Managing SMEs in the Digital Age

This article is based on a paper published in the Debates IESA journal, by Rebeca Vidal and Marcel Antonorsi Blanco, guest lecturer at IESA. 

SMEs account for about 15% of Latin America’s business matrix, offer more than 30% of jobs, and their share of exports is less than 5%. Reports from CAF—development bank of Latin America—and from the Economic Commission for Latin America and the Caribbean (ECLAC) warn that productivity tends to decline as the scale of the company decreases. One reason behind relationship is the difficulty in incorporating technological advances into their operations model. Therefore, the challenge for SME managers is to develop more efficient and productive models.

Digital Revolution, Economy 4.0 and Company 4.0 are just three expressions that give us a rough idea of the new field where many Latin American entrepreneurs will have to wage their most important battles. But, is digital transformation an opportunity to develop these models? How can SMEs surf the technology wave?

It is essential for company managers to become aware of the digital transformation, or the “Fourth Industrial Revolution,” as many analysts have dubbed it. Its predecessors were the First Industrial Revolution (driven by the emergence of the steam engine), the Second Industrial Revolution (based on the use of electricity in industrial activities) and the Third Industrial Revolution (characterized by the mass use of computing and information technologies).

The Fourth Industrial Revolution—born out of digital innovations—provides greater connectivity for society and businesses. It serves as the basis for Economy 4.0 and Company 4.0.

Each industrial revolution enabled the business world to operate more efficiently and create higher value-added products and services for markets. These two circumstances resulted in increased productivity and competitiveness. These advantages were only realized by large companies with greater adaptability, i.e. those that were able to afford the investments required to ensure timely adoption of technology.

A particular feature of the current revolution is that capitalizing on opportunities depends to a large extent on the professional capacity of human resources and their degree of digital literacy and training. For example, companies require staff capable of familiarizing themselves with solutions that allow storage and processing of information in the cloud, to phase out paper files and physical interactions. It is also important to master the immediate collection and accumulation of data, based on interactions in a process or customer service, as it provides greater business intelligence.

In the digital revolution, thanks to progress in connectivity, businesses acquire a ubiquitous nature, which enables constant evolution of processes. There are machine-to-machine (M2M) links, which facilitate greater collaboration between the stages of a process and better quality interaction with customers and suppliers. These two factors encourage the development of value chains and the ability to run simulations at lower cost.

Competencies to surf the digital wave

In addition to a basic understanding of technology, the challenge for SMEs is to adjust the mental models of their owners and managers, i.e., the symbolic-normative paradigms that shape the ways of seeing, thinking and acting of organizational leaders and benchmarks. Large companies have specialized teams in charge of such tasks. But in SMEs, managers have to take time out of their routine business operation for planning and executing strategies related to the digital revolution. Adaptability, change management and continuous trend monitoring are essential tasks in face of the ongoing evolution of traditional technologies.

To stay ahead of competitors, an SME manager must first fully understand the technological advances associated with industry and the market. They also need to work hard to understand trends and identify business and investment opportunities.

The task of thinking about the future is the focus of various collaborative prospecting initiatives. One of the best known projects is the so-called Future Agenda, the largest in the world, as it feeds on information inputs and statistics from more than 5,000 organizations in 45 cities. The initiative is driven by fifty leading entities in sectors as diverse as finance, technology, consulting, healthcare and energy. In addition, promoters includes academic institutions, think tanks and government agencies.

As a result of this effort, organizers have defined 61 general trends for the next decade, which are constantly updated. The main trends include: an ageing population (leading to the growth of the elderly segment and an increase in retirement age), transformation of organizations into facilitators of spaces and tools for productivity of people (more than sources of jobs), curbing the influence of governments in businesses (given the higher speed of response of transnationals and economic blocks) and improvements in human performance (based on technological advances impacting body performance, such as implants and 3D printed biological tissue).

From Analysis to Action

Tracking current and future opportunities allows us to visualize the role of companies—regardless of their scale—in the context of new global dynamics. Never before have there been so many facilities to access and use information for the benefit of business growth. The real strategic advantage is to identify, in the chaotic flow of data and statistics, the most reliable information to sort it intelligently, in order to translate them into new business and investment opportunities. Such a skill will help, for example, pinpoint the real probability of successfully tapping into new markets or linking into growing chains of global value. It will also help to offer a creative differentiation, expressed in products and services tailored to market trends.

Implementation is always the most complex phase. Therefore, SME managers must recognize the need for a systemic concept of organization, which will never consist of only structure but also strategies, processes, systems, cultures and administrative models. All these components are already impacted by new digital technologies and must therefore be revised and aligned to realize competitive advantages and attract and retain increasingly demanding customers. The rigidity of standards, practices, customs and procedures has to be replaced by a managerial style aimed at flexibility and resilience.

The new times will be dominated by “digital masters,” who combine digital capability with leadership capability (Westerman, Bonnet and McAfee, 2014). Conservatives—beginners—and fashionistas will be outpaced. Moving from analysis to action requires a style of leadership accustomed to managing and shaping change. This change becomes much more exciting when approached from a “organization 4.0” perspective.