Two Reasons Why Small Businesses Need To Go Digital and How To Do It
Digital transformation (DX), the transformation of existing business processes and infrastructure with digital technologies, has seen a dramatic acceleration in growth since COVID-19. The importance of DX has been emphasized for many years, and there has been a growing awareness that adopting digital technologies is essential to move forward. On the other hand, despite this awareness, the actual implementation and utilization of DX have not been very widespread. However, the market landscape has undergone significant changes due to the spread of COVID-19. This has led to a rapid acceleration in the onset of digital transformation. As a result, not only large corporations and public institutions but also small and medium-sized enterprises are undergoing digital transformation at a rapid pace.
Global consulting firm McKinsey predicts that the pandemic has accelerated the pace of digital transformation adoption by a factor of 20 to 25 and will continue to do so. The adoption of digital transformation reduces scale limitations, enhances productivity, and increases accessibility to new markets. Hence, there is a growing demand for digital transformation among various businesses. What exactly is the necessity for digital transformation that is being adopted in every field including businesses and countries? Next, let’s look at the need for digital transformation in terms of economic value and SMEs.
Digital transformation refers to establishing the processes and infrastructure of existing businesses through digital technology. Digital transformation can lead to significant economic benefits by optimizing the workforce and saving time, allowing for increased efficiency and productivity. Indeed, global consulting firm AlphaBeta estimated that Korea could generate an economic value of $236 billion by utilizing digital transformation by the year 2030. The National Assembly Futures Institute also projected that with advancements in government investments in DX, the output effect could increase by a staggering 23. 64 trillion Korean Won.
The necessity of digital transformation has been emphasized for several years now. Many corporate training companies introduce digital transformation methods tailored to the specific characteristics of each company and provide relevant technologies. However, many people still believe that DX is only necessary for large corporations or manufacturing companies. Digital transformation is one of the essential requirements that every company, regardless of its scale or industry, must prepare for survival in the modern era. By introducing appropriate digital technologies throughout the operation process, companies can improve their products, business models, and services themselves. Companies can enhance their products, business models, and services by integrating suitable digital technologies across their operational processes. Simultaneously, aligning their corporate culture with societal trends enables them to become more competitive in the market.
With the increasing emphasis on digital transformation, the market size for small and medium-sized enterprises (SMEs) in digital transformation has grown by nearly three times compared to 2021. Furthermore, it is projected to reach a size of over $480. 3 billion by 2026. A digital expert stated, “Now is the transitional period into the data economy paradigm,” emphasizing the growing necessity of digital transformation as a new momentum for small and medium-sized enterprises, forming the foundation of the economy.
The results of a survey conducted by the Science and Technology Information and Communication (ASTI) on small and medium-sized enterprises showed that the importance of digital transformation was widely recognized among SMEs, regardless of their industries. Additionally, there was a high level of interest in related programs.
In particular, in the survey regarding the necessity, 37. 7% responded with “very high,” and 44. 1% responded with “somewhat high.” Interest in related research and development (R&D) innovation programs was also high at 81. 9%. This means that about 80% or more of SMEs are aware of the need for SME digital transformation and are considering specific methods.
Many small and medium-sized enterprises show a high level of knowledge and understanding regarding digital transformation. However, it has been revealed that their practical digital capabilities in actual operations are lacking. In a survey asking about their actual digital capabilities and infrastructure, 66% responded that they have the understanding and knowledge, while only 49. 7% indicated having the necessary equipment and infrastructure for implementation. According to the “2022 Small and Medium-sized Enterprise Digital Maturity Survey” conducted by the Korea Federation of Small and Medium Business (KBIZ), the digital maturity of domestic small and medium-sized enterprises was rated at 40. 7 out of 100, indicating a relatively low score. A survey by the Korea Industrial Technology Association (KOITA) also found that while 29. 9% of SMEs were promoting digital transformation, only 9. 6% were actually utilizing it, and only 26. 9% of SMEs have a dedicated digital organization or workforce.
Experts evaluate that the digital capabilities of small and medium-sized enterprises are still inadequate considering the current situation. Going forward, digital transformation is a must for SMEs to grow, but there are many challenges for companies to do it on their own. DX implementation involves costs, making it a challenge for relatively small and underfunded SMEs, leading them to consider the adoption carefully. Moreover, many SMEs find it challenging to allocate funds and resources for enhancing their digital capabilities, as they believe that the tangible benefits might not appear immediately. Due to vulnerable financial situations and a lack of talent to drive internal DX initiatives, SMEs face difficulties in advancing their digital transformation efforts.
