Alexei Garan is the head of our debt advisory function and a funding expert. In this article he ponders whether owner-managers are ready for the digital transformation race.
From our vantage point of working with SME clients across established and emerging industries, many are on a journey towards a data driven, tech-enabled future. And we at Shaw & Co are on the same journey.
But with so much activity happening over the last 12 months, it is entirely logical to hear the media noise around Digital Transformation (DT) grow into a cacophony. So what does all this mean for UK SMEs?
Covid not only turbocharged the speed of DT, but radically changed DT from being a nice-to-have cost saving driver to a must- have strategic advantage imperative.
To break this down, a McKinsey & Co survey of global business decision makers found that on average Covid sped up DT trends by 4 years, with some trends leaping forward by 10 years in developed parts of Asia. This entails adopting digital technology tools to engage with customers, managing supply chains and transforming internal operating environments.
Where the changes have been substantial, such as remote working, customer preferences for digital interaction and migration of assets to the cloud, the research suggests these are the likeliest norms to remain after the pandemic. The woeful news from high street retailers, including stalwarts such as John Lewis, continues to demonstrate the point.
What is critical for SME owners to bear in mind is businesses that adopted new technologies and digital tools earlier were twice or more likely to be among those reporting outsized revenue growth.
"40% of respondents admitted lagging behind competitors in technology adoption."
Additionally, among the businesses reporting substantial revenue hits, 40% of respondents admitted lagging behind competitors in technology adoption was the reasons for underperformance. This has radically shifted mindsets. In 2017, similar research by McKinsey found over 50% of surveyed businesses seeing DT as just a cost saving driver. Post-Covid, only 10% of respondents still see DT this way, whilst over 50% see it as a major competitive advantage.
The answer here is more in the realm of can you afford not to digitally transform your business?
Having seen the rates of acceleration in digital adoption imposed by Covid a necessity, many owner-managers are determined to continue technological advancement to gain or retain their competitive advantage.
Organic CAPEX driven development is supplemented by strategic technology driven acquisitions. We see this first-hand in our recent trade sale of KITS – a DT enabler for many businesses and government departments.
Our recent work in the waste management sector to enable state of the art recycling and power generation technology with data enabled maintenance and controls, shows no business is off limits for DT.
Funding for digital transformation is available if not plentiful. In some parts of the world, business funding for DT outstripped any other since Covid began. We continue to see similarly strong appetite from traditional and alternative UK lenders.
In fact, in a recent phone call, a high street banker cited their regular customer question as being ‘what is your cloud strategy?’, where an unsatisfactory answer would clearly see a downgrading of lending appetite.
In summary, having identified the acceleration in digital transformation as a central issue for our SME clients some time during 2020, we are now seeing an SME’s tech strategy as essentially one and the same as their corporate strategy.
And with a growing number of our funding and M&A mandates driven by DT acceleration, we stand ready to engage with any clients requiring funding or transactional support, be it through growth loans or making ‘technological leapfrog’ acquisitions.
Keep IT Simple (KITS) is a provider of high value IT support and transformation services to public and private sector clients. Find out how we helped with their trade sale.
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