Digital Transformation: What Does It Mean for Small and Medium-Sized Businesses?

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Small and medium-sized businesses (SMBs) are the lifeblood of the economy: according to Deloitte, companies with fewer than 500 employees represent 99.7 percent of all businesses in the U.S., and employ 48 percent of the private workforce. Yet despite their sheer numbers, SMBs don’t have access to the power, budget, and resources that larger organizations can wield, particularly when it comes to digital transformation.

In order to balance the odds, many SMBs are enacting digital transformation initiatives in a manner and scale that allow them to innovate and even outcompete their larger, more established rivals. But what does digital transformation mean for SMBs, exactly?

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In this article we'll examine the following:

Why Digital Transformation is Crucial for SMBs
How SMBs are Adopting Digital Transformation
Digital Transformation Trends for SMBs

Why Digital Transformation is Crucial for SMBs

Because technology is so often the great equalizer, digital transformation initiatives can help SMBs stay relevant and competitive, and even disrupt the business landscape. According to Oracle:

“Digital technologies—such as mobile, cloud, software-as-a-service (SaaS), Internet of Things (IoT), artificial intelligence (AI), and data analytics—make it possible to identify opportunities, analyze trade-offs, and then adapt faster and more efficiently. This allows smaller companies to compete on a level playing field with larger companies by creating economic value at scale, without the overhead of brick-and-mortar assets or large numbers of employees.”

How SMBs are Adopting Digital Transformation

Businesses of all sizes and industries are increasingly turning to digital transformation, including SMBs. In a survey by SMB Group, the percentage of SMBs familiar with the term “digital transformation” skyrocketed in just two years, from 33 percent in 2017 to 57 percent in 2019.

According to a 2020 survey by IT market research firm Techaisle, 51 percent of SMBs have increased their investments in digital transformation. What’s more, SMBs that have already undergone digital transformation report 2.1 times lower costs, 1.9 times higher customer intimacy, and 1.4 times higher productivity levels.

Of course, digital transformations for SMBs will heavily depend on the individual organization’s goals and needs. Another survey by SMB Group studied the different motivating factors for SMBs to adopt digital transformation initiatives:

  • Small businesses and startups most often look to digital transformation as a way to attract new customers and distinguish themselves in a crowded market. 
  • Medium-sized businesses that are well-established are more likely to use digital transformation in order to keep up with competitive pressures: both from enterprise juggernauts above them, and from savvy startups below them.
  • Finally, upper middle market businesses tend to use digital transformation to enhance their existing business processes and workflows by improving employee productivity and streamlining their operations.

Digital Transformation Trends for SMBs

While their business needs and objectives may be different, SMBs seeking digital transformation often rely on the same set of technologies. Below, we’ll discuss 5 of the most common aspects or components of digital transformation for SMBs.

1. Automation

Automation in digital transformation can take many forms: from robotic process automation (RPA) that handles repetitive, menial tasks, to chatbots that can address many common customer issues and inquiries without needing input from a human agent. In all cases, however, the objective is the same: reducing the capacity for human error while freeing up employees’ time to work on more productive, revenue-generating activities.

2. Data analytics

Becoming a “data-driven” company is highly important for SMBs who want to enact digital transformation initiatives, thereby beating their larger rivals and better servicing their customers. For example, management consulting firm McKinsey & Company reports that intensive users of data analytics are 23 times more likely to excel at new customer acquisition, and 19 times more likely to reach “above-average” profitability.

3. Cloud computing

Cloud computing has long since become a business and IT best practice, but many SMBs can still realize significant digital transformation by migrating legacy software and systems to the cloud. In particular, container technologies can help bundle legacy applications and run them in a standardized manner in the cloud, achieving scalability and flexibility in the process. Overall cloud spending by SMBs is projected to increase by 6.3 percent in 2020.

4. AI and machine learning

While they have the power for tremendous digital transformation, artificial intelligence and machine learning were previously restricted to large organizations who could afford to bring experts on board. However, new tools and platforms—often hosted in the cloud—offer a much more user-friendly take on AI and machine learning, bringing the power of these technologies to the masses.

5. Low-code and no-code development

IT research and advisory firm Gartner has written about the rise of “citizen developers”: employees in an organization who are not developers, but who are nonetheless able to build business applications for internal consumption. The key ingredient is low-code and no-code platforms, which enable users to create robust, production-ready software without writing a single line of code.

Low-code and no-code development is particularly impactful for digital transformation in SMBs, which may not have access to a team of experienced developers. 72 percent of citizen developers are able to develop applications in 3 months or less—compared with traditional enterprise applications that may take twice as long or more.

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Digital transformation initiatives offers SMBs a pathway to attract new customers, remain competitive, and even win market share from their more fancied rivals. Whether it's automation, data analytics or machine learning, the digital transformation landscape presents a range of business optimisation and improvement options to SMBs. Those SMBs that embrace these options will be those most likely to prosper and safeguard their business into the future.

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