SMEs need help to move up the digital ladder amid disruption

Digital technology saves money, reduces reliance on manpower for mundane tasks and provides greater market reach.

WHY do government and business leaders keep pushing local small and medium enterprises to go the digital way - even when many SMEs are aware and convinced that digital technology is key to not only business growth and success but, increasingly, also business survival?

Government and business leaders apparently think many of the SMEs in Singapore are still left behind - and for those which have embarked on the digital path, they still have a long way to go. Why the slow progress?

According to Wikipedia, digitalisation is of crucial importance to data processing, storage and transmission because it "allows information of all kinds in all formats to be carried with the same efficiency and also intermingled". In today's knowledge economy, the gains of going digital are all the more greater because it involves crunching analog source material and converting them into a number system that makes work easy - and this can be used to gain an edge in business.

"Constantly changing business landscape, increasing market competition, shifting customer needs - these are some of the reasons why businesses, especially SMEs, go digital to boost productivity and profits," says AM Corporate Services. It entails using technology for business processes ranging from sourcing, invoicing and decision-making and payment.

AM Corporate Services says digitalisation improves sales and investment returns. By digitising business processes, SMEs can boost output, supply chain efficiency and response time.

More work ahead

Adopting digital technology also saves money and reduces reliance on manpower for mundane tasks, the corporate solutions provider adds. Small businesses, for instance, can turn to software and cloud applications for accounting to make the process smoother, freeing up accounting staff to focus on higher-level accounting work.

Digital technology, of course, provides greater reach in the market. It enhances a company's visibility and leaves a lasting impression on targeted customers. Over the long term, digitalisation can help maintain customer relationships better.

A study by the Association of Small & Medium Enterprises (ASME) and Microsoft Singapore found SMEs which are "actively implementing digital initiatives" expect their efforts to yield an average 26 per cent in revenue gains and an average 22 per cent in cost savings.

Like the national productivity campaign before it, the digitalisation message has also been repeated ad nauseam. OCBC Bank's head of global transaction banking Melvyn Low recalls that the push to embrace digital technology kicked off almost 30 years ago with the promotion of Internet Banking. Banks such as OCBC naturally took an interest and expanded the coverage to basic financing and fund management.

The march towards electronic payments is helped by the prevalence of smartphones and is very much tied up with the national movement for a cashless society. Electronic commerce has taken hold of businesses, which are still grappling with how to make the best use of it.

Mr Low says that in persuading SMEs to go digital and helping them roll out their plans, OCBC Bank has gone beyond in meeting their banking needs and other financial matters such as managing cash flows - it's now also helping SMEs tap digital technology to run their business efficiently.

According to him, the common sight of iPads in the service of business in small restaurants and mom-and-pop shops is an indication that digitisation is making inroads in the SME sector, which accounts for 99 per cent of Singapore's companies, nearly half the country's gross domestic product and 70 per cent of its labour employment.

An OCBC poll last year found that 65 per cent of SMEs believe going digital is necessary to stay relevant in business and half of them have started to digitalise their business.

SMEs are increasingly employing digital business solutions in the day-to-day running of their operations - from accounting and expense management to sales and inventory, marketing and control of human resources.

"Based on OCBC Business Debit Card spending data, SME expenditure in 2018 on some of the most popular business apps such as Facebook, Xero, MailChimp, Shopify and Quickbooks hit S$9 million, almost double the amount spent in 2017," Mr Low reveals.

A survey last December by management consulting firm DP Information Group indicated that seven in 10 of the 2,557 SMEs polled are ready for digital transformation in areas such as business operations, customer service and marketing of products and services. A third of the SMEs surveyed have, in fact, already adopted at least one digital solution, mostly in ordering and payment systems, e-commerce and workforce management and reporting.

Yet, this is the easy part and even then, Mr Low concedes, there's still a lot of work to be done in just getting SMEs onto the digital platform. There's still some lack of awareness and plenty of inertia in taking the digital route, he says.

A survey of the extent digital media is used as a marketing tool shows many SMEs are "either confused as to what to do with digital media platforms or are unaware of the enormous benefits attainable from having an effective and powerful online presence".

The survey, conducted by Bridgingpoints Marketing Services, a boutique digital marketing firm, found 52 per cent of SMEs believe Internet marketing is effective or very effective in attracting customers, 52 per cent think they have the expertise to handle Internet marketing themselves, 45 per cent are ignorant about the impact of digital marketing on sales, only 13 per cent have a plan in the next 12 months to increase spending on digital marketing, and 57 per cent have no budget for Internet marketing.

Bridgingpoints' conclusion from the survey is that many SMEs are "woefully" clueless about the key role digital marketing now plays in the marketplace. While SMEs recognise the effectiveness of Internet marketing, many are unwilling or uncertain about how to invest in its obvious potential.

According to the ASME-Microsoft study, only 57 per cent of SMEs have heard of digital transformation, while the number is 98 per cent for mid-sized and large companies.

Solutions available

One solution is to catch them early. Last month, the Infocomm Media Development Authority and Enterprise Singapore rolled out the Start Digital initiative which offers new SMEs access to two foundational digital solutions of their choice for free - at least in the first six months of an 18-month commitment period.

Start Digital, which counts OCBC among its backers, is part of the SMEs Go Digital programme launched in April 2017 that aims to make digitisation simple for SMEs.

"The feedback from our engagements with SME business owners affirm that many wished they had implemented basic digital solutions in the nascent stages of their businesses," says Minister for Communications and Information S Iswaran. "And this is quite understandable because it is very hard to make the switch to digital solutions once companies get entrenched in manual systems and traditional processes."

It's harder still for SMEs to move up the digital ladder. According to the ASME-Microsoft study, only one in four SMEs in Singapore have succeeded in executing digital transformation beyond putting in place basic business solutions such as office productivity tools and email. When they progressed to solutions such as big data analytics, artificial intelligence and machine learning, many SMEs foundered.

The high failure rate in moving up the digital ladder is probably one deterring factor for others. SMEs also point to the high financial cost. Employee resistance - because of the fear of losing their jobs - is another top barrier, according to ASME president Kurt Wee.

But there's plenty of help available. Only two years ago, the government unveiled in Budget 2017 the more than S$80 million SMEs Go Digital Programme that includes offering SMEs advice at each stage of their digital transformation, in-person help or access to ICT vendors and experts, as well as funding support.

"This programme is to help SMEs leverage digital solutions to drive productivity and provide better client experience," OCBC's Mr Low says. "The next step in the journey must go beyond adopting digital solutions for productivity reasons, (to) making digital an integral mindset for the business so that SMEs can achieve stronger and sustainable growth."

These would include employing digital solutions to develop new products and engage new clients and markets. The solution would then become part of the business strategy - and new business models tied to digitalisation would have to be created.

A retailer might want to explore new markets, for instance. Traditionally, he would set up a brick-and-mortar shop abroad. Now, the retailer's business can go global online via e-commerce.

Mr Low suggests that the upcoming Budget can provide help for SMEs to build up the right talent to create relevant business models based on digital technology. "SMEs are focused on day-to-day operations," he says. "They are time-starved and may not have the time to take a step back and think about something as foundational as a business model. The right talent can help."

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