In Praise of Small & Medium Business
Big business is absolutely necessary for many of our basic economic functions. However, big business has a problem with its social dislocation and the subsequent narrowing of the business mission to serve money sources rather than customers.
In mid-March the ABC 4 Corners reporter Adele Ferguson investigated Australia’s largest childcare operators and came to some unexpected conclusions. For instance, nine out of 10 of the biggest childcare operator groups are owned by big business or backed by private equity firms. Some of these childcare operators boost profits by taking considerable subsidies from the federal government and then keeping costs down with casual employees, wage-suppression and low-cost food selections. Most surprising to me was the managers and employees telling Ferguson they are expected to drive the corporate owners’ financial KPIs in everything they do.
While some of the childcare centres obviously had poor oversight, allowing inappropriate people to work on the premises, I saw a larger problem: the blend of Big Government, Big Subsidies and Big Business, coming together to serve every other interest except the interests of the kids and their families. The outcome? A socially-oriented system with low service for the customers, low accountability for taxpayers and a profit motive with seemingly no social licence.
The Problem With Big
Big business is absolutely necessary for many of our basic economic functions. Our banks, telecom companies, electricity generators and fuel distributors have to be big in order to operate at the scale that makes sense.
However, big business has a problem with its social dislocation and the subsequent narrowing of the business mission to serve money sources rather than customers. This is particularly acute in publicly-listed entities which have to report every quarter and make continuous declarations of material changes in their financial position. This culture drives a distortion where the lifeblood of the company might be its customers but the main internal focus is on key performance indicators and the ability to distribute profits to investors (at any cost) and maintain a certain share price. This is how we get packaged foods that secretly have less product inside them than they did last week, or outsourced call centres where the ‘customer service specialist’ knows nothing about Australia.
Big business generally has no micro-market awareness, lacks intimacy with its customers and obeys KPIs set by remote executives who operational managers have never met. How does the whole show keep rolling? The bigger the business, the more access they have to politicians and senior bureaucrats and therefore the ability to influence compliance regulation.
Big Business Meets Social Licence
How does this culture interact with childcare which is government-funded because it’s a social good (as is aged care, schools and hospitals). You’d expect the operators of such centres to establish social licence? They operate in a community, they serve families and they are custodians of children. It’s not a small thing.
Yet, while the investors and listed entities are attracted into this system because the revenues are guaranteed by the Commonwealth (to achieve social outcomes), the investors and owners still want costs suppressed which means wages and quality mostly. The employees and kids lose – investors and owners win.
And Australian taxpayers are funding it.
Small And Medium Is The Future
Can we acknowledge that some social services funded by the federal government are not suited to big business or finance vehicles such as private equity firms?
The strength of small, medium and private companies is that we are privately held. That usually means we have smaller balance sheets and fewer employees, but it also means that we don’t answer to superannuation funds or a corporate head office.
Private businesses can make five-year strategic plans and work to them, rather than living quarter by quarter as ASX-listed businesses must, or constantly proving their profits as private equity firms must do for their investors. In a private business the owners are the managers, so we answer directly to our stakeholders – customers, employees, banks, shareholders, regulators, governments, community groups, activists and councils. We can’t cut costs as deeply as remote investors and owners do, because we face our customers and our constituencies: if we reduce our quality, we answer for it directly; if we’re bad employers, it shows up immediately. Our goals and values are real and that inevitably means we invest in people, via university, TAFE, skills training and personal development.
How Do We Fix The Childcare Situation?
My first response to the 4 Corners story would be for governments to keep ownership of childcare centres in the hands of small, private and community-engaged operators, and community-based organisations such as churches, not-for-profits and NGOs.
Secondly, the federal government should formally align childcare operators with social licence. This ensures operators are community-engaged and it’s a chance for government to align the purpose of the funding with the outcomes that families and communities expect from childcare.
Thirdly, childcare operators who take federal funding should provide a strategic plan which features goals and tactics for safety, quality, innovation and performance.
Big Is Not Always Better
When it comes to social licence, intimate service-delivery and serving community expectations, smaller can be more effective. SMEs are more accustomed to servicing customer needs and expectations at a micro-level, and despite their lack of size, they are often more sophisticated than corporate and financial professions when it comes to understanding social demand.
Whatever else we do with childcare (and aged care), we need a change of culture in the Big End of town and we need government to put proper guard rails on the use of taxpayers’ money.
