The role of consulting firms in business continuity: A case of vulnerable SMEs IFKAD 2017 St. Petersburg Deusto Business School - Nekane Aramburu OPE Consultores - Iñaki Garagorri

1. The role of consulting firms in business
continuity: A case of vulnerable SMEs
Iñaki Garagorri
Nekane Aramburu
IFKAD 2017 – St. Petersburg, 7th-9th June 2017

2. The role of consulting firms in business continuity: A case of vulnerable SMEs
Introduction
• Business failure  misalignment of the organization to the
environment (Sheppard & Chowdury, 2005)
• General opinions of management consulting  mixed and
somewhat negative (Wright & Kitay, 2002)
Purpose
• To analyse the impact of consulting firms’ intervention in business
continuity and survival.
• Population: Basque SMEs in vulnerable situations.

3. The role of consulting firms in business continuity: A case of vulnerable SMEs
Context
Source: European Commission

4. The role of consulting firms in business continuity: A case of vulnerable SMEs
Context
Source: European Commission
Regional Innovation Scoreboard 2016

5. The role of consulting firms in business continuity: A case of vulnerable SMEs
Context
Source: INE-Spanish National Statistics Institute
Firms 2007-2014 2015-2016
Firms in Spain -6,51% 1,56%
Firms in the Basque Country -9,24% 1,78%
Firms in Gipuzkoa -12,60% 1,38%
Firms in Spain < 200 empl. -6,49% 1,56%
Firms in the Basque Country < 200 empl. -9,22% 1,78%
Firms in Gipuzkoa < 200 empl. -12,61% 1,36%
Firms in Spain > 200 empl. -17,06% 3,08%
Firms in the Basque Country > 200 empl. -15,34% 2,66%
Firms in Gipuzkoa > 200 empl. -8,82% 9,89%
Unemployment
Rate
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2007-
2012
2014-
2016
Spain 8,57% 13,79% 18,66% 20,11% 22,56% 25,77% 25,73% 23,70% 20,90% 18,63% 17,20% -5,07%
Basque Country 5,90% 8,48% 12,13% 10,98% 13,16% 16,60% 16,58% 16,60% 12,89% 12,27% 10,70% -4,33%
Gipuzkoa 5,36% 6,74% 9,15% 7,67% 10,86% 13,24% 13,80% 14,05% 10,16% 9,95% 7,88% -4,10%
• The impact of the last
crisis in business survival
has been higher in
Gipuzkoa but smaller in
terms of unemployment
• SMEs have suffered more
than bigger companies

6. The role of consulting firms in business continuity: A case of vulnerable SMEs
Vulnerability of firms
• Enterprises  a bundle of internal and external resources, which
help them to succeed or fail (Penrose, 1959)
• “Active inertia”  an organization’s tendency to follow established
patterns of behavior until they fail (Sull, 1999)
• Factors to explain SME business failure: business life cycle, other
competitors, commercial resources, management style, managers,
cost structure, financial resources, innovation, productivity (Scott
and Bruce, 1987); strategy, organization, characteristics of the
enterprise's owners (Freel and Robson, 2004); access to finance,
cooperation and networking (Franco and Haase, 2010); level of
debt, capital management, technology, price policy, employee
qualification and motivation (Ropega, 2011)

7. The role of consulting firms in business continuity: A case of vulnerable SMEs
Vulnerability of firms
• Business failure frameworks (Sheppard & Chowdury 2005, Ooghe
& de Prijcker 2008, Pretorius 2008)
• Vulnerability  the uncertainty related to risk management that
threatens a company’s operation (VTT Technical Research Centre
of Finland, 2002)

8. The role of consulting firms in business continuity: A case of vulnerable SMEs
Knowledge-intensive business services
• KIBS  Private firms providing services for engineering, technical
essays, architecture, design, marketing, IT, management and
organization, legal affairs and auditing (Kamp & Ruiz de Apodaca, 2017)
Benefits for companies using KIBS:
• Knowledge sharing that contributes to the development of co-created
solutions (Hakanen 2014)
• Foster the user’s innovation capacity (Kamp & Ruiz de Apodaca, 2017)
• Positive impact on economic performance (Evangelista et al., 2013)
• Beneficial for the competitiveness of firms (Antonelli, 1998; Jensen,
Johnson, Lorenz, and Lundvall, 2007; McKinsey, 2012)
• Positive influence on sales (McKinsey, 2012)
• Positive impact on turnover and exports (Kamp & Ruiz de Apodaca 2017)

9. The role of consulting firms in business continuity: A case of vulnerable SMEs
Research hypothesis
The use of KIBS (i.e. consulting services) by SMEs in situation of
vulnerability has a positive impact on (a) growth, (b) economic
performance, and (c) financial performance of the companies.

