Is Digital Transformation Important for SMEs?

Baishali Mukherjee | Updated 27 Jan 2022 | 3 min read

As Digital transformation (DT) continues to re-imagine businesses in today’s digital age, SMEs are not left behind. Using DT they are ushering in phenomenal changes in traditional ways of manufacturing, handling, storing and transporting things. Not only that many SMEs across the globe are also harnessing DT to ensure scalability and flexibility.

According to available reports, IT expenditure of small-to-medium-sized enterprises (SMEs) worldwide was 574 billion U.S. dollars in 2017 and 602 billion U.S. dollars in 2018. In 2021, they are slated to spend 684 billion US dollars on IT hardware, software, and services.

What is Digital Transformation?

Digital Transformation is the use of digital technologies to modify existing or create new business processes and user experiences to improve business growth and customer satisfaction¹. Digital transformation at the end of the day should improve business efficiency, value adds, and even spark innovation.

Here are the ways in which digital transformation can enable SMEs to diversify consumer segments:

Impact of Digital Transformation on SMEs

Rise in Revenue

Business growth is primarily pivoted on revenue. Studies reveal that DT has ensured a phenomenal rise in revenue. Across the globe tech-enabled SMEs are showing greater profitability. According to studies, in the last few years revenue of online businesses increased by 19% annually while that of offline business grew by 10%. It cannot be denied that digital transformation has incentivized SMEs in terms of revenues.

Accessibility to a Wider Customer Base

The traditional offline business model immediately restricts a brand from market reach. Notably, ‘digital’ opens up new opportunities for SMEs by ensuring an enhanced customer experience. To begin with, online presence enables them to access the new and international markets. It also gives them the opportunity to compete with the big brands of the sector. Moreover, e-commerce means better supply chain solutions and 24/7 selling.

Enhanced Operational Efficiency

According to media reports, advanced digital technology solutions can reduce operational costs by 20 – 30%. This is possible by means of better capital and workforce utilization.

Digital transformation enables SMEs to reduce expenses by reforming operational and marketing costs. As I write, IT tools like ICT, Digital Integrated Production Planning, Shop Floor Control, Supply Chain Solutions, Cloud-based ERP are increasing the operational efficiency of SMEs.

Enhanced Customer Engagement

Understanding the customer is imperative for making business decisions. Business intelligence and data analytics aid SMEs in doing that. These tools use customer intelligence and insights to envisage customer behavior. They help in product innovations and smart delivery of the right products. They also ensure cost-efficiency thereby overhauling SMEs. Moreover, cloud-based solutions equip SMEs with next-gen customer engagement capacities.

Role Played by Digital Marketing

The impact of digital marketing is massive on SMEs. This is particularly true in terms of productivity. Digital marketing techniques benefit SMEs in the following ways:

SMEs can use campaigns like CPC (Cost per Click) or PPC (Pay Per Click) to attain targeted goals and to increase revenue.
Digital marketing helps SMEs to search for flexible market potential globally. This immediately impacts sales and ensures greater profits.
Digital marketing can be fully used by SMEs as the most effective method in reaching out to the right customers.
Digital marketing also gives SMEs the liberty to make changes based on response in their online marketing campaigns.

The Deciding Factor

There is no doubt that digital transformation has augmented the vista of operations for SMEs. The most tangible result is, numerous non-tradable services are now tradable. This has helped offline businesses investigate more options on the net.

When it comes to online business deals, consumers are now looking for top-quality digital accessibility, convenience, and customisation. Customers in the present day have a strong preference for digital over other traditional methods of buying. Hence, SMEs need to start serving new-age netizens by adopting digital transformation efficiently.

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