SMB Digital Transformation Comes Down to Prioritization, Commitment

Roughly half of all small and midsized businesses say that committing to a digital transformation of all business and IT systems will be a fundamental part of their organizations’ overall business strategy for the remainder of this year.

For these SMB companies, the appeal of accessing and harnessing the same power and flexibility enjoyed by their enterprise brethren through platforms such as Amazon Web Services, Microsoft Azure and Google Cloud makes this commitment less of a luxury and more of a necessity in order to stay competitive in their sector and with competitors around the world.

But taking the steps necessary for a complete digital transformation doesn’t come easy for most SMBs. Budget constraints, a dearth of experienced technology staff, and a natural inclination to stick with the systems and processes that have worked in the past are just some of the obstacles that often keep smaller firms from making the leap.

Truth is, there’s no time for thinking it all through and agonizing over the details. Every day, month or quarter spent worrying and mulling puts your company that much farther behind your competitors.

What matters now, according to analysts, is getting started immediately by committing to a digital transformation focusing on the most pressing and meaningful use cases for each company and figuring out the rest as necessary.

“Digital transformation has permeated every corner of business operations, and it has become the defining IT and business services paradigm for the second decade of the 21st century,” Jim Westcott, research manager for application solutions at IDC Canada, said in a recent report on digital transformation services.

“In the broader context, digital transformation is evolving into business transformation as corporate buyers begin to take a holistic view of their business and search for business outcomes that span the entire organization,” he said.

Taking this holistic look at the entirety of an organization and targeting the areas for digital optimization can be daunting. Allocating the budget and appropriate staff for any particular business process or group can feel risky and overwhelming.

Sometimes a helpful first step is to take a look at what others are doing to initiate their digital transformations and evaluate whether or not it makes sense to follow suit. Everyone is in the same boat, and this is especially true for small and midsized businesses that are often playing catch-up to their top suppliers, vendors and customers.

Capterra, an online business-to-business provider that helps companies match software solutions for all these disparate processes, recently surveyed more than 700 SMBs to find out where and how they are prioritizing their business software budgets for 2019 and 2020.

The survey found that most of these SMBs were focusing, at least initially, on finance and accounting applications (54%), cloud computing (48%) and data and information security (47%). The logic, presumably, is that these three processes offer the biggest bang for the buck in terms of measurable improvements in efficiency as well as delivering impact across most or all of the organization once implemented.

“Spending money on business software is often not on the list of what you want to do,” Capterra analysts said in the report. “But these technology investments can be absolutely critical to competing in your market.”

While analysts note that accounting and finance is something of an “SMB staple,” executives at these 700-plus companies also identified digital marketing (45%), HR software (43%) and project management (40%) as key areas worthy of digital investment in the next couple of years.

Customer relationship management (CRM) apps, business intelligence and analytics, mobile business apps and the internet of things (IoT) rounded out the top 10 business processes most small and midsized companies are opening their minds and wallets to in the near future.

Not all businesses are created equally. Nor do they necessarily function comparably. For SMBs, the risk-reward ratio is a much different consideration than for multinational enterprise companies, Capterra found. Unlike a publicly traded company, which might suffer a short-term loss in share price if it fails to execute a sweeping digital transformation overhaul, SMBs face the very real prospect of immediate financial consequences. What might be a somewhat minor setback for a big company can be a death sentence for smaller companies.

“Arguably, the most important decision small business leaders make is how to effectively spend scarce funds to grow their business,” the report said. “The margin for error is small and decision demands very careful consideration.”

Almost half of respondents said they factor technology trends and advancements into their strategic business planning. Not surprisingly, choosing the right technology for each and every specific need was the top concern of executives at these SMBs and more than one-third acknowledged that they were “solely responsible” for making the IT purchasing decisions in their organizations.

That’s a huge responsibility — and lonely one if something goes awry. It’s understandable that the sheer volume of options available — cloud-based apps and services, security tools, ERP and CRM suites — contributes to organizational reticence to get the show on the road.

There are cultural issues and biases — both within the SMB itself and the minds of the executives leading the digital transformation initiative — that can further muddy the waters. They can lead to an exasperating series of fits and starts that results in botched implementations, lukewarm or worse adoption rates and the very real prospect that all or a portion of the project is abandoned altogether.

For example, Capterra’s survey found that while consumers, particularly younger ones, actually enjoy and prefer conversational user interfaces (chatbots) to resolve customer services issues, less than 30% of SMBs in vertical segments such as retail, services, construction and manufacturing are using chatbots as part of their digital transformations. Perhaps part of this reluctance is owed to the fact that most SMBs are owned and operated by older people who either don’t like or haven’t used conversational user interfaces as a regular part of their lives as customers. Or maybe the thinking is that providing a real person, either on the phone or in-person, is part of their company’s value-add and a differentiator from other up-and-coming competitors.

Artificial intelligence, particularly for accounting, communication, CRM and file storage and collaboration, is another emerging technology that most SMBs haven’t embraced as enthusiastically as their enterprise counterparts. The survey found that less than 20% of SMBs are currently using AI as part of their digital transformation — a fairly low-hanging fruit that is already paying huge dividends for Amazon and other enterprise retailers and manufacturers.

Ironically, while most SMBs aren’t investing much in AI (yet), most respondents acknowledged that it will be critical for their businesses in the years ahead. By dismissing or holding back from committing to AI-enhanced tools, SMBs are also backing away from cloud applications that incorporate AI and are cheaper to use and more efficient than traditional on-premise data centers.

Terminology can also be a hangup for SMBs. More than half of the companies surveyed said they’re using some element of digital marketing as part of their transformation. However, generally, they don’t seem to understand or appreciate how essential this component, which goes far beyond having a presence on social media or buying advertisements that pop up from Google searches, is to their overall makeover.

“This is because digital marketing is a term so broad that it can mean everything and nothing,” the report said. “Digital marketing is an evolving segment thanks to advancements in AI and analytics. Software features like sentiment analysis can help small business leaders tailor their marketing strategies based on audience segmentation.”

For better or worse, the rise of IoT devices and networks is dramatically altering the way businesses of all sizes will provide products, services and interaction with their customers in the next few years. Failing to include applications and systems that collect, analyze and respond to the avalanche of real-time data your customers will come to expect from IoT devices will put even the most successful SMB at risk of falling behind the competition.

Forty-seven percent of respondents said they’re currently using IoT, but only 34% said IoT is “critical” for them to do business at this point. More than one in five SMBs said they have business staff handle their IT matters, which usually includes supporting IoT solutions.

“This scenario introduces risk to small businesses since the IoT leverages business and customer data,” the report warned. “It thus must be handled carefully from a breach and privacy perspective. Investment in the IoT will fail without a foundation to build on.”

Digital transformation experts — often the vendors of the apps, platforms and consulting services required to make it happen — point to a number of indicators that should convince SMBs it’s time to make a move. Some of those red flags include less repeat business or fewer referrals, or finding that marketing that has worked steadily in the past no longer generates leads.  These are just a few signs that it might be time for a digital transformation.

Another problem facing SMBs is that the technologies they do adopt are not necessarily designed to work in tandem. Often, because of either a lack of funding or an aversion to change, SMBs often end up with a hodgepodge of different applications that don’t always work well with each other or have overlapping functionality.

Key to SMB success in the digital era is seeking out the platforms and ecosystems, of which there are many, designed specifically for the SMB. These applications are flexible and customizable, allowing users to add on new capabilities as needed.

At this point, it’s really up to SMB leaders to decide not so much when, but where their digital transformation should begin.

Larry Barrett

Larry Barrett

is an editor and analyst at BPO Media.