By Srinivas Pingali and Kiran Pedada
Technology for MSMEs: Small and Medium Enterprises (SMEs) play an important role in driving employment and fostering growth in emerging markets, including India. The MSME Ministry in India has been at the forefront of numerous initiatives, including the recently launched FIRST program, a forum for SMEs among government representatives and policymakers.
As part of a nationwide study on the digital transformation of SMEs, we surveyed over 350 SME owners across various sectors in India. Our research demonstrates that SMEs can successfully transform with the right inputs. It also suggests that SMEs who have begun their transformation journey are gaining tangible benefits, including increased customer satisfaction, better quality, higher sales and profitability, and the ability to expand globally.
The study also highlights several challenges faced by SMEs during their digital transformation journey. These challenges start with a lack of awareness and understanding regarding digital transformation and extend to their struggles in effectively implementing digital solutions.
Regarding awareness and understanding of digital transformation, our study suggests that SMEs primarily rely on three sources for information. The first source of information is technology vendors. These vendors they tend to focus more on selling technology rather than assisting SMEs in developing a digital strategy or technology road map. Second, SMEs often turn to small system integrators, but a lack of mutual understanding between these vendors and SME owners, combined with a limited grasp of the SMEs’ requirements, results in a significant mistrust between the two parties. The third source of information is consultants, who are primarily retired senior corporate personnel. While these consultants are trusted by SMEs, only some of them have expertise in digital transformation.
The next challenge faced by SMEs is implementing digital strategies. Our interviews suggest that this issue gets alleviated by the ever-changing digital landscape, the number of technology choices, and the difficulty in future-proofing any investments.
Potential Solution
In subsequent interviews, we asked SME owners and consultants how they could be best supported in their digital journeys. Their responses, combined with data from secondary sources, have led to the conclusion that a comprehensive ecosystem will need to be developed to create a sustainable digital movement among SMEs.
The ecosystem would need several players to work together to deliver a seamless experience to SMEs.
Government Bodies: The government (through the MSME ministry and think tanks such as NITI Aayog) can help develop and launch a policy framework for digital transformation.
Academic Institutions: Institutions across the country can set up Centers of Excellence that work with local SMEs in imparting knowledge.
An SME owner remarked that “There are IITs, IIM, NITs, and other public universities in every state. Each one can take up SME digital literacy programmes in their regions.”
Our research suggests that a young and digitally savvy workforce is vital to digital implementations, and these institutes could encourage their students to join SME organisations.
Our study also reveals the inconsistency of digital consultants’ knowledge and capabilities. Another SME owner noted: “Microsoft has certified its partners as Gold and Silver. Can digital consultants also be certified, so we know that they are of a certain quality?”
Academic institutions, under the aegis of Government bodies like the National Skill Development Corporation (NSDC) and the Ministry of MSME, can help develop guidelines for a certification programme for digital consultants.
Vendors: Technology vendors play an essential role in the digital initiatives of SMEs. Many of these vendors themselves are small and do not have the expertise to play the role of digital consultants over and above supplying software and equipment.
Large companies: Our study also suggests that larger companies in every industry could mentor SMEs. SME owners believe that they should be treated as long-term partners instead of competitors.An example quoted often was how a large auto manufacturer such as Maruti helped develop an entire ecosystem of SME suppliers. This model can be replicated across industries.
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SME “ONEDigital” Platform
Clearly, supporting the digital journey of SMEs requires an entire ecosystem backed by the support of government bodies, academia, and industry associations.
As discussed earlier in the article, a range of bodies can enhance the awareness and benefits of digital transformation. A certification programme for digital consultants will help standardise the quality of information. The next step is to provide SMEs with a reliable “one-stop-shop” for planning and implementing digital. Our study has shown that no such platform exists today.
Given the complexity of digital, we recommend that these platforms are owned and run by private enterprises backed by a policy framework from the government. For example, telecom companies already have a large base of SMEs as customers. These companies can transform into two-sided platforms by onboarding digital consultants, technology vendors, and financial institutions and connecting them to their SME base. Government grants can also be channeled through these portals. An SME owner commented:”We need an online aggregator for digital services. If the quality is bad, they take care of it. Today if I have a problem with my technology vendor, I have nowhere to go.”
Over time, if two or three such platforms emerge, it will provide all players in the ecosystem access to SMEs and vice versa. Many prominent consultants and technology and equipment vendors do not target SMEs due to their lack of scale. Such platforms will help consolidate SMEs and encourage these organisations to develop SME-focused solutions.
Given the scale and diversity of India, we believe that such third-party platforms with policy guidance from the government will be more effective than the “Singapore Model”, where a single platform is owned and operated by the government. Market forces will determine the success of these platforms, and they may specialise in specific industry segments over time. However, there is no doubt that such platforms will be critical for the transformation of SMEs.
Srinivas Pingali is the Professor and Program Head at School of Management, Mahindra University. Kiran Pedada is the Assistant Professor of Marketing and F. Ross. Johnson Fellow at Asper School of Business in University of Manitoba. Views expressed are the authors’ own.