Overview

Digitalization: SMEs must overcome these four challenges

The opportunities of digitalization are obvious: greater efficiency in all processes, new products and services and the development of new business models and markets. To maintain competitiveness in the long term, there is no way around the digital transformation. Take industry, for example: 73% expect new technologies to become increasingly important. The increase in importance is even more pronounced among service providers and in retail (Ernst & Young: Digitalization in German SMEs).

The visible digitalization of the corporate and consumer worlds is evidently creating considerable pressure to act on German management floors. Currently, 48 percent of SMEs are observing that competitors from the Internet sector are forcing their way into their market. 19 percent fear that their own existence is at risk. Digitalization therefore has two faces: opportunities for innovation and new markets combined with unprecedented competitive pressure. Nevertheless, there are no major transformation stories. Instead, 34 percent of companies are reporting problems in coping with it (Bitkom Research). They realize that they are on a challenging path with obstacles.

A policy of small steps

It is fitting that although companies regularly invest in their IT, they pursue a tactic of small steps. Only 22 percent already have a cross-divisional digitalization strategy. Expenditure has also been manageable to date: half of SMEs spend less than 10,000 euros per year on IT projects (excluding ongoing IT expenditure). Only 5 percent of companies spend more than 100,000 euros on projects. In total, around 10 billion euros are spent on digitalization projects in Germany each year (KfW Research).
As many as 78 percent of companies have implemented technological projects in the last three years: Hardware, software, IT security, website, linking processes. 64 percent have invested in expanding their expertise, such as IT training, consulting, reorganization of workflows, concepts for Internet marketing and sales. What are the current arguments against a massive expansion of infrastructure, applications and expertise?

Four major obstacles

If you ask SMEs about the current challenges that make the use of digital technologies more difficult, four issues are at the top of the list according to KfW Research:

1. At 67%, most companies cite the lack of IT skills among their own employees as an obstacle. This is exacerbated by the lack of IT specialists who could be hired quickly – according to 55%.
2. Data protection and data security play the role of brakeman for 62 percent. SMEs fear legal risks when it comes to data ownership. This hinders the development of data-based services for customers. In the view of many companies, legal regulations do not sufficiently clarify what liability exists if a software error causes damage to the customer. In addition, customers are very reluctant to share data with manufacturers.
3. For 59%, high investment and operating costs are an obstacle. A large proportion of companies see the specific costs as a problem, not their financing (only 31%). Companies believe that the benefits are not high enough to prevent more intensive digitalization. Experts are particularly skeptical about high IT expenditure, which is seen as a cost factor with no potential for added value, among companies that are not pioneers themselves. In line with this, 54 percent of companies criticize the lack of information about the possible applications and benefits of new technologies. Yet there are numerous examples of best practice that show that the intelligent use of IT enables concrete savings potential – for example by reducing waste, more efficient warehousing or lower energy consumption.
4. Another obstacle cited by 58% is the internet speed. Even those who already have a speed of more than 50 Mbit/s would like more speed and would benefit from an acceleration.

Digitalization offers great opportunities for German SMEs: Almost all decision-makers recognize how important their digital development is for the future success of the company – in some cases also for its survival. Read on to find out how you can deal with the typical challenges and which steps will make your digitalization project successful.