5 digital transformation challenges SMEs face today and how they can solve them to plan future growth

• By Dr Pradeep Racherla & Dr Ram Nidumolu 

Technology for MSMEs- Small and medium enterprises (SMEs) are the backbone of our economy and account for more than 30 per cent of the GDP and 45 per cent of all manufacturing activity. The pandemic has hit them hard and also forced them to innovate and adapt. SMEs, which were once used to the ‘physical’ model, now experiment with ‘digital’ methods to run their businesses. A kirana store now uses Google Sheets to maintain inventory and manage receivables. A plastic molds manufacturer has digitised his product brochures and uses Zoom to communicate with his customers. A fertilizer and pesticide distributor uses WhatsApp video and photos to study farmers’ crop conditions and suggest the right products.

SMEs have adapted to the situation in some form or the other but they now need to take a more long-term approach to digital transformation. Data across the globe shows that the success rate of digital transformation is still at the low 20 per cent. SMEs face very specific problems when it comes to digitisation of their businesses. In our experience of working with several MNCs and small businesses across the world, we see five specific digital transformation challenges that SMEs face. This article explains the challenges and provides solutions to plan out the journey.

FOMO (Fear of missing out)- The first is ironically a social challenge. SME owners are parts of business networks where there is continuous chatter about digital. This creates significant pressure to go digital. However just because the world is going digital does not mean your business should go digital. It’s a good idea to ask very specific questions. What are the chances that your product or service can be delivered digitally? How digital are your customers in consuming or buying your products over digital channels? More importantly, are the customers willing to pay for that additional value that digital brings? If the answer to some or all of these questions is ‘no’, then it is worth waiting out.

Go big or go home- A popular notion amongst SMEs is that if you want to go digital, you invest big and be comprehensive. This creates problems at both ends of the spectrum. Scared about the magnitude of work and investment, many don’t even try. The others invest too much and fail to reap the benefits. Going big is a mistake. Digital transformation is an experimental exercise. One needs to try out several small things before solidifying and adopting a specific strategy. Experiment with several digital ideas, launch and collect data, and then subsequently figure out the best ones to keep and invest.

Subscribe to Financial Express SME newsletter now- Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises 

Where to start? Not knowing where to start is a common problem. Even though business owners are fully convinced about digital, there is no specific framework to tell them where to start and how to start. Just as a child goes through growth phases, a digital strategy also evolves through three typical stages of maturity- stage 1 where companies just sense digital as an opportunity. One can take small steps. e.g., invest in Facebook or LinkedIn advertising with a concurrent reduction in traditional advertising or make your sales support and customer connect digital.

Stage 2 is where companies use digital to connect stakeholders in the value chain, e.g., automating a raw material ordering system to increase efficiency and reduce wastage. Stage 3 is where companies are able to truly use digital to create new business models or new products/services. e.g., a subscription service or an e-commerce platform. SMEs must map their current stage in this maturity ladder and define the specific activities/resources needed for experimentation.

Start small but think big- A good place to start is in two areas- 1) To simply enhance the current digital presence. For instance, how good is your website or do you even have a website? Is the website useful enough to enable business transactions and easy communication with your customers? 2) How much are you spending on marketing and advertising? Is it possible to enhance your current budgets in digital advertising and measure whether it is delivering ROI? These are simple ways to start and provide you with small wins that motivate your digital transformation progress.

Who will do digital? Most digital initiatives fail not because of technology but the human element. The biggest mistake that small business owners commit is to control the process. This is a recipe for disaster. Identify and train at least two of your employees who can become your wingmen in the journey. Involve them in the decision-making process, empower them to make decisions based on data and feedback from the customers, and more importantly train them in using and deploying the new technologies that you have adopted. You will see that ultimately these key employees will be the primary drivers of success.

Digital transformation is not easy for SMEs. Remember that digital transformation happens if you are open to possibilities, able to think small and experiment, have a laser-like focus on data related to performance and ROI, and are able to empower your employees to drive the initiative. If done right, it has the power to propel your SME into a sphere that is far above the competition.

Dr Pradeep Racherla is Professor of Marketing at Mahindra University, and Dr Ram Nidumolu is Professor of Organizational Behavior at Indian School of Business. Views expressed are the authors’ own.