Technology for MSMEs

Data across the globe shows that the success rate of digital transformation is still at the low 20 percent. MSMEs face very specific problems when it comes to the digitization of their businesses

Technology for MSMEs:

Small and medium enterprises (MSMEs) stand as the cornerstone of our economy, contributing over 30 percent to the GDP and engaging in 45 percent of all manufacturing activities. The advent of the pandemic inflicted profound challenges upon them, compelling them to innovate and adapt. MSMEs, once reliant on traditional 'physical' models, are now embarking on 'digital' methodologies to sustain their operations.

The Evolution and Ongoing Journey While many MSMEs have made swift adjustments, a more enduring approach to digital transformation is now imperative. A global panorama highlights that the success rate of digital transformation remains at a modest 20 percent. MSMEs encounter unique hurdles when it comes to digitizing their operations. Drawing on our extensive experience collaborating with multinational corporations and small enterprises worldwide, we identify five specific digital transformation obstacles that MSMEs encounter.

Go big or go home:

Many small and medium businesses believe they need to make a big investment and do everything all at once to go digital. This can create problems. Some get scared by the idea of spending a lot of money and effort, so they don't even try. Others invest a lot but don't get the expected benefits. Going all-in from the start is a mistake. Instead, going digital should be like trying out new things. Start with small experiments, see what works by collecting data, and then decide what to focus on. This way, businesses can learn and adapt without risking too much right away.

Where to start?

Knowing where to start is a common hurdle. Even though business owners strongly embrace the digital world, they often lack a clear roadmap for the beginning steps. Just as a child matures, a digital strategy follows three stages: Stage 1 is about sensing the digital potential as an opportunity. This involves taking small strides, like trying out Facebook or LinkedIn ads while trimming traditional advertising. Shifting sales support and customer interactions to digital channels is also beneficial.

In Stage 2, companies leverage digital to link everyone in the value chain, such as automating raw material orders for efficiency. Stage 3 sees digital enabling entirely new business models or products, like subscription services or e-commerce platforms. Small and medium businesses should determine their current stage and plan for experimental activities and resources accordingly.

Commence with modest steps while maintaining grand aspirations:

Begin by focusing on two key areas. Firstly, consider boosting your existing digital footprint. Assess the effectiveness of your website – is it up to par or do you need one? Ensure your website facilitates business transactions and seamless customer communication. Secondly, evaluate your marketing and advertising expenditure. Explore the feasibility of allocating more to digital advertising and track its return on investment (ROI). These straightforward actions initiate the process and secure initial victories, fostering motivation for your digital transformation journey.

Who will lead the digital efforts?

Often, it's not technology but the human aspect that determines success. A significant misstep made by many small business owners is attempting complete control over the process, which can lead to failure. A better approach is to identify and train a group of employees who can be your allies on this journey. Alternatively, if this isn't feasible, an effective solution is to entrust the task to a capable agency that can handle your digital responsibilities. This approach ensures a smoother progression in your digital transformation.

Undertaking digital transformation poses challenges for MSMEs.

Keep in mind that openness to possibilities, a willingness to start small and experiment, a strong emphasis on performance data and ROI, and the ability to empower your employees are key factors in this journey. When executed effectively, digital transformation holds the potential to elevate your MSME to a level beyond your competitors.

Dr. Ram Nidumolu is a Professor of Organizational Behaviour at the Indian School of Business. The views expressed are the authors’ own.