Timeline

• SMEs in the EU makeup 99.8% of all enterprises and 66.6% of all employment. SMEs in the EU are diverse and have adopted digital technologies at different times and stages. Based on their uptake of the Internet of Things, big data, and cybersecurity, SMEs in the EU are grouped into front runners, developers, appliers, followers, and non-innovators, which indicate to what extent companies are engaged in digital innovation.
• Concerning big data, 12% of the European SMEs were found to be using some type of big data source in 2018. However, the adoption rates of big data were slower than key digital technologies such as social media and eInvoicing.
• Regarding cybersecurity adoption, SMEs in Europe don’t normally have the time, resources, and energy to ensure that they are well protected from attack. This is despite half of cyber attacks currently targeting small businesses.

Financial Constraints

• According to the EU, more than 90% of European SMEs currently consider themselves behind others in digital innovation. This is because of various difficulties that these SMEs face in adopting digital technologies. One challenge faced by SMEs in their quest for digital transformation is financial constraints.
• SMEs have limited capital that places a constraint on their ability to invest in their digital transformation and use of new technology. According to Euractiv Network, only 17% of SMEs in the EU sell their goods or services online and just 25% pay to advertise their products or services online.

SMEs Spending on Digitization

• According to Mckinsey, many SMEs in the EU have small budgets to use for digitization technology and effort should be made to increase this to tap into the benefits of digital technology.
• In Germany, digitalization in SMEs is growing as 30% of the 3.76 million SMEs have invested in new or improved digital technologies for products, processes, or business operations. SMEs in the country spent €14.9 billion on digitalization projects in 2017, an increase of around €1 billion compared to 2016. In addition, the knowledge-based and other service providers sector had the highest aggregate digitalization expenditure totaling €6 billion.
• The amount spent on digitalization by SMEs in Germany heavily depends on the size of the company, with enterprises that have less than five employees spending €6,000 on digitalization on average in 2017. Enterprises with 50 and over employees spent about 24 times more than what small businesses spent at about €150,000.

Lack of Skills and Information on Digitization

• SMEs in the EU face the challenge of a lack of information on digitalization. This includes a lack of information on how to become digital and a lack of awareness about the potential gains from using digital tools and how to apply the tools to their operations.
• This lack of information leads to uncertainty on the net benefits of digitalization and slows the process of SMEs adopting digital technology to help improve their businesses.
• According to the EU, SMEs face a significant challenge of acquiring the necessary skills to benefit from digital technologies. Also, many people employed by SMEs lack the digital skills needed to operate state-of-the-art digital technologies, with 45% of SMEs in a survey saying this is true.
• The fact that managers and owners of SMEs lack skills and knowledge related to digitalization prevents them from recognizing the potential of digital technologies and discourages companies from investing in digital skills development.

The Challenge of Digital Insecurity

• Small businesses in the EU face the challenge of data insecurity in their effort to digitalize. Digitalization comes with information security and privacy risks that make SMEs hesitant to adopt new technology.
• According to the EU, 60% of SMEs in the EU that were victims of cyber attacks did not recover from it and shut down within six months. Many SMEs in the EU are, therefore, aware of the threat of having an online presence and the financial costs of cybercrime.
• In the Netherlands, two out of five SMEs suffered from digital fraud in 2017, with 57% experiencing financial damage.

•  Data insecurity has been mentioned as one of the main reasons why SMEs in the EU are reluctant to adopt digital technologies.

CASE STUDY 1:

Abram Pulman & Sons Ltd, UK

• Abram Pulman & Sons Ltd is a steel stockholding and specialist steel processor company in the UK.
• SMB Status: Abram Pulman & Sons Ltd is a mid-size business, which has only 64 employees.

• After suffering from flooding, the company invested in digital transformation from the funds received by government-backed digital enterprise programs by developing an intranet, customer centric app, and also adopted CRM software.

• Abram Pulman & Sons Ltd chose to digitalize in order to increase their sales capabilities and flexibility in taking orders.

Results of Action

• With the adoption of intranet, customer centric app and CRM software, the company experienced a 10% growth in capturing orders across all varieties of steel products.

• Abram Pulman & Sons Ltd is observing up to date good internal communication with the intranet among employees.
• The developed app is enabling customer accessibility with sales growth of 10% and also shown increased and efficiency in the company's whole sales process.

