow their businesses and to simplify processes that have become overly complex. In follow-up interviews, a few executives, such as the fashion company CTO, elaborated on their plans and challenges.

Of course, even when companies are pursuing the same broad objectives, they may approach them differently. Those whom we are calling expansion-minded choose to grow by expanding their distribution channels and market presence, while others pursue different strategies.

Similarly, companies may take different approaches to streamlining their operations. Organisations we’re calling improvement-minded might focus on improving their processes and operations, while others are more focused on cutting back or eliminating them. The improvement-minded respondents favour two strategies: they are either making incremental changes, such as increasing integration or automation, or they are improving their processes for developing new products and services.

We looked further into how the companies focused on expansion and improvement were pursuing their goals and found they share a few approaches to achieving them. For one thing, they are more likely to be investing in new or updated technologies, such as analytics and other decision-making tools, than respondents who are prioritising other forms of growth or simplification.

They also think somewhat differently about the role of artificial intelligence in their organisations. As they explore the transformative possibilities of AI, they are more likely to be taking steps to improve data security and privacy.

Let’s look in more detail at how medium-sized companies are pursuing their growth and simplification goals while addressing their challenges.

Expanding distribution networks is a top growth priority

Medium-sized companies are most likely to cite expanding their distribution channels and partners as their top strategy for business growth from a list of six priorities. Nearly half (43.3%) ranked it first, whilst 74.6% of respondents included it among their top three.

A slightly higher percentage of respondents (79.3%) ranked expanding their existing market presence as a top three choice, but only 20% ranked it first. Increasing the scale of business operations came a distant third. Just over half (54.3%) included it in their top three, with 17.7% ranking it number one.

Product development and systems integration are top simplification priorities

Most respondents are also focused on simplifying their operations. From a list of nine priorities, they were most likely to rank improving their processes for developing new products and services as their number one strategy (23%) or among their top three (54.5%).

Also, among the top three strategies—increasing integration between enterprise systems (51.8%) and improving cost control and managing expenditure (44.7%).

Although a higher percentage of respondents ranked restructuring the workforce as their number one simplification strategy than either integration or cost control, reorganising or reducing staff was significantly less popular than the top three overall.

Challenges with supply chains

The CFO at a growing US-based industrial manufacturer is trying to determine who in the organisation is selecting suppliers and who is validating whether those suppliers can carry out the work requested of them.

Since the end of the COVID-19 pandemic, staff have been “just doing things they had to do to get things done,” the CFO says. “They were so busy that they weren’t focusing on how to make things better and cheaper. Our orders went through the roof… and it didn't matter how much it cost because you were just trying to get everything done and you were making money as you were doing it.”

Now that sales have stabilised, however, the company needs more controlled and streamlined sourcing processes. It’s a common theme. In fact, 39.1% of respondents cited weak procurement and supply chain processes as a barrier to growth. Furthermore, they were considerably more likely to rank it among their top three internal challenges.

Also, among the top three challenges—lack of quality data and tools for planning and decision-making (34.9%). Even if they had these, they might still struggle to share their valuable data due to a lack of integration between systems (cited by 33.4%).

Plans for growth

As we noted, survey respondents most frequently cited expanding distribution channels and partners or expanding existing market presence among the top three growth priorities. To understand how companies are pursuing these and other strategies, we took a closer look at respondents who cited the expansion-focused objectives over less popular choices.

Nearly 100% of the most expansion-minded companies chose expanding distribution channels and partners or market presence as one of their top three priorities. By comparison, fewer than one-third of the least expansion-minded companies regard these as their main goals.

Entering new markets ranked third for respondents in both groups. Nearly half of the most expansion-minded (49.3%) included it as a top three priority, compared to 45.3% for the least expansion-minded.

Generally, the least expansion-minded group is more varied in its aims. Notably, 41.8% of them cited completing mergers and acquisitions as a top three priority—a goal that 97.6% of the most expansion-minded companies ranked last.

Looking at how respondents planned to achieve their goals, we found that the most expansion-minded companies were significantly more likely to be focused on three areas:

• Developing or expanding skills and talent
• Improving and/or expanding existing supplier and partner networks
• Increasing automation of business processes.

It is no surprise, given their aims for expanding distribution channels and partners, to find attention to supply chains among the most expansion-minded companies’ top plans. They are also considerably more likely than the least expansion-minded companies to regard disruptions and weaknesses in their procurement and supply chains as a challenge.

One US-based retailer is taking “a multi-pronged approach” to supply chain expansion, says its CTO. “Firstly, we have diversified our supplier base to reduce reliance on any single source. This has helped us create greater flexibility in our procurement process. We have also invested in technology that provides better visibility across our supply chain, allowing us to anticipate potential disruptions earlier and respond more quickly.”

In comparison, the least expansion-minded companies were significantly more likely to be reducing the complexity of their business processes to support their growth plans.

Focused on data

The most expansion-minded respondents are also significantly more likely to say they are investing in analytics products and decision-making tools (55.1%), as well as in business software systems and tools (51.7%). And they are significantly less likely to be migrating systems to the cloud (possibly because their systems are cloud-native) or outsourcing their systems to a managed service provider.

However, a law firm upgraded from an on-premises ERP system to an updated, cloud-based financial system partly because it offered a new suite of analytics tools. Staff can now carry out on-the-spot reporting, the CTO says. “With better data, we are able to grow the business. We take a look at the profitability of staffing. If, for instance, the firm has worked on five deals to acquire hospitals, they can more easily determine which deal was most profitable and use that information to decide how to staff the next one.

