How SMEs Can Stay Competitive: Overcoming Technology and Innovation Challenges

Jun 11, 2024

SMEs form the backbone of every developed economy. For example in the UK at the start of 2023, there were 5.6 million SME businesses, 99% of the total, giving employment to 16.7 million people (61% of the total), with turnover estimated at £2.4 trillion (53%). SMEs are crucial for the economic success of a country and for the well being of the general population.

The Growing Challenge for SMEs

Unfortunately, in the last few years, SMEs have been struggling to keep up with the pace of innovation and the adoption of new technologies. This lag has been widening compared to large companies, leaving SMEs less competitive and profitable, and an easy target for PE acquisitions.

Limited resources, lack of budget, and lack of skills have severely impacted innovation in the SME world. Competition from large companies has increased and SME owners have been playing catch up to stay afloat. This incredibly difficult environment has taken away resources and mental focus from data and digital transformation initiatives. When your company is facing challenges from all angles, high interest rates, high inflation, more competitors entering the market, etc, it is difficult to prioritise new initiatives like digital and data transformation agendas.

Barriers to Innovation

Many SMEs are relying on legacy systems, poor data collection, manual and repetitive processes for their operations, leading to missed opportunities and inefficiencies. A survey by Sage (British Businesses Waste, 2019) found that SMEs lose an average of 120 working days per year due to admin tasks, costing them approximately £481 billion in lost productivity globally.

According to a report by the European Commission (Digital Economy and Society Index, 2020), 70% of companies report that the lack of staff with adequate digital skills is a big obstacle to investment. This skills gap, together with resource constraints, is making it difficult for smaller businesses to initiate and sustain meaningful technological advancements.

A study by Deloitte (The Performance of Small and Medium-Sized Businesses in a Digital World, 2019) found that only 20% of SMEs consider themselves to be digitally advanced, versus 82% of large companies, further widening the divide between them and their larger, more technologically adept competitors.

The Department for Digital, Culture, Media & Sport in the UK reports that only 15% of small companies have adopted AI, and the gap with large companies appears to be significant, whilst 68% of large companies report using AI, and 34% for medium-sized businesses. The adoption rate is expected to rise to 22.7% by 2025 (GOV.UK). It is a similar story for the adoption of data analytics technologies, a conference paper reports that only 10% of UK SMEs have adopted big data analytics (SpringerLink).

A Call to Visionary SME Leaders

Digital and data initiatives sound very exciting because everyone tells us that this is the right way to go about, but what does this actually mean? What's the impact of modernizing my company with digital and data capabilities?

We’ve helped several companies in the last few months, and these are some of the areas where data and digital capabilities can make a real difference:

Operational efficiency: Automating time-consuming processes such as CV processing, invoice processing, and contract review can free up resources and improve accuracy.
Informing decision-making: Implementing data solutions for inventory management, pricing optimisation, and real-time production analytics can lead to better business decisions and cost savings.
Enhancing customer experience: AI chatbots and financial assistants can improve customer interactions and support, leading to increased sales and retention.
Competitive advantage: Utilising market competitive analysis, influencer marketing, and SEO optimization can boost brand visibility and drive growth.

Floresco is the solution for visionary SME leaders looking to modernise their companies by leveraging the latest technologies and data and putting the groundwork in place to make their businesses more competitive and profitable in the medium term.

The Impact