A real chip off the old block

Large suppliers such as BT and Xerox have created scaled-down versions of themselves to service the needs of small businesses

Thanks to the sale of its Yellow Pages telephone directories business, now known as Yell, and the demerger of the mobile phone arm mm02, BT is not nearly as big a company as it used to be. But with an annual turnover of about £19bn, it is still too large and impersonal for many small businesses to deal with easily.

Which is why the telecommunications company is embarked on a programme to put a network of "local business centres" in place across the country. According to Koen De Cubber, the director responsible for the venture, the move is an attempt to get closer to small and medium-sized enterprises (SMEs) by bringing products and services to their doorsteps.

But the centres will be more than just local outposts of BT. In an effort to better understand the needs of growing businesses, they are being set up as small businesses in their own right, albeit with BT back-up. By April of next year, when 90 of these units are planned to be in operation, it is envisaged that they will handle some £1.3bn of sales that would previously have been the responsibility of BT's direct sales operation.

De Cubber explains that each centre is being given a nominated customer list of about 15,000 businesses employing between one and 50 people on a single site, and being told to supply them with BT-branded goods and services. The staff of each centre - typically a general manager, three to five desk people and three to five sales people - are rewarded through commission on sales and also on the basis of increased revenue in their areas and quarterly customer-satisfaction surveys.

The approach is similar to an agency, so that the individual units have the responsibility of deciding on how they deal with customers, while having BT's support in terms of branding, product supply and back-office matters, such as billing. Moreover, the fact that each unit is working from a nominated list of customers means that there is no room for turf wars between neighbouring centres. Centres are awarded to managers on three-year contracts, although these can be ended if performance is unsatisfactory. This combination of entrepreneurial opportunity with big-company back-up has proved attractive: about 70 per cent of the staff recruited so far have been from BT itself.

Though the initiative only started in March 2002, with the launch of six pilot sites, BT is convinced that the concept is playing a key part in helping it compete in the SME market, which has been one of the most fiercely contested sectors since deregulation brought new players into the telecommunications industry.

De Cubber says the company has seen a 3 per cent rise in incremental revenues for areas where the concept has already been introduced, while the costs of going to market are 10 per cent lower than with a direct sales-force approach. Moreover, customers are "really pleased", as demonstrated by an average 91 per cent customer satisfaction rating.

It is, he says, a "triple win". Customers are happy because the initiative makes it easier to do business with a company that is notorious for its complex organisational structure; the staff of the centres are happy because they have the opportunity to participate in an entrepreneurial business; and the company is happy because it promises the chance to improve revenues at lower costs.

Though BT is promoting the concept as a "trail-blazing approach", it acknowledges that the idea was inspired by the experience of Xerox, the office equipment supplier where Pierre Danon worked before becoming chief executive of BT Retail in October 2000. Xerox has run a similar programme across its European operations for many years and its success led Danon to recruit De Cubber to do something similar for BT.

Bob Horastead, director for the office business in the UK, confirms that the concessionaire concept continues to be successful for the company. Similar to the agency model that BT has opted for (and which Xerox runs in the US), the concessionaire approach started with dealers - often ex-Xerox managers - being awarded territories and a financial package to help them get started. The programme has been going for about 14 years and there are 55 sites in the UK and many more across Europe. With annual revenues of about $120m in the UK and a total of about $1.2bn in Europe, it amounts to a "significant business", says Horastead.

Opinions differ as to whether the concessionaire approach is more effective than agency. Horastead claims that within Xerox the concessionaire programme has been seen as more successful than the agency model.

But De Cubber says BT opted for its approach because it offered a variety of channels through which the company could deal with the customer, whereas the concessionaire was "just one approach".

Whichever approach is adopted, however, seems less important than the fact that large companies are acknowledging the need to make themselves accessible to customers who have historically fallen between high-street consumers and big business. With more and more people setting up home offices and SMEs accounting for an increasing share of the workforce and the national wealth, it is a market that even the largest companies can not afford to ignore.

