‘MSMEs will have to embrace lean digital thinking to acquire digital mindset for better ROI’

By V Srinivasa Rao  Technology for MSMEs: The previous decade saw the inception and fostering of newer technologies based around the rapid increase in data interconnectivity and smart automation, leading to what is referred to as Industry 4. 0, or the 4th Industrial Revolution. Although the 4th Industrial Revolution started a decade ago, it is only recently that MSMEs began embracing digital technologies to scale up their business and improve operational excellence.

But the Covid pandemic saw MSMEs forced to break this inertia, to realise the importance of digitalising and accelerate their attempts to digitalise operations. And yet, MSMEs are not completely satisfied; the ambiguity remains on why digitalisation has become a crucial part of the path forward. Why must MSMEs digitalise? What operations must be digitalised and how do MSMEs go about digitalisation? Is there a “correct’ timeline to adoption?   There are several questions that have gone unanswered, or insufficiently answered, creating uncertainty among MSMEs.

None of these factors support the argument in favour of digitalisation. Further, most MSMEs started digital initiatives based on market trends or what their competition has been doing, without creating a unique digital-specific mission or purpose.     In addition to the confusion, current data indicates that over 70% of digitalised projects fail, due to various challenges posed such as many MSMEs are genuinely unaware of the impact of digitalisation, they have limited growth capital in general, they are primarily controlled by the promoter(s), who are not conversant with digital technologies, and there is also an element of fear of failure and inherent resistance to change.

 There is no formal process as well within MSMEs to regularly understand their customers buying behaviour, needs, wants and competition landscape. Many MSMEs have not automated their core processes and have been driving their businesses using excel sheets.   To overcome these challenges, MSMEs have to first define their digital mission based on market trends, shifts and customer needs, analyse the competition and identity their digital initiatives.

 MSMEs have to prioritize the digital initiatives based on their customer needs, investment ability, leadership bandwidth, culture and internal digital capabilities. They must create the Digital Business Value Increment Map, and plan the budget and resources in stages, to absorb and deliver value to their customers.    It’s time to let go of the idea that businesses are distinct and unique, and acknowledge that there are no off-the-shelf digital solutions available.

Hence, groups of MSMEs must form clusters based on pre-defined criteria, and ensure that for all non-mission critical areas of their business, they will all share a one digital platform and also the cost of technologies, infrastructure and related services.    In the Union Budget 2022, the integration of Udyog Aadhar Registration, e-Shram, National Career Service, ASEEM and Skill Management Information System announced may become a catalyst for MSME growth. The seamless integration of MSMEs with the databases of a skilled workforce – an unorganised workforce with necessary training support, would help MSMEs.

Specifically, Drone Shakti would make a great Drone Components Supplier Ecosystem in India. In addition, the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) and Emergency Credit Line Guarantee Scheme (ECLGS) would provide some breathing time to MSMEs to bounce back from the impact of the Pandemic.   While all these initiatives provide adequate support, MSMEs are mainly concerned about their day-to-day working capital.

So, MSMEs must balance the need to invest in digitalization and maintaining their daily operations, and choose the best option.    Following is an indicative skeletal road map in five levels that MSMEs can use and customise. MSMEs may change their roadmap mentioned below as appropriate to them.

   Level 1: Define digital business blueprint  Create a digital business blueprint and spend every rupee on digital initiatives that align with the digital business blueprint.  Define digital business blueprint for at least three years covering digital business vision, digital business model, digital business strategy. MSMEs could identify the customer pain points, unique products, and solutions, design unique value propositions, and differentiation leveraging digital technologies.

It is advised that MSMEs identify the digital strategy initiatives aligning with their core purpose/ mission and prioritize them using quantifiable parameters. Innovative offerings and pricing strategies to be devised to reach the unexplored customer and market segments.   Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises  Level 2: Digitalise communication, collaboration, and documentation tasks  Start small and focus on improving communication, collaboration, documentation management, and productivity.

