This guest blog post was written by Nilay Balkan, PhD. 

Covid-19 emphasised the importance of digital for business survival and resilience. As we recover from the pandemic, the importance of digital for business success will increase. However, there are four barriers to digitally transforming SMEs that are hindering this success. These must be recognised to establish the right support.

There is growing recognition that digitalisation is necessary for post-pandemic business survival and prosperity (e.g. Baig et al., 2020; Doerr et al., 2021). Yet, SMEs typically struggle with developing digital competencies and embedding digital practices (Klein and Todosco, 2021; Olsson and Bernard, 2020). These create barriers to digitally transforming SMEs and must be recognised before identifying the right support for encouraging digitalisation. My investigation into this topic identified four barriers to developing digitally-capable SMEs within Europe. These barriers are in line with the hurdles identified in the 2019 Skills for SMEs report co-produced by DIGITAL SME.

Barrier #1: Digital skills gap

This is not unexpected. A lack of appropriate digital skills inhibiting SME development is observed in academic studies (e.g. González-Varona, 2020; Klein and Todosco, 2021; North et al. 2019; Sariwulan et al. 2020). Likewise, it is emphasised by practitioners and white papers. These discussions show that limited digital skill gaps are found within SMEs. They also point towards limited digital skills in the wider environment, thus impacting the recruitment pool and continuing the skills gap issue.

It is possible to buy-in knowledge. However, SMEs do not always have the resources for this, especially when working to tight margins and deadlines. In practical terms, buying-in knowledge makes SMEs reliant on certain solutions or providers. It may also reduce SME proactiveness. All of which may be costly to the SME in the long-run.  Further to stress this point, research identified in-house knowledge as key for businesses to transform digital practices (Sousa and Roche, 2019). Various initiatives to improve digital transformation were implemented by the EU and UK, such as the Digital Europe Programme and Covid Recovery grant.

Additionally, in an attempt to develop digital, the skills central to digitalisation have not always been considered. These include critical thinking, problem-solving, efficacy and networking (Sousa and Roche, 2019) and must be part of the drive towards building digital literacy.

Barrier #2: An overreliance on money for problem-solving

This barrier is linked to barrier 1 in that they are two sides of the same coin. Barrier 1 discussed the limited digital skills of SME employees and recruitment pool hindering digital SMEs development. Initiatives were implemented to resolve this. Even so, these rely on money for solutions and do not address other factors needed to develop SME digital competency. These factors include the challenge of limited time and conflicting priorities within SMEs (Olsson and Bernard, 2020).  In such cases, grants for trainings or using high-tech equipment will not support digital transformation. Further, SMEs do not always prioritise learning (Admiraal and Lockhorst, 2009).  Funding for training, or even buying-in knowledge, will not effectively address this lack of openness to learning. It is necessary to encourage learning to develop the continued digital skill development within SMEs (Sousa and Rocha, 2019).  Doing so will develop competencies enabling SMEs to adapt to different technologies and solutions. Therefore, becoming less reliant on certain providers or solutions as highlighted in barrier 1.

Consequently, we must understand the fundamental issues causing this hindrance of SME digital competency and digital transformation.  After which, creative thinking is required to resolve these fundamental issues. One creative example is the  SME Envoys network, which consists of policy advisory groups promoting SME-friendly policies.

Barrier #3: Ensuring the right technical and social infrastructure

Businesses need access to the right technical infrastructure to embed digital transformation. This has been addressed in various ways in Europe, such as the creation of Digital Innovations Hubs by the European Commission and the UK’s International Tech Hub Network.  In this regard, the technical infrastructure needs are slowly being met but there are issues. One is that the hubs appear to be general in scope. There are SMEs in diverse industries, including those in publishing and food and drinks. Such businesses are also the ones struggling with digital technologies . Even ICT-based SMEs are diverse, ranging from cybersecurity to healthcare. Consequently, more tailored support for SMEs in different industries is needed.

Second, these initiatives need to be accessible. Most initiatives will be based in cities but what of those outside cities? The right access to technical infrastructure may even be simple.  As was the case in the Scottish Highlands where poor broadband disrupted businesses and affected regional prosperity.  Accessibility includes the digital skills for using technical infrastructure. The right infrastructure may be present, but SMEs may not have the skills needed. Ensuring accessible technical infrastructures is essential for digital SME development.

Finally, current approaches are not all considering the value of social infrastructures. SMEs need a social infrastructure to gain access to mentors, new ideas and collaborations (Petrick and Maitland, 2007). These provide informal learning opportunity and encourage skills development, including in digital. By extension, social infrastructure provides learning opportunities to increase SME resilience.

