The digital transformation of SMEs is likely to become permanent

The Covid-19 pandemic has led to the complete lockdown of businesses and institutions across the country. While the negative impact of the crisis on human life and the economy has been unprecedented, the crisis has forced firms across industries, especially small and medium enterprises (SMEs), to innovate and transform significantly to survive and overcome the challenges. Examples of such innovation are everywhere.

The small retail industry has already been in the process of getting disrupted with e-commerce and omni-channel retailing. While e-commerce is here to stay, the current crisis has tipped the scales towards omni-channel strategies. Retail stores have quickly transformed into fulfilment centers.

Small grocery stores, which were traditionally operating on a ‘store only’ model, have now adopted rudimentary e-commerce technologies like ‘google sheets’ to display their stock items and to receive orders. The orders are then being delivered at the customers’ doorsteps. Acceptance of digital payments that began a few years ago has now come to stay as customers do not want to deal with cash. Start-ups like nukkadshops.com and ekasta.com are aiding kirana stores in this digital transformation endeavour.

In the pharma industry, the sales process, which was traditionally dependent on physical meetings with doctors, has moved to digital communication overnight. There is data-based evidence to support that digitisation and gamification of sales-force during this crisis have improved their skill, knowledge, and performance. For example, Smartwinnr.com (an ISB alum start-up) is helping sales-force across companies from India, Japan, Europe, and the US with this endeavour.

Agribusiness chemical distributors in rural areas are using digital technologies such as Facebook® and Zoom® to stay connected with their farmer customers. Kheyti.com, an agriculture start-up, uses digital technologies in a very novel manner to connect farmers with vendors and other stakeholders to manage selling and reduction of wastage of agricultural produce.

Educational institutions, both small and large, have moved entirely online for the time being. The Indian craft sector is rapidly moving to new digital means to design, promote and distribute their products to survive.

While SMEs are clearly using digital technologies to survive the current crisis, the question that remains is whether this is a permanent shift? Will they revert to the old models once the crisis passes? Or is the new business model — a balanced hybrid?

Digital journey

We have been researching the digital transformation journey of SMEs in India and have conducted online interviews with promoters of SMEs across the country. The recent discussions clearly indicate that the transformation is more likely permanent. Historically, crises like Y2K, 9/11, the financial crisis of 2008 have all led to the emergence of new ways of doing business.

Y2K led to the rise of the global IT outsourcing phenomenon as companies sought new sources of IT talent to deal with the scale of work in a short period. A few years later, the 9/11 crisis led to the acceleration of the global business process outsourcing industry as a means to reduce costs and globalise operations.

The financial crisis of 2008 led to the emergence of what is now known as the FinTech industry — a reaction to years of consumer dissatisfaction with the market domination enjoyed by a few global financial institutions. Closer to home, the FinTech industry was further accelerated by the demonetisation of 2016. In each of these cases, what was a temporary reaction to a crisis, eventually led to a long-term structural impact on various industries.

Our interviews with SMEs show that many of them have been considering automation and digital transformation for a few years. However, lack of financial resources and knowledge has held them back. The current crisis has made these transformations a means of survival. As one retailer shared: “Now that my customer has got used to the convenience of the new way of buying from me, why will she want to go back to the old ways? I am glad I made the change as it will make me stronger in the long run.”

A similar sentiment was echoed by a company focussing on selling agri-chemicals to farmers. “In the past, we used to conduct workshops at every village and could not meet more than 50 farmers a day. We recently conducted an information session online, and to our shock, 200 participants joined the webinar. A few weeks later, we had 2,000 views of our YouTube video. We can reach more farmers, and this may help us expand our business without adding more salespeople.”

Assistance needed

Our research also shows that many SMEs are taking baby steps out of necessity. To make this change more permanent, the entire ecosystem of digital awareness, road-mapping, and implementation needs to be in place. Digital itself is rapidly evolving, lacks standards. and is very confusing. Unless the right support system exists, SMEs will take missteps and eventually get disillusioned.

There is a lot that can be learnt from other countries such as Singapore, on how to build the right support system for helping SMEs in their transformation journey ( https://www.imda.gov.sg/programme-listing/smes-go-digital ). Our research study, based on discussions with SMEs across diverse industries and regions in India, has several recommendations on how this model can be adapted for India. The proposals include the potential role of academic institutions, industry consultants, larger players in the industry, technology vendors, platform players, and financial institutions.

While the overall impact of the current crisis is not yet known, what is becoming clear is that many SMEs are using digital as a means to tide over these times, to stay relevant, and strengthen their operations. Many of these innovations are going to become a permanent way of life for these industries. The SMEs, who are digitally transforming now, are the potential leaders of the future. Establishing a comprehensive digital ecosystem and providing the right support will help Indian SMEs become successful in their digital transformation journey.

Pingali is Professor of Practice, IIM Udaipur; Pedada and Arunachalam are Assistant Professors of Marketing, Indian School of Business

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