Did you know there are 180,000 SMEs in Singapore?
Did you also know 99% of the Singapore’s companies are made up of SMEs?
How about this…..65% of Singapore’s workforce gets employed with SMEs?
Now comes our favorite one…. our very own SMEs contribute almost 50% of Singapore’s GDP!
Yet, this is the sector that is most vulnerable to deterioration caused by several factors including but not limited to higher costs, lower profitability, reduced access to finance, lack of appropriate human resources, growing customer demands, fierce market competition.
According to an analysis of SGX-listed SMEs done by UOB in 2018, the number of companies in the red has overtaken 2008 GFC levels. Many such SMEs have had to declare bankruptcy and ultimately closure.
While there is no one solution to this alarming scenario, Digital Transformation has come as what many would say a savior in dire straits. A recent study by the Association of Small & Medium Enterprises (ASME) and Microsoft Singapore found that digitalization can not only help raise revenue by an average of 26% but also save an average of 22% in cost. That’s nearly 50% more cash for the companies to invest or at least stay afloat.
So, what is Digital Transformation?
Going digital means using technology to run and enhance your business processes from sourcing to invoicing, to payroll, to customer data management, payment gateway, operations, services, marketing, etc.
Why does it work?
Cost-Effectiveness: Implementing and relying on digital technology will help reduce cost and reliance on the workforce from mundane work. For example, Companies can use cloud applications for accounting purposes, which will help in smoothening and expediting the process. The accounting staff can be engaged in more high-level accounting.
Process Optimization: Through digitalization, companies can increase the efficiency of the operations, manage workflow, data accessibility, accounting services, integration of various departments, customer engagement, and more.
Improved Customer Engagement & Tranform Products & Services: Companies who have digital or online presence will always have a competitive edge in their business. Digitalization helps not only to collect customer data but also generates insights to help understand the customers. And they are thereby helping companies create better products/services as well as an effective marketing campaign to address their needs.
Adopting advanced, emerging technologies may sound complex to SMEs, but with the right digital transformation strategy and alignment to business objectives, technologies like AI and data analytics will give SMEs new capabilities to transform and be truly disruptive.
–by Mr Gerald Leo, Director for Commercial Partners and Small Medium Enterprise Group of Microsoft Singapore
Challenges and Inertia to Digital Transformation for SMEs:
Despite all the tangible benefits, the uptake for digitalization within SMEs hasn’t been very encouraging. A recent study from SAP revealed that:
- Only 3% of SMEs have fully implemented digital transformation projects across the organization
- 19% have limited implementation
- 55% are piloting programs
- 22% are still in the planning phase for their digital transformation
- 1% have not even begun planning
If Digital Transformation is the Thermomix of business, then why isn’t everyone queueing up to implement it? Here are some of the reasons:
- Lack of leadership and expertise to lead digital transformation – like how using a Thermomix isn’t easy at first, and it requires you to go through training and understanding a complicated manual, the process of Digital Transformation isn’t easy either. Most of the organizations do not have in-house technology expertise, resources to plan, execute, and implement digital transformation.
- Employee Push Back – For those of us who are traditional cooks, Thermomix takes a while to get aware. Similarly, resistance to change is one of the significant challenges faced by the organization wanting to implement digitalization, as employees prefer to work in a familiar environment.
- Perceived Costs & Budget Limitation – Anyone who has ever thought of purchasing a Thermomix, one of the most significant deterrent has been the costs, especially when you add up all the extras. More than often, SMEs have limited budgets, and the perceived costs of digital transformation are viewed more as an expense than an investment.
- Lack of understanding of compatibility to existing business – A Thermomix does not bake or fry. So if that’s the kind of food you prefer, then this is probably not for you. Not understanding your business operations and which tasks can be automated or not, could potentially cost the company more harm than good.
- Insecurities about cybersecurity: We couldn’t come up with a Thermomix analogy for this one. But you get the gist! As we get more and more connected through the digital world, cyber-attacks are on the rise. And while it may be counterintuitive, there is a legit ‘insecurity’ about cybersecurity in the SME space. Skepticism, as such, about cybersecurity is a big deterrent to go digital way.
Need of the Hour
You may remember the time when people had actually to wait for the mail, we mean physical letters to receive an order. That got replaced with fax (we know some of you are googling what fax is). And it would be months before you saw your money for that order. Now, of course, everything gets done with a click of a button or voice commands (that is if your device can understand your accent).
This period is the Fourth Industrial Revolution or Industry 4.0, which is characterized mainly by advances in technology.
Professor Klaus Schwab, founder and executive chairman of the World Economic Forum said –
The changes are so profound that, from the perspective of human history, there has never been a time of greater promise or potential peril. My concern, however, is that decision-makers are too often caught in traditional, linear (and non-disruptive) thinking or too absorbed by immediate concerns to think strategically about the forces of disruption and innovation shaping our future.
Digital platforms are reconfiguring business models, paving the way for new areas of profitable growth, and disrupting the established status quo. New competitors can now sweep into the market with speed and agility, rewrite the accepted rules of a sector, and grab a competitive advantage. Hence, SME leaders need to step up and develop a comprehensive digital strategy and implement transformation to stay in the game.
To assist SMEs “Go Digital,” the Singapore Government has allocated S$80million. Financial grants and Consultation programs have been put in place to help and advice more than 180,000 SMEs on how to use technologies to their benefit in terms of increasing efficiency, gain market share and boosts profitability. To know more about these programs, read our blog, “Singapore Government Boosts SMEs through Go Digital Programme.”