Growth and commercial readiness for SMEs
Growth can weaken a business before the first larger contract has finished delivering. The order book expands, the customer becomes more demanding and the team starts committing money and people against work whose commercial conditions have changed. Revenue may be rising while the business becomes less able to absorb a delayed payment, a disputed instruction or a supplier failure.
For an established SME, moving into larger contracts can be a sound strategic decision. It may provide continuity of work, access to new markets and the confidence to invest in capability. Those benefits depend on the arrangements surrounding the work. A contract that requires early expenditure, extensive assurance and rapid responses to change places different demands on the business from one it has successfully delivered before. The difficulty is that these demands often appear in different places.
The commitments behind the order book
Consider an engineering supplier preparing to deliver a larger package for a new customer. Before receiving its first substantial payment, it may need to secure materials, reserve specialist subcontractors and recruit people. The customer requires more detailed evidence and reporting than previous clients. Meanwhile, the people preparing that evidence are also supporting existing contracts.
This is an illustrative situation, rather than a client case. Its significance is the relationship between commitments. The supplier's capacity decision depends on the expected work. Its cash position depends on when the customer accepts the relevant evidence and pays. Its margin depends partly on whether changes are recognised and addressed while there is still time to influence their cost. An apparently manageable issue can therefore affect several parts of the business. An instruction issued during mobilisation may consume engineering time, postpone an acceptance milestone and defer payment. If nobody has usable authority to resolve the commercial position, the delivery team may continue to protect the customer relationship while the cost accumulates elsewhere.
Commercial Architecture™ examines these relationships through four pillars: Purpose, Authority, Incentives and Capacity. The value lies in understanding how they work together in the particular business, including where an arrangement that once served the company well has become a constraint.
Purpose gives growth a commercial direction
A larger turnover is not a complete account of what the business needs from growth. A company seeking a dependable base of repeat work may make different decisions from one using a first contract to establish a new capability. Leadership needs to understand the intended outcome and the trade-offs it can sustain. Without that clarity, people can make inconsistent commitments while believing they are supporting the same strategy. A bid may offer flexibility to secure a customer whose work later absorbs capacity intended for more profitable contracts. The issue is whether the commitment serves the commercial purpose the leadership team has actually chosen.
Authority determines whether decisions arrive in time
As contracts become more complex, the cost of waiting can increase. A project manager may be accountable for the result while decisions about additional resources, scope or customer commitments remain elsewhere. Escalation then becomes part of everyday delivery, and senior leaders become a queue through which commercial decisions must pass. Usable authority involves more than a name in an approval matrix. The person making a decision needs relevant information, clear limits and a route for resolving matters beyond those limits. Where those conditions are missing, a business can have extensive governance and still struggle to act before its options narrow.
Incentives shape the commitments people make
Measures and contractual terms influence what people protect under pressure. Sales may be rewarded for securing work, procurement for reducing purchase prices and delivery for meeting a date. Each of these incentives are reasonable but their combined effect can still expose the business if, for example, the cheapest supplier increases delivery uncertainty or an urgent customer request is accepted without addressing its consequences.
The same issue extends between organisations. A customer may expect a supplier to invest ahead of uncertain demand while retaining terms that leave that supplier carrying much of the financial exposure. The resulting caution is commercially understandable, but sustainable growth depends on arrangements that make the required behaviour viable for the parties expected to deliver it.
Capacity includes the ability to carry the commitment
Capacity includes people and equipment, but also the information, systems, specialist capability and management attention required to perform the work. A business may have the technical ability to produce something while lacking enough experienced time to manage its assurance, changes and payment requirements alongside existing obligations.
Investment decisions therefore need a credible relationship with demand and payment. Recruiting ahead of work, reserving production capacity or funding qualification may be justified, but the business needs to understand the commitment it is accepting and the conditions on which the investment depends. A growth plan becomes fragile when those dependencies remain assumptions.
Where MBY starts
Commercial pressure can require immediate action. It also requires judgement about which action will address the underlying cause. Adding reporting will have limited effect if the people receiving it cannot resolve the exposure. Recruiting may relieve a shortage while leaving the commercial conditions that created it untouched.
MBY's Supply Chain and Growth Readiness workshop, within our Commercial Architecture Diagnostic®, examines a real growth situation with the leadership team. It considers the relationships between the intended outcome, decision authority, incentives and the capacity needed to fulfil the commitment. The purpose of the workshop is to establish where change is needed and agree priorities with clear ownership.
For a business preparing to accept larger work, that conversation is most useful while there is still scope to shape the commitment. If your next stage of growth depends on investment, additional capacity or more demanding contracts, contact MBY to discuss whether a Supply Chain and Growth Readiness workshop is appropriate.
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