 Use collaboration tools like Teams, Zoom, Google meet, office automation and productivity apps. The Covid-19 pandemic has empowered MSMEs to best leverage the collaboration software tools like Zoom and Google Meet. MSMEs must continue this trend and devise a strategy to reduce travel for sales activities, allowing employees to work from home wherever possible, reducing operational costs.

In addition, MSMEs must use productivity, content management, document management, and task management tools, which are available as SaaS subscriptions. These tools could help the MSMEs to improve productivity and reduce costs.   Level 3: Digitalise business operations  Focus on improving operational excellence, cost reduction and productivity, and better customer service by digitalising the business processes with mobile, analytics, cloud, social and other technologies.

Digitalise core business and industry processes using Cloud ERP applications and introduce new digital policies, roles, structure and KPIs. In general, MSMEs generally use Excel sheets and a few low-end software tools for their day-to-day operations management, covering supply-chain management, HR management, Inventory management, finance management, and others. However, MSMEs must embrace mobile, social, analytics-based Cloud ERP applications to improve their operational excellence and profits.

Therefore, strategic intent is required to select the best cloud ERP software which is affordable and easily integrated with the existing tools/software.    Level 4: Enable data-based decision making  Leverage the data available from various communication, collaboration, and business process digitalisation systems and apply analytics to make the right decisions at the right time. MSMEs must leverage Micro Services and APIs to integrate with OEM, partner and supplier ecosystem.

Leverage data generated from Cloud ERP applications and OEM, suppliers/partners systems, and use AI/ML, analytics to make the right decisions at the right time. Once the MSMEs start using the Cloud ERP software and other productivity improvement tools, many data points will be available, which must be mined by leveraging the analytics solutions to get access to various reports, dashboards, simulation models and get alerts, escalations, notifications help the MSMEs to take right decisions, corrective and preventive actions in right time all based on data than by experience or gut feeling.    Level 5: Digitalise products and services innovation  Focus on re-engineering and reimagining products and services using digital technologies to leapfrog the competition and add high value to customers.

 Leverage AR/VR/MR, AI/ML, IoT, Analytics, Cloud, Edge computing, mobile technologies to define new customer services, channels and product innovations.   Today customers have been looking for continuous newness, and their needs and wants are getting changed within a shorter time. Also, the new-age competition for MSMEs need not be from their line of industry; it could be from any tech start-up.

Hence, MSMEs must add new, unique capabilities and features to their existing products and services. Also, MSMEs must introduce new products and services leveraging digital technologies to have higher customer retention and become relevant in today’s volatile digital era.   The government could start a Digital MSME program to guide, mentor and support MSMEs who are starting off on this digitalisation journey.

The government could also establish a clustering system for MSMEs and partner with private agencies and digital start-ups to build or implement the digital software products, platforms, and infrastructure shared among the MSME cluster members. With this partnership between the government and digital technology solution providers, the journey of MSME digitalisation across the country could be accelerated.   The digitalisation of MSMEs helps them create new business opportunities and revenue streams, acquire new customer segments, and improve operational efficiency and employee productivity.

For example, an office-chair manufacturing company can make the chairs intelligent with sensors, electronics chips, and embedded software connected to the internet. When a person sits on this smart chair in the wrong posture, the chair sends a message to their mobile phone through Bluetooth to sit correctly. That means the traditional chair manufacturing companies must embrace these new technologies to be relevant to counter the new-age competition.

Another example is that by using IoT technologies, MSMEs could establish a transparent supply chain system to track the perishable goods until they reach their destination  In summary, MSMEs should leverage digital technologies to introduce new products, services, intelligent processes and create new digital channels to reach unexplored customer and market segments, eventually impacting the economy positively. “Digital Execution with Traditional Thinking ensures Successful Failure,” therefore, MSMEs have to embrace a new thinking – the lean digital thinking to acquire the digital mindset required to ensure that they get better ROI from their digital initiatives. In fact, if they do in two to three years, most MSMEs in India may even have managed to bridge the gap in digital transformations!  V Srinivasa Rao, Chairman – Open Digital Innovation, IET Future Tech Panel and Chairman & MD, BT & BT Management Consultancy.

Views expressed are the author’s own. .