The Overlooked Middle In Digital Transformation: Small To Medium Business
If you contract with a local plumbing company to do work in your house, you may notice they are working with a mix of both automated and manual processes to deliver their services. You may receive email notices with the plumber’s time of arrival, and they may carry a tablet on which they read or enter the specs for parts or work that is completed. At the same time, behind the scenes, they may still be relying on an on-site Windows server to accomplish their administrative work. If you have any follow-up issues, you will likely be on the phone with someone searching through files.
Companies such as this form a vital middle to the corporate computing space — and actually are the majority of companies in existence. Go to a trade conference, or read a trade publication, and you will hear all about the movers and shakers in digital technology adoption. Forbes 500 businesses and startups get the lion’s share of attention for their digital efforts. But there is a quiet revolution underway in the middle, spurred by recent events.
At the high end, there are major enterprises and publicly traded companies making huge investments in digital transformation technologies and practices. At the low end, there are the spunky startups, funded by venture capitalists and staffed by zealous Stanford grads, building systems out of enormous cloud resources.
Somewhere in between these two extremes, however, are where most of the population works — small to medium businesses. Digital transformation is a mixed bag there, as these companies typically don’t have the money the latest technology, and may not want to take the risk of shifting to new types of business technology models.
A couple years back, the US Census Bureau surveyed 583,000 US businesses to gauge their technology adoption. The survey found that only nine percent have some semblance of advanced technologies such as AI or machine learning in place. “We find that adoption of advanced technologies is relatively low and skewed, with heavy concentration among older and larger firms, with firm size and age being key determinants of adoption,” the survey’s authors state. The Census Bureau looked at adoption rates within just about every business in the country, including your local machine shop, accounting service, car dealership, trade school, and brewery.
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It appears the recent Covid-19 crisis may have accelerated technology investments among these smaller to medium businesses that may have been resistant to advanced technologies, a recent survey suggests. A majority turned more to technology to keep things moving, a survey of 500 small to medium-size business IT managers by ECI finds. Sixty-four percent increased their technology investments in the nine months prior to and including Q1 2021, compared to only 32% in 2019, doubling the number of businesses focused on growing their tech stacks.
The lumber and building materials and hardware industries have made technology a priority, with 78% having increased investments in 2019. Residential construction, on the other hand, has moved in the opposite direction—with 10% of respondents reporting their business decreased investment, compared to only five percent of general respondents.
A separate survey of 1,000 small to medium businesses from SMB Group also shows how the crisis spurred greater investment in technology among small to medium businesses. In this study, 50% reportedly have established a digital transformation strategy and are executing on it. Similarly, 54% intend to increase tech spending. However, the smallest firms are less likely to actively adopting technology. Companies with at least 100-2,500 employees are 2.25 times more likely to have started executing on digital transformation than those with fewer than 20 employees.
Tech spending plans also vary significantly by industry: IT services, mining and discrete manufacturing are most likely to boost spending, while personal services, retail and media are least likely to do so.
The SMB Group survey also finds a strong correlation between digital transformation and business results. Small to medium businesses with a digital transformation in place and initiatives underway were three times more likely to have enjoyed an uptick in revenues from 2019 to 2020 than those with no plans. They are also 2.5 times more likely to expect revenues to rise in 2021 than companies that are still planning for digital transformation, but have yet to start executing on it.
The ECI survey finds small to medium businesses have been investing in technology as a reaction to the Covid crisis, as well as a strategy to manage budgets, maximize employees, enable remote work, and improve cybersecurity. “As the dust settles, there is no doubt that Covid-19 has had an impact on businesses,” the authors of the ECI report state. Fifty-nine percent of respondents say it has impacted their bottom line negatively, though 20% reported a positive change in their bottom line.
In the process, 45% of businesses made more financially conservative decisions, the ECI survey also finds. “This trend may explain why technology adoption is down from 2019—with 64% of respondents saying their business adopted new technology over the last 12 months, compared to 82% the prior year,” the report shows. “However, this is not to say technology was not a priority in pandemic responses. Forty-two percent of respondents adopted a remote working model over the last 12 months, which is contingent on technology, and another 32% increased investment in technology infrastructure.”