– Stefano, Founder , Eggcelerate
Digital transformation is different for small and medium-sized companies. Or is it? In this article, we take a look at the current state of digital in SMEs and look ahead to see what is in store.
“Changes in business operations, and in the way customers are served, driven by digital technologies.”
That is a compact definition of digital transformation. And the digital technologies in question? They range from IoT (internet of things, or connected devices like smart sensors), to Robotic Process Automation and AI, to cloud computing.
SME rate of digitisation
Whether your business employs ten people or 10,000, the ingredients for digital transformation are the same. So how are small and medium-sized companies faring? Are they even interested in digitisation? Research1 says they are, and UK SMEs are doing better than many of their European counterparts, with high scores for adoption rates of cloud computing, Big Data and AI. To put this statement into perspective, 58% of companies have adopted cloud computing, but only 27% use some sort of AI-based technology.
Still, only 40% of SMEs report that digitisation is a top priority. An important fact, as the European SME survey 20191 shows a correlation between prioritising digitisation and investment. Those companies that say getting digital is a top priority invest more than companies that give digitisation a lower priority. The companies that prioritise digital also expected to export more than companies who see digitisation as less critical.
Naturally, as SMEs are a very heterogeneous group, there are differences in the area of digitisation as well. Some sectors are further along than others. Roughly speaking, finance & accounting firms, manufacturing companies, and the logistics sector are a step or two ahead of firms in the construction business and the legal profession2.
The big gain
So, what is it that drives digital transformation? What do SMEs stand to gain?
The short answer is a competitive edge, or even just remaining competitive (enough). Digital transformation is not an option; it is a must. The 24/7 economy demands fast service and quick supplies, and that goes for B2B markets just as much as for B2C. Digitisation enables companies to satisfy such demands.
The predictive capability of AI can reduce downtimes, for example – it will know in advance when machinery is likely to break down and can schedule preventive maintenance accordingly. Another example is increased productivity through the use of RPA or software robots. With RPA, a company can automate routine jobs like checking invoices relatively quickly and cheaply, freeing up human capital for other tasks.
The digital future
To look ahead, we also need to take a look at some constraints SMEs face with regards to digital transformation. The main issues UK firms face in this respect are around cybersecurity and the lack of skilled workers. In other countries around Europe, insufficient IT infrastructures also ranks high on the list of concerns.
Dealing with cybersecurity risks and especially ransomware attacks, is a significant worry for companies, as they are costly, difficult to prevent and have the potential to damage their reputation. Financial constraints are also a leading problem firms face when trying to skill up. Salaries for highly skilled IT talent have risen to a level that is prohibitive for many. At the same time, it is also hard for SMEs to attract and retain people, as candidates consider them as less attractive in terms of opportunities for growth.
According to Hays2, most employers say the lack of skills of existing staff prevents them from taking full advantage of the opportunities digital technologies provide. They are turning to solutions to train their employees and outsourcing work.
Nonetheless, digital transformation also provides plenty of opportunities. Look at fintech. Not what you were expecting, perhaps, but the rise of fintech has undoubtedly been advantageous for SMEs. Where SMEs have traditionally been caught in the middle between large corporations and consumers, as far as banking services were concerned, fintech is now providing smaller companies with choices that were not available before. A survey by EY3 shows that, in the UK, 18% of SMEs have adopted fintech services. These services include banking, payments and financing.
SMEs have taken essential steps, but they have some way to go as well. What lies ahead seemed brighter in January 2020 than it is now, just a few months later. Still valid for any company setting out on the digital transformation path, though, is that investing in people – skills, communication and culture – is crucial. Although the survey done by Hays found that many employees feel that ‘going digital’ is not a bad thing, the human factor does seem to be a stumbling block for many SME’s. One possible solution is for organisations to cooperate in creating training programmes and offer employees a challenging, cross-company career path.
1 KFW Going digital – the challenges facing European SMEs | European SME survey 2019
2 Hayes What workers want
3 EY Fintech is a world of choice for small and medium-sized enterprises
COULD COVID-19 BE THE CATALYST FOR DIGITAL TRANSFORMATION IN FINANCE?
