Driving Growth In UK SMEs With Digital Transformation: Part 1 - Consolidate

This is the first of a 4-part mini series to help UK SMEs drive growth and create enterprise value by following a simple 4 step framework:

1. Consolidate
2. Integrate
3. Automate
4. Innovate

You can find the full framework complete with support on the Full Stack Consulting website .

UK SMEs are becoming less productive than their international peers, that is the finding in the London School of Economics POID Special Report - Cracking the Productivity Code: An international comparison of UK productivity.

Pre the 2008 global financial crash UK productivity growth was 2.5%.

In the following years up to Covid in 2019 growth averaged just 0.5%, and extending up until 2023Q3 growth averaged just 0.4%. Neither Covid, the invasion of Ukraine nor the energy price shock explain this fall in growth.

The US, France and Germany saw growth slow only to 1.6%, 1.5% and 1.0% respectively, so global factors do not seem to explain the extent of the UK slow down either.

The LSE paper finds that "just about half of these gaps are due to lower tangible and intangible capital" and that "attention may need to be focused on what is holding back investment".

The paper makes suggestions for policy makers, but I am more interested in what SMEs can do for themselves.

Research from Deloitte finds that "An integral component of closing this differential in productivity is for UK organisations to maximise the potential that digital technologies hold". They go on to report that "74% of the UK business and technology leaders surveyed in Deloitte’s Measuring value from digital transformation research collection think digital transformation is “the single most important investment now and into the future that organisations can make to drive enterprise value”.".

Yet, "Despite their ambition, UK organisations lag the global average in several key metrics for creating value from investments in digital capabilities".

There are 5.6 million private sector businesses in the UK:

• 5.51 million small businesses (0 to 49 employees)
• 36,900 medium businesses (50 to 249 employees)
• 8,000 large businesses (250 or more employees)

Putting this all together, UK SMEs can play a big role in boosting UK productivity and their own growth by investing in digital transformation, including investing in the skills necessary for adoption.

My experience working with UK SMEs is that while investment might be more difficult to secure in the UK versus say the US, that is not what is holding them back.

The issues that I see most frequently are:

• Lack of technical leadership
• Lack of capacity to implement change
• Lack of ability to appraise transformation projects, which are typically intangible in nature

This creates a sense of not knowing where or how to start, and so they don't.

That is the reason for this 4-part mini series - to show SMEs how they can get started on their digital transformation journey.

Step 1 - Consolidate

Over the years I have parachuted into companies to find a variety of different problems across their digital estate:

• Low quality, bespoke software that is not fit for purpose
• Fractious relationships with outsourced vendors that blocks progress
• Legacy, unsupported systems that customers hate
• Customised enterprise software that has become so cumbersome and unstable that nobody wants to touch it
• Inventories of servers and storage that is no longer used, but can't be switched off because nobody is sure what will happen
• Expensive, over spec'd infrastructure that is a drag on budgets
• Security holes that could cause massive brand damage if they were exploited
• Poor data that frustrates customers and team members alike

The Consolidate stage is where you take stock and get your house in order.

Here's how you do it:

Team - get your team on board, establish effective ways of working, set high standards and get them excited about the adventure they are about to embark on and the skills they are going to develop.

Business analysis - what does your business do to create value? What are the internal? processes that you operate in order to create that value? We'll be using this piece of work multiple times in this transformation framework, so it will pay to be thorough.

Audit your estate - itemise all your hardware, systems, datasets. What is it, where is it, why do you need it, who supports it, when does the licence expire, who uses it, what do they think of it etc etc.

Cross reference - map your IT estate to the business processes you mapped out. Highlight anything that seems redundant.

Cut - let's start by eliminating waste. Sure this saves cash, but it will also save you time later on. A smaller, simpler digital footprint will be easier and less risky to operate and maintain

Vendor management - a small number of well managed outsource partners will give you much better outcomes for far fewer headaches. Decide who you want to work with and who you want to chop.

Improve - your business analysis and audit of the estate should have given you a big list of things that don't work well or which pose a risk to the business. This could be because the digital solution is out of date or not well suited to the business process, or it could be because the digital solution is low quality. Either way, get it sorted.

Optimise - is your spend efficient? Could you use auto scaling infrastructure, are you API quotas or SaaS subscriptions the right size, are you a 9-5 business paying for 24/7 support?

At the end of the Consolidate phase you will have achieved the following:

• A clean foundation on which we can build
• Elimination of wasted spend that can be redirected to productivity enhancing investments
• Time saved managing infrastructure, systems and outsourced vendors more effectively

Now you're ready for Part 2 - Integrate, coming on Tuesday.

Sources:

LSE report: https://cep.lse.ac.uk/pubs/download/special/cepsp41.pdf

Deloitte report: https://www.deloitte.com/uk/en/services/consulting/research/measuring-value-from-digital-transformation.html