Small businesses in India can reap many benefits by digitalising their processes. But how feasible is digitalisation in terms of budget constraints and cybersecurity concerns? Do firms have access to government funding? We surveyed over 300 senior leaders employed by small businesses to find out more in this second part of this article series after analysing adoption, implementation, and evolution of digitalisation in the first part.
In this article
Small and mid-sized enterprises (SMEs) are looking to increasingly adopt digitalisation within their organisation and consider it to be very important for their company’s growth. Given this, integrating technology and modifying existing operations and procedures can come with its own set of challenges. In this article, we will look at some of the barriers that our surveyed respondents are facing.
Moreover, we will also take a look at how the government is helping SMEs and startups through various government initiatives and programs which can help them access funding and support. In fact, ‘A total of 52,732 startups have taken the benefit of the department for promotion of industry and internal trade’s (DPIIT) startup recognition, as on 21st July 2021,’ as stated by the Minister of State for Commerce and Industry. Before we touch upon all these topics, let us first understand what the ‘Digital India Programme’ is.
What is the Digital India Programme?
As per the Common Services Centre, ‘Digital India is a flagship programme of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy’. The program aims to provide online infrastructure and increased Internet connectivity and was launched in 2015.
It consists of majorly three components: the creation of safe and reliable digital infrastructure, the provision of public services online, and widespread digital literacy. More information regarding this programme can be found on their official website here.
In order to fully understand the challenges and barriers for SMEs when it comes to digitalisation, we launched a survey between 25th May and 7th June 2023. The survey was rolled out to a group of managers, senior managers, and 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. The full methodology can be found at the bottom of the article.
Cybersecurity issues are one of the top barriers to digitalisation
Every time a company decides to digitalise its process, it may not necessarily succeed. There can be many roadblocks and barriers it may have to face like acquiring adequate budget/funding and securing talent, according to a Gartner report. In the same light, this section will take a look at the top barriers and challenges to digitalisation as stated by the respondents.
If companies are likely to continue using and implementing digitalisation within their organisation, this should not come at the cost of cybersecurity issues like data breaches, data loss, and data theft, among others. As a possible solution, businesses can make use of cybersecurity software to ensure that data security-related incidents and unauthorised access to their data can be prevented.
In order to delve deeper into this topic, we asked our respondents to pick the top three most challenging aspects of digitalisation for their company and got the following responses:
- 40% said reaching customers digitally was challenging
- 36% cited converting existing operational processes into more digital ones
- Another 36% said shifting internal business processes to an online environment was challenging
A thorough understanding of possible barriers and difficulties can assist organisations in establishing a more effective route towards digital transformation. They may also create strategic plans with both short-term and long-term goals —like how many HR related tasks they want to automate next quarter vs the next year— and address any challenges one by one in due course.
For companies struggling with the above-listed challenges, they can make use of the following software types to overcome some roadblocks:
Customer engagement software: As 40% of respondents stated they face challenges in reaching customers digitally, they can make use of customer engagement software. An organisation's customer journey may be managed, analysed, and optimised with the use of such platforms. Using such tools, businesses can send personalised messaging automatically across a variety of platforms and devices.
Collaboration Software: For companies struggling with maintaining cross-team collaboration, they can use collaboration software which can offer a virtual collaborative environment online for teams. Common components of collaboration systems are instant messaging, audio or video conferencing, and emailing.
Learning management system software: Such software can help companies to equip their employees with resources which can help them learn through courses, training etc. LMS software can come in handy when businesses migrate internal business processes to an online environment and want to help their employees adapt to such changes with ease.
Why did some companies not continue to digitalise?
Despite the recorded benefits of digitalisation like increased efficiency, higher customer satisfaction and higher profits as we saw previously in part one, some companies are still not in a place wherein they have or intend to continue to implement digital processes. The following are some of the responses collected from decision-makers of companies who implemented a digitalisation strategy in the past, but do not have one now:
- 37% said that they have a limited budget for implementation
- 34% raised concerns about overwhelming their employees with technology
- 29% face a lack of awareness regarding software that would improve their current processes
- Another 29% said that they have already digitalised everything they could
- 24% said their business runs smoothly the way it is
It is worthwhile to notice that having a limited budget is one of the top barriers to the implementation of digitalisation. While developing your digital transformation strategy, it could be helpful to determine how much your business can be digitalised with the existing budget. To do this, businesses can make use of budgeting software which can help them automate recurring expenditures and in keeping track of available financial resources.
If necessary, businesses can try to create a strategy that spans several years and covers multiple phases so that they do not have to bear the burden of digitalsation all at once. It may also be helpful to look for different funding options, which is something we discuss further in the article.
50% of respondents replaced or eliminated already-implemented digital processes or tools
When businesses expand and evolve, their needs and goals may also change. In order to understand what our respondents think about already-implemented digital process and tools, we asked them if their company would be replacing or eliminating any digitalised processes/digital tools in the short term, and got the following answers:
- 50% said that they need to replace at least one software program because it no longer suits their evolving business model
- 31% said that they need to replace at least one software program because their existing tools isn’t meeting their needs
- 16% said that they need to eliminate at least one software program as it no longer suits their evolving business model
- Another 16% said that they won’t be replacing any software and are reliant on all of the software that they currently have
- 6% said that they need to eliminate at least one software program due to financial constraints
It is clear that the majority want to replace at least one software to adjust to their evolving business model or because it doesn’t suit their needs. One of the scenarios in which this can happen is if a business is expanding or changing more quickly than their present systems and procedures can handle.
With some companies asking employees to return to the office full-time or part-time, the need for previously-vital software such as virtual meeting tools are also possibly declining compared to the times when most of the workforce was working remotely. This could also indicate that digitalisation does not have to be a one-time permanent process, but that, ideally, businesses should keep re-visiting the processes they have digitalised to check their feasibility and relevance with the current times.
