Review of the Report on Training Needs of SMEs at Bangalore: IIMB

Review prepared by Ms Vasanti Muthukumar Short Term Consultant: IFC Bangalore, India vasanti92@gmail.com 1. Background and Purpose of the SME study The purpose of the survey is to determine the training and education needs of the local SME sector, which would lead to the development of locally relevant business training. This is in response to the shortage of skilled managers in the SME sector in Bangalore. The survey should determine differences in the training needs of different categories of SMEs and their preferences for training content, format, timing, pedagogy, etc. The final report will detail the particular training needs of the local SME sector in Bangalore. 2. Report Summary and Review The final draft report is a very detailed, well-written report on the analysis of the responses for the entire sample of SMEs as well as, separately, for different segments. The Conclusions and Recommendation section of the report provides an insight into the important findings of the study. This summary is an attempt at arriving at the essence of the IIMB report. To help in the visualization of the findings, graphs have been used, wherever possible. 2.1 The Sample A total of 300 randomly selected SMEs (in Bangalore city) were interviewed and further categorized as: 1) Tiny/Small/Medium Tiny: Less than 10 employees Small: 10-49 employees Medium: 50-249 employees 2) Manufacturing/Service/Trading 3) High-Tech/Low-Tech 4) Nature of Business (Manufacturing/Low Tech, Services /High Tech etc) The sample composition of the 300 SMEs, segment-wise by numbers, was as follows: Size of SME Type of Activity Level of Nature of Business Technology Tiny 131 Manufacturing 132 Low-Tech 223 Manufacturing/Low Tech Manufacturing/High Tech Small 125 Trading 59 High-Tech 77 Trading /Low Tech Trading /High Tech Medium 44 Services 109 Services/Low Tech Services/High Tech Total 300 300 300 Tiny and small dominate the SME sector. Manufacturing has the greatest presence followed by Services. In spite of the technology boom in Bangalore almost three-fourths of the units are low-tech. If Bangalore, which is celebrated as the technology hub of India, has these proportions, it would surely be worse for most other places in the country. By Nature of business we find that Low-Tech Manufacturing, Low Tech Services, Low Tech Trading followed by Services High Tech have the greatest presence.

117 15 38 21 68 41 300

2.2 Perceived Need for Training by SMEs 2.2.1 Overall

In general, there is a favorable attitude towards training, but most SMEs clarified that this attitude did not imply that their own unit or people needed training. 2.2.2 By Size of SME
Perceived Need for Training By Size of SME
100% 80% 60% 40% 20% 0% Tiny Small Medium

Definitely need training Some training Do not need training

There is a positive relationship between size of venture and the perceived need for training .The larger the enterprise the greater the need for training. 2.2.3 By Type of Activity
Perceived Need for Training By Type of Activity
100% 80% 60% 40% 20% 0% Mfring Trading Services Definitely need training Some training Do not need training

Some service ventures perceive a strong need for training. However there is an anomaly in the services sector, where, those who denied the need for any training are also fairly large. The table below illustrates that the largest percentage feeling no need for training is in the low-tech services sector (53%), where most of the tasks are performed by the entrepreneur himself. who also feels competent to train his employees in technologies that are not very complex. Nature of Business Need a lot of Need training in some Do not need any training areas training Percentage (%) within respective category 15 46 38 13 58 29 13 67 20 13 26 61 0 67 33 18 30 53 29 41 29

Total Sample (N=300) Mfring/Low Tech Mfring/High Tech Trading /Low Tech Trading/High Tech Services/Low Tech (68) Services/High Tech (41) 2.2.4 By Level of Technology

Perceived Need for Training By level of Technology

Definitely need training Some training Do not need training

High-Tech ventures perceive a greater need for training. 2.2.5 By Nature of Business
Perceived need for training By Nature of Business
100% 80% 60% 40% 20% 0%
Mfring/Low Tech Mfring/High Tech

Services/Low Tech

Trading /Low Tech

Services/High Tech ventures feel the strongest need for training and Trading/Low Tech the least.
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Services/High Tech

