Digitization for SMEs
How small businesses can hold their own against large corporations
Today, using digital technology in the company is no longer an option, but has become a necessity in order to remain competitive. This is something that small and medium-sized enterprises (SMEs) in particular have been feeling more and more in recent years.
The challenge for SMEs to digitize
SMEs have a harder time digitizing areas of the business compared to a large company or even corporation due to several reasons. The most obvious difference is budget.
New technologies come with high risks and often require high investments. If a mistake happens or a project fails, a corporation simply writes it off. Due to the high number of employees at large companies, it is also not particularly disturbing if a team has worked on something for a few months that does not bear fruit. For an SME, however, the loss of a large amount of money and also possibly essential manpower over the project period can cause broad difficulties.
Many decision-makers in SMEs also often have no concrete idea where exactly to start with digitization. It is also becoming increasingly difficult to actually understand the topic. Digitization has become fashionable and the term is often used as a filler word. This makes it difficult to find a clear approach that can be used as a guideline. Those pieces of information that are accessible to a broad audience often contradict each other or leave an enormous amount of leeway when it comes to practical implementation. Finding competent implementation partners or consultants for a reasonable budget also proves difficult.
The pitfalls along a digital transformation are manifold due to the complexity, especially for smaller companies. Every day, therefore, companies approaching the topic make serious mistakes. In many cases, months of work were wasted in these failed attempts and multi-digit sums of money were often wasted. Those involved in the process are often frustrated, in the worst cases people look for someone to blame for the failure and the topic of digitization in sales is carried to the grave. But this does not have to be the case.
The dangers for non-digitized SMEs
For many smaller companies, especially in these times of increasing globalization, rapid price-performance comparisons from suppliers often located around the world, and constantly changing customer behavior, the problem has arisen that tried-and-true ways of working no longer deliver the desired results.
Large corporations that could afford it often moved their own production overseas in order to be able to offer cheaper products on the domestic market. Smaller companies such as SMEs, on the other hand, usually do not have the means to simply continue operating their plant in a faraway country. Production companies in particular, with their high labor costs, are therefore facing price pressure from competition from Eastern Europe or the Far East in almost all market segments. The SMEs concerned are now being downright forced to act in order to prevail against this competition and avoid being squeezed. In this context, innovative digitization is the most promising response, as it offers the possibility of exponential growth and thus allows a company to operate much more efficiently.
Digitalization has also changed the rules of the game in many markets. The competitive advantage is no longer cheap offshore production or a lack of environmental taxes, but rapid learning effects within the company, adaptability, and constant redefinition of one’s own business model. The resulting competitive advantages are exponentially greater than simply cheap prices of an end product. These new, digital principles can be implemented regardless of location, giving even smaller businesses a crucial tactical opportunity once again.
Used correctly, digitization and new agile business models can thus generate long-term competitive advantages or even disruptive innovations. This fast-moving change is particularly affecting successful companies, regardless of their size. According to Richard Foster of Yale University, the average life span of a Fortune 500 company has been reduced from 67 years in the 1920s to just 15 years in the present. That lifespan is getting shorter and will get even shorter in the years ahead. This means even the most successful companies in the modern era can be displaced by an innovative start up in a short period of time. It is precisely this rapid, technological development that gives the small company an unprecedented opportunity in its hands to compete against larger competitors.
The advantages of an SME in digitization
However, an SME also has a number of advantages that it can leverage in terms of digitization. One of the most important of these advantages is its flat hierarchy, allowing it to make decisions quickly and respond to trends or technological changes. Digital technology and its application possibilities are growing exponentially. A tactic that is effective and profitable today may become useless after a short time. Trends are always evolving, algorithms change the systematics of digital platforms overnight, etc. To keep up with this technological progress, quick decisions are necessary without a lot of bureaucracy.
While in a corporation a change in the company must first be approved by HR, various managers or the legal department and can involve weeks of debate, an SME can react faster and more agile. Above all, this allows small companies to outmaneuver the large corporations in the market. Decisions can be made faster and thus implemented more quickly. An SME thus gains an important advantage over its larger and otherwise superior competitors.