The shortage of developers, often referred to as the developer shortage, is a global phenomenon impacting the tech industry. Due to this shortage of developers, coding boot camps have gained significant popularity, and many companies are implementing pre-training and post-hiring programs through in-house boot camps to address the skill gap. Many companies are offering high salaries and stock options to attract and prioritize hiring developers. The developer shortage phenomenon is deepening and widening the gap between companies of different sizes and industries. According to the U. S. Department of Labor, the global shortage of software development talent is expected to more than double from 40 million people at the end of 2020 to 85. 2 million people by 2030. With the acceleration of the Fourth Industrial Revolution, the shortage of IT professionals is becoming more severe. Therefore, companies are increasingly focusing on internal digital transformation, aiming to develop all employees into digitally competent staff.
Another reason for DX is that digital transformation can help companies maximize production efficiency. For food companies in particular, quality control has become crucial as consumers are increasingly concerned about food safety. Implementing DX technologies such as Big Data, IoT, and Machine Learning to establish smart factories can reduce production costs and enhance quality control systematically. A food company in Hong Kong implemented DX technology to build a smart production line, and as a result, food production increased by two to three times. Moreover, having real-time access to production data enables faster identification of defective products, leading to an approximately 30% reduction in production costs. By implementing DX technologies to automate the production process, efficiency is enhanced, enabling businesses to gain a competitive edge within the industry.
Many SMEs know they need to adopt DX but haven’t yet taken the plunge. Here are two digital transformation initiatives they can implement and obtain assistance for.
Small and medium-sized enterprises (SMEs) account for 99. 9% of all businesses in Korea employ 83. 1% of all workers, making it impossible for even huge corporations to operate without them. In response, the government is implementing various digital transformation strategy support business policies and establishing new projects that can help SMEs adopt DX.
In 2023, the Ministry of SMEs and Startups announced that it would promote the “Smart Manufacturing Innovation Digital Transformation Support Project for SMEs.” This endeavor represents a government-backed program for fostering digital transformation strategies, designed to empower small and medium-sized enterprises to boost their competitiveness through accelerated manufacturing innovation and the establishment of smart factories. The program encompasses various forms of support, including robotics, leveraging manufacturing data, and consulting.
This project is also a continuation of the “Digital Transformation Support Project for Imagined Smart Factories in Public Places,” which operated until 2022. Previously, the government helped large and small businesses collaborate to develop smart factories, and from 2018 to 2020, the government gave KRW 116 billion to a total of 2,620 SMEs to help them build smart factories. As the importance of digital transformation of SMEs has been further emphasized, the scale of support has been expanded in 2023 compared to the previous project. The bigger “2023 Digital Transformation Support Project” is intended to provide several opportunities for SMEs.
Recently, private companies have also implemented projects to support the digital transformation strategies of small and medium-sized businesses. Hana Financial Group launched the “Hana Power-on Store,” a project designed to help small businesses with their digital transformation goals. It announced that it would choose 180 commercial locations across the country to enable the installation of bespoke digital solutions from SK Shieldus, such as unmanned payment machines and artificial intelligence CCTV. It also stated that it would provide internet marketing capacity-building training to 100 small firms around the country. It will cover everything from assessing digital marketing channels to practicing blogging, Instagram, and YouTube, as well as online viral methods. These support projects are the first steps to introducing DX.
Digital Transformation Strategy for Small and Medium-sized Enterprises (SMEs) through DX Education Specialist Platform
It is important to take the first step of DX with various support projects, but systematic employee education is necessary to establish and achieve a fundamental digital transformation strategy. Existing SME DX has constraints such as a lack of awareness of the need for DX among internal personnel, a lack of experience in DX, and the fact that it is only performed once. To overcome these DX restrictions, it is vital to carefully identify the company’s difficulties while developing a digital transformation strategy, as well as to provide digital education for problem resolution and repeated practice:
· Active participation of all employees is key.
· Practical DX specialized training tailored to company conditions is necessary
Elice is a digital education specialist platform that maximizes digital skills through simultaneous online education and assignment practices. It offers extremely dependable corporate education services that have been chosen by over 300,000 Korean employees. Along with this, it gives a coding test that can regularly evaluate employees’ digital competency knowledge, playing a significant part in designing and achieving digital transformation goals for diverse firms such as large and small businesses. If you’re a small or medium-sized business looking to build your first digital transformation strategy, we recommend checking out Elice’s DX training.
So far, we have examined the reasons for and methods of digital transformation for small and medium-sized enterprises. If your company requires a DX training course like this, look no further than Elice!
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