What the 'great digital reset' means for SMEs

FILLED with an array of tools, home equipment and things one might need around the house, Unidbox Hardware looks like a regular heartland hardware store. But this Singapore SME (small and medium-sized enterprise) is not your run-of-the-mill hardware shop - it has become a next-generation e-commerce business that combines its unique understanding of local customer preferences with keen insight into the digital world.

Realising that e-commerce has become the default way of shopping, the company set up online retail storefronts and even an app to better engage customers. These helped drive online sales for Unidbox Hardware throughout the various cycles of Covid-19 restrictions, providing a crucial lifeline to sustain the business.

Unidbox Hardware's journey into the digital economy has been accelerated by events of the recent past - Covid-19 and shifting consumer preferences - and it is likely to be one that many SMEs will have to embark upon.

This migration to the brave new digital world is what we call the "great digital reset", and it will either make or break companies large and small all over the world.

The good, bad and must-dos

There is good news and bad news for SMEs on this front.

First, the good news. Most SMEs in Singapore are already clear that going digital is no longer a "good-to-have" - it has now become a "must-do". The pandemic has accelerated this process.

For instance, many local businesses have already embraced digital payments such as PayNow and PayLah, and have also become used to closing business transactions digitally through teleconferencing and Zoom calls.

But the worrying news is that the efforts are not holistic, with most SMEs resorting to a patchwork of digital tools simply to adapt to the changes brought about by Covid-19, rather than an integrated digital transformation strategy that can take their businesses to the next level of growth.

According to a survey we conducted recently with over 2,600 corporate treasurers, chief executive officers, chief financial officers and business owners, we found that SMEs tend to lag large corporates and middle-market companies in terms of digital readiness. This is not surprising, given that larger companies have more resources.

What is surprising is the size of the gap between SMEs and larger corporates. Only 4 in 10 SMEs have an actual digital transformation plan in place, and only 1 in 10 have a clearly defined digital strategy. This compares against 7 in 10 large corporates and middle-market companies having a digital transformation plan, and more than 3 in 10 having a clearly defined digital strategy.

This is no longer sufficient. SMEs need to think digital first.

There is a clear need for SMEs to take a holistic and end-to-end approach to digitalisation. This means looking at how to use digital solutions that tie both operations with customer experience together synergistically.

For instance, at the basic level, digital payment upgrades the traditional point-of-sales experience by allowing customers to pay from their mobile phone. The natural next step would be for SMEs to further refine their products and better cater to their customers' needs. This can be done through data collected from purchases, through the use of big data analytics, coupled with artificial intelligence to track demand patterns.

A multi-pronged approach

An integrated approach is not easy to achieve, especially for SME owners who are probably daunted by the prospect of new technologies.

This is where we believe that larger companies and government agencies have a role to play in helping our SMEs on their digital transformation journeys, and ensuring that we minimise the digital divide in the business community.

One way is through the creation of digital platform ecosystems that SMEs can easily plug into, to digitalise their businesses.

Offering such integrated ecosystems will free SMEs from the need to map out specific aspects of their business to digitalise, and the sourcing of the right solutions. This is especially useful for micro and small enterprises, whose operations are less complex, but also lack the bandwidth to develop a proper digital plan.

The SMEs Go Digital programme launched by the Infocomm Media Development Authority (IMDA) is an excellent starting point for SMEs seeking to embark on their digital journeys. IMDA has put together a whole suite of solutions, including a series of Industry Digital Plans to help SMEs in different industry verticals chart out their digital transformation road map.

Another example is the F&B Digital Relief Package, which DBS offers to help food establishments in Singapore digitalise their upstream processes (such as ordering supplies and fresh produce), their front of house operations (such as ordering, delivery and payments), and even their back office functions (such as payroll, invoicing and accounting). Over 1,000 food establishments have digitalised their businesses through this package.

Larger companies can also support SMEs by providing advisory support. Many SMEs recognise the benefits of digital transformation, but they simply do not know where to begin.

There also appears to be a knowledge gap and lack of confidence. Our survey found that SMEs tend to be cautious about investing in digital transformation mainly due to concerns around the cost of digital adoption, the availability of digital talent and cybersecurity worries.

With working capital being the lifeblood of any business, banks too can step up to provide financing support to help SMEs realise their digital ambitions.

We are seeing the emergence of industry ecosystems connecting companies of all sizes, with banks embedded within to provide liquidity - not unlike the heart. What is especially promising is how banks are leveraging alternative data to provide working capital support to SMEs pre-emptively and digitally without the need for paper documentation.

SMEs are critical to Singapore's economic vitality, employing two-thirds of our workforce and contributing nearly half of the nation's gross domestic product. Supporting SMEs on their migration to the digital universe will be crucial to ensuring that Singapore's economic future remains bright.

• The writer is group head of SME banking, DBS Bank.