Why the Gulf's SMEs must un­der­take dig­i­tal trans­for­ma­tion

With dig­i­tal trans­for­ma­tion con­tin­u­ing to in­crease in im­por­tance for com­pa­nies, what are the op­por­tu­ni­ties and chal­lenges fac­ing small and medium sized busi­nesses?

Gulf Business - - FRONT PAGE - By Neil King

For many, the dig­i­tal trans­for­ma­tion ques­tion seems an al­most re­dun­dant one. In this dig­i­tal age, when en­hanced tech­nolo­gies make for more ef­fi­cient, pro­duc­tive and stream­lined busi­nesses, it seems ob­vi­ous that most– if not all – busi­nesses should adopt at least some de­gree of digi­ti­sa­tion, if only to keep up with their com­peti­tors.

But the sit­u­a­tion is far from straight for­ward. For small and medium sized en­ter­prises (SMEs) es­pe­cially, there are a num­ber of bar­ri­ers to em­brac­ing dig­i­tal trans­for­ma­tion with open arms, such as cost, se­cu­rity im­pli­ca­tions, and over­whelm­ing choices.

In­deed, a study by mar­ket in­tel­li­gence and ad­vi­sory firm IDC showed that 5 per cent of com­pa­nies in the re­gion are re­sist­ing trans­for­ma­tion – the same amount that are in­no­vat­ing their op­er­a­tions, mar­kets and in­dus­tries – with a huge 90 per cent ei­ther eval­u­at­ing their first steps or mak­ing some ad­vance­ments.

But ac­cord­ing to Si Mo­hamed Said, ECEMEA ap­pli­ca­tions marketing se­nior direc­tor at Or­a­cle, de­spite some SMEs

con­cerns, the ques­tion of whether they should un­dergo dig­i­tal trans­for­ma­tion is prac­ti­cally null and void.

“Ac­cord­ing to Klaus Sch­wab, founder and ex­ec­u­tive chair­man of the World Eco­nomic Fo­rum, “in today’s econ­omy, it’s not any­more about the big fish eat­ing the small fish, but the fast fish eat­ing the slow fish.” This state­ment il­lus­trates the sense of ur­gency that drives busi­nesses today to­wards adopt­ing dig­i­tal trans­for­ma­tion, par­tic­u­larly among SMEs,” he says.

“Dig­i­tal trans­for­ma­tion that is pow­ered by tech­nolo­gies in­clud­ing cloud, so­cial, mo­bile, big data, In­ter­net of Things and ar­ti­fi­cial in­tel­li­gence is im­per­a­tive for busi­nesses to drive the next phase of growth and gain com­pet­i­tive edge.

“Cloud com­put­ing, for ex­am­ple, can give an en­ter­prise flex­i­bil­ity it never had be­fore to re­spond more quickly to op­por­tu­ni­ties, de­ploy new ap­pli­ca­tions on the go, or scale up fast to meet grow­ing and un­ex­pected cus­tomer de­mand.”

Busi­ness ben­e­fits

The ad­van­tages of SMEs mak­ing a swift and strate­gic dig­i­tal shift have been well doc­u­mented, rang­ing from greater ef­fi­ciency and ac­cu­racy, re­duced costs, and a more pro­duc­tive work­force.

There is also the boon of im­proved com­pet­i­tive­ness. Re­search un­der­taken by SAP showed that 46 per cent of SME de­ci­sion mak­ers be­lieve tech­nol­ogy lev­els the play­ing field for small busi­nesses against larger cor­po­ra­tions, while 37 per cent see their size as an ad­van­tage over larger com­pa­nies that are slower to take ad­van­tage of dig­i­tal in­no­va­tion.

In­deed, Al­time­ter’s The 2016 State of

Dig­i­tal Trans­for­ma­tion report showed that ‘ im­prov­ing op­er­a­tional agility to more rapidly adapt to change’ was the third most pop­u­lar dig­i­tal trans­for­ma­tion ini­tia­tive for or­gan­i­sa­tions – be­hind only ‘ac­cel­er­at­ing in­no­va­tion’ and ‘mod­ernising IT in­fra­struc­ture’.

It’s this agility and greater ef­fi­ciency that has helped some of today’s lead­ing SMEs to go up against their big­ger coun­ter­parts, and make an en­hanced con­tri­bu­tion to their in­dus­tries and the wider econ­omy.

“Many dig­i­tal dis­rupters started off as SMEs them­selves and lever­aged tech­nol­ogy to com­pete against tra­di­tional play­ers,” says Megha Ku­mar, re­search direc­tor of soft­ware and cloud for IDC Mid­dle East, Turkey and Africa.

