Digitization for SME

Is digitization also gaining momentum among small and medium-sized enterprises (SMEs)? What can they do to make faster progress? In this discussion, three of our brand guards develop some ideas about what can be done by whom and how.

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: That depends on the industry, of course. 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 stay in contact 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. Video meetings, of course, have to be prepared and documented very differently than what 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's the issue of the cloud. This is quite fashionable at the moment, it is very flexible and costs 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, must be rebuilt and subsequently also the processes within the company. 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 fast-digitizing and will only worry about problems much later.

Cristina Cerqueiro
What does digitization actually mean?

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

"Digitization doesn't just mean using new technology, it means redesigning the organization and building new areas of business."

In our research projects, we always discuss that there are board members or CEOs sitting there deploying new technology and thinking to themselves, that's it! On the one hand, they do not see that they have to rebuild something, on the other hand, what opportunities are available to them here to build new business areas. Many things will become easier and possible, and they themselves could also offer their customers service-on-demand, for example.

Ingrid Wächter-Lauppe: Yes, I agree with you on many points. On the one hand, we are seeing a digitalization push in terms of mobile devices, the use of video conferencing and other digital communication platforms, more digital chats, 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 to see that we are now moving from one extreme to the other, even justified security concerns are being completely disregarded and consequences for people and organizations are not being considered.

"A real leap forward has been achieved, 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. Let me just mention a few key points: IoT, Industry 4.0 and ERP systems - German SMEs are already well ahead in these areas.

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 will only mention the first "apps on prescription".

When people complain that German SMEs and small businesses are lagging 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 business development is unfortunately still insufficient."

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

Cristina Cerquiro
What is the most pressing 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 follows from the other. First, you should analyze what capabilities are already in place: what do we have and what can we do? Then you can know what ecosystem can be built, that is, what relationships with customers and service providers will be developed.

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

It even goes so far that many companies do not even know how many service providers they have at all! Not only the lT department employs IT service providers, 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 either.

That means, if I understand you correctly, the role of the IT director in a company needs to be redefined? As yet, his role is 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 in the crisis and quickly become successful again."

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

Reiner Czichos: In my experience, sales, finance or production almost always determine the major strategies for SMEs. 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 aren't so much interested in the market as they are in the individual customer.

"There are 3 departments that a CEO should use if the company wants to transform and strengthen itself: HR, IT and Marketing."

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

Cristina Cerqueiro
Why wouldn't sales want to sell that?

Reiner Czichos: Well, then they would have had to learn new things. They know their way around with paper products. They know which customer to go to. And they still earn a lot of money with it. In addition, the entrepreneur, a technical developer, retired and the new managing director, a controller, was only concerned with cash.

Unfortunately, such constellations are common in SMEs. There is no thinking about the future, no looking at new business ideas, no looking at what skills could be used in a new way. Employees who think beyond the day are not sought and encouraged.

"In SMEs, one finds little 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. In fact, 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 the way it is, unfortunately.

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

Reiner Czichos: We need HR for more courageous people. There HR can contribute a lot with Culture Change and the right talent selection. HR professionals have high skills 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 the processes, is like a body without heart, blood and bones. But unfortunately, IT is just not listened to.

Ingrid Wächter-Lauppe: I don't quite agree with you here. Yes, there are creative marketers who are mainly looking for surprising, differentiating content that will prevail in the information jungle in order to communicate with customers and prospects in the best possible way. But many marketing managers and, above all, digital managers or CRM, lead and marketing automation specialists based in marketing are intensively looking into the technological optimization options and thus trying to advance digitization. However, what they have in common with IT managers 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 take 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 specifically can I approach them?

Ingrid Wächter-Lauppe: It is now increasingly possible to analyze this with AI and derive personalized, individual, specific information or product offers. Analyses of communication on the web, customer journeys and online purchasing behavior are providing an increasingly better basis for individualized incentives and offers, independent of the CRM database.

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

Especially during the Corona contact restrictions and through the trade show cancellations, some sales people have now also understood that working with marketing, which can generate leads for sales with such analyses and automated offers, helps them.

Reiner Czichos: But with these marketing solutions, you build up another shadow IT. Right now we have a development where IT islands are being opened up again and money is being wasted.

"Such marketing solutions harbor the danger of wasting money through IT islands."

Ingrid Wächter-Lauppe: Yes, the danger exists if the data is not collected 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.

"But precisely therein lies the challenging task for IT: to prevent technical insular solutions without hindering business-relevant solutions."

With a clear IT strategy spanning all departments from marketing to production, development and finance to HR, which 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 casually: the IT strategy is about preventing wasted money, the digital strategy is about ensuring short-term survival in the crisis and long-term success.

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

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

Reiner Czichos: Yes, more business consulting skills, holistic thinking and collaboration are important, and compromises have to 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'll be happy to discuss the role of consultants soon.
In summary, we can state: We have experienced a welcome boost in digitization in mobile working in SMEs and small businesses as a result of the Corona crisis, which was otherwise not very pleasing, even if 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 hindering or even arguing with each other. Thank you for the interview!

Ingrid Wächter-Lauppe's picture

Ingrid Wächter-Lauppe

Geschäftsführende Gesellschafterin der Wächter & Wächter Worldwide Partners