Digital growth strategies for SMEs
A major attack on traditional business models
The business world is experiencing a major attack on traditional business models due to radical technological innovation.
Some large corporations may succeed in averting the attack by rapid implementation of new technology in key sections of their “DNA-strings” but a considerable proportion of them will succumb. New technologies are already the main building blocks of the DNA of startups as well as that of Unicorns like Uber and Airbnb. But what about incumbent SMEs?
How can they survive the attack and use technology for rapid growth?
SMEs without a clear goal.
The challenge for many SMEs is that they have no clear goal with the company and with the exponential development of new digital technologies it is especially difficult for SMEs with their limited resources to determine where to start.
Developments in digital technologies such as the Internet, Social Media, Internet of Things, Artificial Intelligence, robotics and 3D-printing offer companies unlimited possibilities:
• Unlimited reach in time and space using mobile devices like tablets or smartphones. Full coverage of and contact with the entire value chain from raw material supplier to the consumer and all other stakeholders using Social Media such as LinkedIn, Facebook, Twitter etc..
• Unlimited amounts of data using Internet of Things, which can create added value by use of Algorithms and Artificial Intelligence.
• Marginal costs go towards 0 for digital products in video, image, audio and text as for example in entertainment and instructional films, web conferencing and podcasts as well as news feeds and documents. But also, partly for physical products that can be produced by robots 24/7/52.
• Batch sizes go towards 1 for physical products using 3D-Print where no there is need to invest in production molds.
So how should SMEs choose ..?
A clear business focus eases digitalization
The Boston Consulting Group, together with the Massachusetts Institute of Technology studied how more than 40 successful enterprises in various industries, size and age have been digitized (1)
How do they use digital technologies?
BCG / MIT found that they use digital technologies in 2 ways. They build-in digital technologies into their products and services and they interact with customers, employees, business partners, suppliers, investors and regulators through digital channels.
How do digital technologies transform companies?
BCG / MIT also found that the companies developed and changed their businesses within 5 dimensions: customer experience, product and service offerings, corporate “ecosystems”, corporate management and control systems and business processes.
What digital strategies work best?
BCG / MIT found [not surprising] that the best digital strategies were those that had a clear goal and at the same time were flexible in relation to the changing conditions and opportunities.
A characteristic of the companies is also that since the beginning of the 00s they have reorganized their organizations focusing on global segments supported by shared finance, human resources, customer service and logistics functions. Companies have developed and optimized their management systems, streamlined their core business, outsourced non-core business and made significant investments in IT technology to support the business.
BCG / MIT found that this internal restructuring and streamlining formed a stable platform for the further digitization, whereas the businesses which had not participated in this first transformation wave, face an urgent need for substantial changes in their management systems, organizational structures and IT systems before they can effectively utilize the new digital opportunities.
Focus on vision and direction
In conclusion BCG / MIT found that successful digital businesses are more focused on vision and direction than traditional companies, where there is more focus on goals and action plans.
A Massive Transformative Purpose
In the book “Exponential Organizations”(2) by Salim Ismail et al. they go a big step further when they find that successful digital businesses are characterized by having a purpose – a massive transformative purpose (MTP) as their guiding star.
Based on extensive literature review, interviews with more than 100 senior executives, entrepreneurs and visionary thinkers, and an analysis of what has driven 100 fast-growing and successful start-up companies, Salim and others find that the fastest (exponentially) growing corporations (EXO’s) each have their own MTP. An MTP describes, in contrast to a vision, not a state that can be reached, but a constant striving to improve a certain attribute. Think for example:
• Google: “Organize the world’s information”
• Tesla: “Accelerate the transition to sustainable transportation”
• Zappos (online shoe store) “Delivering Happiness”
Salim and others also found that ExO’s use some of 10 tools that can be grouped as either internally (Left Brain) or externally(Right Brain) oriented:
Source: “Exponential Organizations” Salim Ismail et. Al.
Exponential organizations using the above tools each achieved at least a 10 times improvement in key ratios such as sales per employee, production cost or rate per unit or earnings per employee.
Salim Ismail found, however, that ExO’er besides having an MTP only needed to use 3 to 4 of the 10 digital tools in IDEAS and SCALE. Which tools they use depended of course of their MTP.
Find your ExO-status
If you want to find out how well your company already performs working with ExO-tools you may want to take a this free and confidential ExO-test:
To chart the course and choose which digital technologies to use owners and managers must have a defined purpose with the company. Here it is important to think big and to think from the outside in. (MTP)
If you think small there are only few advantages in a digital strategy. Digital organizations and technologies are fundamentally exponentially scalable, and if you do succeed in thinking small, your business will soon be greater than your business model, reaching and passing your goal and you may lose your sense of direction.
If you think big and focus on what your business can achieve for your customers, stakeholders and / or society, then you will be able to create and engage a network of specialists and organizations where you can share knowledge and ideas – perhaps even mobilize the crowd for your case.
However, digitization and the threat of disruption does not wait while you formulate your MTP
As the owner and / or manager of an established SME you need to plot the course and steer your business at the same time. In contrast to start-up companies your business may have large fixed costs that must be covered by your existing business, and in contrast to large corporations you may not have a staff of analysts who can examine and evaluate the many new digital opportunities.
But less than a fully developed MTP may also suffice. Define as a minimum your long-term goals of your company and select 1 or 2 of ExO-tools, which you expect may help your company quickly to realize these goals. Digitization can then be launched and tested in small trials with important and loyal existing customers, which in this way can provide useful input to their value creation potential.
Claus Amann and Peter Sørensen aim to help SMEs in Denmark and globally to grow rapidly, avoid disruption and benefit society.
(1) “Designing Digital Organizations”, The Boston Consulting Group/MIT. Stuart Scantlebury, Jeanne Ross and Wolfgang Bauriedel, dec. 2016.
(2)“Exponential Organizations”, Salim Ismail, Michael S. Malone og Uri Van Geest, a Singularity University book, 2014