Small businesses need to embrace digital technologies to level up
The digital transformation is bringing significant benefits for firms of all sizes. From new revenue opportunities to reduced transaction costs to better access to information, digital technologies are boosting performance and profitability.
For small and medium-sized enterprises (SMEs) the benefits can be especially transformative. With digital tools, smaller firms are able to grow fast with reduced operational risk and accesss global markets. Technology adoption is key to business productivity and UK economic success. Yet despite the benefits and opportunities, small businesses in the UK and across the world are being left behind in the digital transformation, although UK small businesses have lower comparative productivity.
A report from the OECD shows that despite a significant uptake in digital tools over the past decade,
many SMEs continue to lag in adoption. For smaller SMEs, with 10-49 employees, digital adoption gaps, between smaller and larger firms, have grown over the last decade. And there are still many countries such as Greece, Poland and Portugal where the average share of employees with connected computers in small firms remains at or below 40%.
Investing in digital
Because digitalisation is an important driver of productivity growth, the lack of access to technology is hampering growth and rendering smaller businesses less productive. There are however early signs that the pandemic has promoted an upsurge in technology use. A third of firms surveyed in the UK have invested in new digital capabilities. While evidence from business surveys suggests that up to 70% of SMEs have intensified their use of digital technologies due to COVID-19. But there is still a long way to go. Many of these changes will take time to embed. And time is one thing that small businesses in the UK don’t have right now.
After a year and a half, and multiple iterations and extensions, the Government furlough scheme, officially the Coronavirus Job Retention Scheme, came to an end on 30 September 2021. Government data shows that almost three million people have been moved off furlough since March 2021. For small businesses, the question they must answer is how to manage their employees return to work and in particular the prospect of bearing the full cost of their pre-furlough pay for potentially the first time in 18 months. This financial blow, in addition to the challenging economic climate, means that small businesses need to think fast and act now if they hope to recover and grow following the pandemic.
While the main objective for many of our UK SMEs may simply be to weather the storm, there are some steps businesses can take to optimise their business practises, and maximise their productivity and, ultimately, their turnover.
First, smaller firms must develop a clear plan for growth as standing still is no longer an option in dynamic market. This means understand their customers and adding more value compared to the large online players that are unable to offer the same quality or service.
Second, SMEs need to embrace the digital transformation to reach new customers and automate their business functions. Investing in the right technology and tools will be critical to every business recovering from the past eighteen months. By learning how to best use the right technology and online tools to streamline internal processes, smaller companies can cut costs in the long run, and enable their businesses to run more smoothly than ever.
Finally, small and medium sized businesses shouldn’t undersell themselves. It is sad but true that smaller, owner-led businesses are still undervaluing themselves and leaving profit on the table by not testing pricing and developing recurring revenue streams. Regardless of the industry in which they operate, businesses must know their own value and price their time, products and services accordingly.
COVID-19 has radically changed the way we do business and the change is permanent. Companies of all sizes now need to recognise the value of digital technologies and ecommerce. Although the time has not yet arrived when digital technology is necessary in order to have a successful business, that time is coming. There is no better time to ensure that your business is in good digital health. That means taking the time to plan the transition well – to select the right digital systems, to upgrade digital skills, develop the right protections and security, and fully understand the potential of these new tools. If we do that, we will be well on our way to encouraging a ‘digital first’ recovery. It will take a national effort of businesses aided by government, but it will be worth it to help our small businesses get back on their feet, promote more jobs and build an even stronger foundation of the UK economy than we had before.