Like respondents overall, the most expansion-minded companies also care about simplification. This group is significantly more likely to rank simplifying their processes for developing new products and services among their top three simplification strategies (60.8%) than the least expansion-minded companies (47.2%), even though this is the most popular choice for both groups.

To simplify, several approaches

Just as we looked for insights into how companies approached growth, we sought to shed light on their approaches to simplification. We found that companies focused on improvement have implemented two distinct strategies. One is simplifying through a series of incremental changes. The other focuses on simplifying its processes for developing new products or services.

Among the companies engaged in incremental change, 92.4% ranked increasing integration between enterprise systems among their top three simplification strategies, along with increasing process automation (86.2%) and improving cost control and managing expenditure (71.2%).

A retailer in Australia, for example, is improving the integration of its product development lifecycle with its supply chain processes. “We are implementing a proper product lifecycle management system where everything is centralised, under one database, and everyone has processes to follow rather than each product developer having their own spreadsheet of technical specifications,” says the retailer’s Head of IT. “By putting these systems in place, we have a central repository of everything that can be integrated directly into the main ERP system, which would then drive the supply chain processes.”

Among the companies focused on process improvement, 80.5% rank this strategy in their top three, followed by increasing integration (68.8%). They rank improving cost control and managing expenditure (49.9%) a more distant third than the incremental change group.

When a professional services firm decided to offer an AI-based service, it looked externally rather than embarking on a complex development project from scratch that might duplicate existing technology. First, they asked existing suppliers what they were planning in their AI strategy. They also worked with dozens of start-ups to learn about “potential opportunities to rethink and re-innovate doing something very differently from how we are doing it,” the CIO says. Bespoke development is the last option. “If we cannot find exactly what our strategy requires, then we are speaking with developers to see how we can work that out and build our own.”

In contrast to both groups, the least improvement-minded companies tend to focus on strategies for streamlining their operations, such as workforce restructuring and shifting responsibility to suppliers and partners.

For example, the industrial manufacturing company is employing virtual receptionists for some of its smaller offices. Visitors can walk in, press a button, and speak on-screen to a receptionist in another location.

Data is key for simplification, too

Both types of improvement-focused companies consider investing in analytics products and decision-making tools, systems integration and business software to be their top three technology priorities.

Furthermore, the process improvement group is significantly more likely (52.6%) than the least improvement-minded companies (49.4%) to be focused on analytics, while both the process improvement and incremental change groups are prioritising integration and business software.

For companies with the least focus on improvement, outsourcing systems, and to a lesser extent investing in employee collaboration tools, are higher priorities for technology investment.

Priorities for using AI

Amid rapid developments in AI technology, most survey respondents report that they are using it, and they seem optimistic about its benefits. When asked how important AI is for transforming a range of business processes, over four-fifths said these were medium to high priorities.

But where companies focus can depend on their objectives. We found that the most expansion-minded companies and the most improvement-minded companies alike are significantly more likely to consider AI to be highly important compared to their least expansion-minded or improvement-minded counterparts.

For example, a professional services firm in the oil and gas industry with an expansion mindset is “driving a great deal of growth through AI, and generative AI in particular,” says the CISO. They’ve developed an AI interface to enable customers to access their data more easily, quickly, and in a much more accessible format. The company is also allowing customers remote access to its data centre. “Some smaller oil and gas companies traditionally would not have been our customers two years ago because the costs would have been too high,” says the CISO. “Now, because we are offering a much more dynamic and remote access environment, it is cost-effective for them to use our services.”

Meanwhile, a U.S.-based retailer focused on improvement is using AI to understand the customer experience and the customer journey: what the customer purchases, why the customer chooses one item over another, why a customer adds something to a shopping basket but then does not take any further action. “We’re looking at those types of analytical components,” says the IT director.

The retailer is also using AI, including chatbots, to support its call centre staff. “Due to cost constraints, we have had a limited number of personnel in the call centre handling customer issues,” such as returns or order status, the IT director says. AI can handle most of these routine enquiries.

AI is not as much of a priority for respondents overall as preparing for cyber security threats. But this, too, is significantly more likely to be at the forefront of the minds of the most expansion- and improvement-oriented companies.

Their business process transformations driven by AI reflect their concerns. All three groups are significantly more likely to rank transforming data security and privacy with AI as highly important compared to the respondents who are least focused on expansion and improvement.

Conclusion

There is no one-size-fits-all growth or simplification strategy for medium-sized companies. But as the survey makes clear, almost every company is trying to do both. And the findings reveal a few distinct profiles.

During growth, companies may be expansion-minded and choose to broaden their distribution channels and market presence. Others are pursuing different strategies, such as expanding their existing business or entering new markets.

When it comes to streamlining their operations, improvement-focused organisations take two distinct approaches. Either they are making incremental changes by increasing integration and automation, or they are improving their processes for developing new products and services. On the other hand, companies less focused on improvement are more likely to prioritise reducing or eliminating aspects of their operations.

These profiles suggest different approaches to investing in technology. The extent to which a company is focused on expansion or improvement is strongly related to its plans for analytics products and decision-making tools, systems integration, business software, and AI.

Which profile suits your organisation best? Use it to benchmark your own growth and simplification strategies—whether you have an eye on expansion, a mandate for improvement, or both.

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