CASE STUDY 2:

CBo Territoria France

• CBo Territoria is a real estate company in France.
• SMB Status: CBo Territoria is a mid-size business, which has 75 employees only.

• CBo Territoria appealed Digital Council, a digital transformation consultancy for developing digital marketing platform by developing websites, CRM software, extranet, PIM, marketing automation, and business intelligence.

• In 2018, CBo Territoria collaborated with LegaLife to further digitalize its sales process.

• The company chose to digitalize in order to monitor its performance with respect to management tools, marketing and business operations. CBo Territoria wants to increase its sales leads by creating a digital marketing platform using innovative marketing strategies.

Results of Action

• After developing a digital marketing platform, CBo Territoria experienced a significant increase in the volume of sales leads (3000%) every month.
• The company also deployed eight realtime interconnected digital tools for better internal communication
• The company can now serve with three employees per customer. 

Relevant Insights

• A small and mid-size business has less than 250 employees.

Research Strategy

Timelines

• Small businesses (SMB or SMEs) are the driving force behind the European Union's growth. SMEs account for nearly 99% of the companies in the EU. In countries like Belgium and Turkey, SMEs are leading the way in employment and contributions to the country's economy.
• However, SMEs are less likely to use social media, mobile services, and Internet of Things than companies with >250 employees. SMEs are also slower to change their business ways which put them behind other companies in the U.S. and Asia.
• Only 17% of SMEs in Europe actually fully use the digital world which is having effects on the European economy.
• The European Commerce created an action and suggestion brochure looking to help SMEs digitize with possible programs and ways to assess their online performance.

Financial Challenges

• According to the European Commission one of the largest roadblocks to SMEs digitization is smaller budgets. SMEs lack of ability to invest in digitizing decreases the interest in trying to monetize online. Many SMEs don't know the pros of digitizing which acts as a constraint on funding online avenues.
• In 2017, SMEs spent almost €15 billion on digitizing which was €1 billion over the previous year. However, some studies have shown that spending on digitizing has slowed down. Companies with between 50-250 employees are spending 24x more on digitizing than companies with <50 employees. The lack of ability to pay for online analytics and digitizing is raising fears of a largening gap between small and large businesses.
• In comparison, SMEs spent over $200 billion on machinery and equipment instead of investing in IT employees and digitizing.
• As larger companies become more digitized, SMEs are facing financial issues in keeping up with shipping costs, training, hiring translators, and new practices to grow their businesses.

Digital Skills of Employees

• A major issue SMEs are facing in digitizing is the lack of digital skills of current and potential employees. Companies are facing the issue of not having digital experts on staff and the uncertainty of IT and the digital world.
• In the Netherlands, 7% of SMEs admit to having a digital expert on staff and only 17% of SMEs use online information. SMEs are also facing issues in protecting online data by not incorporating cybersecurity technologies (BIC) as there is expected to be fewer IT workers and e-workers by 2020.
• SMEs are also facing issues in drawing in IT professionals as they do not have as large as budgets or benefits as bigger companies. More than 90% of SMEs in Europe believe they are falling behind larger companies in the digital race. SMEs are facing difficulties in training their current employees not only with financial issues but also appropriate training for the company's needs.

Benefits of Adopting New Strategies

• SMEs must adopt new technologies and also strategies including the cloud and data analytics. Adopting these strategies allows companies to reach a wider audience and tailor their products to online shopping. A study has shown that over a 2-year period from 2015-2017 there was a growth in 4% of digitization in relation to communicating with consumers and using online payment methods.
• The adoption of these services is important for SMEs as the percentage of purchased goods online for larger companies is 2x more than SMEs. Incorporating these tools will help lessen the difficulties SMEs face in revenue growth.
• Small businesses in Eastern and Middle Europe are attempting to lessen the budget gap by using cloud services and sharing online data to help them compete in world economics.
• A case study is the socks company Spox Sox in Poland that saw quick growth by adopting digital strategies such as PayPal to boost sales. Today, Spox Sox's international sales make up half of its revenue.
• A 2018 study by the European Commission found smaller businesses (<250 employees) are actually more willing to adopt technologies than larger companies. This willingness has led to growth in marketing and maintaining quality goods and services.

Research Strategy