Propelling Entrepreneurs and SMEs into the Digital World

SMEs are the growth engines of the nation.

The Small and Medium Enterprises (SME) landscape in Malaysia show that this segment is 98.5% of all business establishments, and in 2018, SMEs contributed RM521.7 billion of the nation’s gross domestic product (GDP), while providing 5.7 million jobs to 70% of Malaysia’s workforce. However, being less financially significant and visible compared to the multinationals, and perhaps less conspicuous than some start-ups and micro enterprises, SMEs are typically the least publicly profiled organizational sector. Yet with less legacy baggage than their multinational brethren, SMEs can be nimbler in pursuing transformational change.

Amid globalization and technological advances, SMEs must embrace digital technologies to enhance their competitiveness and flexibility, and to expand and create new sources of value. The benefits of investing in new technologies such as process automation, artificial intelligence or machine learning and robotics range from raising efficiencies, improving customer services, managing costs, getting ahead of the competition and building connectivity. Many case studies are well-documented, and success stories abound.

Read also: Budget2020: Over RM1 Billion Boost for SMEs and Entrepreneurs

Transformation is, however, an extensive and continuous undertaking. Effective digitalization requires SMEs to move from its traditional operating models and legacy architectures, and demands a longer-term view on resource investments. This calls for organizations to leverage new tools and applications, digital partners, digital talent and new ways of working, and ecosystem connectivity to deliver enhanced products and services, and pursue new markets and customers. With risks intensifying alongside digital adoption, they also need to consider new dimensions of security challenges such as cyber threats and vulnerabilities.

Embracing digital can be broadly categorised into computerisation and digitalisation.

Computerisation means adoption and usage of digital devices, however more towards individual usage or limited business usage. While digitalisation can be defined as business process transformation including customer management, transaction, services and feedback in a complete digital environment.

In the Digitalisation Survey of SMEs 2018, Information and Communications Technology (ICT) usage among SMEs predominantly comes from personal devices, such as smartphone (91.4%), basic internet connection (90.1%) and computer or laptop (86.5%). The usage of back-end business processes, such as Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) are very low among SMEs. It also found that SMEs that utilised data management services which help organise, store, display data of business operation, sales and customer information were able to increase their productivity up to 60.0%, as compared to SMEs that utilised e-business and social media initiatives leading to increase in productivity to only about 27.0% and 26.0%, respectively.

Steps to undertake in the digital transformation journey.

According to a new EY report, Redesigning For The Digital Economy, it highlights seven high-level steps that SMEs should undertake in their digital transformation journey:

• Lay a firm foundation for digital success: Transformation begins with having strong and committed executive level sponsorship with oversight of digital technologies and foresight to prioritise these to champion change.
• Balance legacies with new technology: 61.0% of Malaysia respondents (Southeast Asia 60.9%) highlight that IT limitations from legacy architectures are hindering their digital strategies. This is a pervasive issue, with organisations working on old fragmented infrastructures that constrain business agility.
• Focus on end-to-end, not discrete initiatives: Organisations should create and embed the digital strategy into business operations, then design the right products, services or experiences to enhance performance based on these aspirations.
• Share responsibilities collectively; digitalisation isn’t an IT-only initiative: Adopting emerging technologies should be cross-organisation such that no one individual or department owns it. The responsibility is shared across multiple divisions, with multiple users benefiting from the transformation.
• Manage the people dimension: Talent is an extremely crucial actor as transformation creates new roles while impacting existing positions. Besides sourcing for new staff, SMEs need to engage incumbent employees to minimise resistance and drive the behavioral changes needed to integrate digitalisation.
• Mitigate new dimensions of digital risks: SMEs should develop integrated risk management, compliance and security protocols as part of their initial design phase.
• Integrate into an ecosystem-based world; don’t create digital islands: Transformation is a massive undertaking with limited success, if undertaken in silos. With the customer typically driving the need for digital transformation, partnerships would be essential to raise competencies that support more holistic customer experiences.

