In a pandemic, attitudes, perceptions, and game plans change almost weekly depending on a variety of factors. So while the new eight country 2020 Small Business Digital Maturity Study gives us a good snapshot of where we stood in June, we all hope the rosy picture it paints will become reality.
The report, conducted by IDC, and commissioned by Cisco, says small businesses could add $2.3 trillion to the overall GDP of the eight countries (United States, Canada, Mexico, Brazil, Chile, United Kingdom, Germany and France) studied by 2024, while contributing to the economic recovery during and post pandemic. The study was undertaken to better understand the opportunities and challenges small businesses currently face and the correlation between digital adoption and maturity and faster recovery. The study shows that together these eight economies could increase by 5.5% and experience a 42% faster growth rate— through increased small business digitalization.
To understand the maturity level of small business digitalization, IDC developed a framework that helps small businesses assess their current capabilities and understand where they stand on a four-stage digital index:
Stage 1—Digital Indifferent: A company that is reactive to market changes. Digital efforts do not exist.
Stage 2—Digital Observer: A company whose digital efforts have started but remain tactile and in bite-sized initiatives.
Stage 3—Digital Challenger: A company with a strategy for using digital technologies. They’re more proactive in market responsiveness.
Stage 4— Digital Native: A company that has an integrated digitalization strategy and is focused on driving continuous innovation.
The Digital Divide
If this conronavirus pandemic has taught us anything, it’s that small businesses must cross the digital divide. We live in an online world and that is not going to change, so it is critical for small business owners to accelerate their digital transformation.
“The COVID-19 pandemic has exacerbated the digital divide that was already present in the small business market, and it is forcing companies to accelerate their digitalization,” says Daniel-Zoe Jimenez, AVP, Head Digital Transformation & SMB research, at IDC. “Small businesses are realizing that digitalization is no longer an option, but a matter of survival.”
Jiminez says the research shows many small businesses are making progress, but they need to increase their focus on digitalizing processes and operations.
Where the U.S. Stands
Comparing the eight countries, small businesses in the UK, U.S. and Germany have made the most progress in their digitalization journeys. France and Canada follow, while small businesses in Latin America lag behind.
When it comes to recovery during and after the pandemic, small businesses in the more mature stages three and four have the highest ratio of recovering, are able to respond faster to changing market conditions, and are growing their revenue at higher rates.
Overall, 16% of those surveyed say they are thriving and feel their businesses are agile and resilient, while 36% are still in survival mode, and 50% are focused on growing or rebuilding their businesses.
Of the small businesses surveyed, over 70% of small businesses globally are accelerating the digitalization of their businesses due to the pandemic. And while digital technologies are more widely available today, small businesses still are challenged on many fronts.
Worldwide, working styles, employee safety, cashflow and sales are the areas most impacted by the pandemic. Other key challenges include (and these exist apart from the pandemic), the shortage of digital skills and talent, cultural resistance to change and lack of budget/commitment.
The survey shows the COVID-19 crisis has made small businesses more dependent on technology and more aware of the importance of digitalization.
About 45% of the small businesses surveyed expect over 30% of their business will be digital by next year. Of the small business planning to invest:
- 36% will invest in solutions that help their employees work remotely
- 33% will invest in digital technologies to improve online sales
- 32% plan to develop a digital strategy to
- 32% will invest in talent and the right skills
In general, over the next 18 months, the small businesses plan to invest in cloud solutions, as well as build on-premises infrastructure, both software and hardware. Security is also critical for small businesses considering security solutions are part of their top three priorities.
Customer experience and collaboration solutions are within the top five investment areas. The most mature small businesses are also prioritizing AI/Analytics to drive further competitiveness and reduce human intervention.
Digital Life in the U.S.
A deeper dive into American businesses shows 50% are Stage 2/Digital Observers. The study predicts $1.4 trillion could be added to the U.S. GDP by 20104—if we continue to digitize our businesses.
The most impacted areas for American small businesses due to COVID-19 include:
- Employee safety (16%)
- Working styles e.g. working remotely (12%)
- Cash flow (10%)
- Sales performance (10%)
- Customer engagement (10%)
The COVID-19 Impact
- 92% of small businesses say COVID-19 has made their business more reliant on technology
- 72% say it is going to accelerate the digitalization of their businesses
- 73% believe they will accelerate the digitalization of their businesses by 11%-50%
A little more than half (53%) of small businesses say the key driver to digital transformation is to bring new products and services to the market, distance themselves from the competition and grow, while 48% say the key driver is seeing their competitors transforming and realizing they must keep pace.
Top digitalization challenges
- Shortage of skills and talent within organization(13%)
- Lack of necessary technologies/commitment from management(13%)
- Lack of insight into operational and customer data (12%)
- Too expensive/not worth it for their industry (12%)
Top small business priorities
- Improving operations/service delivery (20%)
- Market growth and expansion (18%)
- Delivering better/improved customer experiences (15%)
Top of mind for small businesses in the next 6 months
- Keeping employees productive when working from home (17%)
- Automating operations (15%)
- Sustaining cashflow (15%)
Top tech solutions investments small businesses will make in the next 18 months:
- Creating a digital strategy that helps them navigate this crisis with clear goals (34%)
- Investing in solutions that help employees work remotely (33%)
- Investing in talent and digital skills (31%)
Now that we’re six months (and counting) into the coronavirus pandemic, are U.S. small businesses still resisting transforming digitally? I hope not.
Hopefully every struggle we’ve gone through, every challenge we’ve met, has shown us how flexible and resilient we are and that we are ready—even eager—to embrace the solutions that can actually enhance our business growth.
Recommendations for Small Businesses:
Small businesses around the world are learning how to adapt to the current climate, overcome challenges and adopt technology that can help them not only survive this crisis, but thrive long after it ends. However, the first question for many is, “where do I start?” Cisco and IDC recommend the following to build resiliency.
- Develop a three-year technology road map
- Prioritize the critical business processes to automate
- Evaluate the right technologies to invest in–focus on empowering remote employees/workforce, a secure e-commerce platform and a robust cybersecurity network
- Invest in talent and skills focused on digital
- Find the right technology partner for your journey
- Leverage financing and remanufactured equipment to help with cash flow and budget requirements
- Keep up with industry trends and best practices
- Simplify, start small, learn and scale
- Learn more about the 2020 Small Business Digital Maturity Study
- Beyond Survival: A Small Business Resiliency Guide
- See more about Cisco Designed portfolio for small businesses