How can SMEs pick the right software for their needs?
1. Identify the business need
In order to implement any new software, it may be vital for businesses to ask themselves why they need it now, the purpose it is going to solve, what features they are looking for, and what the requirements are for implementation.
2. List the software requirements
Once the business need is identified, businesses should list their software requirements like the minimum software configuration settings needed for installation, ease of use, accessibility, etc.
3. Calculate budgetary feasibility
It may be crucial for businesses to not just come up with a plan to implement software systems, but to also identify if its implementation fits within the company’s budget. A software purchase could include one-time purchase cost, licence cost, annual maintenance cost (AMC), etc. For businesses running on tight budgets, they can start with using the free version of a software and move to paid versions eventually.
4. Conduct market research
If everything goes well in the above steps, businesses can start searching the internet for the software that fits most of their desired parameters. They can also read user reviews and ratings of the software to help them make a better-informed decision.
65% of respondents have received government funding for digitalisation
For startups or other small businesses that have just started out or are in the nascent stages of development, one of the things around which a lot of decisions could revolve is funding. Without funding, it may become difficult to put their digitalisation plans into action. This is why we asked our respondents if their company has received any government funding to support their digitalisation process and got the following responses:
- 40% received government funding for digitalisation once
- 25% received government funding for digitalisation multiple times
- 20% did not receive government funding because they did not apply for it
- 8% were not aware of any available government funding, but would have been interested in applying, and
- 6% did not receive government funding despite applying for it
It is interesting to see that a combined total of 65% of the respondents have received funding from the government at least once. This indicates that programmes run by the government like the Digital India Program and Startup India Initiative have been successful in their goals to assist existing and budding entrepreneurs and startups.
Those who have not yet attempted to secure funding can consider doing so though the official government portals of the various programmes mentioned below. The Indian government has started the Startup India initiative which offers grants of up to Rs 20 lakhs for validation of prototype development, and up to Rs 50 lakhs for investment for market entry. We will discuss the various funding initiatives for startups as well as small businesses in the sections below.
How can startups apply for funding under the Startup India Initiative?
For startups looking to acquire funding, they are required to first asses their status and undergo the following steps as mentioned on the ‘Startup Funding’ page of the website:
- Assess the need for funding: As a part of the first step, interested startups are required to analyse why they need funding and create a milestone-based plan to support their goals.
- Assess investment readiness: This step aims to check the readiness of the startup in terms of revenue projections and returns.
- Prepare the pitch deck: As a part of the third step, they need to prepare a thorough presentation of their business highlighting all of its key components.
- Investor targeting: Once the pitch deck is prepared, they are required to gauge which venture capitalist (VC) firm is the right fit for them and submit their investment thesis, which is a written proposal of why companies or investors should invest in that company
- Due diligence by interested investors: Once the startup undergoes all the above steps, angel networks and VCs would do a rigorous due diligence investigation of the startup.
Startups can go through various government schemes to gauge which one would work best for them in terms of the ministry or department it comes under, the benefits of the scheme, and eligibility criteria. Interested startups can go through this in detail and apply here.
Our next question was whether digitalisation is possible without receiving assistance in the form of government funding. Here’s what those respondents who have received government funding had to say:
It may be worthwhile to see that while 49% feel that the process of digitalisation would have been possible without government funding, a combined total of 52% feel that digitalisation would be challenging or even impossible without government funding. Those who haven't been able to receive government funding can make use of free software available in the market to meet some of their digitalisation needs.
8 in 10 think there should be more funding initiatives for digitalisation
In the previous section, we discussed the proportion of respondents who have either received or not received government funding. In this section, we will discuss the availability of government funding and what our respondents feel about it. The following answers were recorded:
Our data indicates that a good majority of respondents feel that the government should provide more funding to facilitate their digital transformation. In terms of some resources that are currently available, here’s an overview:
Government-sponsored schemes and initiatives for Indian SMEs
Under this scheme launched in 2015, non-corporate, non-farm small/micro enterprises can obtain loans of up to Rs 10 lakh. Commercial banks, small finance banks, microfinance institutions (MFIs), and non-banking financial company (NBFCs) offer these loans. The borrower may contact any of the above-mentioned lending institutions or submit an online application using their website.
The National Small Industries Corporation launched the ‘Single Point Registration Scheme’ as a development plan to help micro-small businesses. Micro and small businesses that have already started their commercial production but have not yet completed their first year are eligible to apply for this.
This programme intends to establish a network of technology and incubation facilities to foster entrepreneurship and innovation and boost the competitiveness of the MSME sector, primarily in rural regions. The scheme offers up to Rs 75 Lakh to private agencies for procuring plants and machinery.
What do we know so far?
Through this article, we saw that companies that have a digitalisation strategy in place or at least implemented one in the past face some challenges and barriers to it. Just like with the implementation of any new process, timely revisits of existing processes can help businesses overcome challenges by looking for possible solutions and software that can help them achieve goals. This can also help them eliminate or replace the software they no longer need, as 50% of the respondents feel that they need to replace at least one software program to suit evolving business models.
We also saw how the various government schemes and initiatives are helping SMEs and startups by providing them financial assistance, with 65% of the surveyed respondents saying that their firm has received funding from the government. That being said, there is still scope for more such initiatives and programs, with 80% respondents feeling that there should be more such initiatives to facilitate digitalisation. With the higher penetration of internet services in India and the Indian Government setting up a target to provide 4G network to all uncovered villages by 2024, businesses have yet another reason for incorporating digital processes into their business plan.
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 employee
- Works 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