Majority of Malaysia’s SMEs in early stages of digital maturity. While the benefits of digitalisation are apparent, the digital ambitions of the SME respondents of the EY survey may not sync up with their perceived level of digital maturity. Only 6.8% of Malaysia’s SMEs (Southeast Asia 8.7%) are at stage five of digital maturity, where organisations have a single digital platform to scale technological innovations and consider themselves digital native enterprises. The majority of SMEs in Malaysia (62.7%) are in the early stages of digital maturity (Southeast Asia 54.9%), with digitalisation programmes remaining largely unaligned with the broader enterprise strategy and multiple initiatives running in parallel across business functions.

Over half of the SMEs in Malaysia are at stage two (Malaysia 52.5%, Southeast Asia 38.3%) of digital maturity, where digital transformation initiatives have some alignment to the organisation’s enterprise strategy and are initiated at the functional or lines of business level, with multiple strategies running in parallel; while less than a fifth (Malaysia 10.2%, Southeast Asia 16.6%) of the respondents are still at stage one, or the initial phases of digital transformation, where initiatives are largely informal, tactical and separate from the organisation’s broader enterprise strategy.

In the Economist Intelligence Unit’s Asian Digital Transformation 2018 Index, Malaysia ranks sixth overall of the 11 Asian markets but behind the average score. The primary reason is Malaysia’s lag in the ‘industry connectivity’ category – meaning the tendency of companies to collaborate with other organizations and communities to advance digital transformation.

In an effort to accelerate digitalisation, the Malaysia Digital Economy Corporation (MDEC) launched its Digital Transformation Acceleration Programme (DTAP), aimed at offering Malaysian companies a structured approach to transformation, leveraging the expertise of its Digital Transformation Labs’ and grants in the adoption of emerging digital technologies. Other Digital Economy Initiatives by MDEC for entreprenuers include:

• Malaysia Tech Entepreneur Programme (MTEP)
• Malaysia Innovation Policy Council
• Malaysia Digital Hub
• Global Acceleration and Innovation Network (GAIN)
• Digital Creative Content
• Islamic Digital Economy (IDE)
• Global Tech Fund
• Big Data & AI
• FinTech
• eCommerce

A study by enterprise technology provider Workday has found that Malaysian companies are leading the Asia Pacific in quantifying the return from their digital transformation initiatives. 58% of C-level executives in Malaysia responded to Workday’s “Digital Dysfunction in Asia Pacific” study saying that their digital transformation initiatives are seeing measurable returns. By comparison, only 47% of companies in Singapore and 34% in Japan are seeing returns.

According to the APAC SMB Digital Maturity Index released by Cisco recently, around 46% of Malaysian Small and Medium Businesses (SMBs) are aware of government programmes that could support them in digital transformation but have not taken the initiative to take part in them, whereas 49% are aware and have benefitted from them.

SMEs in ASEAN, including Malaysia (but with the exception of Singapore), are in the ‘Digital Indifferent’ stage of digital maturity; where companies’ digital efforts are often reactive to market changes, rather than driven by a proactive tactical approach. However, it also notes that Malaysian SMEs are very close to reaching the next level of digital maturity, ‘Digital Observer’ that will place them in the same league as developed countries across the Asia Pacific.

SME Corp targets the digitalisation of all SMEs by 2024.

SME Corporation Malaysia (SME Corp) expects all SMEs in the country to embrace digitalisation in their business operations within five years compared with the current 32%.

"We have met with 10 service providers who can assist the SMEs in digitalisation. In this digital era, we want the sector to embark on using digital technologies, at least a cloud-based service or point-of-sale system, which would enable them to store customer data and do analyses,” he said during a media briefing on the Entrepreneurship and SME Week 2019. - SME Corp Chief Executive Efficer Noor Azmi Mat Said.