How digital transformation is improving efficiency in medium-sized MSMEs
Call it an after-effect of the pandemic or a general realisation about the significance of going digital in a mobile-first era, micro, small, and medium enterprises (MSMEs) are rapidly embracing digital transformation. MSME’s online presence is growing significantly.
In the last few years, MSMEs have started using a wide range of technologies and tools, such as cloud computing, data analytics, Artificial Intelligence (AI), and mobile apps, to improve operational efficiency, enhance customer satisfaction, and gain a competitive edge.
According to an MSME survey on World MSME Day, 60% of MSMEs plan to digitise their business processes by 2025. 43% of them, especially those with lower digital maturity, plan to increase their digitalisation budget by 2025 (source: ndtvprofit).
But why are small and medium-sized enterprises opting for digital transformation, and how can it improve their efficiency? Let’s find the answers to these questions.
Benefits of digitisation for MSMEs
Here are a few reasons why small and medium-sized enterprises are embracing digital business solutions:
1. Increase growth opportunities
According to the Future of Jobs report, a whopping 86% of MSMEs are planning to use technologies like big data, cloud computing, and AI in the next five years, and 75% are planning to use digital trade and e-commerce to expand business in different geographies and increase the customer base. Digital transformation can help small and medium enterprises boost sales and revenue.
2. Reduce costs
The initial investment in digitalisation might seem high, but the eventual outcome can outweigh the costs. Digital transformation enables a small and medium enterprise to streamline operations, automate processes, and reduce costs on labour, unforeseen errors, and ineffective resource allocation. Small business (SMB) solutions like Software-as-a-Service (SaaS) also give them access to cutting-edge technology through monthly or annual subscriptions. This saves SMEs from investing upfront capital on expensive tools and technologies. They can also benefit from the valuable resources and expertise technology providers provide through strategic partnerships and build their digital capabilities.
3. Gain a competitive edge
In a dynamic business landscape, a small medium enterprise must use digital solutions to stay ahead of the curve. Smart digital transformation strategies combined with cutting-edge technologies can empower MSMEs to optimise operations, make data-driven decisions, innovate more, and enhance product and service quality. They help MSMEs become customer-centric by facilitating personalised customer experiences and enabling them to stand apart from competitors.
4. Reduce entry barrier
The lack of a level-playing field prevented MSMEs from competing with large enterprises globally. However, digitalisation has changed the status quo completely. With digitalisation, MSMEs can collaborate with established businesses and institutions and access their expert networks, cutting-edge technologies, and best practices. This can help them serve global customers more efficiently. They can expand their business in new geographies and work in parallel with large enterprises to serve international clients.
Automation of business processes
Typically, a small and medium company employs fewer people than a large one. They have a small team to complete the operational tasks. Manual, repetitive work leaves these teams with little time to focus on building creative and innovative solutions. Similarly, manual processes increase the chances of errors, loss of productivity, and inability to serve customers efficiently. Digital transformation can help companies solve this problem by automating routine tasks and operations.
It can help companies:
● Improve overall productivity and focus on developing innovative strategies.
● Minimise errors and improve accuracy.
● Spend less time on mundane tasks and more on adding value to customers and building a solid relationship with them.
Some use cases of automation include:
● Using chatbots to answer customer queries, schedule appointments, and troubleshoot fundamental issues 24/7 with minimal human intervention
● Segmenting customers based on their preferences and behaviour and crafting personalised marketing campaigns and communication to improve customer experience
● Replacing manual tasks like expense tracking and financial with an automated process to enable teams to focus on other strategic tasks
Enhanced data analytics
MSMEs will likely gather more data about the business and customers as they grow. However, they cannot unlock its full potential and grow their business if they do not utilise it well. With digitalisation, MSMEs can convert unintelligible data into valuable insights and eliminate guesswork from decision-making. They can study market trends and customer behaviour more accurately and use those insights to forecast trends, identify opportunities, and develop strategies to stay ahead of the competition. They can gain a deeper understanding of their customers and the market in general and tailor offerings to improve customer satisfaction and loyalty.
Implementing customer relationship management systems
Typically, MSMEs rely on spreadsheets and other legacy and disparate systems to manage customer data. A lot of time is spent on consolidating data and making sense of it. This process can become an issue when businesses scale and have insufficient resources to convert data into rich business insights.
Hence, MSMEs must consider using Customer Relationship Management (CRM) systems as their businesses scale and their customer base expands.
