The digital transformation of small businesses could bring a massive economic boost

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digital transformationThe new digital Britain [automatic download] Report by Sage claims more than half of the UK’s economic potential from technology adoption remains untapped. But small and medium-sized businesses’ persistent concerns about cost, skills and knowledge are preventing them from embarking on the digital transformation that will ensure their success and give the economy a massive boost. The report claims that the use of technology by small and medium-sized enterprises (SMEs) contributes £216 billion to the UK economy; But if SMEs take full advantage of the technology, this could add an additional £232bn, almost doubling the value of technology use to the UK economy to £448bn a year.

Sage commissioned the study, presented today at a House of Commons event, of 5,000 SMEs across the country to understand the level of digitization and how it is boosting economic growth in the UK. SMEs are an integral part of the UK economy, representing 61 per cent of UK jobs and 52 per cent of UK turnover.

The study shows that SMBs are using technology to reduce costs (62 percent) and better compete for hard-pressed customers (68 percent). Ninety-two percent of SMBs today depend on technology to survive their business, but concerns about cost, skills and knowledge are preventing them from going further and faster. With the right policy framework, Sage’s new report reveals the huge potential for SMEs to create a high-growth digital economy that could free up an additional £232 billion a year for the economy.

Sage calls on big tech companies and the government to take a tech- and business-friendly approach and create better financial incentives to encourage greater investment in productivity-enhancing technologies, more data sharing for innovation, and adequate future-proofing of digital infrastructure.

Important Findings

The biggest barriers to investment are cost and understanding:

  • The most significant obstacle is cost, with 41 percent concerned about adopting new technologies due to liquidity pressures and 24 percent unsure about the return on investment
  • Awareness comes second: 34 percent say they don’t know which solution is right for them
  • Almost a third (30 percent) say that training employees on new processes and breaking habit are also barriers

SMEs need to prioritize investments in digital tools to successfully tackle macroeconomic challenges

  • There is a risk of a recession, persistent inflation and rising costs [significantly] Impact on SMEs
  • Above 9 in 10 companies (92 percent) say technology is important to their survival and growth, and 88 percent say it is key to business resilience

Data is an important area with untapped potential

  • Technologies that generate data (websites, social media, accounting and HR software) have been widely adopted by small and medium-sized businesses – and continue to be heavily invested
  • However, Only 24 percent of SMBs use technology to collect and use datalike data analysis software
  • Five sectors with the lowest adoption of data analytics technology are beauty and wellbeing, retail, creative industries, hospitality and education

The pandemic led to a fundamental change in perceptions in SMEs regarding digital technology

  • 92 percent say digital tools have been critical to their survival during the pandemic
  • From the companies founded in the last two years 91 percent attributed their emergence to new and innovative technologies
  • 8 out of 10 SMBs say technology is important to achieve their business goals. This reflects all sectors and regions in the UK
  • Over 75 percent of businesses said they care about online reputation information, such as online reviews and ratings (“blue tick tech”)

Effective action by government and policymakers could unlock an additional £232 billion in gross value added through the digitization of the economy

  • Sage and Strand Partners worked with Oxford Analytica to conduct an economic modeling study to determine the value of technology to the UK economy; This considered the extent to which the technology enables increased sales and service for customers, reduced costs and operating costs, and internal efficiencies
  • All of this constitutes an important input to gross value added (GVA), a leading measure of the size of the economy used to determine GDP.

call to action

Based on the findings of Digital Britain, Sage has three requests to the government and other big tech companies to help deliver a resilient and dynamic digital landscape:

Access tax incentives and reform Help to Grow: Digital to scale digital adoption and increase productivity. This contains:

  • Expansion of the technology range Help to Grow: Digital covers a wider range of solutions
  • SMEs can deduct 200 percent of their spending on newly introduced productivity-enhancing technologies from their tax bill
  • Stop online sales tax progression in any form

Encourage data sharing in the public sector to provide useful insights for SMEs. This contains:

  • Develop a clear plan for opening up government and public sector datasets that enable real-time insights to empower SMBs
  • Establish a unified set of industry standards to enable a more trusted, efficient, and innovative data-sharing culture between businesses, third-parties, and governments
  • Creation of an AI framework that enables all companies to use data more freely for research purposes

Take action and support Mobile UK’s call to fund Digital Champions for local authorities to help coordinate and prioritize digital connectivity.

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