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Digitalisation has become a buzzword in the last few years. Many companies, regardless of its size, are undergoing digital transformation. However, do you know how to begin with the digitalisation process and the impact it may have on MSMEs like yours? This article will act as a quick guide to digitalisation for MSMEs, explain why digitalisation is important and how to begin.
However, before we deep dive into it, let’s understand the difference between digitisation, digitalisation and digital transformation.
Digitisation vs digitalisation vs digital transformation
Digitisation in simple words means a process of converting physical documents into a digital format. For example, instead of a physical invoice, issuing e-invoices. Here a business uses devices such as computers, laptops, etc., to store information.
Digitalisation means converting manual processes into digital with the help of digital tools. For example, using Tally software for accounting purposes. Digitalisation brings automation, calls for change in business processes and requires upskilling for employees.
Digital transformation on the other hand is integrating digital tools and applications in all aspects of the business. In other words, it changes the way each of your department functions. For example, digitalisation of the inventory management provides visibility on real time data that can help employees take accurate decisions about inventory management.
Note: Your company may be at any stage of the digital journey. As a MSME, it is however beneficial if you adopt digital tech quickly to avail multiple opportunities that the government is providing for MSMEs. For instance, instead of manual signatures, a Digital Signature Certificate Class III (DSC) is required for e-Tendering and also forsigning an e-invoice and Form 16.
Why is digitalisation important for MSMEs
Digitalisation followed by digital transformation brings various benefits for MSMEs. Some of the benefits include:
- Transparency: It brings transparency in every aspect of the business and operations.
- Ease of customer management: With the help of digital tools, managing and engaging customers has become easier. For example, the use of social media can engage customers effectively. Similarly, the establishing a website, sending e-newsletters, using WhatsApp, etc., has changed the ways of customer interaction.
- Time and cost efficiency: By automating mundane processes, digitalisation can save a lot of time thereby freeing up a significant amount of time for employees to take on other responsibilities.
- Work satisfaction of employees: When employees are free from doing mundane jobs and their skills are better utilised. As a result, it improves work satisfaction for employees.
- Customer credit management: Digital tools offer better visibility to a customer credit report. One can easily find out defaulting customers and repeated defaulters. This gives business owners an insight into whether it is profitable to do business with a certain customer.
- Access to real–time information at any point anywhere: Advance digital solutions such as cloud computing allow employees to access real-time data from anywhere. For instance, e-logistics solutions as against traditional logistics systems, provide both the seller and customers visibility on the logistics flow, order status, inventory details and more.
- Higher profits: All of the above helps to eliminate inefficiencies in the business and enable to increase profit margins. A report suggests that digitalisation has helped companies increase profits by 27%.
- Expanding markets: Digital technologies such as e-commerce help businesses serve newer geographies. Platforms such as Amazon, Facebook Marketplace, etc., have brought consumer and suppliers closer than ever before. For example, the reach of a brick-and-mortar retail shop is limited to a surrounding area, however, the same shop can expand market reach by listing products on e-commerce platforms. Similarly, the government has launched the Government eMarketplace (or GeM) portal to enable MSMEs to list their products and services and sell to government departments on GeM portal.
- Predictive maintenance: For MSMEs in the manufacturing segment, predictive maintenance is a major relief. It helps to assess the condition of the plant and machinery and alerts the Plant Manager to schedule maintenance of a particular machine. This helps to reduce downtime improving the capacity of the plant.
What are the challenges in digital transformation?
Understanding the benefits of digitalisation many MSMEs have begun their journey with digital adoption. While they use tools such as social media, e-commerce, GSP solutions for filing GST returns, TMS solutions for logistics transportation, etc., the complete digital transformation is not achieved by many of Indian MSMEs.
A NASSCOM report suggests that the Indian digital transformation market is expected to reach $710 billion by 2024, registering a CAGR of 74.7%. The report further expects the use of advanced technologies such as the cloud, Internet of Things (IoT), big data and analytics, mobility, and social media by Indian businesses.
- Higher initial cost: The initial cost of digital tools is high which many a time is unaffordable to MSMEs. Additionally, MSMEs may have to spend on employee training.
- Reskilling effort: The existing customers need to be reskilled to use the new digital tools, which may take additional time, money and effort causing day-to-day operational disruptions.
- Lack of desire: Some MSMEs, especially those accustomed to older processes, are often reluctant to change.
- Lack of knowledge: There are some MSME owners, who desire to bring transformation to their business however questions such as ‘where to begin and how to start’ keep discouraging them.
The government launched the Udyam portal to encourage eligible MSMEs to register on Udyam and earn the Udyam registration certificate to avail several benefits, exemptions, and subsidies. However, of the 65 million+ MSMEs in the country, only a fraction has registered themselves on the Udyam portal and benefiting from it.
Tips for adopting digital transformation
- Where to begin?: There is no perfect strategy for digital transformation. The answer to this question is unique to every organisation. However, it is important to have a digital transformation strategy or framework drawn for smoother transitioning. For drawing a framework, it is important to do a self-assessment of the business. Digital transformation essentially improves the efficiency of the business/processes. You can start with the process that turns out to be the most inefficient in the self-assessment exercise and then scale it.
- Start with a small: Digital transformation is not a quick change of processes, it is a journey. Hence, from the perspective of expected disruptions, financing, etc., it is better to start with small and scale gradually.
- Seek help: You can seek help in various aspects. If the confusion of where to start still remains, it is better to seek a consultant’s help, who can assess your business operations and help you draw a strategy. With regards to arranging finances, the government of India helps MSMEs with several forms of financing solutions. Moreover, the Digital MSME scheme is designed to empower MSMEs digitally and help them to adopt digital tools that emphasise on improving competitiveness.
Points to ponder about digital transformation
- Think of value: Digital transformation will improve efficiency to your business, make it more competitive and hence turn out to be a factor contributing towards growth. Therefore, focus on the value to be derived from digital transformation and not the challenges it may bring.
- Cyber security: With the increasing adoption of digital technologies, the threat of cyber security is increasing. Therefore, while adopting digital tools, make sure that they are robust and not easily hackable. Learn about the preventive measures and steps to be taken if you become a victim of a cyberattack.
- Scalability of digital tools: While choosing digital tools, pay attention to their scalability. Its scalability should be in line with your business expansion plans and vision. The new tools should not only improve efficiencies in the current business but also accommodate future needs.
Digital information is important from business relevance and sustainability perspective. In the future, the offline business may become obsolete and run out of business. What steps you take today will lay the foundation for your tomorrow. Hence, choose digital tools carefully.