Survey Confirms – SMEs Are Lagging with Digital Transformation

By Mathias Tölken | Digital Transformation

Feb 21

We first went on record in 2015 to say that Digital Transformation (or DX in short) “Squeezes” Mid-Sized Firms.  Last week my business partner Mark Geschke in a blog took a closer look at why we believe that SMEs are potentially the biggest losers of Digital Disruption.

But what do SMEs themselves say? To find out we published a fun Digital Disruption Simulator on our website.

This is a sneak peek at the interim results provided by nearly 150 respondents from all over the world.

More...

The Three Initial Stages of DX

If you are a regular reader of our blogs, you will by now be very familiar with our concept of the four Value Propositions (VPs) of technology in any business. When addressing the topic of Digital Transformation, any business needs to look at least at the bottom three (by design to be read from the bottom up as they build on each other):

  • VP3: Customer-Driven Product Innovation
  • VP2: Automated and Optimised Business Processes
  • VP1: Modern, Reliable and Cost-Effective IT Platform

Customer-driven Product Innovation (VP3) here is the ultimate driver. The latter is often also expressed as Customer Experience (CX) or Digital Customer Experience (DCX).

If you are not sure what I am talking about or would like to refresh your mind, I would suggest you read Mark’s Digital Transformation for Dummies blog.

Size Does Not Matter…

Ok, I agree that this heading is a bit sensational, but I could not resist…

Fact of the matter is that whether I sliced the data by company size or country, I got the same macro-trends that I will be discussing below.

This is consistent with the experience we have with our BTM Mastermind Groups where we meet every two weeks with IT Leaders from small and mid-sized organisations from different countries. Here we also found that the challenges they grapple with are similar across company sizes and geographic boundaries.

One segmentation that did indeed deliver different results was when I started looking at the data by industry – here definite leaders and laggards do emerge. Discussing this in more detail, however, is beyond the scope of this article.

A Closer Look at the Survey Results

Now it is time to delve into the meat of the matter. Let me again use the title image, before I highlight certain sections:

Our survey is built from the bottom up (or from left to right in this depiction).

Each cloud depicts the % of total respondents that answered the corresponding question with "Yes".

The survey structured in a way that respondents only get the following question if they did answer the current one in the affirmative, i.e. the first negative answer ends the survey

This is in line with our hypothesis that it is important to get a “good enough” result in a lower Value Proposition, before one can move on to the next higher one.

But let's look at the results more in detail:

The Not-So-Stable IT Platform

The first set of results for VP1 (A Modern, Reliable and Cost-Effective IT Platform) was an eye opener for me personally. Whilst, as expected, most respondents confirmed that a stable technology platform is important for them, I was not prepared for the fact that only 2/3rd of companies do actually feel that they are getting “good enough” results

For the past two or three years we have already been telling people that this has become a non-issue for most companies and that we can move on to the next-higher VP.

We did base this on our 20+ years of experience leading a Managed Service Provider for SMEs. It seems that due to our relatively advanced client base, we had confirmation bias and the world beyond this does not look as rosy. 

And I am not 100% sure what to make of the 7% of respondents who don't even expect their platform to be reliable and cost-effective...

Not attaining at least VP1 is a major stumbling block in any organisation's quest towards Digital Transformation. 

The Next Big Frontier for SMEs is Business Automation

Just over half of all respondents, or close to 80% of all of those (66%) who reported that VP1 is good enough, expect their company to use technology to address process automation and subsequent optimisation.

Under 1/3rd of these companies or just 15% of all respondents report satisfying results at VP2. This again is in line with our experience and is the next big frontier for SMEs.

Whilst enterprises have for years focused on their processes and execution and have spent fortunes on big ERP, CRM, production and logistics applications, SMEs still tend to run their business by the seat of their pants and only use technology in disjointed “pockets of excellence”.

 

The Winner Takes It All 

On the one hand the results show that only 11% of respondents get results in VP3, on the other hand this does represent 71% of all (15% of) respondents who reported that they do get good enough results in VP2.

At the moment, our number of respondents is still too low to say with certainty whether this number is skewed as only a certain type of company answered or whether there really is such a high degree of correlation between getting results in VP2 and VP3. This will be an interesting statistic to watch as our number of respondents increases.

One of the big premises of Digital Disruption is the hypothesis that there will be only a handful of big winners per industry plus a few rapid followers, with the rest of the players being reduced to ever-shrinking niches.

