Jawad Farooq is the co-founder and CFO of InGen Dynamics Inc.
Small and medium-sized enterprises (SMEs) are the foundation of the global economy. In emerging economies, SMEs contribute up to 40% of GDP and seven out of ten jobs. While the pandemic is brutal for all businesses, SMEs have been hit hardest by the double whammy of cost inflating and the resulting cash shortage.
The pandemic has launched a new phase of adoption of emerging technologies and offers SMEs an unprecedented opportunity to reap the benefits of digitization on the road to recovery.
While the incentives for digitization are plentiful, there are risks inherent in any investment, and SMEs need to understand this risk curve in the context of their specific business environment and customers to maximize the impact of their investment on recovery and sustainability.
When I was leading the strategy for the first enterprise resource system for a major manufacturing company, everyone was so excited that we were inundated with input and advice from all sides, and we started to lose focus and purpose. I’ve learned that ultimately you need to streamline your strategy with a focus on key front-end departments and then add incremental value to the business as you move towards sustainable integrated digitization.
It is also paramount for a digitization strategy to incorporate multiple investment monitoring metrics to ensure that money is spent wisely and that it delivers the desired rewards for the business. Given the typically low R&D budgets within the SME sector, and especially given the costs businesses are still incurring as a result of the pandemic, it’s critical to track the money and take these key considerations into account in order to digitization decisions.
For most businesses, the primary goal of digitization should be to automate processes so you can deliver services faster and more efficiently. For example, moving to cloud storage can be a huge asset for your employees, who can then work flexibly and from anywhere, allowing them to be more productive.
Capital Expenditure Restrictions
Moving to cloud computing and using a pay-as-you-go model for useful apps will often result in a much lower cost than buying or building the technology yourself. You can access everything from financing, sales and marketing packages to advanced AI and pay only for the bundles or apps you need, reducing capital expenditures and enabling a wider spread of digital services.
Digitization of back office
Typically, there is a tendency for new investments to be customer-centric, and this can lead to a focus on developing customer-centric digital solutions at the expense of other key value chain areas. According to an article published by McKinsey & Company, organizations can get “just as much, if not more, value from investing in back-office features that drive operational efficiency.” This seems to be especially the case in the service sector. The authors of the McKinsey article cite Starbucks as an example: “At Starbucks, one of the leaders in customer experience innovation, only 35 out of 100 active IT projects in 2013 were focused on customer- or partner-centric initiatives. One-third of these projects focused on improving efficiency and productivity outside of stores, and a third focused on improving resiliency and safety.”
The cost of doing business
Digital transformation can serve a greater purpose than just improving your revenue stream. Essentially, it should reduce the cost of doing business. If digitization doesn’t lower costs for you to deliver a product or service, it won’t necessarily have the desired effects on your bottom line.
A step-by-step approach is the right choice
Investments in digital transformation should not be spread across the entire organization under the halo of integral digitization. Focus on small steps and take a step-by-step, milestone-based approach towards full digitization. It should be an evolution rather than a revolution, and it shouldn’t dilute your focus on your company’s primary purpose. To continue embracing these digital changes, make sure you have a sustainable strategy for embedding digitization into your corporate culture, as it is likely to be an ongoing process rather than an isolated one-off exercise.
Follow the money
Inevitably, resource allocation issues are the main challenge when making digitalization decisions, and the solutions will depend largely on the nature of your business and the various competing goals. A large company is likely to benefit from cloud investments, while a smaller company usually has less money to afford an expensive cloud investment. Your decision-making process will require a lot of focus and it will remain a dynamic process.
Frequent monitoring and testing is also critical to digitization, so your team must quickly focus on the digital investments that create the most value, then double, rinse and iterate for the next focus area.