Digitization for SMEs

Is digitization also gaining momentum among small and medium-sized enterprises (SMEs)? What can they do to make faster progress?

Three of our brand guards develop some ideas in the discussion about what can be done there and by whom.

Where do medium and small enterprises (SMEs) currently stand after the Corona lockdown? Are they still asleep or are they slowly waking up? And is the much-discussed digitization push really happening?

Reiner Czichos: Of course, it depends on the industry. In some industries, they are already awake; in others, they are still in a state of rigidity. Many companies understand digitalization to mean the use of video conferencing software such as MS Teams. This has become widely accepted because it was necessary to keep in touch with employees in the home office and then equip them very quickly with mobile devices. But because you had to do it so quickly, it wasn't necessarily thought through. I hear a lot of stories from companies and employees who are struggling to get to grips with the issue. Of course, you have to prepare and document video meetings in a completely different way than you're used to.

"Everyone is happy to fast-digitize with video conferencing and cloud, they won't worry about problems until much later"

Then there is the subject of the cloud. It's very modern at the moment, it's very flexible and costs very little money. Everything is offered "on demand". But it means that the IT structure and the IT department, which in many SMEs anyway consists of no or very few employees, has to be reorganized and, as a result, the processes within the company as well. Fewer IT employees means less personal support for users, who must be able to solve their own problems with the new tools. This means that a lot of the supposed efficiency gains are lost. This can all be solved with a well thought-out and good transformation process, but at the moment it seems to me that everyone is happily digitizing at a fast pace and will only think about problems much later.

What does digitization actually mean?

Reiner Czichos: Most people understand it as simply buying new technical devices or installing some software. For me, digitization is defined like this: Digitization means transforming a company. It means taking advantage of all the opportunities offered by new technologies and creating the technical foundations for them, as well as redesigning internal processes to make this possible. For me, digitization means dealing differently with employees and operating differently on the market, working with new means of communication and opening up new areas of business.

"Digitization is not just about using new technology, it's about transforming the organization and building new businesses"

In our research projects, it is discussed time and again that there are board members or managing directors sitting there who use new technology and think to themselves, that's it! On the one hand, they don't see that they have to rebuild something, and on the other hand, they don't see what opportunities are available to them here to build up new business areas. Many things will become easier and possible, and you could also offer your customers service-on-demand, for example.

Ingrid Wächter-Lauppe: Yes, I can agree with you on many points. On the one hand, we are seeing a surge in digitization in terms of mobile devices, the use of video conferencing and other digital communication platforms, more digital chats, and more e-learning. A real leap forward has been made here, and many worriers and control fetishists have been put in their place. However, we are concerned that we are now moving from one extreme to the other, completely ignoring even justified security concerns and failing to consider the consequences for people and organizations.

"A real leap forward has been made, control fetishists have been put in their place. But with life now only behind screens, mutual loyalty is in danger of being lost."

If employees live their lives only behind screens, without social proximity, they risk losing their loyalty to the company. Conversely, clickcrowd workers beckon in the big wide digital world and potentially undermine the loyalty of companies to their employees.

For me, digitization is also much more than hardware and software for remote work. Digitization involves supporting and networking production, knowledge and development processes with information and communications technology. I'll just mention a few key points here: IoT, Industry 4.0 and ERP systems - German SMEs are already well ahead of the game.

Digital and e-health systems in medicine, including wellness and health apps, are also part of digitization. The lockdown gave telemedicine a boost with video consultations with doctors and therapists, only to be immediately thwarted again by the insurance companies. However, the government finally seems to be moving a lot of things forward, and I'll just mention the first "apps on prescription.

When people complain that German SMEs and small businesses are far behind in digitization, they usually refer to digitization in marketing and sales. This results from the comparison with large online retailers and platforms.

"The much-needed acceleration in the digitization of SMEs in the business development sector is unfortunately still insufficient."

In and after the Corona crisis, very small companies in particular set up a web store, but the professional digitization of customer relationships with programs such as CRM or marketing automation tools, which bring more customers and growth, or open up entirely new business models and business areas, have unfortunately not yet experienced the acceleration that would be necessary for the far-flung SMEs in particular. Perhaps because digital transformation requires much more fundamental restructuring of companies, new processes and reorientation of people.