Could this set of answers be an early indication of this fact? Is there really such a big gap between the more traditional companies who at present struggle to get to grips with VP2 and those who have already mastered both, VP2 and VP3? Watch this space…

If you have not done so, I would like to again urge you to read Mark’s blog from last week: SMEs are potentially the biggest losers of Digital Disruption. 

This especially applies if you are not one of the companies who are getting good enough results in VP3.

The Silver Lining: Leapfrogging into the Cloud

As with any problem, there also is a silver lining to this cloud. And to excuse the pun, this silver lining is “the cloud”

Whilst companies, who a few years back already started to embrace technology, had no choice to build big, monolithic, in-house applications, those who are only starting have a distinct advantage:

The cloud has come of age and in the age of the API driven application, it is very much feasible to use numerous best-of-breed applications for individual tasks and roles and then have the necessary data flow between them.

And these applications can usually be subscribed to on a month-by-month or at most yearly cycle and at a fraction of the cost of traditional in-house systems.

One such example is the accounting system Xero, which is a cloud-only accounting system and by now sports far more than 500 add-ons written by partners that take care of anything from specialised invoicing needs, CRM, eCommerce, professional services time logging, payment gateways and many more – quite a few of them are also industry-specific.

We at Xuviate use Xero and are able to effectively run a highly automated, world-wide, multi-currency operation coupled with an outsourced accounting function.

It is also possible to quickly iterate and change applications as needs change.

The following image has made a few rounds on social media lately and shows the benefits of cloud. (I was not able to find the original author, although one of the earliest versions was published on http://docubizz.com.)

There naturally is also a risk to this and if one does not watch out and manage the sprawl, the equation could also look as follows (once more author unknown, but the following article does use it and also give a great synopsis):

A deeper discussion of this topic is beyond the scope of this article, but the potential ability to embrace the cloud and greatly increase the speed of adoption of technology, whilst at the same time decreasing cost is undeniable.

Applied correctly this might allow your business to leapfrog those who sit with legacy monolithic applications that they need to maintain at a great cost and effort.

Detailed Analysis of the Digital Disruption Simulator

We will in future discuss some of the detailed results, so if you have not done so, please do subscribe to our blog to be notified whenever we release an article.

We are, however, also aware that the current 150 submissions give a good idea and are consistent over different variables, but for some subsets of country, company size and industry, the sample size is still too small to be statistically significant.

Three Immediate Suggestions to Get Started on / Accelerate Your DX Journey

No article wold be complete without actionable suggestions and I do have three for you:

1. Mindset change

Wherever you are on your DX journey, Digital Disruption is real and will eventually disrupt every vertical. Deloitte Australia put it succinctly in the following video:

“Ultimately Digital Disruption will affect every corner of business and society. The question is the length of the fuse and how big the bang will be.”

It is important to start with a mindset change and realise that the ultimate playing field for Digital Transformation will be in VP3 with CX & DCX.

Before we get there, we also need to embrace that we are living in a “cloud first” world where the winners will use a lightweight ecosystem of services and no longer build on monolithic in-house systems.

I can recommend reading Charles Araujo’s new short book The Ecosystem Advantage, looking up Peter Diamandis, one of the leading futurists and abundance thinkers, and obviously subscribing to our blog.

2. Fix VP1

If you are one of the companies who did not or would not be able to answer that VP1 is “good enough”, NOW is the time to fix that!

Once more doing everything in-house is probably no longer a viable option. There are many reputable managed service providers who can take care of this for you at a very reasonable cost and even here one should these days think cloud-first.

3. Experiment

There is a good chance that you are one of the companies who need to start moving from wanting VP2 to actually getting results.

But where to start?

The first step would be to identify pockets of excellence and forward thinking people who are already in your organisation (and I am sure there are some). Next step would be to encourage them to experiment with ideas, but focus on quick wins – we are talking weeks to maybe now and then months, but definitely not years. Here I would e.g. suggest you look at Google’s method of design sprints.

Are You Ready for Lift-Off?

What was your Digital Disruption Simulator score?

What are your next steps?

Was this article helpful and did it generate new insights?

I would love to hear your input and suggestions – whether you agree or not -  as well as feedback on any tools or methodologies that helped you on your DX journey. Please post your comments below or contact me directly. 

And if you have not done so yet, I would like to again implore you to PLEASE play the Digital Disruption Simulator and be part of creating new insights! 

Follow

About the Author

Digital Sensei | Abundance Thinker | Helping Mid-Market Companies Evolve through Digital Transformation - As trained Industrial Engineer with close on 25 years' experience as IT Professional and Business Executive in the mid-market IT industry, Mathias Tölken loves to share his experiences and expertise with others.

>