Further article: How to digitize the right way? – Simple rules for transformation
Cloud solutions for SMEs
For a long time, digital technology was reserved for corporations. 10-20 years ago, most systems were programmed and created individually for each company from the beginning. Those first ERP or CRM systems cost tens of millions, took years to develop, and in the end they usually didn’t work as they should. Today, an SME can rely on ready-made cloud solutions in almost all areas.
ERP systems, CRM systems, CMS systems, etc. All of this is available today according to the plug & play principle – and only needs to be adapted and made usable for the own company. The costs are only a fraction of the actual production effort, because many companies can work on the same platform. Today, all these tools for increasing efficiency are available to the SME with 30 employees just as they are to the corporation with 3,000 employees. Small companies can therefore rent or use as a service almost all the IT resources and infrastructure they need. These can be operated with much less effort and allow efficient scaling of operations.
Ultimately, fast decision-making processes and the infrastructure available today allow small companies to develop much faster than corporations. Customer feedback can be collected in real time, products can be developed and improved, etc. Innovations can be implemented much faster and time-consuming work steps can be largely automated. As a result, better results can be achieved with fewer people and less cost and time. Applied correctly, SMEs can thus work much more economically and sustainably and not only improve their market position in the long term, but also bring greater benefits to society.
How do you start to digitize as an SME?
1. Break it down into smaller work packages
“How do you eat an elephant?” – One piece at a time.
When faced with a highly complex and time-consuming matter that seems almost impossible to complete in its entirety, it is best to pick only a small part of the entire endeavor and work through it first as a task package.
Only after this first step in the company has been successfully digitized, for example, a digital lead generation through efficient online marketing, does one begin the next task. This means that the costs and time involved in digitization always remain manageable. Even small companies can begin to work more digitally and efficiently right away by starting today with a small part of the overall project.
2. Best practices
Not every company stands alone against the rest of the world when it comes to digitalization. The requirements are often very similar for affected companies. There are models of how it can work. There are concrete instructions for action that can bring you closer, piece by piece, to the desired success. There are patterns, there are processes, there are best practices from other companies to follow. Even if digitization has been completely ignored in a company and until now, today you can start to implement it slowly in a systematic way and take advantage of the resulting benefits for yourself.
Others have successfully demonstrated this and we can take a leaf out of their book. While there is no guaranteed successful step-by-step guide to digital transformation, there are certain cornerstones of such an endeavor that can be used as a guide. These principles can be adapted and customized for one’s own company to achieve maximum likelihood of success and individuality. SMEs can thus digitize their work processes and company divisions in record time – even if nothing has been implemented in this direction to date.
3. Biggest Domino
If you can start a variety of projects in different areas of a company, which is the right one to start? Which one has top priority and which ones can we do later?
To answer this question, we look for the “biggest domino” in our company. Almost always there is a central process, a task that is like a lifeline in the company – everything else in the company arises from this core task. All other activities, such as accounting, customer service, etc., exist only because this central task is successfully accomplished first.
In most cases, this largest domino has to do with sales. This process, for example, brings new customers and thus the necessary money into a company so that all other steps can follow. Production, assembly, cost accounting, IT or HR department can only successfully complete their tasks if enough products are sold first. Therefore, this is a popular starting point for digital transformation for many companies.
4. Targeted experiments
The choice of digital platforms, systems and options has become overwhelming in recent years, even for experts. New software solutions promising more profit and automation are emerging almost daily. However, every digital tool that is supposed to bring more efficiency costs time and money beforehand to adapt it for your own company and to be ready for use. Only when the system or digital tool is used in everyday life can it be assessed whether the system is really suitable for one’s own market, one’s own product, one’s own customers. But then it is usually too late. Changing an IT system usually involves enormous effort and expense. So how can you ensure that you don’t back the wrong horse right from the start, causing the transformation to falter?
The answer lies in not looking for a single, breakthrough technology to reposition the entire enterprise. Instead, look for several suitable solutions, evaluate them for their suitability, and then test them in well-calculated experiments. These experiments have a clear limit on the budget, workload and time invested. This means that even an SME can test several platforms or software solutions initially only in sub-areas of the company and measure the results in practice.
And if an experiment doesn’t produce results? Then we always remain curious, try to understand why it didn’t work and dedicate ourselves to the next project. Because tools and digital platforms are plentiful. We just have to find the ones that can also make our company more efficient and successful.