Why it's time for SMEs to get a digital makeover

2nd Apr 2018
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Business managers and leaders, whether in large firms or small and medium-sized enterprises (SMEs), know better than anyone else the challenges of running and scaling a business. We deal daily with fierce competition, tight budgets, and demanding customers who eat into our already-thin margins. But as we look around us at the widespread adoption of digital tools like smartphones – especially by the youth – we have to admit that technology has permeated every aspect of our lives, at work and home. I would even go so far as to argue that adoption of digital technology is now about “when,” not “if,” especially for SMEs.

To ensure differentiation and success in a highly competitive and fragmented market, let us begin by examining the impact of adopting – or not adopting – technologies and tools. The adoption of any technology offers three kinds of benefits to any organization: productivity, innovation, or risk management. Here is how digital technology offers all three.

  • It improves the productivity of the workforce or a process by increasing workflow efficiency, and therefore profit margins,
  • It creates new, innovative ways of reaching and engaging with customers,
  • And finally, it reduces the risks of errors (and therefore wastage and customer dissatisfaction) manifesting from manual or paper-based processes.

In an age where consumers have little time and even less patience, technology has become the bedrock of commerce; going digital can truly catalyze growth for SMEs, the backbone of India’s economy. It does this in several ways, and I have illustrated six key reasons why going digital is the one thing that you, as an SME business owner, must do this year to grow your business and also make it more valuable.

1. Your customers are going digital

Consider the facts.

  1. India itself has a large, digitized user base: “Every second, three more Indians experience the internet for the first time. By 2030, more than 1 billion of them will be online,” The Economist reported in 2016. According to IAMAI, India is likely to have 500 million internet users by June 2018; 186 million of these will be in rural areas.
  2. A 2017 Google-BCG report predicts that digital spending in India is set to reach $100 billion by 2020, tripling from $33 billion in 2016-17.

Consumers today expect a similar quality of digital accessibility, convenience, and personalization in all their business dealings irrespective of whom they are interacting with. The way I see it, we need to be ready to serve “digital natives” – customers aged under 35 (two-thirds of India’s population) who prefer digital over other methods, to explore and transact online. In fact, a Google-KPMG study found that digitally engaged SMBs grow twice as fast as offline SMBs.

2. Digitization is blurring borders (so it’s important to be close to your customers)

Digital opens up a huge avenue for local businesses: the global market. The mobile ecosystem could reach $4.6 trillion, or 5 percent of GDP, by 2022. Whether your customer is in the next neighborhood, or half-way around the world, your digital presence can connect you to any of these at no additional cost.

The real value of digital, however, is in the innovation and scale it can bring to your business. An SME needs the exact same digital infrastructure to be a hyper-local player or an international one. That’s because digital solutions can handle incoming and outgoing traffic at massive scale – thousands and even millions of transactions, information requests, videos and personalized interactive chat sessions, and so on. Digital also allows a business to bundle and unbundle offerings in new combinations for new audiences, and to experiment with new business models.

3. Business fitness is crucial (because the digital world is now your oyster)

In a digital world, your competitor is just as close to your customer as you are. When customers have more options, competition is fierce. Even fiercer is the fight for margins when new players squeeze you on pricing. In such a scenario, your operations, productivity and efficiency need to be nothing short of top-notch.

From customer activity to business impact, going digital allows you to increase your efficiency in many ways while curbing operational costs. Take the Cisco-IDC survey of SMEs in Asia (see Fig 1 below), for instance; it uncovers the top challenges and the top priorities at these companies, all of which can be changed for the better by going digital.

Going digital is just the beginning of your digital journey. It is at this stage that business owners must take charge of ensuring this investment pays off, mainly through a strong focus on improvements through clear metrics such as these:

  • Activity metrics (web traffic, app downloads, footfalls, online interactivity).
  • Process metrics (track improvement in lowering costs of acquisition, higher efficiency in marketing, better price comparison services, higher sales rates).
  • Knowledge metrics (customer insights, analytics and behavioral profiles, best practices for improving revenues, patents & IP)
  • People metrics (customer and employee satisfaction, etc.)

These measures ultimately lead to business metrics: the resulting new product lines, customer segments, international markets, incremental revenue, higher savings and profit margins, and even better valuation.

[Also read: What exactly does it cost for an SME to go digital?]

4. Managing modern IT isn’t rocket science anymore

One advantage of modern-day digital solutions is that the person managing IT can very well be the current management team. It’s not rocket science. For example, Cisco START, a product portfolio specifically aimed at SMEs, does not require a dedicated IT person in-house – the infrastructure can be managed, monitored and tracked by the current key managers, with just a little training. Automation, for instance, doesn’t necessarily mean a massive transformation. It can be something as simple as using an online tool to generate leads, or do accounting and invoicing, and related activities.

In fact, technology solution providers can also help train the workforce. Many of these training modules are available online for on-demand learning too. Upskilling workforces in the digital age is a key priority for digital transformation, and the benefits are long-term and cumulative.

Costs of technology solutions (sourced and adapted from the original by the World Economic Forum)

5. Don’t ignore online security

In the big expansive world of digital technology, security underscores every aspect of a company’s digital efforts. Just the way you would protect your physical assets, your digital assets (data, records, etc.) need protection too. At the very least, I would urge a focus on the following measures:

  • Legitimate software – pirated or obsolete software is more prone to cyber attacks
  • Anti-virus protection on all business devices
  • A firewall on the business network and protection for the website so that critical or sensitive data is not accessible by everyone
  • Encryption software even if only a small part of the company’s financial transactions occur online
  • Back up data either externally to hard disks stored securely, or to the cloud
  • Secure business wi-fi networks, ignore emails that seem odd or suspicious or ask for passwords and other personal information
  • Train employees about the dangers of online attacks.

6. Digital infrastructure adds value to the business

I would point to another important digital business impact: the market value of the business too can increase along with the business volumes and profit margins. For example, US-based grocery chain Blue Apron went public and is trading at a revenue multiple of about 1x, whereas online marketplace CarGurus, which went public, is valued at a revenue multiple of more than 10x thanks to its greater use of digital process transformation (source: Inc magazine).

Allow me also to point out how digital also helps employees and not just business processes.

  • Remote-working digital solutions let them be productive even outside the office.
  • Real-time access to information keeps them updated on the latest developments in deals and customer interactions.
  • The time freed lets them focus on the high-value tasks, not the mundane ones.

The value of resulting savings and innovation improves margins, which can then be reinvested into expanding the business.

The ultimate transformation is not just technology or business process, but leadership and organizational culture. In summary, I would say that digital provides the best combination of all: a win-win-win, for customers, employees, and of course businesses.

Explore how you can build out a comprehensive digital growth strategy in a phased manner.

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