Small business study details necessity and challenges of digital transformation

Months into the coronavirus pandemic, COVID-19 continues to take its toll on economies and communities worldwide. This year, more than 25% of small businesses reported closing between the months of January and May, according to a survey conducted by the World Bank, Facebook, and the Organisation for Economic Co-operation and Development. To adapt to this new normal of day-to-day operations, many businesses have implemented a suite of digital transformation technologies. However, digital maturity varies among small business markets in the US and abroad. A new study details how increased digital maturity may help companies and economies thrive in the months ahead.

On Wednesday, Cisco released its 2020 Small Business Digital Maturity Study. Conducted by IDC, the study analyzed small businesses from eight countries. The findings illustrate small business digital transformation efforts worldwide and details how the implementation of these technologies could aid economic recovery amid the coronavirus pandemic and beyond.

“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,” said Daniel-Zoe Jimenez, AVP, head digital transformation & SMB research at IDC, in a press release.

“Small businesses are realizing that digitalization is no longer an option, but a matter of survival,” Jimenez said. “While the research shows many small businesses are making progress, they should increase focus on digitalizing processes and operations through the use of digital technologies to ensure business continuity and future resiliency.”

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Overall, the study takes into account more than 2,000 small businesses from eight global markets including the United States, Canada, Germany, Mexico, United Kingdom, Brazil, Chile, and France. By increasing digitalization efforts, these eight global markets could experience a 42% faster rate of growth and increase their economies by 5.5%, per the study.

One-in-six (16%) of respondents said their company was “thriving and feel their businesses are agile and resilient.” However, more than one-third (36%) said they were in “survival mode” and half said they were “focused on growing or rebuilding their business.” The study found that nearly three-quarters (70%) of respondent small businesses are accelerating digital transformation efforts due to coronavirus pandemic. Businesses with advanced digital maturity “can respond faster to changing market conditions and grow their revenue,” per the report.

The study uses a digital maturity framework to understand and categorize small business digitalization efforts. This index places small businesses in one of four sections ranging from the least digitally mature, or Digital Indifferent, to Digital Natives; a grouping reserved for digitally advanced businesses. One-in-four (25%) small businesses were determined to be in the advanced stage of digital maturity, while 4% of respondents placed in the first stage of the index.

Overall, North American small businesses tended to be more digitally advanced compared to Latin American companies. Small businesses located in Germany, the UK, and the US “have made the most progress in their digitalization journeys,” per the report, with France and Canada following behind. These five countries were plotted in the second stage of digital maturity reserved for DIgital Observers, while small businesses in Mexico, Brazil, and Chile were plotted in the Digital Indifferent initial stage of the index.

Of surveyed Digital Natives, 46% reported that their businesses were either thriving, rebuilding, or transforming. Whereas, only 37% of the non-Digital Natives reported the same sentiment. One-in-20 (5%) of digital natives reported that their business had been severely impacted by the pandemic and “may have to shut down,” while 7% of non-digital natives reported the same sentiment.

Companies further along with their digital transformation efforts may be better positioned in the new normal of business operations. “Businesses that are in the more mature stage 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,” per the report.

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Interestingly, the study determined that if half of the surveyed small businesses were able to progress to the Digital Challenger level of maturity (third stage) by 2024, these companies could add an additional $2.3 trillion to the global gross domestic product (GDP).

The study also details a number of challenges associated with digital transformation. The three most commonly reported factors were digital skills and talent shortage as well as insufficient budgets and previous budgetary commitments. “Cultural resistance to change” was also listed as a top limiting factor.

Respondents felt that digital technologies will play an increasingly fundamental part of their operations moving forward. By 2021, about half (45%) of respondents expected more than 30% of their business to be digital. More than one-third (36%) of businesses surveyed are investing in solutions to enable remote work, and 33% “will invest in digital technologies to improve online sales.” Additionally, 32% of respondents are investing in “talent and the right skills” and another 32% plan on developing digital business strategy.

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