Are Indian small and midsized enterprises (SMEs) fully digitalised? Which processes do they want to digitalise? What are the benefits of digitalisation? We surveyed 341 senior leaders employed by SMEs to gather insights on how to leverage this technology best.

Digitalisation is helping businesses transform their processes

SMEs in India are possibly undergoing a digital transformation, especially after the urgent need created by the pandemic to cater to remote workers and equip them to deal with the challenges of a virtual setup. Moreover, according to a report by the Indian Council for Research on International Economic Relations (ICRIER), 80% of small businesses surveyed said their company's sales and turnover increased as a result of integrating with eCommerce platforms. This could indicate that adopting digital tools and processes may be beneficial for businesses as they enable them to efficiently collaborate and access all the information, resources, and systems they require from various devices and locations.

Before we delve deeper into this topic, let us first understand what digitalisation is.

What is digitalisation?

According to Capterra, ‘Digitalisation is the process of transforming information from non-digital formats to digital. It also refers to moving on-site, internal platforms for data storage to internet technology (IT) and cloud-based platforms.’ In other words, it is the use of technology to modify existing company procedures and systems to offer more streamlined and automated digital processes in workplaces. 

An example of digitalisation can be keeping a record of employee attendance using their laptop’s activity instead of maintaining a manual record book.

In order to gather insights into how SMEs can best utilise digitalisation and the various benefits it can offer, Capterra launched a survey between 25th May and 7th June 2023. The survey was rolled out to a group of managers, senior managers, or CEOs/founders —whom we will refer to as decision-makers. Out of a total of 435 respondents, 341 work for SMEs, and 94 work for enterprises —companies having more than 250 employees.

For the purpose of this article, we will focus on SME respondents and the responses collected from them. Moreover, the company they work for must have had a digitalisation strategy in place or at least have implemented one in the past. The full methodology and selection criteria can be found at the bottom of the article.

40% started their digitalisation process in the last 1-3 years

When a significant proportion of the global workforce was forced to work from home during the pandemic, many companies resorted to using digital tools and the digitalisation of their processes to meet the demands of remote work. The same can be seen from our survey findings, where 40% of our respondents state that their companies started the digitalisation process in the last 1-3 years.

For 40% of respondents, their company started the digitalisation process 1-3 years ago

Interestingly, most companies (88%) started their digitalisation efforts within the last 5 years, while a proportion of that subset of respondents stated that their companies started to digitalise processes after the onset of COVID-19. In the section below, we will take a deeper look at some of the main reasons and motivations behind this choice.

Majority digitalised their processes to survive during the pandemic

The COVID-19 crisis was one of the biggest motivations for SMEs to adopt and implement digital systems and processes. A majority (54%) of the surveyed respondents stated that they needed to digitalise their company’s processes to survive the pandemic, while 29% said they digitalised to streamline certain processes during the pandemic. Those who were already in the process of digitalisation even before the pandemic hit said that COVID-19 accelerated their digitalisation efforts (12%). 

Only 5% of the SMEs said that they were already committed to digitalising processes before the pandemic. Clearly, a lot of companies started their digitalisation efforts over the past few years. Did they continue these efforts after the pandemic? We explore this in the next section.

Use of collaboration software during the pandemic

One of the software types that rose to prominence during COVID-19 was collaboration software, according to a Gartner report. Many Software-as-a-Service (SaaS) application providers likely had to deal with the surge in users who had to resort to remote working to comply with the social distancing norms. 

Collaboration software included not just video conferencing tools, but also features that facilitated project management, task management, and other remote work tasks. In addition, some such platforms also included internal messaging, calendar syncing, notifications, and cloud-based file storage.

88% of respondents say their firm has a digitalisation strategy in place

We asked SME decision-makers if they currently have a digitalisation strategy, and 88% said that yes, they have a strategy in place. Only 12% stated that they implemented a digitalisation strategy in the past, but are not running one now. This indicates that digitalisation has proven to be effective, which may be why most respondents reported having an operational digitalisation plan.

When the processes in a company are digitalised, not all the employees may be involved or even aware of such changes. However, of the surveyed SME decision-makers, we found that:

  • 59% stated that they have been responsible for designing and/or implementing digitalisation
  • 36% said that they had been actively engaged in the design and/or implementation of digitalisation
  • 5% said that they had not been directly involved but have been aware of all decisions made regarding the design and/or implementation of digitalisation

From this data, we can see that the majority of our surveyed decision-makers are actively involved in the decisions pertaining to the digitalisation of processes. Presumably, this could also indicate that they attach a significant level of importance to digitalisation within the company.

How can SMEs develop an efficient digitalisation strategy for their businesses?

Having a digitalisation strategy can not only help SMEs streamline business processes, but it can also help them gauge the feasibility of the implementation of such processes. Here are some of the factors to keep in mind while building such a strategy: 

  • The first step is to develop a clear digital transformation plan that supports the SMEs' corporate objectives. Outlining the intended results, identifying critical areas for digital adoption, and creating an implementation plan could all be parts of this step. For example, if a retail company wants to create a digitalisation stragetgy, they may want to list down which part of the fabric sourcing/manufacturing process they want to digitalise, how much it would cost, and how it would impact overall revenue. 
  • The next step is identifying any roadblocks —like budgetary and resource constraints— and reviewing existing process workflows. SMEs may want to zero in on procedures that might be modified for increased efficiency. For example, in order to avoid any tech-related issues, the same retail company can identify if they have enough technically sound resources/employees in their company who can help in digitalising processes. 
  • After this is done, they can integrate the appropriate technology with the workflows. This can be done by consulting the technology teams, technical consultants, and system integrators who can assist SMEs with the right technology integration. 
  • As a last step, it is important to ensure that the users of the new digital processes are aware and digitally literate enough to understand how to best use them. As such, SMEs can conduct training sessions via learning management software to introduce new digitalised procedures to employees and reduce the skills gap.

