Why SMEs can benefit from business analysis

What is business analysis, and what can it do for smaller businesses in particular?


  • Terry Hopper

08 November 2021

3 women and a man around a meeting table having a discussion

When I tell people I'm a business analyst they usually ask 'What do you analyse?' Well, I analyse businesses – to identify their needs and recommend solutions to their problems.

This explanation is based on the International Institute of Business Analysis (IIBA) definition, which is quite broad: 'Business analysis is the practice of enabling change in an enterprise, by defining needs and recommending solutions that deliver value to stakeholders'. But what 'needs' and 'solutions' are we talking about?

Identifying needs, proposing solutions, and adding value

What the business needs can vary, because sometimes its needs are not problems that require solving as such. Sometimes, they represent new opportunities that the business ought to be exploiting, for example new technologies.

Depending on the size of the business and the nature of the project, business analysts could be investigating:
  • operational issues
  • specific problems or inefficiencies
  • new business opportunities
  • opportunities brought about by new technology.
When investigating a problem, the business analyst would first try to identify the root cause before going on to research potential solutions that can offer a permanent fix.
Solutions that business analysts recommend could be anything from:
  • changes to the technology that the business uses, including both software and hardware
  • changes to business processes
  • changes to company direction, policy or structure.
But notice that, in the IIBA definition, each solution should add value. Part of a business analyst's job, therefore, is to quantify the value that each measure will bring, whether in terms of return on investment, estimated savings, or increased profit.
For example, when working with a firm of quantity surveyors, we were able to identify:
  • lost sales opportunities, which were fairly easy to quantify
  • customer service issues, which we quantified by reference to disputed invoices
  • operational inefficiencies, where improvements could be measured against unbilled revenue
  • administrative inefficiencies, where the impact was estimated as the value those lost hours could have contributed to the business' gross profit.

Sensitivity to size

Of course, any good analyst's recommendations must be appropriate for the size of the business. 

For smaller businesses, common measures include introducing new technology, whether software or hardware. When it comes to small and medium-sized businesses (SMEs), business analysts are less likely to be involved in company direction, policy, or structure. This is just because SMEs tend to have a simpler structure and a singular direction – often based on the skillset of their founders.

SMEs face many of the same problems that larger businesses do, but they have a unique set of advantages and disadvantages when dealing with these. For instance, they are prone to gradually increasing inefficiency – especially if they have grown rapidly – because they face new demands as they expand.

These difficulties can include:
  • new legislation: for instance, exemptions for the smallest businesses suddenly do not apply any more
  • new customer demands: that new big customer expects so much more than those already on the books
  • new control requirements: now that the business is larger one person can't make all the decisions, so new procedures are needed to remain in control
  • new reporting requirements: as the company grows it feels impossible to keep tabs on everything
  • staff problems: recruiting, training, managing and organising a growing team takes more time than ever before

Smaller businesses often try to hire or outsource their way out of problems. It seems obvious: there is lots of work to do, so more people are hired to do the administration. But this compounds the issue: there are now more people to manage and organise, yet this hasn't generated any more income. 

Profit margins are frequently more variable in SMEs, so they cannot afford to make mistakes. Every penny wasted comes straight out of the owner's pocket. It therefore becomes critical that any problems or inefficiencies are dealt with quickly, because these can make a big difference to the profitability and even the viability of the business. But how? 

An SME might not have people with the skills to review processes, identify savings, or choose new systems. The team members certainly do not have the spare time, and the business doesn't have a limitless budget to throw at the problem either.

'Small businesses are prone to gradually increasing inefficiency'

Analytical help

This is where the work of an independent business analyst could prove revolutionary. An analyst can review the business and identify ways to reduce the team's workload. Crucially, they will look for ways to do this without hiring more people – which will keep costs under control and reduce management time.

A good business analyst will talk to members of the team, get to know the business inside-out, and recommend any practical changes that can be made. They will also be able to help the business to make those changes – and a big advantage is that SMEs can implement them much more quickly than larger organisations.

The next article will explain in detail the process of business analysis, decision-making and implementation of recommendations.

Terry Hopper is the managing director and founder of Middlestone Business Analysis

Contact Terry: Email

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