by Lye Ching Lam

Singapore small and medium businesses struggle in digital transformation

Jul 11, 2021
Digital TransformationSmall and Medium Business

Digitalisation efforts remain at early stages, with many not seeing success, despite multiple government programmes. And the need is only getting more acute.

transformation / conversion / data cubes shift from one color to another
Credit: Guirong Hao / Valery Brozhinsky / Getty Images

Moving up the digital transformation ladder remains challenging for Singapore small and medium businesses. The adoption rate of digital technology has increased for small businesses with 99% of companies adopting at least the most basic level of digital technologies such as office productivity tools and web-based email, according to the 2020 SME Digital Transformation Study by Microsoft Singapore and the Association of Small & Medium Enterprises (ASME), which surveyed 400 business owners and key IT decision makers in Singapore small and medium businesses. Small and medium businesses make up 99% of all Singapore businesses, the government statistics agency reports. Medium businesses are defned as those making between S$10 million and S$100 million in revenues a year; small business make less than S$10 million.

Although levels of awareness and adoption of digital transformation have increased since 2018, small and medium businesses continue to see only moderate levels of success in their digitalisation journey. Only 39% perceive their digital implementation to be successful—a small improvement from 28% two years ago.

The reason: “It is likely that most small and medium businesses are still in the relatively early stages of embracing digital transformation and have yet to maximise the value they can derive from the cloud,” said Peter Yuan, technology lead for Southeast Asia at Accenture. “Over the past year, the focus of cloud investments would have been on achieving business continuity scenarios such as providing resources for remote work models. Digital transformation requires cloud at scale—and now that these firms have got the basic cloud infrastructure in place, the next step will be to start looking towards exploring other advantages that cloud adoption enables.”

The 2020 Asia Pacific SMB Digital Maturity study by Cisco Systems found that, although Singapore was ranked top of the maturity index, it was still at the second of four stages—“digital observers”—of digital transformation. That means many processes are still not automated and that companies are focused on addressing inefficiencies with very limited use of analytics, focused on the use of reporting tools and only starting to create a digital plan.

Many small and medium businesses are like Sunlight Paper Products, a 40-year-old business that supplies tissue products to corporate customers, whch only recently began their digital transformation journey by moving its manual logistics system to a cloud-based system for its enterprise resource planning and fleet management.

Aligning digital transformation efforts to business goals

When trying to scale digital transformation, experts point out that many small and medium businesses fail to find out what business outcomes they want to achieve or seek the knowledge on how to link technology, people, and processes to achieve business goals. “These organisations need to take a step back to review the business needs of their organisation and anchor their digitalisation strategies to meet these goals,” Yuan said.

The COVID-19 pandemic has also affected business operations, and small and medium businesses may not have the resources in terms of time and financial capacity to conduct a “thorough assessment of the firm’s existing processes and capabilities to provide greater clarity on the steps needed. This includes everything from IT infrastructure, financials, and human resources, to name a few,” said Lawrence Loh, head of Group Business Banking at United Overseas Bank, a Singapore bank that provide digitalization advisory services to small and medium businesses.

small and medium businesses often implement their digitalisation in phases, to align to their smaller resources. “While small and medium businesses may want to take a phased approach in their digitalisation efforts, it is important to ensure that their efforts are in line with their broader plans and that the solutions they adopt can be integrated with future ones,” Loh said.

To help small and medium businesses cope with the challenge of limited resources, the Singapore government is planning to set up a CTO-as-a-service initiative later in 2021 to help small and medium businesses identify and access resources they need to digitally transform. It would give small and medium businesses access to digitalisation resources and to a pool of experienced CTOs providing in-depth digital advisory, such as identifying the company’s digitalization needs and a suitable digital solution and helping project-manage solution implementation.

Addressing cultural resistance and employees buyin

“The biggest constraints that prevent or slow down digital transformation for small and medium businesses include financial resources, integrating new technology into current business, and cultural resistance, said Michael Tan, managing director at Boston Consulting Group Singapore and leader of the Public Sector Practice in Southeast Asia. That conclusion comes from a national digital maturity index developed by Boston Consulting Group and Singapore’s Infocomm Media Development Authority.

 “Digital transformation requires not only hardware but ‘heartware’—the willingness among employees to learn and to adjust to new ways of operating,” Loh said. For example, many small and medium businesses find it a challenge to automate processes. “As part of the move to automate processes, there is often the need to redesign established business process flows. If employees are not engaged in the process, it could lead to them resisting the change, resulting in the failure of the new process being rolled out,” he said.

Also, “a positive and engaging corporate culture coupled with the use of technology for more efficient processes will help small and medium businesses attract talent,” Loh said. That’s an acute issue in Singapore: “It is estimated that Singapore’s economy will need an additional 1.2 million digitally skilled workers by 2025, a 55% jump from the present 2.2 million in the workforce. As such, small and medium businesses will also need to consider the role their digital transformation plays in their employee value proposition.”

Challenges of legacy systems and data analytics

Singapore small and medium businesses struggle with a lack of a data analytics strategy. Although the government has offered free data analytics clinics since 2017 where small and medium businesses can seek expert advice from ICT consultants who specialise in areas of data analytics, data protection, cybersecurity and internet of things, nearly 70% of small and medium businesses have not adopted data analytics, according to a study by the Singapore Institute of Technology, RSM Singapore, and the Institute of Singapore Chartered Accountants in October 2020.

 “It’s very important to have a clear data strategy, but many companies including small and medium businesses lack on this front,” said Boston Consulting Group’s Tan. “Small and medium businesses are often working with legacy systems and do not have a clear prioritization of use cases and linked business outcomes and hence are unable to structure and optimize existing data in a way that can help them.”