By Simon Bull, Sales Operations & Business Development Manager at Aqilla
We are all now living in a new ‘normal’ where working from home is no longer a luxurious ‘perk’ of the job, but an essential. In the case of many organisations, the transition to flexible, remote working was successful, albeit slightly bumpy. But there is one department that has found it more challenging to transition to the required standards of remote working – the finance department.
The finance department often gets left behind when it comes to digital transformation largely because it is so heavily regulated. And because of this, one of the biggest problems the finance teams face is that it’s sensitive data will likely be stored on a hardware server on office premises. If you look at how organisations update their software as they grow, it’s usually the finance department lagging far behind, or sometimes forgotten about altogether. This is because finance has complex requirements that can lead to the attitude of: if it ain’t broke, why fix it?
Up until now, most finance teams have overcome the challenges this situation presents, but with the repercussions of the pandemic still very much in play, the complications that go hand-in-hand with on-premise technology have been more noticeable than usual. As a result, COVID-19 is becoming a catalyst for a digital transformation in finance, or more specifically moving finance and accounting software away from traditional on-premise solutions to built-for-cloud services. But what are the advantages of this approach, and what should finance teams be looking for in a built-for-cloud solution?
Cost: The Software-as-a-Service (SaaS) approach that is the basis of many of today’s cloud computing businesses generally offers customers a convenient monthly pay-as-you-go model. Given that all that users need to access the software is a desktop, laptop or smart device and internet connectivity, they can also save money on the server hardware that has previously sat in the corner of the office. Hint: compare pricing from several potential providers to make sure there are no unexpected extras before signing up.
- Service: Good cloud-based providers offer extremely strong levels of customer support and service. It should be very easy to get help quickly and conveniently, and they should be in a position to offer advice, identify problems and fix errors without undue delay. Hint: ask for references from existing customers or look for online reviews to assess their service and support capabilities. Also, carefully check their Service Level Agreement (SLA) to clearly understand where their commitments begin and end.
- Security: Established cloud providers offer high levels of security, data protection and backup services as part of their ‘as-a-Service’ package. Customers benefit from the protection afforded by security specialists whose job it is to prevent breaches and keep data completely secure. Hint: Check their security policies and consider talking to existing customers about their security track record.
- Compliance: Cloud providers specialising in the finance industry should have compliance at the heart of their product set. Hint: Check with potential providers about their levels of compliance and certification, particularly if you have specialised requirements.
- Ease of use: today’s built-for-cloud software services are built for purpose, with many offering a high degree of bespoke capabilities so every user can tailor it to their precise needs. This is in contrast to traditional software packages that can be far less flexible, forcing the user to work in a particular way that might not be ideal. Hint: ask potential providers for an online demonstration to check the way the services work meet your needs.
- Performance: In the early days of cloud computing, finance software was too basic for many professionals to consider. Today, there are many entry-level services, while others offer a comprehensive range of capabilities to precisely fit the needs of professional finance departments. Hint: evaluate the range of capabilities offered by a cloud provider, which should include areas such as: extensive analysis, proper periodic management and business calendars, multi-currency, multilingual and multi-company operation, full VAT handling International coding, tax and language flexibility, automatic reconciliation / bank integration, built-in key performance measurement, advanced search, selection and drill-down, document and image scanning. Hint: compare the features of different providers in advance – if anything important is missing, look elsewhere.
- Regular updates: Software developers find it much easier to update and improve their services when they are delivered online, and can more effectively keep up with finance best practice and changes to rules and regulations. Many also encourage users to suggest improvements or new features which are then provided to customers at no extra cost. Hint: ask providers about how often they update their software and whether you can suggest improvements.
For many businesses, these are compelling reasons to adopt cloud-based finance software services, even in normal circumstances. But considered in the context of the current remote working environment, built-for-cloud finance software can help departments to adapt and capitalise on working from home and match the levels of digital transformation seen across many other key business functions.
WE NEED FINTECHS NOW MORE THAN EVER
Lubaina Manji, Senior Programme Manager, Nesta Challenges
Whilst the sun is far from setting on the COVID-19 pandemic, predictions and hopes for a new “normal” are shimmering on the horizon.
