Digital Transformation Is Crucial for Longevity, According to Cisco Study

A new study reveals just how much the COVID-19 pandemic is accelerating small business digital transformation. With this modernization increasingly becoming a necessity, both networking giant Cisco and market intelligence firm IDC recommend eight steps entrepreneurs can take now.

These insights are from the 2020 Small Business Digital Maturity Study, commissioned by Cisco. IDC’s analysis of data from eight countries finds the massive impact digitalization can have on GDP by 2024.

How much small business digital transformation could boost economic growth

The study shows that the economies of the US, Canada, Mexico, Brazil, Chile, the UK, Germany, and France could increase by 5.5%, as well as observe a 42% faster growth rate, if small business digitalization increased.

Cisco and IDC find that small businesses have the potential to add $2.3 trillion to the combined GDP of these eight countries by 2024.

The findings echo the results of a similar Cisco and IDC study for Asia Pacific, Japan, and China. In that study, small and medium businesses were projected to possibly anywhere between $2.6 and $3.1 trillion to the region’s economy by 2024.

Projections from that study put the overall growth of the region’s GDP at $10.6 trillion to $14.6 trillion. That means small business digitalization could account for as much as a quarter of that region's GDP growth for the few years.

From digital indifferent to digital native

The study categorizes businesses in a four-stage technology maturity index. The first category is the digital indifferent, or a company that is reactive to market changes and that does not have digital efforts. Secondly, there’s the digital observer, which has current digital efforts. However, those efforts “remain tactile and bit-sized initiatives,” Cisco and IDC say.

Third on the list is the digital challenger or a company that has a more proactive technology use strategy. Lastly, there’s the digital native or a business that has an integrated digitalization strategy and is focused on continuous innovation.

Widening the digital divide

Daniel-Zoe Jimenez, who heads small and medium business research at IDC, says that the pandemic has worsened the digital divide that was already present in the small business market.

“It is forcing companies to accelerate their digitalization,” he says.

Small businesses are realizing that digitalization is no longer an option, but a matter of survival.

There’s a digital divide in small businesses in North America and Western Europe compared to those in Mexico, Brazil and Chile, IDC finds.

Small businesses in the US, the UK, and Germany are the most digitally mature. The study finds that 33% of businesses in those countries are digital challengers or digital natives. Overall, those countries are currently in the digital observer category.

They are followed by Canada and France, whose businesses are also generally digital observers. Businesses in Mexico, Brazil, and Chile are overall in the digital indifferent category.

Digital natives are thriving

Businesses that are more mature on the study’s scale have the highest ratio of recovering from the pandemic. They are also able to respond faster to changing market conditions and are even growing their revenue.

Among digital natives, 46% say their small business is recovering and thriving through business agility and resiliency. Furthermore, 17% say they are growing and scaling up, while 32% say they are surviving or sustaining their business. Only 5% say they may need to shutter.

Among digital natives, 46% say their business is thriving, while 17% say they are scaling up

In the other categories, a smaller 37% say they are thriving and 18% say they are scaling. In these groups, 37% say they are surviving, while 7% say they may close.

Pandemic-driven digital upgrades

What’s clear, however, is that the pandemic is driving digital transformation for small businesses. Across all regions overall, 72% of businesses say that the pandemic is a key driver to accelerate the digitalization of the business.

Only 25% say their plans for digitalization remain unchanged, while 3% said they plan to scale back their upgrades. The impact is more felt in Latin America, as seen below.

The most pressing challenges in digital transformation are a shortage of digital skills and talent, a cultural resistance to change, and a lack of budget or commitment. Other challenges are a lack of necessary technologies, a lack of a digital mindset, a lack of a proper digital roadmap, and a lack of insight.

Small Business Digitalization COVID-19 Pandemic Driver

COVID-19 is a major driver to technology upgrades for businesses

Small Business Digitalization digital transformation challenges

Modernization areas businesses are investing in

The study also shows the top investment focus area for businesses in the next year and a half to ensure organizational resilience.

Understandably, the area with the most investment focus is enabling remote working. It is followed by improving online sales, as well as supporting digital payments.

Tied in third are: creating a digital strategy with clear goals, investing in talent and digital skills, and creating or improving digital products and services. These are followed by automating or digitizing processes, then improving the decision-making process.

First and foremost, businesses of all stages are most focused on cloud-based solutions, the study reveals. However, the attention shifts from the second most important focus area onward, according to the study.

Small Business modernization Areas of focus

At different stages of the digital upgrade journey, businesses focus on different areas of technologies

How leaders can start small business digital transformation

Cisco and IDC recommend leaders follow these steps to build digital resiliency:

  1. Develop a three-year technology road map
  2. Prioritize the critical business processes to automate
  3. Evaluate the right technologies to invest in
  4. Invest in talent and skills focused on digital
  5. Find the right technology partner for your journey
  6. Leverage financing and re-manufactured equipment to help with cash flow and budget requirements
  7. Keep up with industry trends and best practices
  8. Simplify, start small, learn and scale

For another tip, the emphasis should be on enabling a remote workforce, a secure e-commerce platform, and a robust cybersecurity network.

Photo by ThisisEngineering RAEng on Unsplash

IDC’s Daniel-Zoe Jimenez says: “While the research shows many small businesses are making progress, they should increase focus on digitalizing processes and operations through the use of digital technologies to ensure business continuity and future resiliency.”

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