Companies want to digitalise to improve customer service and satisfaction

In order to understand the significance of digitalisation for SMEs, it may be useful also to understand the goals businesses wish to achieve. For the same reason, we asked our SME decision-makers what their company's motivations for digitalising are. They stated the following:

  • To improve customer service and satisfaction (46%)
  • To simplify operations and workflows (40%)
  • To explore new business models and revenue streams (36%)
  • To minimise human errors (32%)
  • To ensure compliance with data security regulations (32%), among other recorded answers

One of the prime examples of digitalisation for the purpose of improving customer service could be the introduction of chatbots. The emergence of certain types of generative AI tools could also possibly contribute to this shift in catering to customer queries through chat windows driven by artificial intelligence (AI) instead of traditional methods. Unlike humans, chatbots are available round the clock to offer support to customers, which can result in increased customer satisfaction and efficient customer service.

Robotic process automation is the use of digital tools and technology such as robots to automate, create, and optimise business operations that may otherwise be driven by humans. Businesses that integrate process automation can potentially save time, lower operational costs, minimise human error, and simplify operations and workflows.

Moreover, they can make use of lead generation software and price optimisation software in order to explore new business models and revenue streams. For companies looking to ensure compliance with data security regulation, compliance software can help them bring their systems up to code, and send send them non-compliance alerts if applicable.

What are the benefits of implementing digitalised processes?

In the previous section, we discussed the potential goals of digitalising processes. In this section, we explore the various benefits our respondents have noticed after they made efforts to improve or implement digitalised processes. Among the most chosen responses was that it increased efficiency (42%).

42% have found that implementing digitalisation helped them increase efficiency

Nearly 8 in 10 respondents say digitalisation is very important for their company’s growth

As we saw in the section above, digitalisation can help SMEs with increased efficiency, customer satisfaction, and higher profitability, among many other factors. Digitalisation has proved to be of great significance for businesses, especially since our data suggests that an overwhelming number (82%) of SME decision-makers find it to be very important for their company's growth.

Digitalisation is very important for the company’s growth for 82% of respondents

Tip for SMEs:

The data shows that digitalisation has been helpful in empowering businesses to grow and thrive. At the same time, it may also be important for businesses to implement digital processes only when they see and identify a gap —like inefficiencies, manual errors, etc.— or the need to transform certain aspects of their businesses rather than taking this step just because other companies are doing it.

Companies plan to digitalise accounting and marketing processes next

The government aims to enhance the digital economy’s contribution to 20% of GDP by FY ‘25. As we inch closer to the $5 trillion mark for GDP by 2025-26, ~$1 trillion in GDP from the digital economy is a highly promising projection for the government and businesses to aim towards.’ Keeping this in mind, it may be safe to say that digitalisation may be at the core of the future plans for the country as whole. When it comes to our respondents, these are the areas our SME decision-makers say their companies are focussing on:

  • Accounting (43%)
  • Marketing (42%)
  • Customer service (41%)
  • Project management (40%)
  • Staff training (40%)

Accounting is an area that is possibly prone to manual error, and such errors can have serious impacts on the finances of the company. Digitalisation in the accounting sector can enable accountants to analyse massive volumes of data potentially quickly, spot instances of fraud, and offer financial insights.  

Similarly, marketing is another area where digitalisation can help marketers automate marketing initiatives like sending recurring emails, messages, and notifications. It can also help marketing teams increase awareness about their brand using software such as brand management software and marketing automation software.

Which types of technology could be driving a digital transformation?

Typically, a digital transformation is not always driven by a single technology but by a group of technology working simultaneously with each other and in different scenarios. Some  technologies that could be driving digital transformation are artificial intelligence, IoT, cloud computing, augmented and virtual reality, and blockchain

A few examples of these technology at play are the use of artificial intelligence tools like chatbots on websites to answer customer questions, marketing automation software to launch marketing campaigns, data analytics to extract insights from data that can be used to inform business decisions, and augmented or virtual reality to enhance customers’ buying experiences, to name a few.

What do we know so far?

Our survey results indicate that Indian SMEs find digitalisation to be very critical for their organisations. The majority of SME respondents started their digitalisation efforts in the last 5 years, and COVID-19 provided a major push to companies to adopt digitalisation to meet the needs of virtual workers. 

Moreover, 88% of SMEs already have a digitalisation strategy in place. Those who have digitalised some of their processes aim to improve customer service and satisfaction and simplify operations and workflows. In terms of benefits gained, surveyed SME decision-makers feel that they have seen increased efficiency and improved customer satisfaction by implementing digital processes. Future plans for digitalisation are likely to be focused on the areas of accounting, marketing, and customer service, among others. 

In the next article in this series, we will look at the challenges faced by businesses during the adoption of digitalisation strategies and the role the government is playing to facilitate greater adoption through funding and other schemes.

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The 2023 Digitalisation of SMEs survey was launched between 25th May and 7th June 2023 to managers, senior managers, or CEO/founders who are full-time employees. It was undertaken by 435 respondents, of which 341 are SMEs, and 94 are enterprises (with more than 250 employees). For the purpose of this article, we will focus on SME respondents and the responses collected from them. 

The criteria for selecting the participants are as follows:

  • Resident of India
  • Between 18 and 65 years of age
  • Full-time employees 
  • Work for a company that is at least 4 years old
  • The company must have a digitalisation strategy in place or at least implemented one in the past
  • Those respondents who have neither been involved nor were they aware of the design and/or implementation of digitalisation have been screened out