SMEs set for digital disruption & many are lost in the digital space
We all know the story of Blockbuster not seeing Netflix coming, taxi companies didn’t see Uber coming, hotel chains didn’t see Airbnb coming, Nokia didn’t see the iOS coming and several other examples. These companies and related disruptions, all created major headlines, but SMEs being disrupted won’t. Not before the disrupter gained significant global footprint, when it is already too late for the SMEs to act.
Disruption has all days been happening, and in order to avoid publishing another buzzword heavy post, let me define what is being addressed in this post. Digital disruption we typically define as the change which occur when new digital technologies and related business models affect the value proposition of existing goods and services.
The numbers
In comparison another study was done in Singapore, where 56% of SMEs considering themselves as having adopted digital transformation. 1 of 4 Singaporean SMEs sees their digital transformation efforts as being relatively successful. Now Singaporean SMEs makes up 99% of all local enterprises and contributes to almost half of the country GDP. This is naturally a good incentive for the government to promote and create the right environment, for the SMEs to succeed, and a lot of efforts are done.
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The challenges
The digital disruption will according to some studies, cut a third of SMEs in the next couple of years, whereto I personally believe that they will partly be covered by the upbringing of smaller innovative enterprises, founded on the basis of new technologies. Still this is a major concern for incumbents, their shareholders, workers, local communities and even countries, as the future market leaders might not be in the incumbents’ home-market.
When technology empowers new business models, we get digital disruption happening in any given industry and typically incumbents don’t act before it is too late. So why is this happening?
Partly the answer is related to how IT is perceived within the organisation, partly due to the speed of technological adaptation has increased dramatically, partly access to talent and partly due to ambiguity on where to start.
Perception of IT
The majority of SMEs still think of IT as a business support function rather than a strategic enabler. Very often we see only large enterprises having IT represented at CXO level, either by a Chief Data Officer, Chief Technology Officer or the likes, however in SMEs IT is many times represented by Finance, as a support function. Unless the organisation is extremely good at setting up matrix and project related reporting structures, this often causes the IT representatives to report on current performance, while not contributing to strategic development and enablement.
Digitally transforming an organization should not be confused with a technology point solution, although this is also seen often. SMEs often try to catch up, by acquiring expensive software solutions, which in return are rarely used to its full potential and neither enabling a strategic advantage.
Adaptation speed
Every new technology gets adopted faster than the previous and the speed at which new technologies are being developed is accelerating!
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If we were to add big data analytics, predictive analytics, machine learning, artificial intelligence, virtual reality or blockchain to name a few important new technologies, I am sure that you would agree that at least same speed of adaptation is expected. In example the global data analytics market is anticipated to exhibit remarkable expansion at a CAGR of 30.08% during a forecast period of 2017-2023 and reach a market valuation of USD 77.64 Bn by the end of the forecast period. |
This rapid adaptation speed creates an enormous pressure on SMEs to catch up with technologies, possible applications, cost of development / acquisition, their potential benefits, as well as returns of investments. All while not having the necessary representation at a CXO level, especially because these are typically considered optimization and not core business strategy enablers.
Access to talent
SMEs are typically full of smart business savvy people, understanding their business and their client’s business inside out. Having worked with hundreds of client organisations in the SME segment globally, I can honestly say, that most are still having that go-getting entrepreneurial culture, and many have tried to recruit for developing in-house capabilities in the digital space, but very few with even the slightest success! |
77% OF BUSINESSES STATE THAT LACK OF DIGITAL SKILLS IS THE MAIN HURDLE TO DIGITAL TRANSFORMATION |
Specialists with the skills and competences in the new technologies, are a scarce resource and are typically attracted by different motivators than the rest of the organisation. In example a grocery retailer wanted to hire a handful of data scientists and a few BS full-stack developers and a MS software engineer, to develop their loyalty program and later on automate their CRM solution. For 8 months they didn’t succeed in hire a single specialist and once they succeeded, the first employee left after just 2 months.
Now imagine if you had spent your youth educating yourself as one of the above to a minimum of bachelor level, being in a market where your skills are highly sought for. If you for instance wanted to hone your skills in full-stack development, would you prefer going to a grocery retailer, getting big responsibility, but low exposure to various applications and programming languages, as well as few career opportunities? Or would you prefer a tech firm with many vertical and horizontal career path opportunities?
These challenges combined with specialists rarely being represented at the CXO level, makes it difficult to attract talent.
Where to start
As both perception of the IT function, the adaptation speed of technologies, the access to talent all proves challenging, it makes it even harder for SMEs to understand where to start the digital transformation. Especially because there are no internal sponsors of the transformation, who has the combination of the necessary experience, skills, on top of latest technology trends/improvements.
Digital transformation is a journey that usually is fundamentally changing how customers are served, how the business runs, what skills are needed to run it and how technology is employed to enable strategic advantage, differentiation, leap-frogging competition, while having a compelling value proposition towards existing and/or new customers.
A starting point for SMEs to overcome these challenges, is to set up an advisory board. An advisory board, which serves as an inspirational, innovative and challenging resource and knowledge centre for the management to tap into. This board needs to have tech-, strategic- and business-savvy members, with different profiles than the management team. It differs from board of directors, as they should not have any corporate governance liabilities. It needs to have a ruthless honest and open dialogue and sparring function with mentor-like benefits.
These advisory board members and the management team should in turns bring up ideas, possible risks, and discuss in the forum. Some ideas will turn into hypotheses, which can be validated and tested either internally or with the help of consultants and will help forming the digital agenda.
Are you interested in hearing more about how we have done this for our clients, or just an informal talk about how this can be done for your company, please do not hesitate to get in touch!
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Kasper J. H. Ditlevsen, Managing Partner – Nexus International