10. The role of consulting firms in business continuity: A case of vulnerable SMEs
Research method
In 2014 the Local Government of Gipuzkoa (Basque Country, Spain)
launched a two-phase emergency plan for SMEs in situation of vulnerability:
• Phase 1: Analysis of vulnerability and action plan for 105 SMEs
• Phase 2: Implementation of action plans for 99 SMEs with the help of
consulting firms (November 2014 – July 2015)  2014-2015 economic
and financial information of 75 companies is publicly available (sample)
Control group  all the similar SMEs from Gipuzkoa:
• same size (2-44 employees in 2014)
• same economic activities (Annex I)
• in similar situation of vulnerability (ROA 2014 between 34,38% and
31,24% and Debt ratio 2014 between 98,75% and 15,35%)

11. The role of consulting firms in business continuity: A case of vulnerable SMEs
Research method
2014-2015 variation of measures:
• Growth: increase in operating revenue and number of employees
• Economic performance: EBITDA (earnings before interest, taxes,
depreciation and amortization), Cash flow, ROA (Return on assets =
EBITDA / Total Assets)
• Financial performance: OCF (Operating cash flow = Cash flow /
Current liabilities), Liquidity (Current assets / Current liabilities),
Debt ratio (Total debt / Total assets)

12. The role of consulting firms in business continuity: A case of vulnerable SMEs
Findings and conclusions
Interannual change (2014-2015)
Garaituz
(75 firms
subject to
consulting
intervention)
Control group
(1.542 firms
with same size,
activity and in
vulnerability)
Gipuzkoa
(whole
population,
10.877 firms)
Growth
Number of employees
change 2014-2015
3,56% 2,78% 3,71%
Operating revenue
change 2014-2015
0,61% 8,59% 5,00%
Economic
performance
improvement
EBITDA change 2014-
2015
63,49% 34,42% 28,44%
Net income change
2014-2015
n.a. 94,42% 123,50%
Cash-flow change
2014-2015
67,72% 34,44% 41,56%
ROA change 2014-2015 2,00% 1,71% 1,10%
ROE change 2014-
2015
n.a. 2,87% 2,56%
Financial
performance
improvement
OCF change 2014-2015 4,66% 6,81% 6,91%
Liquidity change 2014-
2015
0,06 0,02 0,22
Debt ratio change 2014-
2015
0,76% -0,25% -1,62%

13. The role of consulting firms in business continuity: A case of vulnerable SMEs
SME vulnerability model
Origin: Structural vulnerability
Size Societal
structure
Organization and
management
Strategy
 Inadequate size  Business
continuity
 Management board
 Organiz. structure
 Management model
 Strategy focus
Consequence: Operative vulnerability
Commercial Production R&D&I
 Customer concentration
 Commercial resources
 Internationalization
 Production structure
 Purchasing
 Quality
 Innovation
Causes
Significance
 Added value
 Cost structure
 Wages
 Financial structure
 Short-term finance
 Equity
Economic-financial
Result: Economic-financial vulnerability
Emergency
Action
Source: OPE Consultores

14. The role of consulting firms in business continuity: A case of vulnerable SMEs
Intervention
scheme
Source: OPE Consultores
Solve short-term
cash stress
Cash generation
Current asset & liability
management: payment
deadlines, unpaid debt
collection, stocks….
Action plan Cash Financial structure Profitability
New current liabilities: bill
discounting, lines of credit,
credit accounts, factoring….
Implementation of forecasting
and control procedures and
tools
Balance the
financial structure
Restructuring the
debt
Proposed restructuring plan 
Full viability plan
Defense &
Negotiation
Increase
profitability to
guarantee
sustainability
Revenue increase:
- Business development
- Short-term commercial plan
Cost reduction:
- Purchasing
- General operating
- Staff
- Financial
Productivity improvement:
- Reduction of production costsEquity, long-term asset &
liability management
Finalreport
Report
2-3 weeks 2-4 weeks 6-8 weeks
2-3 months 2-3 months
2 weeks
5-7 months
Urgent action plan
Update and elaboration of
data:
- Economics: P&L, costs
- Financial: debt situation,
cash flow
- Cash: balances, treasury
plan
- Commercial: sales,
customers
Work plan
Business Model – Organizational Structure
Management plan – Budget – Control – Balanced Scorecard