Andy Vickers, the director responsible for serving small and medium-sized businesses at the technology company Hewlett Packard, points out that 50 per cent of information technology expenditure in the UK comes from small business. "It is a very high-spending market," he says, adding that - while corporate spending is generally down - expenditure at small and medium-sized companies in Europe is expected to grow by about 12 per cent over the next couple of years. But it is a difficult market to serve well, largely because it is so fragmented and diverse.

Hewlett Packard has traditionally served large corporates at one end and consumers at the other, but not those businesses in between. Now it believes its breadth of coverage - it has about 1,000 channel partners in the UK - combined with the full range of products - from hand-held devices to mainframe computers - it can offer in the wake of its merger with Compaq, puts it in a strong position to serve a market that has historically eluded it.

But Vickers also accepts that even if - like Hewlett Packard - you have a reputation for quality, price is highly important in a segment of the market where those making purchasing decisions will often effectively be spending their own money. "The quality is still there, but the price points are right," he says. "We have become much more competitive on price."

It is a lesson that has clearly also been learned by BT and Xerox. Earlier this year, Xerox launched a high-profile initiative in an effort to demonstrate the affordability as well as technological prowess of its products, while BT is also being increasingly competitive on price, notably through its BT Business Plan tariffs.

WHY BIG BUSINESS STARTED TO THINK SMALL

Demerger is currently a popular means of unwieldy companies breaking themselves up in order to improve focus. A by-product is that it can also release funds to the original parent company. In recent years, both BT and HP have gone through the process.

But many companies also try to create separate business units or "profit centres" within the overall company, in order to make employees feel part of smaller, more manageable teams.

During the internet boom, management consultancies, accountancy firms and other organisations sought to stem the flow of employees to start-ups by setting up or supporting ventures that enabled them to fulfil their entrepreneurial dreams. But the tougher economic conditions of recent years mean there have been fewer such initiatives of late.

The idea that entrepreneurial talent can be unleashed within large corporations is not altogether new, though. The Capstone Encyclopaedia of Business reckons that Gifford and Elizabeth Pinchot were probably the first to introduce the notion of the "intra-corporate entrepreneur" - in the 1970s. Gifford, in turn, is credited with coming up with the catchier term "intrapreneur" a few years later, when his book Intrapreneuring: Why You Don't Have to Leave the Corporation to Become an Entrepreneur came out in 1985.

The same thinking was taken up by the Harvard academic Rosabeth Moss Kanter, who, also in the 1980s, was credited with introducing the concept of the "post-entrepreneurial firm", in which the strengths of a large organisation were supposed to be combined with the flexibility and speed of smaller ones. This idea formed the core of her 1989 book When Giants Learn to Dance.

In that book, Kanter cites intrapreneurial development as a key factor in ensuring a company's survival. "Companies with many employees find it impossible to provide a process which allows most employees to achieve the salary and the work status they desire," she says. Intrapreneur development makes it possible to meet some employees' demands for more autonomy, more responsibility and better rewards.

The idea of intrapreneuring has been somewhat caught up in another trend of recent years - corporate venturing - where large companies link with smaller businesses to provide capital and/or resources in return for access to new technologies or thinking. But the distinct idea of employees enjoying some of the freedom of being their own boss without too much of the risk is still attractive - for both the would-be entrepreneur and the parent company.

Rather, as happens in a franchise where an individual buys into a successful business concept, an intrapreneur benefits through being able to trade on the reputation of the parent without having to start afresh. That link may give the venture much-needed credibility as well as a steady flow of business in the early days. Moreover, the arrangement means that the new business leader does not have to worry about the procedures, systems and other back-office aspects that can typically take up a lot of time and even bring down a fledgling business. On the other hand, procedures that are too regimented can hold back the development of a new venture. The entrepreneur is never likely to make as much money as he or she would in a genuine stand-alone venture, for the simple reason that there is not so much risk involved. But he or she could still do better financially and have a generally more rewarding career than if they stayed in the core business.

The parent business also has little risk - it can always close down the venture if it does not work. But if it does succeed, the potential gains are huge, not least because, as BT's De Cubber says, it "breaks down the aloofness" of the parent company and makes doing business much easier.