Guide on Digital Transformation Strategies for SMEs

For small to medium-sized enterprises (SMEs), integrating new technologies is a must. It’s essential that SMEs join the digital transformation era to ensure they don’t fall behind. Digitising your business is not easy and requires investments in various technologies such as cloud and artificial intelligence (AI).

A comprehensive digital transformation strategy will ensure your business operates in perfect synchronisation, like a good playlist. You will be able to automate certain tasks, gain insights into your business and make scaling much easier.

What is Digital Transformation in Business?

For businesses, digital transformation is the integration of digital technology into all areas of the business. This changes the way the business operates and delivers value to customers. Beyond that, digital transformation is a culture change that requires businesses to challenge the status quo and constantly innovate.

South Africa is a leader in Africa’s digital economy because of its (more) advanced digital infrastructure, and growing start-up ecosystem. Additionally, factors such as a thriving e-commerce sector, an increase in smartphone penetration and mobile connectivity are driving forces in the country’s growing digital economy.

To further help the country’s digital transformation, the South African government through the Department of Communications and Digital Technologies (DCDT) has key initiatives to help speed up the growth of the digital economy.

Some of the initiatives include:

The Digital Economy Master Plan (DEMP)

Established in 2020, the DEMP aims to achieve the goals set out in the National Development Plan 2030 (NDP). These include improving digital infrastructure, creating digital skills, encouraging digital innovation, strengthening electronic government (e-gov) services, stimulating digital commerce, increasing cyber security and promoting digital transformation across all industries.

South Africa Connect (SA Connect)

SA Connect is South Africa’s broadband policy and implementation project. The goal of the project is to bridge the digital divide and provide broadband connectivity to underserved communities (rural and low-income).

The South Africa SME Fund

The South Africa SME Fund is an initiative between the government and the private sector. The project aims to provide funding and support resources to SMEs. The fund focuses on key areas such as technology and innovation, manufacturing, agriculture, education and healthcare.

The South Africa National e-Government Strategy and Roadmap was developed in 2017 and was designed to be a multi-year plan with ongoing implementation and updates to accelerate the digital transformation of public services.

For SMEs to keep up with not just the world but also the government’s plan for digital transformation there is a need to integrate new technologies. The country’s digital economy is ever-growing and expected to account for 15-20% of South Africa’s GDP in 2025. Industries such as e-commerce, AI, cloud and the overall internet penetration are expected to continue increasing.

When it comes to digitising, some SMEs might not see the need for it just yet and some are slowly integrating technology. To emphasise the importance of digitising, we need to look at the benefits of digital transformation.

Some of the benefits of digital transformation include:

Better Efficiency and Improved Productivity

Digital transformation will help improve the overall efficiency and productivity of SMEs. This is because tasks such as invoicing and data entry are automated to save time and allow SME owners to make better decisions.

Additionally, digital systems that connect various departments help to streamline communication and improve the overall productivity of the business.

Better Customer Engagement

By leveraging digital tools and solutions, SMEs can analyse their customer data which can help them create more personalised and targeted marketing campaigns. This increases customer engagement and leads to higher customer retention.

In addition to tools and solutions, SMEs need to utilise social media engagement for better customer engagement. By learning how to create social media campaigns, SMEs can directly engage with their customers and enhance their brand’s online presence.

Reduced Costs and Scalability

By relying on new technology, SMEs can retain a lot of their finances and still be able to scale easily. For example, leveraging cloud technology solutions can be a great way to save money on applications and reduce infrastructure costs.

Also, by using remote work technologies, SMEs can save money on office locations. This also makes it easier to scale because there is no need for physical premises leaving enough capital to find employees with the right digital skills.

Data-driven Decision Making

Technology tools for analytics can help SMEs gather insights from their datasets. This can help them forecast market trends and develop comprehensive strategy plans. Additionally, systems that provide real-time data monitoring allow SMEs to react quickly to any market changes and customer behaviour.

These benefits only highlight the little ways in which digital transformation is vital for the survival of SMEs in South Africa. The next step for SMEs is to understand some of the key technologies driving digital transformation in the SME sector.

The impact of new technology can be seen in early adopters such as Takealot, Zulzi and Delivery Ka Speed. These companies have leveraged a range of new technology to help them scale and deliver efficient services.

Cloud Computing for SMEs

Cloud computing is defined as the use of hosted services such as data, storage, databases, networking, servers and software. Typically, these services are hosted over the Internet.

Statics say the public cloud services market in South Africa is expected to grow at a compound annual growth rate (CAGR) of 25% until 2025. This only emphasises the need for SMEs to adopt cloud technology.

