Small Business Digitalization

Part
01
of three
Part
01

Small Business Digitalization: Insights

Five insights into the state of digitalization for small businesses in the European Union (EU) include Small and medium-sized enterprises (SMEs) in the EU spending a very small amount of their budgets, with SMEs in Germany spending €14.9 billion, on digitalization in 2017. Also, 12% of EU SMEs were found to be using some type of big data source in 2018. Financial challenges, digital insecurity, and lack of knowledge and skills in the usefulness and adoption of digital technology are some challenges that SMEs in the EU face in their quest to adopt digital technology for use in their businesses. Detailed information on these insights is below.

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.
Part
02
of three
Part
02

Small Business Digitalization: Case Studies

Abram Pulman & Sons Ltd chose to digitalize in order to increase their sales capabilities and flexibility in taking orders. The company experienced a 10% growth in capturing orders across all varieties of steel products. Similarly, after developing a digital marketing platform, CBo Territoria experienced a significant increase in the volume of sales leads (3000%) every month.

CASE STUDY 1:

Abram Pulman & Sons Ltd, UK

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 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.

Results of Action

Relevant Insights

Research Strategy

Initially, to garner information on 2-3 case studies of SMBs that focus on digitalization in the UK, France, or Germany, the research team explored multiple digitalization case studies, articles from various digital transformation consultancy firms across the UK, France, or Germany, such as Tokema, Cassinni, Inology, among others. After exhaustive search, we could locate two case studies, such as Abram Pulman & Sons Ltd and CBo Territoria, which contain all the data points requested. SMB is defined as a company with less than 250 employees.

Part
03
of three
Part
03

Small Business Digitalization: Insights (100)

What follows are four insights into the current state of digitization for small businesses in the European Union including an overview, financial hurdles, employment challenges, and key digital techniques small businesses should be incorporating.

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

Our first strategy was an extensive search of small businesses in the European Union and what the current issues and benefits are for small businesses attempting to digitize. We found that reports such as the European Commission, the e-commerce website PayPal, and the economic research company KfW provided key figures and challenges small businesses are facing in digitizing. These reports have all been conducted in the last two years with projections for 2020 and beyond. We expanded our research to include other financial research companies such as PwC to aid in finding in-depth details on the benefits of digitizing and measures small businesses should be taking.

SMEs (small businesses) are used as the reference point for the data. The EU has two denotations for companies with less than 100 employees. They have a group for less than 10, 10-49, and 50-250. We were unable to find data specific to companies with only 100 employees because of the way the EU classifies the size of businesses. The data provided has been taken from the 50-250 small business group with additional annotations for any specific information to companies smaller than this. In searching for information for small business that have less than 100 employees, we used the following strategies.

In our first strategy, we focused our search for information on business information resources such as Business Insider and Chron Small Business. Our thinking behind this strategy was that we were going to find information on the state of digitization for small businesses that have less than 100 employees in the EU from industry experts. However, this strategy only provided us with general information on business in the EU, information that we could not use to address the research criteria.

In our second strategy, we focused our search for information on reputable news resources such as the BBC, Reuters, France 24, and Al Jazeera. Our thinking behind this strategy was that we were going to find news pieces on the state of digitization for small businesses with less than 100 employees in the EU. Although these resources contained a lot information on the small business sector in the EU, they did not provide any information that was relevant to the research question.

In our last strategy, we focused our search for information on press release resources such as the PR Newswire and Globenewswire. Press release resources are usually full of useful information on a variety of topics including small business and that is the reason why we decided to use this strategy. With this strategy, we were again only able to find general information on small businesses in the EU with research-relevant information remaining highly unavailable. Consequently, we focused research on the small business that have between 50-250 employees and our findings have been presented in detail above.
Sources
Sources

From Part 01
Quotes
  • "SMEs in the EU28 account for 99.8% of the total number of enterprises and 66.6% of total EU employment. The sector generated €4,030 billion of value added in 2016, which represents a share of 56.8% of total European "
Quotes
  • "Only 17% of them sell goods or services online and as little as 25% pay to advertise their products or services online. "
Quotes
  • "SMEs with completed digitalisation projects spent a total of EUR 14.9 billion on digitalisation projects in 2017."
Quotes
  • "Half of cyber attacks now target small businesses, which often don’t have the resources, time and energy to making airtight security. "
From Part 02
Quotes
  • "He added: “The funding and the investment that we were able to make as a result has been a real game changer for us and, combined with the hard work of our exceptional team, we have seen a 10 per cent boost in sales, and increased efficiency in our whole sales process, as a result.”"
  • "“Our new laptops enable the outside sales team to communicate directly with the office through our CRM software; the intranet has massively improved our internal communications and keeps all our employees up to date with relevant information; and the app makes us much more accessible to our customers.”"
Quotes
  • " The European Union (EU) offers clearer definitions, characterizing a small-sized enterprise as a company with fewer than 50 employees and a medium-sized enterprise as one with less than 250 employees. "
Quotes
  • "DIGITALL Council accompanied CBo Territoria as delegate marketing department in defining marketing strategy and steering the implementation of its digital marketing platform: Websites, PIM, CRM, Extranet, Marketing Automation, BI ..."
  • "8deployed digital tools interconnected in real time + 3000 % Leads generated per month 3 People recruited to the customer"
Quotes
  • "CBo Territoria digitizes the sales process of its business real estate developer with LegaLife technology "