For a midsize fashion business, “Managing inventory across multiple channels, ensuring fast and accurate order fulfillment, and handling a higher volume of customer data have all added more complexity to our operations,” says the CTO. So the company is looking for ways to streamline inventory management and harness customer data with new technology tools.

Many midsize 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 they are working to both grow their businesses and simplify processes that have become too complex. In follow-up interviews, a few executives, like the fashion company CTO, elaborated on their plans and challenges.

Of course, even when companies are pursuing the same broad goals, they may approach them differently. Those we’re 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 simplifying their operations. Organizations 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 favor 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 expansion- and improvement-minded companies were pursuing their goals and found they share a few approaches to achieving them. For one, they are more likely to be investing in new or updated technologies, such as analytics and other decision-making tools, than respondents who are prioritizing other forms of growth or simplification.

They also think somewhat differently about the role of artificial intelligence in their organizations. 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 midsize companies are pursuing their growth and simplification goals while addressing their challenges.

Expanding distribution networks is a top growth priority

Midsize 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, while 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 in 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 one of their top three (54.5%).

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

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

Challenges with supply chains

The CFO at a growing U.S.-based industrial manufacturer is trying to nail down who in the organization is selecting vendors and who is validating whether those vendors can do the work asked of them.

Since the end of the COVID-19 pandemic, staff have been “just doing things they had to do to get stuff done,” the CFO says. “They were so busy that they weren’t concentrating on how to get 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 stabilized, 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 significantly 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%). 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-minded 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. In comparison, fewer than one-third of the least expansion-minded companies consider these their top 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, versus 45.3% for the least expansion-minded.

Generally, the least expansion-minded group is more varied in its goals. 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 reach their goals, we found 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’s no surprise, given their goals for expanding distribution channels and partners, to find attention to supply chains among the most expansion-minded companies’ top plans. They are also significantly more likely than the least expansion-minded companies to consider disruptions and weaknesses in their procurement and supply chains to be a challenge.

One U.S.-based retailer is taking “a multi-pronged approach,” to supply chain expansion, says its CTO. “First, we've diversified our supplier base to reduce reliance on any single source. This has helped us create more flexibility in our procurement process. We've 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’re 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 moving 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 in part because it offered a new suite of analytics tools. Staff can now do on-the-fly reporting, the CTO says. “With better data, we're able to grow the business. We take a look at 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 care about simplifying, too. 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, multiple approaches

Just as we looked for insights into how companies approached growth, we sought to illuminate their approaches to simplification. We found that improvement-minded companies have implemented two distinct strategies. One is simplifying through a set 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 spending (71.2%).

A retailer in Australia, for instance, is improving the integration of its product development lifecycle with its supply chain processes. “We're putting in a proper product lifecycle management system where everything is central, 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 to 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 spending (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 starting a complex development project from scratch that might duplicate existing technology. First, they asked existing vendors what they were planning in their AI strategy. They also worked with dozens of startups to learn about “potential opportunities to rethink and re-innovate doing something very differently than we're doing,” the CIO says. Custom development is the last option. “If we can't find exactly what our strategy wants, then we are speaking with developers to see how we can figure that out and build our own.”

In contrast to both groups, the least improvement-minded companies tend to be focused 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 talk on-screen to a receptionist in another location.

Data is key for simplification, too

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

Further, 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 prioritizing integration and business software.

For the least improvement-minded companies, outsourcing systems, and to a lesser degree 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 they are using it, and they appear optimistic about its benefits. When asked how important AI is to transform a range of business processes, over four-fifths said these were medium to high priorities.

But where companies focus can depend on their goals. 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, an expansion-minded professional services firm in the oil and gas industry is “driving a lot of growth through AI and generative AI in particular,” says the CISO. They’ve built an AI interface to let customers access their data more easily, quickly and in a much more accessible format. The company is also allowing customers remote access to its data center. “Some smaller oil and gas companies traditionally wouldn't have been our customers two years ago because the costs would be too high,” says the CISO. “Now, because we are offering a much more dynamic and remote access environment, it's cost-effective for them to use our services.”

Meanwhile, an improvement-minded U.S.-based retailer is using AI to understand the customer experience and the customer journey: what the customer buys, why the customer buys one item over another, why a customer adds something to a shopping cart but then doesn't do anything further. “We're looking at those types of analytical components,” says the IT director.

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

AI isn’t as much of a priority for respondents overall as preparing for cybersecurity threats. But this, too, is significantly more likely to be top of mind for the most expansion- and improvement-minded 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 least expansion- and improvement-minded respondents.

Conclusion

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

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

When it comes to simplifying their operations, improvement-minded organizations 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 prioritize reducing or eliminating aspects of their operations.

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

Which profile fits your organization best? Use it to benchmark your own growth and simplification strategies—whether you’ve got an eye on expansion, a mandate for improvement, or both.

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