Trading/High Tech

Definitely need Some training Do not need

In defining SMEs as High Tech a two-fold norm was used: (1) Enterprises offering products or services in newer industries such as IT, electronics, biotech, and the like; (2) Enterprises in the older/traditional industries but using sophisticated machines operated with the help of newer technologies (such as fully automated, software controlled, sensorbased and/or digitally controlled machines).
2.3 Actual Training Attended by Different SMEs Only 6% of directors and about 3% of managers/employees attended any training program. The figures are really low. The gap between espoused theory and the theory in use is quite wide for SME entrepreneurs, in matters of training, as is also shown by a few Western studies. 2.4 Content Preferences for Training Programs of Different Types of SMEs The content preference is handled broadly in three ways: 1) A ranking of broad areas of knowledge i.e. Technical, Managerial, Behavioral, Legal - separately for Directors, Managers and for Employees (2& 3 below). 2) Knowledge inputs for SMEs in a range of areas such as Marketing, Finance, Technology Management, Quality Assurance, Production Management, New Product Development amongst a host of other aided and unaided areas. 3) Skill inputs for SMEs in areas such as skills of Leadership, Networking, Selling, Negotiation, Presentation, Teamwork, Interpersonal and Stress management, among others. 2.4.1 Priority Areas of Training Overall, and separately, the different segments showed a clear ranking pattern: Rank 1 2 3 4 Area of Training Technical Managerial Behavioral Legal

Technical training is the preferred area possibly because continuous technological improvement is a necessity with the entry of MNCs and due to fast changing technology in a competitive marketplace. Also quality and ISO-9000 certification for technical excellence is of importance to SMEs. It looks like most SMEs are in the craftsman mode and believe that technical perfection is the key to business success. The consolation here is that managerial training is a close second. However, managerial training is a close second for all categories except Trading SMEs, for whom it is the topmost. The relative preference for managerial training by the trading sector is an expected outcome, as traders do not handle much technology. The Trading sub segment ranks Technical training as 2.

2.4.2 Knowledge Inputs of SMEs 2.4.2.1 Knowledge Inputs of SMEs (Overall)

30 25 20 15 10 5 0 Directors Managers Employees

Marketing Finance Tech Mgmt New Prod Devlpt Qlty Assr Prod Mgmt Taxation

Most of the training on knowledge inputs is sought by the owner/directors. Managerial/employee training is not required except for specific topics in specific segments. Expectations of managerial and employee training are lower compared to that for Directors. For Directors, the top five areas where they want training are Marketing, Finance, Quality Assurance, Technology Management and New Product Development. There is a positive bias in favour of management topics compared to technical topics. For Employees and to a lesser extent for Managers, Quality Assurance training is important. 2.4.2.2 Knowledge Inputs by Size of Venture

Managers

Managers

Employees

Employees

Managers

Employees

Directors

Directors

Directors

45 40 35 30 25 20 15 10 5 0

Marketing Finance Tech Mgmt New Prod Devlpt Qlty Assr Prod Mgmt Taxation HR VC

Tiny Tiny

Tiny

Sm. Sm.

Sm.

Med. Med. Med.

2.4.2.3 Knowledge Inputs by Type of Business

Employees

Employees

Mfring

Mfring

Mfring

Trading Trading

Trading

Services Services Services

2.4.2.4 Knowledge Inputs by Level of Technology

Employees

Employees

Managers

Managers

Directors

Directors

35 30 25 20 15 10 5 0

Marketing Finance Tech Mgmt New Prod Devlpt Qlty Assr Prod Mgmt Taxation

Low Tech

Low Tech

Low Tech

High Tech

High Tech

High Tech

It appears that all the three factors (size of venture, type of business and level of technology) have an influence on deciding the extent and coverage of training. It is the Medium segment, the Manufacturing, and the High-Tech ventures, who expressed a relatively higher need for training for their managers and employees. Managers and employees in Trading SMEs expressed interest in Marketing, while those in Services SMEs expressed strong interest in Quality and Technology Management. Except in the medium and high tech categories, managers have hardly any role. In all other categories there is no distinction in the roles performed by these two groups of personnel (managers and employees). In fact both groups are performing operations related tasks and therefore the topics mentioned are Production/Quality ones, such as Quality Assurance. "The standard module of training in SMEs comprises marketing, finance, production/quality/technology and to some extent taxation. The Medium segment, Services sector and High-Tech ventures are also interested in growth strategies, venture capital, HRM, Alliances and JVs and the like, especially for their Directors. (See graph below). This would imply that a larger variety of training interventions are required at transition periods, one of which for SMEs is the graduation to the growth phase.
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Employees