What is the most urgent issue SMEs should be focusing on right now? Should companies digitize their internal processes first or jump into processes with suppliers and customers?

Reiner Czichos: The one results from the other. First, one should analyze what capabilities are already available: What do we have and what can we do? Then you can know what ecosystem can be built, i.e., what relationships with customers and service providers can be developed.

"First you have to analyze what skills are available for a digital transformation process, internally and with contracted service providers"

It even goes so far that many companies don't even know how many service providers they have! Not only the lT department employs IT service providers, but also, for example, the sales department with a real shadow IT. This is often caused by the fact that the IT manager tends to think in terms of technical solutions and is therefore not recognized by management and others as an expert in business topics.

That means, if I understand you correctly, that the role of the IT manager in a company needs to be redefined? His role is still more that of a trouble shooter and not that of a proactive, forward-looking and business-oriented driver of strategic digitization.

Ingrid Wächter-Lauppe: As marketing people, we see great opportunities for all companies to become faster, better and more successful in the digitization of customer communication processes and customer relationships. Especially now in the crisis, there is a chance to ensure survival, as cost-cutting measures are already completely exhausted and budget cuts can even be counterproductive.

"The digitization of customer relationships offers companies great opportunities to survive the crisis and quickly become successful again"

These tasks are usually driven by marketing managers or digital managers. But even these often do not receive the recognition they deserve; when it comes to essential transformation decisions, people tend to listen to finance or sales.

Reiner Czichos: In my experience, in SMEs, sales, finance or production almost always determine the major strategies. In contrast, I say: There are two or three departments that a CEO should use much more often if a company wants to transform and strengthen itself and make itself fit for the future: I need HR, I need IT, and I need to approach the market in a completely different way, so I need marketing. After all, salespeople are not so much interested in the market as in the individual customer.

"There are 3 departments a CEO should leverage if the company wants to transform and strengthen: HR, IT and marketing"

For example, I remember a company that had been printing advertising flyers on paper for decades. Innovative thinking employees from marketing, development and IT came up with the idea of printing on ceramics and discovered the promising business with IoT sensor manufacturers. But it was extremely difficult to implement, because the sales department didn't want to sell it.

Why won't sales sell it?

Reiner Czichos: Well, then they would have had to learn new things. They know their way around paper products. They know which customer to go to. And they still make a lot of money with that. On top of that, the entrepreneur, a technical developer, retired and the new manager, a controller, was all about cash.

Unfortunately, constellations like this are common in SMEs. People do not think about the future, do not look for new business ideas, and do not consider which skills could be used in a new way. Employees who think beyond the day are not sought and encouraged.

"In SMEs, you don't find much time to think about the future."

There is little discussion about whether the workforce needs to reorient itself because you are in a new ecosystem. Actually, HR and IT should be at the forefront, along with marketing asking, "What new markets are opening up for us and how do we get into those markets?" But that's not how it is, unfortunately.

HR should be in focus because we need more people who are innovative and courageous and can go along with this new direction, marketing with a customer focus is also understandable to me, but IT?

Reiner Czichos: We need HR for more courageous people. HR can contribute a lot with culture change and the right talent selection. HR professionals have high competencies in psychology and communication, but that is not enough for planning the future of companies. Unfortunately, many have no idea about business management or processes. With regard to IT, they usually only have "wiping competence": they know how to operate smart end devices. I would even put forward the thesis that it is similar in marketing. There are also a lot of communications people here who don't think about business or innovation, but about pretty pictures and well-formulated content, which is of course also important. But at the same time, they would have to think about how to use new technological possibilities to move the company forward.

"A company without IT is like a body without heart, blood and bones."

A company without IT, which knows what is technically possible today and in the future and can optimize processes, is like a body without heart, blood and bones. But unfortunately, IT is not listened to.

Ingrid Wächter-Lauppe: Here I don't quite agree with you. Yes, there are creative marketers who are mainly looking for surprising, differentiating and therefore prevailing content in the information jungle in order to optimally design the communication with customers and prospects. But many marketing managers and especially the digital managers or CRM, lead and marketing automation specialists based in marketing are intensively looking into the technological optimization possibilities and thus trying to advance digitization. What they have in common with the IT managers, however, is that they complain about a lack of recognition from management.

