Counting the uncountable

How many M organisations are there in the UK? Jyoti Banerjee ventures an estimate.

In a recent blog, Philip Woodgate opines that that there are 26,000 medium organisations, out of an SME population of 4.3m altogether.

Question: Is Philip right?

To answer that question, we need to ask what a medium enterprise is. How do we identify one that we can count it? The trouble is that different definitions give us different answers to the question of how many M enterprises are out there. But right at the outset, let me commend Philip for taking on the challenge of figuring out how many there are.

Size definitions
The commonest definitions of medium organisations have to do with numerical boundaries. The measure used in UK government circles is based on employment with a small business defined as up to 49 people, and a medium business as up to 249, though account is also taken of annual turnover and asset values.

As many European countries offered legislative and fiscal advantages to SME organisations, the European Commission offered a definition which has applied since January 2005 and is summarised here.

Size problems
While numerical boundaries simplify statistical analysis, they are not good at capturing reality.

For example, different industries have rather opposing views as to whether, say, a 50 man company is a small one or a medium sized one. Further, modern ways of doing business, like outsourcing, can change the employment numbers in a firm without changing the scale or “weight” of the organisation. Also, the internet has introduced business mechanisms which enable small organisations to scale across global markets.

Another problem with numerical definitions is that they need to be refreshed, as the metrics can get obsolete. After all, the European Commission definition of 2005 was really an update of a definition it put forward in 1997.

This is reflected in a pilot study of middle market firms conducted by the ESRC Centre for Business Research for the Department of Trade and Industry which defines small firms as employing 10-99 employees, and medium firms as employing 100-499 staff, both of which are new definitions.

No wonder, then, that a paper from Bill Snaith of Durham Business School describes medium enterprises as “too Big to be Small and too Small to be Big.”

Forget size, it is quality that counts
Regardless of which definitions are used to analyse the UK landscape for SMEs, we find that medium enterprises account for a substantial chunk of the performance of the UK economy.

Using a more contemporary size definition of medium enterprise as covering organisations with between 50 and 500 employees, Small Business Service data from 2004 shows that this segment of the economy represents just under three-quarters of one percent of all enterprises in the UK but employs nearly 15% of the workforce, and contributes over 21% of annual turnover. That calculation tallies well with the Woodgate number.

However, size definitions often miss the mark in the M identification parade. Using the sort of behavioural criteria discussed in my previous blog, I would suggest that the M numbers should be bolstered by additions from two different directions. Smaller companies that act on the basis of formalised business processes should be added to the M list since the challenges they face are rather similar to the challenges faced by business leaders in more traditionally defined M enterprises.

Secondly, many large enterprises have divisions within them that are quite autonomous in operation and also share many of the M challenges, though they are different from them in other respects, like diversity of shareholding base, and access to finance.

I would add these to the list as well. Using fairly arbitrary estimates of how many of these two categories need to be added to the basic M number, I would venture to say that the number of M companies would be closer to the 150,000 mark in the UK.

It is nearly a sixfold stretch to get from 26k to 150k. Does it matter? In my opinion, no. What I do know is that M organisations make a massive contribution to the economy and yet remain quite invisible.

That is what needs to change. Regardless of how many fit into any neat statistical bucket that you or I may care to define.

Comments

[woodgate53]

The definitions of SME are many. I tend to think of SME as anything that isn't large. For M's it is anything in the group that isn't small. We all recognise one when we see one regardless of any EU/US definition.

I agree totally with you that they remain invisible. That's not good enough. The M Institute is a great idea.