Creating Knowledge Ecosystem for Digital Transformation of SMEs

Small and Medium Enterprises (SMEs) are critical to growth and employment generation in India and other emerging economies worldwide. For example, in India, SMEs account for approximately 30 per cent of GDP, 48 per cent of exports and employ over 120 million people. SMEs have, therefore, been the focus of many recent government initiatives and policies. However, the current pandemic has diverted the focus away from growth and innovation to survival. Many SMEs are currently dealing with fundamental issues such as managing cash flows and servicing debt. 

Nationwide research of SMEs conducted by the author has shown that many SMEs have demonstrated resilience during the pandemic and have adapted their business models by incorporating digital strategies across both the manufacturing and sales and marketing side of their business. Our study uncovered that many SMEs are eager to embrace digital technologies and are attempting to acquire knowledge about technologies, industry best practices, and success stories of other SMEs who have undergone digital transformation. SMEs need help across all phases of digital strategies - awareness, planning, and implementation. However, our study established that rapid dissemination of reliable knowledge would hasten the adoption of digital strategies.

SME owners were found to be aware of digital as their personal lives have been transformed. The examples from their personal lives cited in the study ranged from the use of mobile banking to WhatsApp as a communication tool. However, when it came to managing their business, SME owners were found to be less confident about digital. Given the rapidly evolving and complex digital landscape, SME owners are unable to keep pace with the changes and find it challenging to access reliable sources of knowledge about digital strategies and technologies.

SMEs gather information on digital and technologies from multiple sources. Some of these are proactive, like self-research, while others are reactive, where suppliers and vendors provide them with details about the latest technology and equipment. Other sources of information include exhibitions and conferences that are now all online. SMEs also actively use their industry associations to network and address industry issues like tax and subsidies. These associations also organise seminars and webinars on digital technologies, equipment, and other relevant topics. Information received through industry bodies is considered reliable and has the advantage of being scrutinised by several peer companies. Industry bodies also help in collective negotiation with equipment and software vendors.  

To a lesser extent, investors, joint-venture partners, and customers are sources of digital information. We found that SMEs dealing with international partners receive extensive product and service benchmarks. These global partners expect their SME vendors to have essential digital technologies in their manufacturing, quality control, and supply-chain processes. The partners provide specific recommendations of the type of technologies and preferred vendors for these technologies. 

Going forward, to create and spread digital awareness among SMEs, there is an urgent need to build a reliable and sustainable knowledge ecosystem. Several suggestions and ideas emerged from our interviews.

Direct intervention by governmental agencies and industry associations is critical for digital adoption, especially among SMEs. Trade and ICT policies go a long way to encourage digital adoption. 

Platform companies play a critical role in creating awareness. Platforms such as Alibaba have played a significant role in the digital transformation of SMEs in China. In India, in the business-to-consumer space, industry-specific platforms, including c and delivery platforms, have made efforts to provide digital solutions to SME businesses. Similarly, platforms such as Facebook and technology product companies such as Microsoft and SAP have announced SME focussed initiatives. There is a need for more platforms to launch similar initiatives, especially in the B2B space.

Academic institutions can play a vital role in digital adoption. Currently, there is a perception among SMEs that these institutions focus mainly on large corporates and start-up organisations and ignore SMEs. At the same time, SMEs felt that academic institutions could play multiple roles in their digital adoption.

SME Centres of Excellence: Unlike vendors and third-party consultants, academic institutions are perceived as neutral and reliable sources of information. These institutions are also at the forefront of digital knowledge. SME owners felt that such centres could impart knowledge through workshops and seminars. These activities could be conducted in conjunction with local business associations or as stand-alone programs. IIM Udaipur and IIM Sambalpur are examples of two institutes that have launched SME-focused centres.

Hiring and Placements: SME owners felt that academic institutions were not doing enough to promote them as potential employers. They also admitted that SMEs need to build the right culture and policies to attract young talent. Our research has shown that a new and educated workforce is key to digital adoption. If this gap between institutions and SMEs can be bridged, it would not only increase placement options for the institutions but also provide SMEs with a digitally savvy workforce. SMEs also stated that they are open to providing shorter-term assignments like internships and projects to students to develop and implement digital strategies. They felt that these assignments would be more hands-on compared to similar assignments in large corporations.

Certification and Training of Digital Consultants: Our study revealed an inconsistency of knowledge and capabilities among digital consultants leading to dissatisfaction and failures in digital adoption. Academic institutions could play a critical role in training and certifying consultants. Academic intuitions could create guidelines for such a certification program and roll out these programs across the country. This would make it easier for SMEs to engage consultants with the right knowledge and skills.

In conclusion, creating digital awareness among SMEs is the first and necessary step for digital adoption. Only an ecosystem of partners will be able to accomplish this objective in a vast and diverse country like India, and academic institutions need to play a central role in this process.

The author is a Professor of Practice at IIM Udaipur

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