Amid the trail of devastation left by the virus, there has to be some semblance of change and positivity to be taken. One such shift is the increase in digital services usage which poses a huge opportunity for our fintech community. Confinement has forced even the more sceptical of us to dabble in digital, and embrace how it has made many everyday tasks more easy and convenient.
Online and mobile banking has been helping many people stay on top of their finances for some time. Research conducted by Open Up 2020 Challenge last summer found half (48%) of people would like to use online tools and apps to help them manage their money.
Then along came a global pandemic that has undoubtedly forced the hands of even the more sceptical to log on, download and transact – quickening the pace of long-lasting change in terms of how we manage our money. Recent figures from deVere Group suggest the virus is behind a 72% rise in the use of fintech apps in Europe. Never before have we been so reliant on technology in maintaining some sort of normalcy and in helping us continue day-to-day tasks, like everyday banking.
Another unfortunate byproduct of protecting communities from the virus means many people have been left out of work and with less or no income. In times of financial strain, the need for people to engage with their finances – be it budgeting, saving or shopping around for better deals – is far greater.
Issues of trust in traditional banking services and a lack of awareness of the helpful money management services available are some of the barriers preventing people from taking more control of their finances. But the solutions made possible through open banking can provide people with a lifeline to build their financial resilience and better manage their money.
Open banking has the potential to revolutionise financial services, by giving people control over their financial data in order to access innovative products tailored to them. Since it launched in 2018, open banking technology has opened the door for new fintech innovators to create cutting-edge tools designed to help people better manage their money – from budgeting, debt management, comparing and switching banks to automating savings and more. These could have a significant impact – it is estimated that UK consumers could gain as much as £12bn over the course of a year from open banking-enabled tools.
So far, it’s been effective – the UK FinTech’s State of the Nation report totted up more than 1,600 fintech firms in the UK in 2019, whilst predicting this could more than double by 2030. Figures from the Open Banking Implementation Entity showed there were 243 regulated providers, 169 third party providers and 74 account providers as of April 2020. The UK adoption rate of fintech is 42% – higher than the global average of 33% – making it ripe for opportunity. Coupled with lockdown restrictions creating greater dependence on technology – including ATM cash withdrawals falling by half – fintechs are well placed to be part of the solution – and offer help to those struggling to manage.
With more than a fifth (21%) of the adult population saying financial stress is having a bigger impact on their mental wellbeing than physical health concerns during the crisis, and a quarter more stressed about money than usual, fintechs can be part of the support available to them.
However, in order to fully realise the opportunity we need to ensure budding entrepreneurs with bold ideas have the means to turn them into reality. Nesta Challenges exists to design and run challenge prizes that incentivise people to help solve pressing social problems that lack solutions. Through our Open Up 2020 Challenge we are supporting 15 fintech finalists to develop their solutions to enable more people – particularly those underserved by traditional financial products – to manage their finances better, whatever their circumstances.
Of the 15 finalists, some offer app designed to help people budget,, save, switch and invest – aided with alerts and notifications that allow people to stay on top of their finances and make their money work harder for them for the long term. For example, Cleo is an AI financial assistant that is already helping more than 3 million customers monitor their spending, budgeting and saving, while Moneyhub empowers people to do more with their money by offering actionable insights from a review of all of their accounts.
Some of the apps are designed for those with more specific circumstances, such as Mojo Mortgages, which analyses income and transaction data for first time buyers to produce mortgage affordability scores and savings recommendations if they aren’t quite ready to apply. Finalists Portify and Wagestream cater for workers with irregular earning patterns.
As well as monetary grants, Open Up 2020 Challenge provides these companies with non-financial support and promotion to help them on their way to achieving their full potential – which in turn helps them reach many people to help them achieve their monetary goals.
While COVID-19 has created personal finance headaches for many, it has been inspiring to see how quickly fintechs have been able to innovate and develop digital solutions that help solve these problems and equip people to better manage their money.
 Open Up 2020 Challenge
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