Perhaps IT, marketing and other departments such as sales could join forces, communicate differently and thus achieve more?

Reiner Czichos: Yes, let's run through this using CRM systems as an example. How long have they been around? 30 years? Huge data dumps are generated there. The data is obviously used quite little. The first explanation is that the right data is not entered. Sales people enter data because they have to enter data. But they don't want to share the interesting information with everyone, they want to keep it for themselves. The second explanation is that there are no good processes on how to use this data. It's not done with a mass mailing! The question is: Who is the customer? How exactly can I address them and how specific can I be?

Ingrid Wächter-Lauppe: This can now be analyzed more and more effectively with AI and used to derive personalized, individual, specific information or product offers. Analyses of communication on the web, customer journeys, and online purchasing behavior provide an increasingly better basis for individualized incentives and offers, independent of the CRM database.

"Corona contact restrictions have convinced even die-hard digitization opponents in sales of certain benefits of automated lead generation solutions"

Especially during the Corona contact restrictions and through the trade show cancellations, some sales reps have now also realized that working with marketing to generate leads for sales with such analytics and automated offers can help them.

Reiner Czichos: But with these marketing solutions, you're building another shadow IT. We are currently seeing a development where IT islands are being opened up again and money is being wasted.

"Such marketing solutions risk wasting money through IT islands"

Ingrid Wächter-Lauppe: Yes, the danger exists if the data is not captured in systems that talk to each other. Integrating technological systems is difficult and extremely costly, as is integrating the services of departments and breaking down silo thinking. But this is precisely where the challenging task for IT lies: preventing isolated technical solutions without hindering business-relevant solutions.

"This is precisely the challenge for IT: to prevent technical isolated solutions without hindering business-relevant solutions"

With a clear IT strategy that spans all departments from marketing to production, development and finance to HR, and that sets the technical requirements for a uniform and thus cost-saving structure for tools, programs, data collection and data evaluation, IT can make its mark in the company and with the management. The marketing department can score points with a clear customer orientation. Digital programs can improve customer acquisition and thus increase sales. So one can argue more with efficiency gains, the other with effectiveness, or to put it bluntly: IT strategy is about preventing wasted money, digital strategy is about ensuring short-term survival in the crisis and long-term success.

"IT can argue efficiency gains, marketing can argue effectiveness"

But this would require both of them to think more strategically, first in their own areas, but also more strongly in terms of holistic corporate strategies. They would have to improve their business consulting skills and their willingness to collaborate with each other, with HR and with others.

Reiner Czichos: Yes, more business consulting expertise, holistic thinking and collaboration are important, and compromises must be made. All of this is also good advice for service providers such as system houses or agencies, because SMEs generally cannot handle these challenging tasks on their own. Even before the Corona crisis, CEOs hardly had time for innovation. To implement a comprehensive transformation, you have to take your time, talk to people and think everything through. Now, in the crisis, when survival is often at stake, there is no time to think things through. Actually, however, companies should do this continuously, over and over again, also in preparation for a new crisis, because a new crisis will come. Whether Corona returns or another epidemic or economic crisis threatens - the next crisis will come!

Ingrid Wächter-Lauppe: Stimulus for reflection, inspiration and advice with holistic, sustainable, digital and at the same time people-inclusive innovation concepts is more urgent than ever in these uncertain times.

Cristina Cequeiro: We will be happy to discuss the role of consultants soon.

In summary, we can state: The Corona crisis, which was otherwise not very pleasant, has given us a welcome boost in the digitization of mobile working in SMEs and small businesses, even though there is still a lot to think about and do in terms of the impact on people, structures and processes. A great deal of effort must continue to be invested in the digitization of customer processes, including e-commerce and new business models or fields, because it will ensure the long-term survival of many companies. To drive it forward, IT, marketing, HR and all courageous visionaries should work more closely together, sharing knowledge instead of obstructing or even arguing with each other.

Thank you for the interview!