When it comes to cloud computing, leveraging the technology has the following benefits for SMEs:

• Makes accessing new and historical data easier
• Helps maintain consistency between users
• Easy to scale as the business grows
• Facilitates remote work
• Makes it easy to back up and restore data
• Is a cost-efficient solution for businesses

Cloud technology is something that everyone including SMEs use (e-mail, Google Drive etc.) however, integrating it into your SME can help improve the performance of the business which makes it easier for you, your customers and potential investors.

Role of Artificial Intelligence in SME Growth

AI is probably the most spoken-about technology solution right now. The tech has taken over how we use our apps, helped with the increase of digital payments and is the driving force behind many companies’ digital transformation strategies.

AI is defined as the development of intelligent systems. These systems can mimic human cognitive functions like learning and problem-solving. For SMEs to consider adopting AI, the benefit of the tech needs to be emphasised as well as education on AI.

Some of the benefits of AI include:

Enhanced Customer Experience

Chatbots and virtual assistants: AI-powered chatbots allow SMEs to provide 24/7 support to their customers, answer enquiries quickly and resolve any issues seamlessly. This leaves time for human agents to deal with more complex interactions.

Personalised marketing: AI-powered customer relationship management (CRM) platforms can analyse customer data to understand preferences and buying behaviour. This can help SMEs deliver targeted marketing campaigns, personalised recommendations and special offers.

Streamlined Operations and Better Productivity

Automate tasks: Tasks such as data entry, scheduling appointments and generating reports can be automated with the use of AI. This frees up time for employees to focus on strategic initiatives.

Predictive maintenance: AI can do a deep analysis of data from equipment to predict any future failures. This allows SMEs to save money on costly maintenance and minimises the downtime of important equipment. This saves money and improves efficiency.

Data-driven Business Decisions

Sales forecasting: AI-powered models can analyse historical sales data, trends in the market and customer behaviours to predict future sales figures. This empowers SMEs to make better decisions about inventory management, resource allocations and pricing strategies.

Risk management: AI solutions can analyse financial data and identify any potential risks associated with credit defaults or fraud. This enables SMEs to make better and more informed financial decisions and mitigate any risks.

AI might seem like a technology that is meant to take people’s jobs but in reality, it’s there to help improve the efficiency of people and businesses.

Adoption of E-commerce Platforms

South Africa’s e-commerce market has grown quickly and significantly since the COVID-19 pandemic. Recent stats expect the sector to grow to $10 billion by 2025, accounting for around 5-6% of overall retail sales.
The growth of companies like Zulzi and Delivery Ka Speed showcases the power of leveraging e-commerce technology and platforms. The benefits of adopting e-commerce platforms include:

• Increased market access and global reach
• Decrease in operational costs
• Better access to digital marketing opportunities
• Data-driven decision making
• Makes inventory management easier
• Helps build customer relationships
• Allows for digital payments
• Helps businesses keep up with the adoption of mobile commerce services

Having an online shopping option is vital for SMEs who want to go on their digital transformation journey. E-commerce will help them keep up with demands easily, scale quickly and access markets outside South Africa.

Digital transformation has not been easy for SMEs who still face basic problems such as access to markets and funding. These barriers are two of the ones that small businesses still face in South Africa.

Overcoming Resistance to Change in SMEs

SMEs in South Africa are yet to fully transform themselves because there is resistance to adopting some technologies. This ‘nervousness’ is understandable when factoring in that many do not have the right digital skills to understand the benefits of digital transformation.

Additionally, resistance to change within SMEs is a significant factor. Employees might have negative feelings towards AI because they believe it might take their jobs. This only serves as a hindrance to progress and delays opportunities for innovation and transformation.

Budget Constraints in Digital Transformation

SMEs account for approximately 98,5% of all businesses in South Africa. However, only 6% of SMEs reported that they received funding from the government while 9% got funding from the private sector.

The lack of funding for SMEs means they cannot properly invest in new technologies which would help their business develop and scale. This means they will continue to fall behind in terms of digital transformation.

Training and Upskilling Employees

The problem that SMEs and South Africa faces as a whole is the lack of appropriate digital skills. Because the country suffers from a skills gap, it means there aren’t enough potential employees for SMEs to hire to help them digitise their businesses.

Additionally, because SMEs do not have large amounts of capital for skills development, employees are not equipped with the right digital skills. This makes trying to train and upskill them much harder and thus leaving them behind others within their industry.

SME owners need to look into free training programmes such as the Huawei SME programme which helps teach entrepreneurs how to adopt cloud technology for their businesses. Additionally, Google also has a Black Founders Programme which aims to support startups in the country using Google’s programs, products and technology.
The possibilities for SMEs are endless if they choose to leverage technology and join the world of digital transformation.