Digital transformation of SMEs: What to consider before beginning transformation


Posted on 31 July 2020


Is digital transformation of SMEs necessary?

Is digital transformation of SMEs necessary? PHOTO: PIXABAY


  • For digital transformation of SMEs, owners must first gain a solid understanding of both internal and external factors that can drive the change.
  • According to a study, there are 5 main contributing factors for a successful digital transformation: supportive leadership; building capabilities of the future workforce; empowering employees to innovate; upgrading day-to-day tasks with digital tools; and communicating using both traditional and digital methods.

  • The global outbreak of the COVID-19 pandemic has fundamentally altered the way we run our businesses. In a market already impacted by numerous digital disruptions, the occurrence of the pandemic comes as the latest challenge. With the current climate, businesses that have been putting off digital transformations have been forced to take action to increase their digital presence.

    In order to survive and thrive during the crisis and beyond, small and medium-sized enterprises (SMEs) have to remain relevant by implementing effective digital strategies.


    Digital transformation of SMEs: Why SMEs are hesitant to implement digital strategies


    The concept of digital transformation of SMEs brings with it multiple concerns. However, much of this is due to the lack of knowledge or understanding regarding the necessary steps to implement digital strategies successfully, as well as the potential benefits that could come about for the business in the long-term.

    Often, companies may not be able to see an immediate measurable return on investment when investing resources into staff training, skillset upgrades, business transformation and adoption of new technologies. Coupled with the fact that SMEs typically lack understanding about the latest disruptive trends impacting their industry, many usually adopt a “wait and see” approach.


    Digital transformation of SMEs


    The combination of the words “digital” and “transformation” is often erroneously hyped up. Digital presence has become a minimum expectation of today’s customers. Businesses are expected to have faster delivery and immediate response times. However, a true “digital transformation” involves more than the adoption of technology to supplement the existing business model and operational structure. Transformation implies a significant and impactful change.


    Two key questions that SMEs should ask themselves are:

    1. What is the motivation behind this change?
    2. What are the change drivers?

    Without understanding the drivers behind the need to transform, it is quite common to have companies see it as a marketing effort and hence, spend needlessly.

    Take for example, the purchasing of a customer relationship management (CRM) software to capture data. This does not exactly constitute as a digital transformation; at best it only adds a digital element to the business.

    However, if the CRM is integrated with a company’s systems to raise productivity and boost marketing strategies by leveraging data to identify existing gaps and enable in-depth customer connectivity, then we can say the company has been digitally transformed.


    Points to consider before beginning digital transformation of SMEs


    In order to begin a successful digital transformation, SME owners must first gain a solid understanding of both internal and external factors that can drive the change.


    Internal assessment


    Internal assessment refers to the examination of an organisation’s internal capabilities. This examination is crucial to determine whether there is a need to develop and enhance existing capabilities to allow for successful digital transformation. Transformations are difficult and digital transformations are even more so.

    According to a 2018/2019 McKinsey study, there are 5 main contributing factors for a successful digital transformation: supportive leadership; building capabilities of the future workforce; empowering employees to innovate; upgrading day-to-day tasks with digital tools; and communicating using both traditional and digital methods.


    External assessment


    SMEs need to accept the trends in today’s business landscape and understand the key external market forces that impact their industries. Factors to consider include ongoing trends in the industry, what competitors are doing, increasing expectations of customers and customers’ preferences. Social, environmental and demographic changes could also impact future trends within the industry.


    Taking action


    With a thorough understanding of internal and external factors, businesses will be able to identify the key drivers for change. Often this crucial first step would require innovation and creativity for a sustainable change to be made to the business model.

    The next crucial step is to ensure that all stakeholders and employees have an open mind and willingness to embrace change. In particular, the right leadership is required to drive the business processes and cultural change that come with digital transformation.

    The final step of identifying suitable digital solutions will be much easier after the business model and strategy have been identified. There are many digital tools out there that can assist the many facets of business.

    Businesses are going to find it tough to compete if they allow its systems and applications to fall behind the curve. If there are no in-house experts, third party vendors and consultants can be hired to provide advice and guidance.


    Are you ready to begin your journey of digital transformation?


    Digital transformation is a process. It does not happen overnight or all at once. Ultimately, the most important aspects to the start of any successful digital transformation are awareness and openness, having top management understand the potential technological advantages, as well as acknowledgement of the significant risks associated with a failure to act.

    Digital technologies only act as enablers for organisations to achieve growth and to differentiate themselves from their competitors for long-term profitability and sustainability.

    The Singapore government is in full support of SMEs as they set out on this journey. Several government agencies, such as the Infocomm Media Development Authority and Enterprise Singapore, provide funding in the form of grants to assist SMEs with the costs of making these advancements. Take advantage of these programs and protect your business by beginning the journey of digital transformation.


    Some questions that owners should answer prior to beginning any type of digital transformation of SMEs:


    • For digital transformation of SMEs, owners must first gain a solid understanding of both internal and external factors that can drive the change.

    • What do customers expect from the business?

    • What are the predicted trends within the industry moving forward?

    • What are the risks associated with the change, as opposed to the risks if no such changes are implemented?

    • Is it necessary to equip employees with the skills required to support digital transformation? Will there be long-term savings in labour costs with this one-off increase in investment?

    • What is the company’s vision of progression? How will the company move from where it is now, to where it wants to be?

    • Is there support available to assist the business with implementing digital transformation?

    • What is the ROI after such changes and when will the business begin to see it reflected?

    • Will this transformation be sufficient for the business to maintain relevance within the market, as well as capture additional market segments?

    • I have a clear idea of where I want to be (Point B) from where I am (Point A), but how do I walk this digital transformation journey?



    This article originally appeared in the Entrepreneur's Digest print edition #92 and has been edited for clarity, brevity and for the relevance of this website.






    About the Author


    Ingnee Goh | Practising Management Consultant, Certified Practising Accountant (Australia) | Axora Advisory Pte Ltd

    Ingnee integrates her clients’ requirements with business transformation strategies and guides them in implementation to achieve successful financial outcomes. As a Management Consultant, Ingnee is constantly engaged with her clients in areas of digital transformation, expansion strategies, productivity improvement, and mergers and acquisitions. As a veteran Chief Financial Officer in her previous corporate roles, she has rich experience in pioneering and scaling businesses to APAC level. Her previous employers included Oracle Systems, MicroStrategy, Fisher & Paykel and PwC.