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One of the keys to unlocking productivity in the UK is helping small businesses adopt new technologies
"There is appetite amongst the small business community to actively incorporate digital tools and technology skills into their businesses"
The adoption of digital technologies has been shown to have a positive impact on productivity, with research indicating that the use of digital technologies is strongly linked to sales per employee. For instance, the use of a Customer Relationship Management system (CRM) added 18.4% to productivity, ecommerce added 7.5%, and accounting software led to an 11.8% increase in firm-level productivity over three years.
The Office for National Statistics (ONS) has also assessed that the use of two or more business management technologies is associated with productivity gains of up to 25%.
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£216bn
SMEs contribution to the UK economy
through the use of technology
£232bn
SMEs contribution to the UK economy
through GREATER use of technology
Digital Britain: How small businesses are turning the tide on tech
Sage, June 2022
Core in-house functions
In a small engineering design company, the design of the product would be strategically important and if it requires specialist manufacturing skill, it may be better to keep that in-house. However, if the manufacture is more straightforward, it may well make sense to outsource it.
If a function is strategically and operationally important keep it in-house otherwise it can potentially be outsourced. For those functions kept in-house, there is a huge range of digital technologies that can help you carry out the function more efficiently and cost effectively. These include CRM, accounting software, HR software, and employee workflow and communication.
Outsourced functions
Not all functions need to be conducted in-house and they can be outsourced to external companies, contractors, or freelancers. Some of the most common functions to outsource include IT, Finance and Payroll.
The top six reasons why small businesses should digitalise and outsource
1. Cost Savings
2. Quality of Information
3. Continuity
4. Compliance
4. Flexibility
6. Competitiveness
Some of the most commonly cited benefits of digitalisation
38%
Digitalisation helps business run more smoothly
38%
Digital tools improved the customer experience
32%
Digitalisation led to improved efficiency and lower costs
31%
New digital technology leads to higher productivity
30%
Digitalising internal processes saved employee's time
29%
Digitalisation helped their business survive
28%
Technology enabled companies to get paid quicker
27%
Digital tools allowed better control of finances
Benchmarking the digital capability of small businesses
The Lloyds Bank Business Digital Index 2021 (latest Report) uses survey data to identify and measure how small businesses in the UK think about, and are putting in to practice, the adoption of tech within their business.
The index focuses on businesses with an annual turnover up to £25 million and fewer than 250 employees.
The Index Score range is between 1-100 and is used to benchmark small businesses into one of five digital capability segments (Passive, Getting Started, Established, High and Advanced). Underpinning this score are eight key indicators including infrastructure, mobile and security. For a complete overview of the index and it's methodology, please refer to the report.
However, it highlights some interesting data about the digital profile of small businesses, what they're doing well, and focuses on areas that can be improved. The report concludes that if businesses with low digital capability (segements 1-3) moved to high levels of digitisation (segments 4-5), it is estimated the UK economy could benefit by around £75 billion.
64%
Since 2014, the number of businesses in this segement has increased from 25% to 69%
23%
Covid helped many businesses to seek wider markets and 23% said this was the main benefit to being online.
56%
56% of businesses with low digital development said further development was NOT a priority.
Overall Index
1. Passive
Index Score range: 0-18
• Own website: <5%
• Email customers and suppliers: 25%
• Social media to communicate with customers & suppliers: <10%
• Use online government services: c.10%
• Internet Banking: c. 20%
• Online accounting software: 0%
• Essential Digital Skills: <5%
5. Advanced
Index Score range: 62-100
• Email customers and suppliers: Nearly all
• Social media to communicate with customers & suppliers: c. 80%
• Use online government services: >90%
• Internet Banking: Nearly all
• Online accounting software: 70%
• Essential Digital Skills: 67%
Five Barriers to successful technology adoption by SMEs
Products built for enterprise not SME customers:
Don’t address needs
No clarity re benefits
Lack of expertise and execution support
Lack of inhouse expertise
Crowdsource knowledge from own networks
Adoption looks too hard and too costly
Failure to deliver expected results
Require solution not re-engineering large part of business
End-user adoption problems
Need understanding of pain points
Ongoing support and upskilling maximises value
Switching feels too high risk
Locked in with large, complex systems
Switching could cause damaging loss of data
Preference for simple off-the-shelf products
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70% (of SMEs) cited the cost of software licences as the main reason why they hadn't yet adopted technology
According to a new report by Enterprise Nation: Powering digital adoption among UK SMEs (December, 2023) of hundreds of small UK businesses, adopting technology tools like CRMs, cloud storage, and AI can provide major benefits for SMEs including time savings of up to 3.5 weeks per year for senior leaders.
However, the survey found worryingly low adoption of many basic tech tools, with only 14% using cloud backups and 29% using CRM systems. The main barriers cited were cost of software licenses, as well as skills gaps and lack of confidence.
The report recommends collaborative efforts by government, the tech industry, and business support groups to address these barriers through affordable licensing, training, and other support so that small businesses can fully harness technology to enhance productivity, decision-making, sales, and overall success and resilience.
