These findings were revealed in the 2020 SME Digital Transformation Study produced jointly by Microsoft Singapore and the Association of Small & Medium Enterprises (ASME), which surveyed 400 business owners and key IT decision makers of Singapore SMEs from across 15 industries from March to June this year[1]. First launched in 2018, the study seeks to unveil the state of local SMEs’ digital transformation and shed light on some of the gaps towards digitalisation, against the backdrop of economic disruption and volatility caused by the global pandemic.

COVID-19 has put a damper on SMEs’ digital transformation and overseas expansion plans

Fig. 1: SMEs have had their digitalisation and internationalisation plans delayed by COVID-19.

Another study by Microsoft and IDC Asia Pacific launched in September this year reported that 73 percent of Singapore organisations – both mid- and large-sized – have in fact accelerated the pace of digitalisation in response to the pandemic. In contrast, the ASME-Microsoft study found that only 30 percent of SMEs indicated that they were forced to digitalise due to COVID-19, with most reporting delays in their digital transformation plans. More than 80 percent of SMEs also indicated that their plans for internationalisation (overseas expansion) have been delayed due to COVID-19, which has given rise to border control restrictions across the globe.

“When the pandemic struck, many SMEs in Singapore struggled to stay afloat as their businesses took a hit. Survival became a priority for these smaller companies as they grappled with rising costs and falling revenue, and naturally digital transformation may have taken a backseat. When providing support to businesses impacted by COVID-19, it is important to consider the unique challenges faced by SMEs in order to identify areas where the government, corporates, or industry associations can support them in digitally transforming during this time,” said Mr Vivek Chatrath, Small, Medium and Corporate Lead at Microsoft Singapore.

High cost, inadequate skills and low awareness of government support among the top barriers to digital transformation

Fig. 2: Top barriers that SMEs face in their digital transformation journeys include high cost and mismatched skills.

SMEs surveyed in the ASME-Microsoft study also indicated that high implementation cost was the biggest barrier they faced when it comes to digital transformation – a similar observation from the 2018 iteration of the study. Other significant factors include the lack of a digitally-skilled workforce, uncertain economic environment, low awareness of government support as well as the lack of appropriate technology partners.

In the area of government support, the study revealed that majority of respondents were unaware of government schemes and initiatives available to SMEs, such as the Productivity Solutions Grant and Start Digital Pack. However, it found that despite low levels of awareness of such initiatives, more than 3 in 5 SMEs would be keen to leverage these grants and schemes to support digital transformation in the next year. Existing government support also tends to benefit larger firms, with medium and medium-large companies[2] stating that they are more likely to find government support useful (60 percent and 73 percent respectively).

SMEs continue to appreciate the value of digital transformation to their business

On a more positive note, the 2020 study also found that that more than three-quarters (80 percent) of Singapore SME leaders are now aware of the term ‘digital transformation’ – up from 57 percent since 2018.

Overall, the adoption rate of digital technology has also risen, as nearly all companies (99 percent) surveyed have adopted at least the most basic level of digital technologies such as office productivity tools and web-based email. In fact, there has been a growing appetite for slightly more advanced technologies (a 14 percent increase from 2018) among local SMEs, particularly for cloud productivity and storage services as well as collaborative tools. Survey findings also revealed that in the next year, the top 3 new technology solutions that SMEs plan to adopt include AI and machine learning, business process apps and big data and advanced analytics – especially among medium-large companies.

When asked about the most important benefits that digital transformation will bring to their businesses, SME leaders in Singapore perceived five key benefits to be more important now compared to 2018. They recognise that digital transformation can have a positive impact on optimising operations; empowering employees; engaging customers; transforming products; and facilitating internationalisation. In particular, employee empowerment jumped from being the least important benefit in 2018 to one of the most important benefits of digital transformation in 2020, especially for medium to large SMEs.

Fig. 3: SMEs recognise these five key benefits of adopting digital transformation.

While levels of awareness and adoption of digital transformation have increased since 2018, SMEs continue to see only moderate levels of success in their digitalisation journey. Only two in five companies (39 percent) perceive their digital implementation to be successful – a slight improvement from 28 percent two years ago. However, Singapore SMEs remain optimistic about the potential impact digital transformation can bring to their bottom-lines. Those who are in the midst of implementing digital initiatives projected that their investments would deliver 23.5 percent in cost savings and 26.5 percent in revenue gains – a slight increase from 22 percent and 26 percent in 2018 respectively.

Fig. 4: SMEs have a growing appetite for more advanced digital technologies.

Ms Irene Boey, Vice President, Membership & Training, ASME, said: “It is encouraging to see that majority of Singapore SMEs are aware of digital transformation and have adopted some form of digital technology since 2018. However, digital transformation calls for more than just updating technology or adopting a new platform – it is never about tech for tech’s sake. Success and value derived from digital transformation can only be achieved if these strategies are clearly aligned with SMEs’ business objectives. Factors such as workforce skills also play a pivotal role in ensuring the success of digital initiatives in any firm, hence the need for SMEs to build competencies in areas such as data analytics. As data from the study suggests, more guidance can be offered to SMEs to help them strategise, upskill and properly leverage government grants to harness the full suite of benefits from digital transformation.”

“At Microsoft, a significant part of our business is focused on empowering Singapore SMEs and providing them with access to the necessary resources to thrive – in a COVID-19 world and beyond. As we adapt to the challenges posed by the global pandemic, coordination and collaboration is key to supporting this vital segment of Singapore’s businesses. We will continue working closely with industry partners, associations, government bodies and fellow corporates to help our SMEs supercharge their digital transformation journey, and emerge stronger from this crisis,” added Mr Chatrath.

SMEs have remained a key focus for Microsoft in Singapore. In the last five years alone, Microsoft has reached over 100,000 unique SME customers through over 1,000 cloud partners, who are often local SMEs themselves.

Click to view the full infographic.

To learn more about Microsoft in small businesses, please visit the Microsoft Singapore Business Portal.

For more information on ASME, please visit http://www.asme.org.sg

[1] The SME Digital Transformation Study by Microsoft Singapore polled 400 SME decision makers in Singapore to understand their digital transformation journeys.

• Respondents are Singapore SME owners or IT and business decision makers involved in shaping their organisations’ digital strategy
• SMEs in Singapore are defined as companies that are registered and operating in Singapore, with at least 30% local shareholding AND group annual sales turnover of less that S$100m OR employment size of not more than 200 workers.
• SMEs polled cover over 15 industries including Manufacturing, Engineering, Real Estate, Information Technology, Construction, Healthcare, Education etc.

[2] Based on the survey, medium companies refer to those with 25-99 employees while medium-large companies refer to those with 100-499 employees.