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Digital transformation empowers MSMEs to unleash the full potential of a modern CRM system:
● They can gather data from different sources into a centralised CRM system and analyse it to understand customer behaviour and market trends. This can help MSMEs design marketing, sales, and customer engagement strategies and foster strong customer relationships.
● An integrated CRM provides a 360-degree view of each customer, which can help MSMEs personalise customer experiences and tailor communications and offerings to meet customers' needs.
● As customers use more than one channel to interact with companies, modern CRM facilitates multi-channel engagement with customers across websites, mobile apps, social media, and more.
In summary, digital transformation enables MSMEs to shift from legacy tools to modern CRMs, which allows them to centralise customer data and leverage it to build strong customer relationships and achieve sustainable growth.
Cybersecurity measures
As more MSMEs adopt digital technologies, concerns about rising cybersecurity attacks prevent them from embracing digital transformation more proactively. Our MSME survey shows that although 43% of MSMEs already use device security and data protection technologies, the struggle to safeguard data and digital assets from threats remains an issue. For example, companies with a turnover under ₹10 crore still use public cloud storage. This poses a massive security risk to their data. To add to the woes, most MSMEs do not have a dedicated team or well-established security protocols to identify and mitigate threats before they escalate.
However, while digital transformation can pose security risks, it can also significantly enhance cybersecurity.
● For example, MSMEs can use data analytics to analyse their datasets, identify unusual activities, and resolve them to prevent data loss.
● To strengthen cybersecurity, they can use advanced security measures like multifactor authentication, encryption, and network segmentation.
● They can use automation tools to perform regular security risk assessments and ensure that data and assets are always protected from vulnerabilities.
By using digital solutions and increasing focus on cybersecurity practices, MSMEs can unlock digital transformation's full potential and safeguard data.
Collaboration tools and remote work enablement
Ever since the pandemic, MSMEs have been actively adopting remote work. Our ReadyForNext assessment for digital maturity showed that MSMEs with a maturity of 55% are embracing digital transformation and using collaboration tools for remote work. Cloud-based collaboration tools and digitised workflows have enabled employees to share files, manage projects, and communicate effectively without interruptions. They can access information anywhere, anytime, and maintain a good work-life balance. Collaboration tools offer flexibility and enhance productivity but also allow MSMEs to reduce office expenses and bring in a more diverse global team to accelerate innovation within the organisation.
Measuring success and ROI
To ensure the success of digital business solutions, MSMEs must regularly measure their impact on business and ROI. To calculate the ROI, MSMEs must first identify the Key Performance Indicators (KPIs) that align with their specific business goals and monitor the key metrics. Some of the metrics that MSMEs can monitor include:
● Revenue: They can track if the digital business solutions have led to any direct revenue increase.
● Customer retention and churn rate: MSMEs must calculate customer retention and churn rates to determine whether the digital transformation has enhanced the customer experience and deepened the bond.
● Employee productivity: This can help MSMEs assess if the collaboration tools are helping employees across various locations complete their tasks efficiently and if there are any significant improvements in task completion time and output quality.
● Operational efficiency: Compare the operational efficiency before and after implementing the SMB solutions. Processing time, resource allocation, and turnaround time are a few metrics that MSMEs can measure to evaluate efficiency.
Measuring these key metrics can help MSMEs identify improvement areas, optimise the processes, maximise ROI, and achieve success in digital transformation.
The impact of digital transformation in MSMEs
According to a study (source: researchgate) on the impact of digitisation on Indian MSMEs, adopting digital technologies has enabled them to improve business operations, increase productivity, and make better data-driven decisions. It has also helped MSMEs expand their reach in domestic and international markets and reach more customers.
Teething issues like a shortage of skilled digital workforce, resistance to change, and limited investments pose challenges to digital transformation. However, with the support of government policies and MSME programmes, businesses can easily overcome these challenges.
If you manage an MSME and want to leverage digitalisation to transform your business, take Vi’s ReadyForNext assessment. This will help you gauge your digital maturity and readiness, identify areas of improvement, and get tailored solutions to become future-ready. You can also leverage our SMB solutions, such as cloud solutions, enterprise security solutions, and enterprise mobility solutions, to stay ahead of the competition.
To know more about our small business solutions, contact us. We will be happy to help your business become future-ready.
MSMEs are the driving force of the Indian economy. At Vi Business, we believe in equipping them with the right digital tools and technology to thrive in today’s business world.
Our ReadyForNext assessment helps MSMEs gain insights into their digital readiness and access India’s largest MSME study.