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A digital enterprise lives long and prospers

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Sustainable growth is the goal of every business, says Tan Chor Sen, head of international, global commercial banking, OCBC Bank. To survive, entrepreneurs must act on digitalization to drive innovative processes, products and services that positively impact revenue and costs.

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Large companies know this and are blessed with deep pockets that can fund in-house research and development (R&D) labs and digital projects, and hire the data, artificial intelligence and other new-technology savants who are in such great demand. Failure, too, is something that large companies can weather much better than small and medium-sized enterprises (SMEs).

Despite this, it is simply not true that SMEs are precluded from being elite innovators.

According to Organisation for Economic Co-operation and Development studies published in 2015 and 2017, a significant proportion of SMEs engage in all forms of innovation – product, process, marketing, organizational, you name it – and even the smallest enterprises with less than 10 workers can reach productivity levels above the large company average.

I can believe it. Startups like Grab, Shopback, Carousell and Razer are some of the first to come to mind. They have helped put southeast Asia on the map and become the standard-bearers for digitalization.

We should be very proud of these SMEs and entrepreneurs. Yet, I think we can do much better.

This is a watershed moment in history where the interconnectedness of man and machine is at an all-time high. The fourth industrial revolution – or ‘Industry 4.0’ – is happening right at this moment, and its reach goes beyond manufacturing and beyond the supply chain. It has the potential to impact business operations, revenue and the customer experience, thanks to advanced robotics, big data, the Internet of Things and augmented reality, to name but a few.

But it is the large corporations that have led the digitalization charge so far; in a 2019 report by Ernst and Young, out of the most digitally mature southeast Asian businesses, about half were businesses in the top revenue tier.

SMEs can therefore do better. Here are three considerations that can help.

Be open to partnerships to innovate 

Don't immediately shut the door on digitalization and innovation because it is costly. If an in-house R&D team and specialized expertise is too much of a luxury, then look externally for potential partnerships. A benefit of the interconnected world today is that there is a broader innovation system that SMEs can be a part of, but they must be willing to take advantage of it.

Universities and public research institutes will have the know-how to complement SMEs' commercial expertise. Opportunities also lie with upstream and downstream enterprises along the same value chain, or with network partners. SMEs should not be afraid to work with those who are better and more successful; bigger company tie-ups could lead to joint value creation.

There are platforms for SMEs to find these partners, exchange ideas and build support systems. From our experience as organizers and sponsors of business awards, we know that these are ideal grounds not just for benchmarking against peers but also for finding like-minded individuals to work with. 

Invest in your talent 

Cultivating in-house talent is important to integrate the external knowledge gained from open innovation with internal processes or internal innovations. 

The capacity needed to absorb all this external knowledge may justify a larger-scale workforce upgrading exercise; consider that, unlike bigger businesses, SMEs may require all hands on deck in order to be successful in digital transformation processes.

Pursue incrementalism

SMEs should consider starting small. An overhaul, which is the connotation of digital transformation, is a scary thing for any business and even more so for SMEs that may be starting the digital race a length behind bigger competitors.

One of the most commonly cited difficulties that SMEs face is resistance from employees. Established businesses in particular would already have processes in place and employees may think: "If it ain't broke, why fix it?" In that sense, their younger counterparts who have been "born digital" have one less hurdle to overcome.

So even though some advocate a more ambitious strategy, it may be more achievable to approach digital transformation in stages. Pick some projects, move quickly to get the minimum viable iteration out and, if it works, then move on to the next iteration. These quick wins boost morale and, when piled up, can form the foundation for a strong digital culture.

The "quick" in quick wins is essential. Incrementalism can be the antithesis of digital transformation if taken too slowly, and the resulting erosion of competitive advantage would be inevitable. The image that comes to mind is taking a step up on a downward moving escalator. The world just moves too fast for such approaches.

Yet, despite these challenges, I have full confidence in SMEs, which have shown that a lot can change in a few short years. Consider that in 2014, just 36% of our SME banking customers were digital customers who regularly used internet and mobile banking, compared to 2018 where more than 60% of our customers fell into this category. We think that this number can increase further to 70%.

So once the ball starts rolling in earnest, we will see SMEs in the region really start to thrive. The good thing about Industry 4.0 and this disruptive technology landscape that we are in is that the playing field is levelled somewhat with more access to consumers, expertise, global markets … and the list goes on. We may be proud of the levels of success that our SMEs have achieved thus far, but just wait and see; because this is nothing compared to what I think lies ahead.

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