“To stay rel­e­vant SMEs should look at so­lu­tions such as cloud that pro­vide the added ben­e­fits of agility, scal­a­bil­ity and re­silience, in ad­di­tion to lower cost of op­er­a­tions.

“SMEs can im­prove in terms of their com­pet­i­tive­ness and drive in­no­va­tion in their re­spec­tive sec­tors. The re­cip­ro­cal gains to the sec­tor and econ­omy at large by SMEs can­not be ig­nored.”

In­cre­men­tal trans­for­ma­tion

Th­ese gains to the econ­omy are mag­ni­fied by the sheer quan­tity of SMEs across the Gulf re­gion. In the UAE alone they con­trib­ute to 86 per cent of the to­tal work­force and ac­count for around 60 per cent of GDP. In Saudi Ara­bia, they make up 90 per cent of all busi­ness en­ter­prises, but only 33 per cent of GDP and 25 per cent of the labour force. All fig­ures that can im­prove with dig­i­tal trans­for­ma­tion.

But with such a va­ri­ety of busi­nesses, there is no one-size-fits-all ap­proach to digi­ti­sa­tion, and cer­tainly no sil­ver bul­let that can com­plete the process in one fell swoop. But there are ways to make the process eas­ier.

“If you look at tra­di­tional busi­nesses, the ap­proach is to drive in­cre­men­tal trans­for­ma­tion,” says Said.

“This is prob­a­bly the safest and least risky ap­proach, and is in stark con­trast to the ‘ all-in’ ap­proach of trans­form­ing all ar­eas at the same time.”

He high­lights three steps that small busi­nesses should con­sider when en­ter­ing a dig­i­tal trans­for­ma­tion process.

“The first is to digi­tise all core pro­cesses such as fi­nance, HR, ac­count­ing, and many more,” he says.

“This ap­proach will bring the next wave of ef­fi­ciency within the or­gan­i­sa­tion.

“Once this is sta­bilised, the next step would be to ex­tend this to the most dif­fer­en­ti­at­ing busi­ness pro­cesses such as in cus­tomer ex­pe­ri­ence. Step three would be to in­vest in and cre­ate the busi­ness’s own plat­form for in­no­vat­ing on-the-go in re­sponse to mar­ket changes, to­gether with busi­ness part­ners and the broader ecosys­tem.”

Said adds a word of warn­ing, ex­plain­ing that while there is an el­e­ment of risk at­tached to any change in strat­egy or in­fra­struc­ture, the big­gest risk of all is in not do­ing any­thing.

“The im­pli­ca­tion for non-adop­tion is sim­ply to cease to ex­ist. This is not about cos­metic changes for an or­gan­i­sa­tion, but a to­tal trans­for­ma­tion in how they go to mar­ket and op­er­ate, which can be driven by chang­ing cus­tomer pref­er­ences and evolv­ing tech­nol­ogy trends.”

Small busi­nesses should not feel alone in try­ing to un­der­stand which trans­for­ma­tion ap­proach they should take, with a num­ber of com­pa­nies of­fer­ing guid­ance, in­clud­ing Or­a­cle, which launched a ded­i­cated dig­i­tal of­fice in Dubai in early 2017.

Lead­er­ship

Re­gard­less of out­side ex­per­tise, how­ever, com­pany ex­ec­u­tives should be pre­pared to take the lead in any dig­i­tal trans­for­ma­tion their firm un­der­goes.

As such, the role of chief dig­i­tal of­fi­cer has be­come in­creas­ingly prom­i­nent, with

“THE IM­PLI­CA­TION FOR NON-ADOP­TION IS SIM­PLY TO CEASE TO EX­IST. THIS IS NOT ABOUT COS­METIC CHANGES FOR AN OR­GAN­I­SA­TION, BUT A TO­TAL TRANS­FOR­MA­TION IN HOW THEY GO TO MAR­KET AND OP­ER­ATE, WHICH CAN BE DRIVEN BY CHANG­ING CUS­TOMER PREF­ER­ENCES AND EVOLV­ING TECH­NOL­OGY TRENDS.”

a report by the US-based CDO Club es­ti­mat­ing that the num­ber of peo­ple hold­ing the ti­tle at ma­jor or­gan­i­sa­tions world­wide has more than dou­bled year-on-year.

But while this rel­a­tively new po­si­tion has be­come an im­por­tant cog in the ma­chin­ery of many busi­nesses, Said ex­plains that dig­i­tal trans­for­ma­tion is not down to CDOs alone.