Managers

Managers

Managers

Directors

Directors

Directors

40 35 30 25 20 15 10 5 0

Marketing Finance Tech Mgmt New Prod Devlpt Qlty Assr Prod Mgmt Taxation

2.4.2.5 Knowledge Inputs by Important segments

45 40 35 30 25 20 15 10 5 0
Dir. Med Mgrs. Med Employ. Med Dir. Ser Mgrs. Ser Employ. Ser Dir. Mgrs. Employ. High tech High tech High tech

Marketing Finance Tech Mgmt New Prod Devlpt Qlty Assr Prod Mgmt Taxation HRM Venture Capital Growth Strategies Alliances and JVs

The above information would be useful at the time of designing actual training programs for the segments. 2.4.3 Skill Inputs of SMEs
Leadership Skills Networking Skills Selling Skills Negotiation Skills Presentation Skills Stress Management Teamwork Skills 0 Directors Managers Employees Interpersonal Skills Oral Communication

25 20 15 10 5

Skill inputs training is mentioned again primarily for owners/directors. The common topics for directors are skills related to leadership, negotiation, networking, and presentation and selling. The focus of entrepreneurship development is clearly, therefore, that of leadership and persuasion. It is again only in the Medium, Manufacturing and High-Tech segments that the manager has any leadership role. This maybe because of: 1) The complexity of operations due to the larger size in the Medium segment; 2) Variety of tasks in the Manufacturing industry; and 3) Knowledge component and specialization requirement in High-Tech ventures. In all other categories, the managers are like employees and are perceived as requiring training in personal and team behavior. Directors in the Small sector and Manufacturing sector seem to require training in personal and teamwork areas too - probably because of the variety of tasks the directors may need to perform due to their direct involvement.

It may be noted that the owner/directors in the small sector are perceived as requiring additional inputs compared to owner/directors in other categories (such as interpersonal skills, time management skills, teamwork skills and stress management skills. 2.5 Preferred Methods of Training in SMEs The preferences for training methods appear to be influenced mainly by the target group (whether for Directors, Managers or employees) and only marginally, by the type of inputs (knowledge or skill) or topics. There are very few topics for which the owners are willing to train their non-managerial employees. These are production/quality related inputs and teamwork/interpersonal skills. In addition short oncampus programs are the preferred method for directors training. The directors do not want to be disturbed by the exigencies of business while on training and at the same time do not wish to be away from business for too long. The concerns here are the need to customize programs, need to train larger numbers, the need to use ones own facilities for reducing cost and the need for keeping the employees at the workplace, to the maximum extent possible. Managerial training gets lowest priority in SMEs. Only the Medium and High-Tech categories appear to have given importance to managerial training. This is of two types: 1) For topics such as quality assurance, teamwork skills, where the topic is suggestive of interaction with other staff, the preferred method is on-premise programs. 2) For topics such as marketing/selling, finance, HRM etc., i.e., those amenable to independent study, the preferred method is on-campus programs. 2.6 Training Sources Currently Used by SMEs The training sources used, are largely informal sources such as Friends and well wishers. And SMEs in general are not professional and rely largely on informal sources. This is indicated by the fact that Friends and well wishers are given the first/second rank by the total sample in 11 out of 14 subcategories. Professionalism in training among SMEs is more a function of the size of venture and the level of technology rather than the type of business. Both Medium and High-Tech ventures use more professional training sources such as consultants and technologists. In the medium segment professionals and consultants occupy the first four ranks. In the high tech segment, professionals hold four of of five ranks. The informal nature of training is evident from the fact that the professionals are not training professionals but accountants, consultants and technologists who are also used for training. Most Size of Venture Type of Activity preferred Training Tiny Small Medium Manufacturing Trading Services Source Rank 1 Friends Friends Consultants Accountants Accountants Friends and and and Well Well Well wishers wishers wishers Level of Technology LowHigh-Tech Tech Friends Technologists and Well wishers

2.7 Preferred Duration of Training Programs for SMEs SMEs prefer short duration for training programs (2-4 hours, half-day duration). The next preferred duration is 4-8 hours, for top management.

