Why SMEs face a difficult time undertaking digital transformation
The Spanish subsidiary of the multinational software company Sage asked me for an article about digital transformation in the SME environment. “Transforming SMEs: an open letter to Spanish managers” (link in Spanish), argues that digital transformation is not exclusive to large companies or that it necessarily involves huge investment in consulting or technology, but is instead a process that begins with personal transformation and requires leadership and change management.
Digital transformation is not a purely technological process. Technology is a fundamental aspect of it, but the real transformation, the real differential element that make a company able to undertake it successfully is personal transformation. A company can’t transform if its founders or top executives don’t: leading digital transformation implies believing firmly in the advantages of digitalization. In SMEs, this is even more important: the extent to which the founder or CEO of an SME understands digitalization is reflected in the extent to which the company is digitized or will be able to implement a successful digitalization process.
The second issue is about focus: SMEs generally have fewer resources and may just be getting by, and are also highly susceptible to errors (the flexibility of SMEs is a myth… the sector may be flexible on the aggregate, but the individual attrition rate of each company is very high): digital transformation is not a cost issue, but rather about adapting the value proposal to the client. Not everybody understands this: for generations, investment in technology has been seen as automation and reducing costs, but in reality, digital transformation has only been possible when technology offers us other possibilities that go beyond those questions. Computers and algorithms are not simply ways to “do the same but faster or with fewer errors”, they are much more and if you don’t get that, you won’t transform digitally.
The next phase of digital transformation is about internal processes: there’s a lot to do, and again, personal transformation is key. Companies don’t go paperless or adopt digital processes spontaneously: as a species, we tend toward inertia and isomorphism. Therefore, to achieve real changes, we must make important decisions rooted in example and personal commitment. Paper disappears from offices when the appropriate decisions make it impractical to use and people realize the advantages. The same applies to flexible work and conciliation formulas, information access, transparency, encouraging experimentation… in other words, if we don’t change the way we work, then we haven’t changed at all.
Finally, SMEs need to think about their business model. Internal transformation is not about aesthetics or ergonomics, although they may be in the mix: it’s about how the company uses information, processes that allow for the stable and constant production of data that can be analyzed and used. Digital transformation can be monitored using machine learning readiness metrics: how prepared would your company be if it wanted to adopt machine learning tools to optimize or redefine its business processes? The processes of defining objectives, collection and transformation of data prior to the obtaining of evaluable models and efficient predictions are still slow and laborious, so our level of preparation for this can be used as a good proxy of our level of digital transformation.
Let’s not forget: the final goal of digital transformation is to adapt our business model to the times we live in, one where SMES will need the right tools, mindset, advice and help if they are to do so.
(En español, aquí)