Size Matters for SMEs
This trend is also apparent in the adoption of innovative technologies like AI, with 41% usage among small businesses compared to 77% in larger SMEs. Larger SMEs not only use more types of digital tools – averaging 8 compared to 4.7 in smaller businesses – but also have a higher intent to expand their digital toolkit in the coming years. This data underscores the need for a nuanced approach from tech providers and policymakers, recognising the diverse challenges and needs within the SME category, especially for smaller enterprises.
Xero: Beating the 'digital drag': Unleashing the potential of the UK’s smallest businesses
Some Key Services Your Business Can Outsource
Accounting and Finance
Accounting is commonly done by small businesses in-house, initially, but the time and skills required to deal with the complexity and compliance often encourages outsourcing. Around 40% of businesses outsource these functions, including payroll and pensions.
Information Technology Services
IT management is a very popular service to outsource, as many small businesses simply don't have the resources or skills to maintain their IT requirements in-house. Services may include an IT helpdesk, cyber security, hosting, disaster recovery, and network management.
Marketing
Whether it is online digital marketing or more traditional print marketing, the skills and time required to undertake this vital task are many and varied. Outsourcing to a professional firm ensures you get the benefit of their creativity and experience without the drag on your time.
Customer Service
Keeping customers happy is vital for any business. However, it can be a time-intensive process, diverting your staff away from other important functions. Cloud-based or shared-agent services may be a better solution, as long as you are able to provide a clear and comprehensive outline of your customer profile and requirements.
Human Resources
Finding staff with the right skills and experience can be a time-consuming, difficult task for smaller businesses. Dealing with the ongoing training, health and safety, pension and benefits administration can add further layers of administration. Outsourcing can ensure your business efficiently and cost-effectively looks after its staff, helping reduce turnover and disruption.
Logistics and Shipping
Depending on what products and services your business sells, outsourcing your logistics can be a siginificant time-saver. An outsourced provider of warehousing and delivery can not only ensure you meet all legal and customs procedures, vital if you export, it can also help your customer service as the outside expertise can ensure a smoother route to market.
Digital Tools are key to growth
Digital tools are key to the growth and efficiency of small businesses. Businesses that embraced digitalisation the most between 2019 and 2022 saw an 8.1% increase in revenue, while those lagging behind experienced a 4.7% decline.
Popular technologies driving this digital adoption include cloud computing, communication tools, and digital assistants. These tools not only enhance operational efficiency and reduce costs but also assist in expanding customer bases.
Operational technologies like cloud computing (48%), accounting software (35%), and graphic design applications (29%) are used by 80% of small businesses. Furthermore, 79% utilise communication technologies, with online media (58%) and video conferencing (46%) being the most common. Emerging technologies are also gaining traction, with 41% of businesses using digital assistants (24%) and artificial intelligence (22%).
Overall, digitalisation is proving to be a catalyst for small business growth across various industries.
Deciding what you need for your digital office
Set your objectives
Why?
When you set out to invest your hard-earned money in new software, do you know what do you want the software to do? Are looking to boost your productivity, or reduce fixed overheads?
Do you have a specific bottleneck or staffing issue which needs addressing? Do you understand what problem(s) your software will solve and what benefits your business will gain from it (and how will you measure any such gain?).
Write down a list of your objectives and discuss them with members of your team so that they can share their ideas and make suggestions.
Define your requirements
What?
Sometimes, the business functions of a company can be implemented in a slightly chaotic manner. Processes evolve organically and, with staff turnover, it can sometimes be opaque as to how a particular process or function has evolved.
Understanding each function that you want replaced, and planning for future development and growth will allow for the most effective and efficient replacement of your current processes.
SUGGESTION
Give a 'critical' score to your business processes and functions to better understand what you do and don't need.
Keep an eye on the costs
How Much?
Budgeting for new software can be a little tricky. Sometimes attributing costs to a particular process or function can be hard. Once you understand your current cost of undertaking a function, it will be easier to assess the cost/benefit of buying in new software.
Working out the Return on Investment (ROI) will be made easier, especially in conjunction with the reasons to outsource, in the section above.
Create a calculator that will set all the current costs (and savings) against the cost of the new software. Be sure that the benefits outweigh the costs (and risks).
Making the purchase
When?
When you have made the business case for new software, you will need to implement a process to search for, narrow down to, and purchase your chosen software. Ask colleagues, friends, read review sites, try a free trial if you have the time and resources.
Make sure you give sufficient time for your in-house team to get comfortable with the new software. Change can be good long-term but it will undoubtedly cause disruption in the processes as well as the team.
Make sure that all parties in your company have buy-in to the purchase process. If they feel engaged and with buy-in to the new software, it will ease the implementation process.
Get FREE help going digital
Be the Business
Be the Business is a not-for-profit organisation set up by the government to support SMEs. Their site is designed to provide FREE support and advice to help SMEs solve the 'productivity puzzle' through technology implementation.
With a series of guides and interactive action plans, the path to the successful adoption of technology that can really help your business has never been easier.
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