2.8 Preferred Timings of Training Programs for SMEs The choice of timings by the SMEs also reflects the concern for not compromising on work while undertaking training. The most preferred timing is weekends (half-day), so that training does not come in the way of work. 2.9 Average Acceptable Per Day Cost of Training for SMEs Respondents had to be persuaded to give answers for this question. The reasons for inability to commit are that this amount depended on content and quality of program, benefits of the program, reputation of training provider, utility, need and payment capability of the enterprise at that particular point in time. It is important to emphasize that generally available training programs for SMEs are perceived as either subsidized and not such useful programs or purely academic programs by top level management institutes, the immediate practical significance of which are not felt by SMEs (where the directors and staff are hard pressed for time). The SMEs felt the average acceptable per day cost of training for different levels therefore would depend on these factors of which utility is a critical factor. Categories Total Sample Avg. Cost/day (in INR) Sample Size Avg. Cost/day (in INR) High-Tech Sample Size Top Sr Jr Tech Other Employees Management Managers Managers Staff 762 137 856 41 621 47 621 28 374 27 550 6 467 36 430 20 259 50 297 14

However, an important point to note here is that while the range for the amount mentioned was from INR 240 to 860 (US$ 5.30 to 19.10) per day for different sub segments, these figures are quite low even by Indian standards and would point to the general inability or the unwillingness of the SME sector to pay for training programs A clear anomaly is that while overall there is an expressed preference for short duration programs for directors for less than INR 1,000 per day, IIM had organized a 7-week program for directors for which SMEs paid INR 140,000, which was around 3 to 5 times the amount mentioned by subgroups! What is clear is that training programs with clear benefits can surmount barriers of cost and time and over time SMEs would be willing to pay and avail themselves of such training programs. The currently available options are not attractive to SMEs hence making it difficult for them to commit a figure easily. 2.10 Reasons for Current Disinclination of SMEs towards Training While there is some acceptance of the need for training at the conceptual level, the behavior of SMEs is different. Possible reasons are:
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1) Self-confidence because of past successes; 2) Perceived irrelevance of the offerings by some of the educational/training institutions; 3) Lack of tangible effects of training in the short term, and the priority given to the tangible and immediate needs of day-to-day management; 4) Inability or unwillingness to pay for the programs (reinforced by an erstwhile culture of the government subsidizing SME training); 5) Inability to leave ones business for attending long duration programs conducted during officehours on working days; and 6) Apprehension that the trained employees might leave the firm for better opportunities. However, as is apparent from the survey, there is a need for training, especially in the growth phase of their ventures. 2.11 IIMB Recommendations While the details are available in the Conclusions and Recommendations section of the report, the key recommendations in brief are: 2.11.1 Policy Initiatives 1) The past assistance schemes promoted by the Government are apt to encourage smallness and restrain growth. The SME sector in Bangalore is dominated by tiny and small units (86%) and contrary to expectations about Bangalore, more than 75% of the SMEs are in the low technology area. The policy should change to encourage growth rather than smallness. 2) The most preferred legal form among SMEs is proprietorship. The private limited company form is the most preferred legal form for medium and high tech segments. There appears to be an association between company form and growth. In the West, research shows that team startups have greater chance of success compared to individual startups. It is worthwhile, therefore to experiment with policy initiatives that encourage team start ups. 3) The percentage of women promoters is abysmally low at 6%. Encouragement of technical and professional education for women, as well as, introduction of entrepreneurship education at schools and colleges, may help in developing the spirit of entrepreneurship among women. 4) One of the research findings was that promoters with longer and prior work experience have been associated with growth-oriented ventures like those in the Medium and High-Tech segments. Also large industries do perform a role of supporting and nurturing small ones not only by promoting entrepreneurship but also by outsourcing, ancillarisation, support services, knowledge transfer, developing purchasing power, training of staff, and so on. One of the implications of this is that the country should have a large number of natural incubators especially for High-Tech ventures. It would be worthwhile to create policies to encourage the large players, including foreign ones, so that they would become natural incubators for potential entrepreneurs, especially in the High-Tech sector. 5) A majority of promoters started their new venture with technologies similar to their prior experience but there is a sizeable proportion who started with dissimilar technologies. This was especially true for the medium and high tech ventures. It is desirable to provide opportunities to technical personnel to obtain management education, provided on a part-time or distance-mode, to suit the convenience of such personnel. Entrepreneurship trainers should incorporate management inputs in their training programs for entrepreneurs and potential entrepreneurs. Top training content preferred were Marketing and Finance - hence integrating technical and management education, or at least, providing opportunities for management education for technologists, should be high priority.
