What are the major barriers to digitalisation and can government funding help?

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.

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.

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.

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.

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.

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:

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.