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Are SMEs Recognising the Benefits of Digitalisation?

According to the Enterprise Research Council, even before the Covid-19 pandemic gripped the world, smaller UK businesses had begun to increase the pace of their digital adoption. Their research noted a sharp increase between 2015-2018 and highlighted a strong link between the digitalisation of a company and its productivity.

Using the measure of sales per employee, the research looked at what effect the adoption of different types of technology had on productivity three years after adoption.

Cloud Computing: +13.5%
CRM: +18.4%
E-commerce: +7.5%
Web-based accounting software: 11.8%
Computer-aided design: +7.1%

Despite the rapid increase in digitalisation in the UK, OECD data suggests that the UK still lags some way behind other countries. Several factors go make this up, such as the ability of UK companies to absorb and utilise knowledge and innovations and different motivations for adopting new digital technologies. It also points to the deeper pockets and larger pools of talent who know how to source, implement and use new technologies.

Is the pace of digital adoption accelerating?

Several studies have shown that the Covid pandemic accelerated the shift to digital adoption of technology. For many companies, it was a matter of survival.

However, a June 2022 report by Sage: Digital Britain: How small businesses are turning the tide on tech suggests a fundamental shift in the understanding by SMEs of the importance of technology. Some 73% of SMEs said technology was important to founding their business. For those businesses established in the last two years, this figure rose to 91%.

Those SMEs who have fully embraced tech have benefited from increased revenues and higher employee and customer satisfaction levels. This is true across all industry sectors and geographical regions.

Whilst much progress has been made, a government survey in 2020 found that around 30% of SMEs were still using spreadsheets and paper-based records for their accounts. It is also inefficient and time-consuming and presents a considerable risk of incorrectly filed accounts.

The top barriers facing SMEs today

Just as business was recovering from the pandemic, new headwinds appeared: economic uncertainty, geopolitical risks, problems attracting and retaining suitably qualified talent and disruptions to supply chains have all impacted confidence and business planning.

Barriers to digital adoption:

Higher prices and wages: 66%
Shortages of labour: 51%
Disruptions in the supply chain: 44%
Reduced demand from customers: 23%
Cashflow/liquidity problems: 21%
Lack of skills within the business: 19%
Cyber or data security incidents: 19%
Limited access to external finance: 19%
Lack of time: 18%
Lack of useful data for my business: 17%
Connectivity issues, e.g. broadband: 13%
None of the above: 8%
Other: 1%

However, what is encouraging is that UK SMEs feel less impacted by the barriers to digitalisation compared to their peers in Europe. Research conducted by YouGov on behalf of IONOS suggested that cost and lack of time were of much lower significance in the UK. In tandem with the Sage report, the research found that 76% of SMEs state that digitalisation continues to be central to their business model and important to the future viability of their business.