ONE of the jokes that made the rounds back in March was a multiple-choice question asking, who’s the leading force in workplace digital transformation? The punchline was that it was neither the CEO or the CTO, but a third ‘C’ – Covid-19.
There is some truth to the quip as companies, particularly SMEs, that had previously resisted the digital trend are finding it more difficult to put it off as consumer habits and operating environments change.
Since the commencement of the movement control order (MCO), local businesses have made rapid adjustments, leveraging online communications, online transactions and remote working flexibilities to keep operations and sales going.
However, a recent EY Covid-19 business impact survey found that only 20% of nearly 700 respondents have adequate technology and systems infrastructure in place to operate in the current crisis.
Traditional SMEs have generally been laggards in the digitalisation game. While the mid-sized and larger companies have taken efforts to make use of technology in their processes, smaller outfits and micro-enterprises have found more comfort in the familiarity of manual work. There are no short of tales on databases recorded meticulously in trusty ledger books and fragments of information tightly held by key personnels.
If they were hesitant before, the pandemic has perhaps prompted many to jumpstart their digitalisation process or to increase their leverage on technology to keep up.
EY partner for technology consulting Tan Boon Yow highlights that a third of the SME respondents in the business impact survey cited work-from-home connectivity as a major challenge during the MCO period. Other challenges faced by SMEs include difficulty in communicating with customers or suppliers (26%), insufficient data or infrastructure (25%) and unfamiliarity with online applications (14%).
Those that had invested in digital systems and automation earlier were able to keep their operations running with minimised hiccups during the MCO.
“It certainly helped us weather the storm a little better. So when workers were reduced during the MCO, we could still maintain our systems. If it was all manual, there would definitely be problems, ” says a food manufacturer.
On the flipside, one of the main issues faced by SMEs during the MCO due to low implementation of technology was disruption in supply chains and manufacturing.
“The high dependency on manual processes, ad-hoc demand management and manual labor has resulted in operational gaps along the business supply-chain. SMEs suffered heavy losses in terms of materials, sales and relationships due to their inability to operate effectively during the MCO period.
“With employee safety prioritised during the pandemic, operations, productivity and the ability of businesses to continue to operate and communicate with their employees, suppliers and customers were major challenges, ” says Tan.
Additionally, they lacked adequate customer touchpoints and sales channels to push their goods and services out. It is estimated that only 20% to 25% of Malaysia’s SMEs have online presence. Even a few of the larger popular retailers were lacking in e-commerce capabilities, he adds.
The loss of physical access to customers during the MCO period accelerated the move towards digital channels for customer interaction and consumption.
“SMEs who lacked a mature online presence and familiarity with digital media saw a severe impact on their existing customer base as well as new revenue generation. Lower customer footfall in typical high-traffic areas resulted in decreased market presence and brand awareness.
“Although Covid-19 has pushed more SMEs to move online and provide home delivery services through social media or e-commerce platforms, these have been limited to just reaching out to customers rather than enabling end-to-end digital transformation, ” he says.
And given that small businesses were rushed into the digital space over the last few months, many of them are faced with issues of trust and data security.
The majority of SMEs approach digital in silos and in an exploratory manner. Data security is often treated as a next step only after the investment in technology has been proven to be a viable substitute for the legacy function.
But without a proper security design in mind, companies will have to contend with a rise in cybersecurity and data privacy concerns. The increased collection of customer data through existing digital channels will also be at risk of data mishandling due to the lack of familiarisation with security measures and policies.
“Clearly, much more effort is needed from SMEs to step up and adopt technology-enabled processes and systems in preparation for a more digital-enabled environment in the new normal, ” says Tan.
The pandemic has forced SMEs to re-look how they conduct business in these disrupted times and to accelerate their digital transformation.
According to the same EY survey, it is found that 37% of SMEs are planning to upgrade their technology capabilities. These measures include addressing work-from-home connectivity with employees (26%) and providing training to enable effective use of online technology (13%).
Although the immediate focus for most businesses is on sales growth and some productivity gains from moving to the online channel, Tan says SMEs could achieve bigger benefits if they were to digitally integrate both the front office and their operational processes.
For SMEs yet to venture into digitalisation, Tan advises them to first look at the basics such as getting the tech infrastructure (computing devices, connectivity), digital applications (social media, e-commerce), talent and a revamped operating model without taking on too much upfront investment to ease into the new norm.
“They may apply a two-pronged approach where the existing business model would exist while they gradually digitalise the operations once higher stability and confidence are achieved. The degree of digitalisation and the intensity of the process will vary according to the nature of the business, for example, whether at the consumer-facing front office, mid-office business operations or back-office internal functions.