“The CDO is most of­ten tasked with bridg­ing the vi­sion of dig­i­tal trans­for­ma­tion to life. In re­al­ity, how­ever, this is a col­lab­o­ra­tive and shared re­spon­si­bil­ity among the C-suite,” he says.

“It starts with the CEO, who aligns the trans­for­ma­tion plan with the over­all vi­sion of the or­gan­i­sa­tion, and serves as the ex­ec­u­tive spon­sor of the pro­ject.

“The CFO will look at it from an in­vest­ment as well as from a val­ue­re­al­i­sa­tion and value-cre­ation per­spec­tive. The CIO/CTO will of course be on the front­line, look­ing at the tech­nol­ogy as­pect, and there is a key role for the chief strat­egy of­fi­cer as well.

“The key­words are col­lab­o­ra­tion and shared re­spon­si­bil­ity, and the CDO will be a fa­cil­i­ta­tor and en­abler of trans­for­ma­tion within the or­gan­i­sa­tion.”

Po­ten­tial prob­lems

Even with clear and con­sis­tent lead­er­ship – which is by no means guar­an­teed – there are still a num­ber of chal­lenges that SMEs might face when rolling out dig­i­tal trans­for­ma­tion.

In its 2014 dig­i­tal trans­for­ma­tion sur­vey, Al­time­ter re­vealed the top chal­lenges fac­ing those un­der­tak­ing dig­i­tal trans­for­ma­tion. The top five were: Chang­ing com­pany cul­ture; think­ing be­yond a ‘cam­paign men­tal­ity’; co­op­er­a­tion be­tween de­part­ments and team si­los; re­sources and budget al­lo­ca­tion; and fi­nally, the un­der­stand­ing the be­hav­iour or im­pact of new con­nected cus­tomers.

This was up­dated in its 2016 report, which showed a slightly dif­fer­ent top five: Un­der­stand­ing cus­tomer be­hav­iour; a lack of data or ROI to jus­tify the dig­i­tal trans­for­ma­tion; risk man­age­ment, com­pli­ance or le­gal com­pli­ca­tions; re­sources re­quired; and chang­ing the com­pany cul­ture to be agile.

Both lists high­light the ba­sic fact that change is not easy, and there are numer­ous po­ten­tial pit­falls to nav­i­gate even be­fore start­ing a trans­for­ma­tion.

Add to that a find­ing from last year’s Econ­o­mist In­tel­li­gence Unit Dig­i­tal

Evo­lu­tion Report that 88 per cent of com­pa­nies be­lieve they do not have the right tech­nol­ogy in place to cur­rently ex­e­cute a dig­i­tal strat­egy, and an­other stat from Al­time­ter that just 29 per cent of com­pa­nies have a multi-year roadmap, and it’s easy to un­der­stand why some busi­nesses are hes­i­tant to leap into digi­ti­sa­tion. So, how can SMEs build con­fi­dence? “The start­ing point is to de­fine a busi­ness strat­egy be­fore a dig­i­tal strat­egy,” says Said.

“Prob­lems can be avoided with clear as­sess­ment at the be­gin­ning, and a con­sis­tent 360 de­gree view of the com­pany and its trans­for­ma­tion at every stage.

“An­other is­sue is that many com­pa­nies start too late and have to rush through their trans­for­ma­tion, which is also not rec­om­mended. Cloud ap­pli­ca­tions can help busi­nesses drive their trans­for­ma­tion in­cre­men­tally.”

Ul­ti­mately, de­spite the inherent chal­lenges, dig­i­tal trans­for­ma­tion is be­com­ing in­creas­ingly im­por­tant for small busi­nesses to un­der­take. And for those still re­luc­tant to take first steps, Said points to a par­tic­u­larly strong in­flu­ence that should per­suade them oth­er­wise.

“An SME can­not af­ford to ig­nore dig­i­tal trans­for­ma­tion – it is a must-have today,” he says.

“With the over­all vi­sion for the fu­ture be­ing driven by the UAE Gov­ern­ment in spe­cific ar­eas such as paper­less trans­ac­tions, SMEs should en­sure their re­spon­sive­ness and pre­pared­ness around th­ese spe­cific ar­eas as a first step.

“The fear of miss­ing out can ac­tu­ally be quite a strong motivation to­wards trans­for­ma­tion.”

“MANY COM­PA­NIES START TOO LATE AND HAVE TO RUSH THROUGH THEIR TRANS­FOR­MA­TION, WHICH IS ALSO NOT REC­OM­MENDED. CLOUD AP­PLI­CA­TIONS CAN HELP BUSI­NESSES DRIVE THEIR TRANS­FOR­MA­TION IN­CRE­MEN­TALLY.”

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