Singapore SMEs who embrace digital transformation to see average revenue gains of 26%

• Clear appetite for adopting Big Data analytics, Artificial Intelligence, Machine Learning solutions
• Singapore SMEs value increased operational efficiency and view high costs as key barrier

WHILE only 57% of Singapore SMEs polled in the SME Digital Transformation Study said they have heard of the term ‘digital transformation’, those who are actively implementing digital initiatives are optimistic about the potential impact that digital transformation will bring to their bottom-lines.

The study was produced jointly by the Association of Small & Medium Enterprises (ASME) and Microsoft Singapore, and seeks to understand the current state of digital transformation amongst local SMEs.

One thousand and fifty-seven business owners and key IT decision makers of Singapore SMEs from across over 23 industries, including construction, education, electronics, healthcare, info-communications and media, logistics, professional services and retail, were surveyed in May and June this year.

The study revealed that just over half (57%) of Singapore SME leaders polled said that they have heard of the term ‘digital transformation’. Correspondingly, 56% of them said they have strategies in place for digital transformation.

While a good start, this is much lower than the 98% of mid- and large-sized organisations in Singapore that were polled for the Unlocking the Economic Impact of Digital Transformation in Asia Pacific produced by Microsoft in partnership with IDC Asia/Pacific earlier this year.

They are optimistic about the potential impact that digital transformation bring to their bottom-lines. The SMEs who are actively implementing digital initiatives projected that their investments will deliver an average of 26% in revenue gains and achieve an average of 22% in cost savings.

However, when it comes to how they view digital transformation success, SME leaders here are just starting to see moderate results in their digitalisation journey, with only about one in four SME leaders saying that their digital implementation has been successful. Even amongst the best achieving group of SME leaders with more than 20 employees, only approximately half of them saw some level of success in their digitalisation efforts.

“SMEs are an integral part of Singapore’s economy, making up 99% of all enterprises, contributing nearly half of Singapore’s GDP and employing two-thirds of our workforce. While the digital economy has created many new possibilities and created new frontiers on businesses, there remains much more potential to be realised for SMEs of all profiles and industries through digital transformation,” said ASME president Kurt Wee.

“The strong projection on bottom-line impact – 26% in revenue gains and 22% in cost savings – revealed in the study suggests that SME leaders are optimistic about the the tangible benefits of digital transformation,” said Gerald Leo, director for Commercial Partners and Small Medium Enterprise Group of Microsoft Singapore.

He continued, “The smallest businesses with one to four employees and new SMEs with less than five years of operation even estimated average revenue gains of around 30% from digital transformation investments. However, with only moderate success in their digitalisation journey thus far, local SMEs will require more practical support from both public organisations and the technology industry to reap the full benefits of digital transformation.”

Digital transformation is about reimagining how you bring together people, data, and processes to help you engage customers, empower employees, optimise operations, and transform products and services.

To the SME respondents, all four areas are almost equally important when asked to prioritised what was most important.

Engaging customers (73%) and optimising operations (73%) were most important, with transforming products and services (70%) and empowering employees (67%) following closely behind.

“The almost equal prioritisation from SME leaders show that they understand the potential that digital transformation can deliver – whether it is to automate routine business processes or uncover new revenue streams through data insights on customers,” said Leo.

“There has never been a better time for SMEs to embrace technologies. Thanks to the cloud, what was formerly reserved for big companies with big budgets is now available to businesses of all size.”

When asked about the most important benefits that digital transformation will bring to their businesses, SME leaders in Singapore were clear in their responses. Increased efficiency in business operations was named the top benefit by 33% of SME leaders, followed by attracting new customers (15%), increase workforce efficiency (9%) and cost savings (9%).

At the same time, the SME path to digital transformation continues to be limited by perceived high cost, which was named the top barrier to digital transformation by the SME respondents.

“The findings from the survey is consistent with the common view that local SMEs tend to be cost-sensitive, valuing day-to-day efficiency and garnering more customers to grow the business.

“However, it is interesting to note that the leaders from the medium-sized enterprises (50 to 99 employees) view employee resistance (15%) as the top challenge to digitalisation. This points towards the emergence of a potential workplace culture issue for larger-sized SMEs. Beyond technology, SMEs should also consider a plan for change management in their digital transformation journey, especially as they expand their business with more employees,” said Wee.

According to the study, Singapore SMEs displayed clear appetite to move up the chain and adopt more advanced technologies in their digital transformation journey. Majority of SME leaders said they already have basic technology solutions, such as office productivity tools (86%) and email (81%) in place.

While Big Data analytics, Artificial Intelligence (AI) and Machine Learning (ML) solutions currently have the lowest adoption rates at 9% and 7% respectively, almost 20% of SME leaders said that they plan to adopt related solutions in the next 12 months.

Amongst the SME leaders surveyed, the larger-sized companies report ambitious plans to invest in predictive analytics and AI.

In SMEs with 20 to 49 employees, 26% said that they plan to adopt Big Data and advance analytics in the next 12 months, with a whopping 40% looking to deploy AI and ML technologies. Planned adoption of these advanced solutions are reported at 32% and 37% respectively for SMEs with 50-99 employees.

Leo said: “Adopting advanced, emerging technologies may sound complex to SMEs, but with the right digital transformation strategy and alignment to business objectives, technologies like AI and data analytics will give SMEs new capabilities to transform and be truly disruptive.”

In engaging help and support for digital transformation efforts, 38% of SME leaders indicated that they will turn to technology vendors, followed closely by word-of-mouth from informal sources (37%) – such as business contacts, friends, SME peers – and government agencies (27%).

“At Microsoft, we are committed to accelerating digital transformation for SMEs in Singapore. Technology has the power to enable smaller companies to punch above their weight, expand market reach and level the competitive playing field between larger businesses. Working closely with our ecosystem of government and industry partners, we hope to continue empowering local SMEs to reap the full benefits of digital transformation,” Leo said.

SMEs have remained a key focus for Microsoft in Singapore. In the last five years alone, Microsoft has reached over 100,000 unique SME customers through over 1,000 business partners, who are often local SMEs themselves.

Microsoft is also part of the Infocomm Media Development Authority (IMDA) Strategic Partners Programme (SPP), aimed at helping Singapore-based tech companies scale and improve their digital capabilities, as well as expand their network and globalise through collaborations with multinational companies (MNCs).

Over the past year, Microsoft has been working with IMDA to enable a pool of Singapore-based tech companies to enhance their solutions and meet the requirements of IMDA’s SMEs Go Digital Programme and help accelerate the adoption of SMEs Go Digital programme’s pre-approved solutions among the SMEs.

Microsoft has also provided the SME Digital Tech Hub with access to technologies to support SMEs in their digitalisation journey, starting with AI technologies.