Why it’s crucial for companies to embrace digital transformation now

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When Singapore unveiled its 2019 Budget in February, it came as no surprise that there was strong focus on helping companies, particularly small and medium-sized enterprises (SMEs), to flourish in a robust digital economy.

After all, the city-state is eager to maintain its lead after being ranked No.1 on the Asian Digital Transformation Index by the Economist Intelligence Unit (EIU) for the second straight year in 2018.

This year, the Government has devoted about S$1 billion to various initiatives to support businesses in areas such as digitalising their processes, innovation, regionalisation and upskilling their current workforce.

It’s the best time now for companies to not only jumpstart their digital transformation, but to go deep. With virtually everyone getting on the band wagon, it’s crucial for businesses to get ahead by integrating digitalisation into their DNA.

The digital trend is here to stay

It is increasingly clear that digitalisation permeates virtually every aspect of our economy and lives. Indeed, experts such as SAP, which conducted a digital transformation study of over 3,000 executives from 17 countries in 2017, say these few years represent “a key inflection point, which will separate the digital winners from those left behind”.

That’s why governments across the world are rushing to boost their digital economies – digitalisation is not just a key driver for a country’s economic growth but its overall advancement.

For companies, digital transformation is the key to survival: they need to become more competitive, efficient, and relevant than their competitors. Digital transformation is no longer a choice, but a necessity. In fact, it has become “an essential driver of revenue, profit and growth”, according to the 2017 SAP study¹.

Across the world, companies that have successfully transformed their business models with digitalisation are reaping major benefits, according to a 2017 study of almost 2,000 companies across over 400 countries by Simon-Kucher & Partners, a global pricing strategy consultancy. In this study, the so-called “digitalisation heroes” enjoyed 28 per cent higher pricing power than their peers, and outpaced the market by 37 per cent in pre-tax earnings margins.

In Singapore, SMEs that are actively implementing digital initiatives expect their investments to deliver an average of 26 per cent in revenue gains and achieve an average of 22 per cent in cost savings, a 2018 joint study by the Association of Small & Medium Enterprises (ASME) and Microsoft Singapore showed.

And it is not just the big companies who benefit from digitalisation – the smallest firms with one to four employees, as well as new SMEs that have operated for less than five years, actually predicted even higher revenue gains of around 30 per cent, according to the same survey by ASME.

Disturbing disconnect

Nonetheless, Singapore’s SMEs have lagged behind their larger corporate peers in going digital. So far, about 4,000 SMEs have adopted the SME Go Digital Programme, which was introduced in Budget 2017. That is still a small proportion of the roughly 200,000 SMEs in Singapore.

There is a disturbing disconnect between SMEs’ awareness and uptake of government support for digitalisation, a survey by QBE Insurance in 2019 showed.

Although 65 per cent of SMEs stated that they are aware of the government initiatives to help them digitalise, only 30 per cent took advantage of these schemes.

As the backbone of Singapore’s economy contributing roughly half of its GDP, SMEs will be an increasingly important driver of future growth as well as a vital source of rejuvenation for the corporate ecosystem.

More support, less barriers

The good news is that it has never been easier for local SMEs to digitalise.

The Government has lowered the high costs of investing in digital infrastructure through efforts such as the Smart Nation initiative that makes access to digital technologies easier and cheaper, as well as training programmes that help workers upskill.

This leaves SMEs with little excuse not to start digitalising. What is imperative is that they do so not just in their day-to-day operations, but also in their corporate mindset, culture and talent development.

Studies have shown that culture is key to digital transformation success. A 2018 study by Singapore Management University and other partners found that 80 per cent of the corporate leaders surveyed highlighted the importance of focusing on the “people aspects” of digitalisation. Creating small, open, flexible, and agile teams that are highly empowered to drive digitalisation is the preferred tactic for implementation, the study recommended.

With digitalisation now widely recognised as the “new normal”, SMEs need to take action today to ensure they not only survive, but thrive in the new digital era.

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