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SMEs play a pivotal role in the UK economy. Representing over 94% of the nation’s private sector, SMEs are responsible for over 15% of national turnover and create around a quarter of our nation’s jobs. Their presence is inherently beneficial to the economy, creating 59p for the greater economy for every £1 they make.
Despite their importance, however, SMEs are struggling on a variety of fronts. Despite business rate and fuel duty freezes, energy costs, rent and other operational spending increases continue to endanger the profit margins of small businesses. While inflation may be slowing, the ongoing cost of living crisis continues to quell consumer demand.
While external factors continue to plague SMEs, there is also the issue of “digital drag” which effectively bottlenecks the operational efficiency and profitability of businesses that do not embrace digitalisation.
In this post, we’ll look at how digitalisation in business can make SMEs more agile, more profitable and better insulated from the caprices of a turbulent economy.
What is digitalisation?
The process of digitalisation involves integrating new digital tools such as AI, process automation, e-commerce and digital assistants into business operations. This can help to improve efficiency, increase revenues, and aid employee productivity and satisfaction.
Digitalisation (not to be confused with digitisation) can help smaller businesses to thrive. However, a report carried out by Xero and the Centre for Economics and Business Research demonstrates that small businesses are more resistant to the process than their larger counterparts.
In the report, only 30% of small businesses surveyed stated that they had increased their adoption of digital tools since 2019 and only 41% have embraced new digital technologies.
How does business digitalisation benefit operations?
The report shows that larger SMEs are more than twice as likely to adopt new digital technologies than their smaller equivalents, with 77% embracing digitalisation. Of course, it is easy to see why the UK’s smallest businesses may be reticent to invest in new digital technologies. At a time when every penny of margin must be fought for, small businesses need to understand how digitalisation will benefit their business in tangible and measurable ways.
Within the report, respondents noted multiple benefits to digitalisation, including:
- Increased revenues: SMEs that implemented digitalisation over the last four years grew their revenues by up to 8.1%, while the slowest adopters experienced a decline of 4.7%
- Reduced costs: Business digitalisation allows for greater automation, improved operational efficiency and reduced waste. As a result, 32% of respondents found that it helped them reduce costs
- Improved cash flow management: Digital tools can help businesses demystify their finances and gain an improved understanding of their working cash flow. Little wonder, then, that 27% of respondents reported improved cash flow management
- Increased productivity: Digitalisation alleviates the administrative pressure on teams by leveraging tools like AI and automating processes. This may be why 31% of respondents reported a boost in productivity and 30% said that they saved time
- Better customer experience: With fewer administrative demands on their time, employees are better able to employ the soft skills that make a great impression on customers. What’s more, by eliminating friction from operational processes, digitalisation can also make the customer experience more seamless. Thus, 38% of respondents reported an improvement in their customer experience
Getting the most out of digitalisation
Digitalisation can help businesses unlock their full potential, but it is not necessarily a panacea. It needs to be carefully implemented and tailored to the unique demands, priorities and pain points of each business. While there are no one-size-fits-all solutions, here are some ways in which SMEs can get the most out of their digitalisation journey.
Keep staff in the loop
Employees can be resistant to new technologies and the disruption that they can bring. Businesses can mitigate this by being open and honest about the benefits that digitalisation will bring to the company, and to their role specifically. Moreover, they should be kept abreast of their responsibilities and duties before, during and after implementation as well as the support that will be made available to them.
The more they know what to expect, the less resistant teams will be to change.
Carry out detailed analyses
Digitalisation requires careful planning to ensure that the right tech is being used for the right reasons. A detailed cost-benefit analysis should be carried out to pre-empt any teething problems, provide proof of concept and gain an understanding of when the technology will begin to pay for itself.
It may also be worth looking at competitors’ journeys with digitalisation. What tools have they integrated into their operations? What problems did they encounter? What benefits did they experience? How can your business mitigate risk by learning from their experience?
Reach out to experts
Finally, do not make the mistake of assuming that you need to undergo your digitalisation journey alone. Reaching out to industry bodies, associations and other groups can help you to hit the ground running with new digital technologies. Don’t be afraid to undertake free trials and pick the brains of providers, either.
At Square, we pride ourselves on providing a personalised approach to our business solutions, ensuring that they are completely aligned with the needs of the companies that use them.