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6) Also, there is a need for a total paradigm shift towards technical education. 7) Also the mortality rate among SMEs is high the world over and is appears to be so in Bangalore too. The government should stop its approach of ventilator support for non-viable or dying enterprises and instead utilize the energy saved for new start-ups. 2.11.2 On Training Initiatives 1) The challenge for the educational/training institutions is to design flexible, short-duration and modular programs, offered at realistic timings and affordable cost to the SME entrepreneurs. 2) Considering the gap between stated intentions and actual training programs conducted by SMEs, there is a need for a growing role of informal training in SMEs. Identifying the sources of such informal training and organizing training for trainers for this segment would be a productive exercise. 3) Favorable attitude to training is positively linked to the size of the enterprise, sophistication of the technology being used and the level of the person to be trained. Therefore it would be useful to target the formal training primarily to these segments. Initially, formal training should be targeted primarily to the Medium and High-Tech sectors, with an emphasis on training for Directors. Through in-house (on-premise) programs, the other employees could be trained. In order to do so, the external trainer can collaborate with them, especially in the initial stages, to launch such inhouse training. 4) Short programs, organized on weekends or evenings, are imperative for SMEs. Even long educational programs could be organized in short spells, such as, every weekend for 2/3 years. Their work, however, should not be disrupted. 5) Distance learning with the use of IT, in order to make such weekend/evening programs accessible to large numbers, is envisaged. If such weekend/evening programs are transmitted to distant places in a video mode, SMEs could participate in them in a cost/time effective manner. 6) Trainers should make a detailed study of the specific issues being faced by the concerned SME before deciding on the training methods. Consulting, Mentoring and/or on-premise program interventions are recommended when issues need immediate solutions and hands-on-skills. The issue is to match the method of training with the specific needs of the enterprise. 7) Cost of training is a major consideration. However, as an exception, SMEs would be ready to pay for a very high quality program from a reputed training provider. Use of emerging capabilities of IT, using cheaper infrastructural facilities, getting partial funding support from government and other promotional agencies, creating consortia of interested SMEs so as to increase the number of participants, building training into a package offered by lending agenciesthese are some ways to keep the cost low without adversely affecting the quality of the program. 8) Among the various training providers, academic institutions and similar agencies are rated as the least frequently used ones. NGOs were not even mentioned by the tiny sector. Research also shows that there are serious mismatches between what educational institutions offer and what the SMEs need. It is important for academic institutions to work closely with the potential clients and tailor-make it to the clients needs. 9) Fear of losing a trained employee is a real barrier to training in SMEs. SMEs do not seem to have the capacity to retain employees like the large companies. Individual SMEs or Consortium of SMEs can work out cost-effective training arrangements with local institutions on mutually beneficial terms 3. Feedback on the Report/Outstanding Areas 1) A very well written and thorough research report . 2) Provides insights and understanding of SMEs in Bangalore, India. 3) Provides complete sample as well as many segment wise pictures.
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4) Brevity, crisp comments and inclusion of graphs would make the report an easier read, at least the Summary. 5) Recommendations from IIMB are desirable on the kind of programs they would design for SMEs in Bangalore for different training providers based on the findings of the study. This would be an actionable output of the research study and serve as rough concepts for future development. 4. Some Potential Training Programs by Training Providers for specific segments 1) Professional Consultants with domain expertise followed by individual trainers and training institutions are the most preferred training providers across all segments interested in training. 2) The High-Tech, Medium and Manufacturing segments are most keen on training. So there should be both formal and informal training programs that target Directors in these segments specifically. 3) Academic Institutions are low in preference but this is most likely to be only because the content may not be perceived as tailor-made for SMEs. An SME training cell in Academic institutions may help alleviate fears. A special analysis reveals that Services/High Tech/Directors, an important segment seeking training, is interested in knowledge inputs in: Top Areas of Knowledge Inputs sought by Directors Technology Management Alliances and JV Venture Capital Marketing New Product Development Finance Quality Assurance Top Areas of Skill Inputs sought by Directors Networking Skills Selling Skills Leadership Skills % of Services/High Tech Ventures 39 32 24 22 20 20 12 % of Services/High Tech Ventures 34 29 24

With the wealth of information available, it should be possible to design segment specific training programs and make it cost effective and attractive for SMEs.

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