Why SMEs are slow to adopt tech

It might have been expected that with the Covid-19 pandemic, businesses – especially small and medium enterprises (SMEs) - should be first to adopt technology in order to keep running not only at a lower operating cost but also more efficiently.

However, as a report by the World Economic Forum (WEF) reveals, SMEs still have more hurdles and bottlenecks to overcome before they can realise the full potential of technology in their businesses.

Covid-19 disruption

In some cases, Covid-19 has disrupted some plans for SMEs, which could have included digitisation.

According to the report titled Covid-19 and technology adoption in small and medium-sized enterprises: The impact and the way forward, some of the companies surveyed reported that they had plans for digitisation but decided to suspend or postpone them due to the economic impact of the pandemic.

“Some respondents noted that, due to the crisis, their businesses have been facing the risk of bankruptcy. These companies are not in a position to make long-term development plans because most of their resources are being put into keeping the business afloat,” reads the report dated December 2021.

IoT (Internet of Things), big data, cloud computing, artificial intelligence (AI) and virtual and augmented reality are some of the digital technologies SMEs are interested in.

Others are enterprise resource planning (ERP), manufacturing execution systems (MES), digital twins and wearables.

“Meanwhile, a higher percentage of large companies compared to SMEs claimed to have accelerated their digitalisation process, pointing to the bigger challenges faced by SMEs in adopting digital technology,” the report adds.

Why tech is important

The report goes on to explain how important these technologies are especially to an SME.

For example, as the report details, IoT can be used in remote asset control and maintenance and supply-chain integration.

“During lockdowns, IoT can support the continuation of operations with fewer workers on-site,” explains the report.

Cloud computing, it adds, has helped companies continue with day-to-day operations and has facilitated workforce collaboration as it allows companies to expand and contract IT infrastructure in a cost-effective way.

AI has the ability to figure out new ways to communicate with customers, automate business processes or optimise production operations.

“For instance, survey respondents pointed out that AI use cases such as predictive maintenance have become particularly important for businesses to operate effectively in remote working environments,” it adds.

By collecting real-time data through IoT sensors and analysing historical data, AI can predict when and where equipment may malfunction and which parts need to be repaired before they break down. In turn, this reduces the cost of maintenance and downtime.

Digital solutions

“In general, SMEs’ interest in digital solutions is growing. Agility and flexibility in operations have emerged as top priorities above raising productivity and minimising costs, which used to be the primary objective for most businesses,” the report reads.

The report notes that the interest in adopting technology grew considerably in 2021. This, it explains, can be attributed to the move to work from home model by many employers and businesses in 2020 when Covid-19 struck.

It adds that technologies that enable remote work and collaboration topped the list of priorities for digital technology use cases.

“These technologies are crucial in supporting monitoring, data collection and collaboration among employees while working away from the office or factory,” it reads.

The report lists challenges mentioned by business owners why they cannot digitise their process with financial constraints and lack of skilled labour being the major ones.

Others are infrastructure barriers, availability of digital technology, inadequate support from executives, insufficient government support, absence of industry standards, cybersecurity concerns and administrative and organisational barriers.

The report carried out surveys and interviews with representatives from industrial SMEs, industry associations and policy makers among other stakeholders between February and August 2021.

Sectors polled

A total of 141 SMEs and 34 large enterprises in Azerbaijan, Brazil, Colombia, Kazakhstan, Turkey and South Africa were involved. Industries surveyed included trade, machinery, metallurgy, automotive, food processing, aerospace, textile, agriculture and chemical industries.

From all the listed challenges, the report identified five main areas; people and capabilities; business strategy, return on investment and access to capital, infrastructure and processes; technology readiness and ecosystem maturity.

Phrases like ‘we have leaders who don’t know technology’ or ‘you can’t find a specialist in the industry’ and ‘That does not exist’ are some of the responses from industry players when asked about the training of employees and managers in the industry or how the right talent can be attracted.

The report also reveals that since the return on investment from digitisation of the business sometimes cannot be quantified, it becomes a challenge to inject cash.

Lack of exposure

Lack of exposure also featured from an SME operator in Brazil.

“We started implementing something and then I travelled to Germany and oh… what we are doing is all wrong,” reads the quote from the operator.

The focus of most SMEs as the report reveals is on their product and they would rather hire third parties to support other operations since they have ‘no space or time to try to do different things’.

Due to lack of funds, however, digitisation becomes less and less of a priority.

“Uncertainty in the business environment has led SMEs to focus more on short term objectives and plans. Especially in times of crisis, SMEs focus on day-to-day operations and survival, stalling future investment plans – including digital modernization,” the report reads.

“The Covid-19 crisis has forced companies to divert funds to other areas such as health and safety, and employment protection.”

Skilled labour

On skilled labour, the report says this can be key for SMEs to actually quantify the return on investment.

“Having a qualified workforce that can be integrated into digitalised operations is critical in realizing the return on investment in the technology,” reads the report.

There is a gap in skills in big data analytics, robotics technicians and IT managers.

“In addition, interviewees pointed out that SMEs are facing tough competition from larger companies to attract workers from this already limited pool of talent,” the report adds.

Internet access and speed for SMEs based in rural areas is also a barrier.