SMEs Riding the Wave of Digital Transformation

In today’s post, Valerio Alessandroni, Zigurat’s professor of Global MBA in Digital Business and an expert in Industry 4.0 shares with us his vision of how digital transformation levels the playing field for Small and Medium Enterprises (SMEs). Nowadays, we often live in a fabless environment: factories are more and more 'virtual', the size of a company is becoming less and less important for its success and you can be a winner even if you are small. But you must learn to network with other partner companies; you must know what's happening in your premises, in real-time; you must know what your customers want; you must react quickly to market changes. The good news is that you can do it! In fact, digitalization and its enabling technologies can be the answer SMEs are looking for.“For small and midsize companies, digital transformation has brought unimaginable opportunity to become more nimble, expand, and turn the tables on much larger competitors. When everything is digitized and tracked, businesses can work directly with suppliers and customers while gaining more control over their business.” (Dinesh Sharma, Vice President of Digital Economy at SAP) SAP commissioned IDC to conduct a study, “Thriving in the Digital Economy: How small and midsize enterprises are adapting to digital transformation,” covering 11 different countries with more than 3,200 decision-makers. 49.3% of the decision-makers believe that technology levels the playing field for small businesses versus larger corporations. 40.8% cite their size as an advantage over larger companies that are less able to capitalize on digital innovation in a timely way. In conclusion: according to the IDC study, there is a clear connection between digital transformation and revenue growth. Fast-growing small and midsize firms with 10%+ annual revenue growth were significantly more likely to indicate major progress towards transformation than slower-growing firms. ICT is now a commodity in every company. But especially SMEs, that can't afford a MES or an ERP system, often have different independent systems in their departments.The design, product development, logistics, HR, etc. parts are not integrated on a single platform. Therefore, it's difficult, when not impossible, to effectively collect and exchange data inside the company. This is jeopardizing the overall efficiency and competitiveness of the company itself. The focus is now on creating an environment that facilitates the use of ICT and the development of smart solutions throughout the company: from the development of ICT technologies to the implementation of ICT technologies. There are three principal objectives in the sector’s development scenario:

• The movement of the ICT sector from a service-based business model to a product-based business model;
• A broader implementation of ICT in other sectors;
• Raising the quality of skills of ICT specialists and increasing their number.

It is, therefore, the right time to reconsider ICT, that is strategic for the future of any economy. In particular, Industry 4.0 can be considered as the application of ICT and other innovative technologies throughout the supply chain to increase the efficiency of the use of resources; support the emergence of new smart products; support innovative business models in the industry. In fact, according to McKinsey, Industry 4.0 is “the next phase in the digitization of the manufacturing sector, driven by four disruptions: the astonishing rise in data volumes, computational power and connectivity, especially new low-power wide-area networks; the emergence of analytics and business-intelligence capabilities; new forms of human-machine interaction such as touch interfaces and augmented-reality systems; and improvements in transferring digital instructions to the physical world, such as advanced robotics and 3-D printing.”At the same time, digitalization is fundamental for Industry 4.0, but digitalization is not enough. There is a common misunderstanding around, that can be expressed as digitalization = Industry 4.0. In my opinion, the two concepts are not interchangeable. Digitalization is simply the replacement of conventional technologies or methods with ICT-based technologies. Or the introduction of ICT-technologies to perform new kind of works. For instance, if a company used to store documents on paper, with digitalization the documents can be stored and managed electronically. New technologies allow digitizing every part of the production cycle and every part of the company and its functions. To this purpose, the market offers new industrial controllers, new Fieldbus technologies, new software, etc. But if these technologies were enough to make a company ‘Industry 4.0’, any existing company could become ‘Industry 4.0’. It would be enough to buy and deploy some new technologies. Unfortunately, this is not the case. If your company is not efficient or has an obsolete business model, the new technologies will not help. A motto was popular some years ago: ‘Garbage in, garbage out’. We can transform this motto into ‘Technologies in, garbage out’.

Industry 4.0 is much more. It’s a question of innovation, new business models, a new approach to work and workers, etc. I think that to be inspired is more important than to simply select technologies, at least at the very beginning.

Valerio Alessandroni Professor of the Global MBA in Digital Business Industry 4.0 Consultant | CTO at EFCC