Barrier #4: Differences in digitalisation across Europe

There are different levels of digitalisation within Europe, making it difficult to produce and maintain a standard for digital expectancy.  For example, Italy is on the lower end of the digital competitiveness scale. Many Italian small businesses are family-owned and run, with little access to managerial capability and capital necessary for digital transformation. Further, Italian consumers prefer offline shopping methods so Italian SMEs are not incentivised to develop digitalisation. This is in direct contrast to Switzerland, where consumers online habits drive innovations and offer opportunities for businesses.

More work is needed to overcome the lack of a harmonised digitalisation across Europe. Such difference in digitalisation may affect SMEs wishing to work internationally. For example, an SME may lose business opportunities if it cannot meet digital standards of another company. It may, similarly, create a cycle where SMEs in regions with advanced digitalisation only work with others on the same level. Thus, those regions will likely see more investment in digitalisation and more prosperity, creating further digital imbalances within Europe. We are already seeing a digital divide emerge in Europe because of the differences in digital transformation during the pandemic. There is a real worry this divide will increase as the pandemic continues.

To overcome this barrier, a shared vision of digital society and digital business is essential. This will support a standardised digital expectancy for SME to strive towards, encouraging further SME business exchanges and digitalisation. Policy plays an important role in enabling this shared vision. Strategic use of funds or grants can shape the ecosystem and facilitate development of digitally-capable SMEs. For example, careful consideration to avoid disproportionate allocation of funds can encourage a shared digital vision to be developed and adopted across Europe.

These four barriers are challenging to address because each one is full of complexities and nuances. Additionally, these barriers are multifaceted and relate to different aspects within the ecosystem of the SMEs. Thus, increasing the complexity involved in developing digital SMEs. Having established these barriers, however, we can move towards identify solutions.  Moreover, these barriers are not unique to Europe and share similarities with others, for instance Australia. This suggests scope for international discussion and collaboration to identify solutions.

If you would like to collaborate or participate in a research project about developing SME digital competency, please get in touch! Similarly, if you would like to learn more about this topic or request further reading, please contact the author.

Author information

Nilay Balkan is a lecturer in Marketing at the University of Glasgow and previously worked as a Business Advisor for startups, small businesses and social enterprises. Her academic interests include SMEs and Entrepreneurship, Digital Competency and Digital Transformation within SMES.

She can be contacted at nilay.balkan@glasgow.ac.uk or via LinkedIn.

Further resources

• Report on European Educational and Training Landscape and Training Needs for Citizens and SMEs for the Digital SkillUp project.
• In the Skills for SMEs report, DIGITAL SME, Technopolis and Capgemini Invent presented four streams of actions for stakeholders to enable successful digital transformation built on skills

References

Admiraal, W. and Lockhorst, D. (2009), E-Learning in Small and Medium-sized Enterprises across Europe Attitudes towards Technology, Learning and Training learning in Small and Medium, Vol 27(6), pp 743–767, DOI:10.1177/0266242609344244

Klein, V. and Todosco, J.  (2021), COVID-19 crisis and SMEs responses: The role of digital transformation, Knowledge Process Management, Vol. 28, pp1–17., DOI: 10.1002/kpm.1660

González-Varona, J., López-Paredes, A. Poza, D. and Acabes, F. (2021), Building and Development of an Organizational Competence for Digital Transformation in SMEs, Journal of Industrial Engineering and Management, Vol. 14, No. 1, pp. 15-24

North, K., Aramburu, N. and Lorenzo, O.J. (2019), Promoting digitally enabled growth in SMEs: a framework proposal, Journal of Enterprise Information Management Vol. 33 No. 1, 2020 pp. 238-262

Olsson, A.K. and Bernard, I. (2020), Keeping up the pace of digitalization in small businesses- Entrepreneurial competencies of women entrepreneurs pursuing business growth, International Journal of Entrepreneurial Behavior & Research, Vol. 27 No. 2, pp. 378-396

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Pelletier, C. and Cloutier, L.M. (2019), Conceptualising digital transformation in SMEs: an ecosystemic perspective, Journal of Small Business and Enterprise Development Vol. 26 No. 6/7, 2019 pp. 855-876

Petrick, I. and Maitland, C. (2007), Economies of Speed: A conceptual framework to describe network effectiveness, In Small and Medium-sized Enterprises and the Global Economy, Susman, G. (ed.), Edward Elgar Publishing Limited

Richter, C., Kraus, S., Brem, A., Durst, S. and Giselbrecht, C. (2017), Digital entrepreneurship: innovative business models for the sharing economy, Creativity and Innovation Management, Vol. 26 No. 3, pp. 300-310