The digital dilemma for SMEs

With digital transformation continuing to increase in importance for companies, what are the opportunities and challenges facing SMEs?



For many, the digital transformation question seems an almost redundant one. In this digital age, when enhanced technologies make for more efficient, productive and streamlined businesses, it seems obvious that most– if not all – businesses should adopt at least some degree of digitisation, if only to keep up with their competitors.

But the situation is far from straight forward. For small and medium sized enterprises (SMEs) especially, there are a number of barriers to embracing digital transformation with open arms, such as cost, security implications, and overwhelming choices.

Indeed, a study by market intelligence and advisory firm IDC showed that 5 per cent of companies in the region are resisting transformation – the same amount that are innovating their operations, markets and industries – with a huge 90 per cent either evaluating their first steps or making some advancements.

But according to Si Mohamed Said, ECEMEA applications marketing senior director at Oracle, despite some SMEs concerns, the question of whether they should undergo digital transformation is practically null and void.

“According to Klaus Schwab, founder and executive chairman of the World Economic Forum, “in today’s economy, it’s not anymore about the big fish eating the small fish, but the fast fish eating the slow fish.” This statement illustrates the sense of urgency that drives businesses today towards adopting digital transformation, particularly among SMEs,” he says.

“Digital transformation that is powered by technologies including cloud, social, mobile, big data, Internet of Things and artificial intelligence is imperative for businesses to drive the next phase of growth and gain competitive edge.

“Cloud computing, for example, can give an enterprise flexibility it never had before to respond more quickly to opportunities, deploy new applications on the go, or scale up fast to meet growing and unexpected customer demand.”

Business benefits

The advantages of SMEs making a swift and strategic digital shift have been well documented, ranging from greater efficiency and accuracy, reduced costs, and a more productive workforce.

There is also the boon of improved competitiveness. Research undertaken by SAP showed that 46 per cent of SME decision makers believe technology levels the playing field for small businesses against larger corporations, while 37 per cent see their size as an advantage over larger companies that are slower to take advantage of digital innovation.

Indeed, Altimeter’s The 2016 State of Digital Transformation report showed that ‘improving operational agility to more rapidly adapt to change’ was the third most popular digital transformation initiative for organisations – behind only ‘accelerating innovation’ and ‘modernising IT infrastructure’.

It’s this agility and greater efficiency that has helped some of today’s leading SMEs to go up against their bigger counterparts, and make an enhanced contribution to their industries and the wider economy.

“Many digital disrupters started off as SMEs themselves and leveraged technology to compete against traditional players,” says Megha Kumar, research director of software and cloud for IDC Middle East, Turkey and Africa.

“To stay relevant SMEs should look at solutions such as cloud that provide the added benefits of agility, scalability and resilience, in addition to lower cost of operations.

“SMEs can improve in terms of their competitiveness and drive innovation in their respective sectors. The reciprocal gains to the sector and economy at large by SMEs cannot be ignored.”

Incremental transformation

These gains to the economy are magnified by the sheer quantity of SMEs across the Gulf region. In the UAE alone they contribute to 86 per cent of the total workforce and account for around 60 per cent of GDP. In Saudi Arabia, they make up 90 per cent of all business enterprises, but only 33 per cent of GDP and 25 per cent of the labour force. All figures that can improve with digital transformation.

But with such a variety of businesses, there is no one-size-fits-all approach to digitisation, and certainly no silver bullet that can complete the process in one fell swoop. But there are ways to make the process easier.

“If you look at traditional businesses, the approach is to drive incremental transformation,” says Said.

“This is probably the safest and least risky approach, and is in stark contrast to the ‘all-in’ approach of transforming all areas at the same time.”

He highlights three steps that small businesses should consider when entering a digital transformation process.

“The first is to digitise all core processes such as finance, HR, accounting, and many more,” he says.

“This approach will bring the next wave of efficiency within the organisation.

“Once this is stabilised, the next step would be to extend this to the most differentiating business processes such as in customer experience. Step three would be to invest in and create the business’s own platform for innovating on-the-go in response to market changes, together with business partners and the broader ecosystem.”

Said adds a word of warning, explaining that while there is an element of risk attached to any change in strategy or infrastructure, the biggest risk of all is in not doing anything.

“The implication for non-adoption is simply to cease to exist. This is not about cosmetic changes for an organisation, but a total transformation in how they go to market and operate, which can be driven by changing customer preferences and evolving technology trends.”

Small businesses should not feel alone in trying to understand which transformation approach they should take, with a number of companies offering guidance, including Oracle, which launched a dedicated digital office in Dubai in early 2017.

Leadership

Regardless of outside expertise, however, company executives should be prepared to take the lead in any digital transformation their firm undergoes.

As such, the role of chief digital officer has become increasingly prominent, with a report by the US-based CDO Club estimating that the number of people holding the title at major organisations worldwide has more than doubled
year-on-year.

But while this relatively new position has become an important cog in the machinery of many businesses, Said explains that digital transformation is not down to CDOs alone.

“The CDO is most often tasked with bridging the vision of digital transformation to life. In reality, however, this is a collaborative and shared responsibility among the C-suite,” he says.

“It starts with the CEO, who aligns the transformation plan with the overall vision of the organisation, and serves as the executive sponsor of the project.

“The CFO will look at it from an investment as well as from a value-realisation and value-creation perspective. The CIO/CTO will of course be on the frontline, looking at the technology aspect, and there is a key role for the chief strategy officer as well.

“The keywords are collaboration and shared responsibility, and the CDO will be a facilitator and enabler of transformation within the organisation.”

Potential problems

Even with clear and consistent leadership – which is by no means guaranteed – there are still a number of challenges that SMEs might face when rolling out digital transformation.

In its 2014 digital transformation survey, Altimeter revealed the top challenges facing those undertaking digital transformation. The top five were: Changing company culture; thinking beyond a ‘campaign mentality’; cooperation between departments and team silos; resources and budget allocation; and finally, the understanding the behaviour or impact of new connected customers.

This was updated in its 2016 report, which showed a slightly different top five: Understanding customer behaviour; a lack of data or ROI to justify the digital transformation; risk management, compliance or legal complications; resources required; and changing the company culture to be agile.

Both lists highlight the basic fact that change is not easy, and there are numerous potential pitfalls to navigate even before starting a transformation.

Add to that a finding from last year’s Economist Intelligence Unit Digital Evolution Report that 88 per cent of companies believe they do not have the right technology in place to currently execute a digital strategy, and another stat from Altimeter that just 29 per cent of companies have a multi-year roadmap, and it’s easy to understand why some businesses are hesitant to leap
into digitisation.

So, how can SMEs build confidence?

“The starting point is to define a business strategy before a digital strategy,” says Said.

“Problems can be avoided with clear assessment at the beginning, and a consistent 360 degree view of the company and its transformation at every stage.

“Another issue is that many companies start too late and have to rush through their transformation, which is also not recommended. Cloud applications can help businesses drive their transformation incrementally.”

Ultimately, despite the inherent challenges, digital transformation is becoming increasingly important for small businesses to undertake. And for those still reluctant to take first steps, Said points to a particularly strong influence that should persuade them otherwise.

“An SME cannot afford to ignore digital transformation – it is a must-have today,” he says.

“With the overall vision for the future being driven by the UAE Government in specific areas such as paperless transactions, SMEs should ensure their responsiveness and preparedness around these specific areas as a first step.

“The fear of missing out can actually be quite a strong motivation towards transformation.”