Big Ideas for Small and Medium Enterprises: Helping SMEs achieve digital transformation

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This article is part of a series in which OECD experts and thought leaders – from around the world and all parts of society – address the COVID-19 crisis, discussing and developing solutions now and for the future. It aims to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge. Opinions expressed do not necessarily represent the views of the OECD.

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Tackling Coronavirus (COVID-19): Contributing to a global effort

COVID-19 has highlighted that SMEs need to embrace digital transformation to become more resilient and to thrive and grow.

The COVID-19 pandemic is once-in-a-century global public health crisis. Governments across the world have placed severe restrictions on people’s freedom to move locally and internationally.

Businesses are unable to provide goods or services as they do not have sufficient staff available and are unable to access workplaces. Prevention measures, such as border controls and “social distancing”, further reduce production outputs and restrict consumer access to physical marketplaces.

COVID-19 lockdowns have highlighted the major economic, health and social risks with traditional ways of doing business across almost all sectors.

The effects of COVID-19 on small and medium enterprises (SMEs) shows they are especially vulnerable. Many face severe revenue loss and don’t have sufficient cash reserves to meet their on-going commitments.

Read in full:  Coronavirus (COVID-19): SME Policy Responses

Read in full:  Coronavirus (COVID-19): SME Policy Responses
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This has economy-wide implications. Across OECD countries in 2019, SMEs account for 99% of all businesses and between 50% and 60% of value added (the amount by which the value of a good or service is increased at each stage of its production, exclusive of initial costs). Almost a third of the population is employed in micro-businesses with less than ten employees and two thirds in an SME (OECD, 2019). SMEs are incubators for innovation and can develop into larger enterprises that drive GDP and productivity growth.

Most governments have recognised these risks and acted. In New Zealand, a range of support measures have been put in place to ease the immediate pressure on businesses including SMEs. These include wage and other subsidies, small business finance guarantees and cash flow loans, tax changes and payment timing relief, insolvency relief and consultancy/advisory services.

SMEs have responded to the current crisis by adopting innovations and new developments including sharing ideas and platforms amongst themselves and offering each other support through digital means.

Looking beyond COVID-19, we are in the midst of the global transition towards a digital economy and society. This has the potential to spur innovation, enhance productivity and improve well-being. The pandemic has only increased the necessity and pace for change, as traditional commerce in many countries is being disrupted and with consumers now needing to engage with companies via digital platforms.

More on the Forum Network: The value of connectivity: How COVID-19 turned us into digital societies by Enrique Medina Malo, Chief Policy Officer, Telefónica, S.A.

More on the Forum Network: The value of connectivity: How COVID-19 turned us into digital societies by Enrique Medina Malo

Traditionally, most SMEs have not picked up the potential benefits in productivity and competitiveness deriving from adopting digital technologies for a number of reasons. For example, they cannot clearly identify their needs or the value proposition, or they do not have the knowledge, experience or resources to implement change.

SMEs that can quickly adapt their approach to the changing environment significantly benefit by the acquisition and use of digital technologies that meets changing customer expectations.

Governments supporting SMEs through the initial COVID-19 survival phase have an opportunity to help them not only become more resilient to significant shocks, but also build an environment for and capability in, viable businesses that enables them to prosper and grow. Adoption of digital technologies by the SME sector will generate an historic shift of aggregate productivity and well-being in countries, regions and communities (OECD, 2019).

Digitalisation is about using data generated from business activity to optimise the whole business process.

Digital enablement does not simply mean using a cloud-based accounting software provider, or developing a website, or even engaging in digital commerce, even though all three of these activities are essential to operating in the “new world”. Digitalisation is about using data generated from business activity to optimise the whole business process.

The OECD Digital for SMEs Global Initiative (D4SME), established in 2018, aims to promote knowledge sharing and learning on how to enable all SMEs to make the most of the digital shift. D4SME seeks to promote how governments, regulators, business sectors and other institutions can accelerate digitalisation and technology adoption by SMEs through:

  • Enabling framework conditions – Providing regulatory environments, digital infrastructure and market conditions that increase SMEs access to global digital commerce;
  • Firm-level triggers, new digital technologies and applications – Helping SMEs manage innovation assets; improving the availability of financing; and increasing digital and skills awareness; and
  • Digitally-driven transformations in supply chains and business models – Greater participation by SMEs in digital platforms and cloud computing; better access to Big Data, artificial intelligence, block chain and financial technologies.

The D4SME work programme in 2020 has three strategic pillars: analytical research; case studies and databank of digitalisation of SME experiences; and network and policy dialogue. Countries can learn from each other on what works and profile best-practice examples of how different types of SMEs can seize the benefits of digitalisation (OECD, 2019).

Find out more about the OECD Digital for SMEs Global Initiative

Find out more about the OECD Digital for SMEs Global Initiative

We should do this alongside and in partnership with SMEs, including micro businesses. We need to better understand business owners’ motivations and capabilities, so that policies can be designed to meet their needs. In New Zealand, a Small Business Strategy is in place, written by SMEs. Government is also driving greater digital functionality through e-Invoicing, Business Connect and Better for Business, which facilitates business engagement with government through digital means.

Many SMEs are at the forefront of digital development with new ideas, technology, practices and products. The main issue is the improving the absorptive capacity of the vast majority of other non-frontier businesses through understanding how they identify, adopt, implement and adapt new ideas.

Using cell-phones, laptops, computers, websites, and cloud services is now common place, but we need to understand what functions they are using them for and to what extent they are integrated into their business operations.

How SMEs are using the new technology is also important. Using cell-phones, laptops, computers, websites, and cloud services is now common place, but we need to understand what functions they are using them for and to what extent they are integrated into their business operations.

For SMEs to play an important role in the post COVID-19 recovery, it will take significant investment in skills, business development and managing change. The great irony though, is that to achieve transformation, it doesn’t take a huge financial investment in technology at the firm level, as the tools required are either free or incredibly cheap considering the insights they provide.

I do believe, however, that what is needed more than anything at this point in time is actually leadership: from within government and the private sector.

It is this that will drive the type of change that will make a difference.

Related Topics

Tackling COVID-19 Future of Work Entrepreneurship Digital Inclusion

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Go to the profile of Stuart Nash

Stuart Nash

Minister for Small Business, Revenue, Fisheries and Police, New Zealand

Stuart Nash is the Minister for Small Business, Revenue, Fisheries and Police in the Cabinet of New Zealand Prime Minister Jacinda Ardern. Mr Nash represents the city of Napier in the North Island, as a Member of Parliament. He has a BA from Victoria University of Wellington; a Masters in Forestry Science from the University of Canterbury; and a Master’s Degree in Business Management and a Master of Laws Degree from the University of Auckland.

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