“Once an organisation has successfully adopted a new model as part of its core business, a natural progression would be to look into unlocking further business value by applying enterprise analytics as a driver to scale better process optimisation, customer insights and market penetration, ” says Tan.
As each business recovers from the effects of the pandemic, they will need to size-up their situation, take stock of the impact and realign their business model. SMEs will need to balance their priorities by stabilising the business and maintaining continuity now while exploring digital and automation opportunities in the near term.
“This would mean starting to explore certain digital channels for customer, sales and brand protection. But they should also continue to focus on short-term finance management, supply chain management, workforce management and employee health, and legal and contract dispute resolution.
“They should also explore digital and automation opportunities in building enterprise resilience to ensure they will be prepared across all functions should the crisis continue. For example, they could gain competitive advantage by accelerating e-commerce capabilities and adopting emerging automation technologies, such as robotics and artificial intelligence (AI), ” he says.
Having an understanding of the long-term impact of this new normal is also crucial to ensure that companies can align their growth trajectory with the right technology investment.
The cost of technology has always been among the greatest concerns for small businesses. Most SMEs are too small to afford sophisticated systems for automation. Even basic cloud-based solutions can be deemed costly for some.
“We tried looking at a HR cloud solution but they go by subscription per employee. We have a lot of workers. So even in the long-run, this cost is not viable for us, ” notes a personal care products maker.
Meanwhile, larger establishments may hesitate to spend as they are unsure about the return on their investment in digital technology.
The EY survey notes that SMEs mainly required assistance in better and less costly online connectivity (39%), grants for technology and infrastructure upgrades (24%) and tax incentives for technology expansions (14%).
Tan says there is a need to educate SMEs about the funding options and financial assistance available from various agencies to help them plan and drive their digitalisation journey.
He adds that the government has, over the years, been investing in digital programmes that aim to improve accessibility, affordability and adoption of digital in the economy and companies should learn to capitalise on these programmes.
The recently announced economic stimulus package PENJANA, for example, saw strong emphasis on assisting SMEs by enabling their digital capabilities with certain initiatives and grants.
But notably, supporting companies in their digitalisation journey go beyond just financial assistance. Various stakeholders play a role in bringing the whole support ecosystem together to help businesses, and the economy in general, take full advantage of operating in a digital age.
For example, there is a need to ensure adequate digital talents in the market as many companies have found that they do not have the right employee skill sets to navigate the digital world. The digitalisation process is not only about implementing ICT solutions or moving online. It requires a rethink and redesign of the whole business that covers the entire supply chain.
This means the education system will also have to be enhanced to cater to this need and there has to be ample opportunities for existing employees to be upskilled.
SMEs will also need to learn how to use various new technologies, such as cloud-based solutions, data analytics and Internet-of-Things to reach more customers, automate their operations and secure the information.
Additionally, there needs to be improved digital infrastructure and connectivity to help companies connect to the Internet at a faster and cheaper rate. Improving access to affordable, reliable and high-speed connectivity will help smaller SMEs compete with better resourced and more sophisticated organisations.
Regulators will also need to ensure cybersecurity standards are met and SMEs will have to familiarise themselves with these regulatory requirements, specifically those related to compliance, process guidance and software licensing, as well as how to balance between digital innovation and security.
Another factor that will have to be looked into is market access. With the strong trend of digitalisation and automation to enhance efficiency and productivity, SMEs will need better market access to cope with increased production. This will require a good logistics support and smoother facilitation of cross-border trade.
If SMEs make the effort and take the right measures amidst adjustments made by the other stakeholders, they will be better prepared to operate and thrive in the new landscape.
“A digital SME will have a resilient business model that mitigates physical, workforce and logistical issues, automates processes to avoid delays and errors, uplifts its human resource to high-value tasks such as customer relations and business strategy, and continues to innovate, ” says Tan.
According to the World Bank Digital Adoption Index 2018, Malaysia has done more to embrace digital than all the other Asean countries except Singapore.
“Malaysians are among the most digitally connected in the world, and the Malaysian government has invested heavily in digital technologies to modernise its systems and processes.
“Hence, the growth of SMEs in the digital space is not a matter of ‘if’, but ‘how’ and ‘when’ to adopt digitalisation. In the new norm, customers’ interactions will be more digital in nature. They will be communicating more via digital channels and consuming larger amounts of digital products and services.
“They will also expect faster and more reliable services that are customised to their unique needs. As such, SMEs will need to consider these trends and develop new innovative products and services that draw on digital technologies to thrive in the new norm, ” says Tan.
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