The technology that SMEs need to address the transformation of their production model, to be more efficient and competitive and overcome the crisis, is already available on the Internet. It is an efficient and easy-to-use technology, and it has a really low cost. It does not require a large investment. Nor does it require the creation of a technical department.
However, although the conditions are very favourable, the vast majority of Spanish SMEs continue to live outside of technology. The conclusion we can draw is that it is not a technology problem. It is a people problem. SME managers have not yet visualised the possibilities that web 2.0 offers. Nor have they been able to develop the necessary skills to interact with the new reality. The sum of this vision and these skills is what will allow SMEs to successfully adopt new forms of management, and make the most of innovative forms of value creation. This is the challenge we are going to address in today’s conversation.
Why is it so difficult for SMEs to use technology?
A few weeks ago I attended a session of the Advisory Council of the Official College of Computer Engineering of Catalonia (COEINF), of which I am president. There I had the opportunity to confirm, once again, the enormous possibilities that web 2.0 offers for the modernization and competitiveness of SMEs. Without going any further, Microsoft presented a very interesting initiative, developed by its Innovation Center in Manresa, in which it includes a selection of good practices to improve productivity, reduce costs and manage team talent more efficiently. This is not an isolated initiative. Fortunately, there are many proposals that are being carried out from the information technology sector and state administrations to raise awareness and inform our companies about the need for a new growth model, based on the use of new technologies as a basis for the development of a competitive and sustainable economy. The fact is that nowadays any company can hire very useful IT solutions to improve management and professionalize its business processes. The adoption costs are really low. Thanks to the “software as a service” model – the applications are on the Internet, and only a connection is necessary to access them – companies have the management tools they need for just 100 euros per month. However, despite all the facilities, the level of technological adoption of Spanish SMEs is still incredibly low. The question that, once again, we had to ask ourselves in the Council, was the following: why is it so difficult for companies to use technology? This has undoubtedly been a recurring question in my professional career, and I have had the opportunity to reflect on it often. In today’s conversation I would like to share with you my point of view. I believe that we can all analyse the causes and possible responses to this situation.
A matter of people
The answer is not found in the field of technology. Because, in reality, we are not talking about a technology problem. We have already explained it: technology is available and fully operational at a very low cost. The answer must therefore be sought in people. It is a question of VISION and SKILLS. It is the managers and directors of SMEs – who in many cases are also the owners – who are not yet able to visualize the opportunities that Web 2.0 offers their companies. They do not know the available technologies and are often afraid that their use will end up with centralized and sometimes too personalistic management. We must, therefore, approach the problem from a double perspective: VISION: SME managers still do not see clearly that technology can be a key means to drive organizational transformation in companies. SKILLS 2.0: They also do not have the necessary skills to interact with the new reality. They do not know how to introduce and promote the use of these technologies within the organization and, therefore, they are not capable of leading the transformation process necessary to build a new, more sustainable production model.
Transformation is essential to face the crisis
The fact that SMEs use web 2.0 is not so much a problem of competition as a matter of survival. It is not so much a matter of understanding that technology is essential to compete, but of assuming that without the proper use of technology many small and medium-sized companies are doomed to disappear. The current environment of crisis and uncertainty, and the configuration of an increasingly global and open market, without barriers for new competitors, require a profound transformation in organizations. And we must take advantage of the opportunity that web 2.0 does not offer to build a new growth model. Outside of large companies – early adopters – we are still facing a worrying lack of information about the importance and possibilities of web 2.0 for doing business. Many people still do not know the possibilities that the Internet offers us to carry out segmented marketing actions, access vertical and generalist networks, find prospects, build a brand reputation and, of course, to adopt management applications tailored to our needs, no matter how small and specialized our company may be, without any trauma. It is clear that we still have a lot to “evangelize” in this field. And the best proof is that only 12% of Spanish SMEs have a website, at a time when the market is going much further: it offers us practically free applications to improve our communication, easy-to-use tools that allow us to take our products and services to very specific business niches practically at no cost.
The “software-as-a-service” revolution
The 2.0 tools are made up of blogs, wikis, social networks, and sophisticated management applications that offer a fundamental advantage over the previous tools: They do not require a large investment in infrastructure, nor substantial changes in business processes. The model of “Software as a Service” -Software as a Service (SaaS) in English- is a real revolution for small and medium-sized companies, insofar as it provides them with effective management tools at a really low cost. Gmail, Google’s email service, is perhaps the best-known example of SaaS, although there are many more. With the SaaS model, companies do not need to design and maintain a complex information system, and they are not forced to create a technical department. It is enough for them to have a computer or a mobile phone with an Internet connection. Software providers are responsible for designing, developing and maintaining the programs, and safeguarding the data. No more complicated installations and maintenance work. Users only have to connect to the application when they need to, because the information is on the Internet, accessible from anywhere and at all times. To assess the relevance of this model, we must take into account that 79% of Spanish SMEs are made up of 3 or fewer people. That means they don’t have enough resources to develop and maintain their own applications, hire technical staff, and implement infrastructure. With the software-as-a-service model, this is no longer necessary.
What are the current opportunities for SMEs 2.0
The adoption of Web 2.0 tools and applications provides small and medium-sized businesses with the following opportunities:
– They improve efficiency and productivity significantly. Web technologies promise significant new advances in the field of productivity and efficiency, based on the redesign of decision-making processes and internal and external collaboration between the different agents of the organization. In recent decades, ERP, CRM and SCM technologies and solutions have been the basis of considerable improvements in the productivity of companies, based on the redesign of transactional processes. But 2.0 technologies can have an even greater impact, as they are much easier to use. As the consulting firm Mckinsey explains in its February 2009 report,
they are end-user technologies and, therefore, involve practically all workers. These are not complex programs imposed from above by the company’s management, but simple tools that everyone can use, and that encourage communication and networked interactions, on an equal footing.
– They facilitate employee participation and allow for the establishment of co-creation processes (shared creation).
– They open up new forms of open and transparent communication between employees, suppliers and directly with the customers themselves. Tools such as Twitter, Facebook, Tuenti, MySpace, etc. can be essential to generate conversations around the company. It is not so much about selling products as it is about building a brand, getting recommendations or simply being in the minds of users.
– They facilitate collaboration. The new social networks, internal and external to the organization, allow talent and information to be shared. In this way, all members of the organization can participate in the creation of a “collective intelligence” from which answers to the complex challenges we face will emerge.
– They make it possible to access new forms of value creation and new business models, for example, the Long Tail model.
The Long Tail Model: How to Reach Specific Business Niches
Thanks to the Web 2.0 platform, SMEs can now create customized products to target micro-segments of the market that were previously unprofitable. In other words, technology has made it profitable to sell limited quantities of products. In this way, we have moved from mass markets to niche markets. This is what we know as the Long Tail model. For the first time, sales made to a large number of these micro-segments can allow a company to earn more revenue than sales of the most generic and in-demand products. This allows SMEs to innovate to focus on niches where competition is lower, and business opportunities, on the other hand, are much greater.
Long Tail is the name given to a well-known characteristic of statistical distributions that we can observe in markets, and which applies to any large enough sample. For example, we can say, without much risk of being wrong, that 20% of the Spanish population owns 80% of the country’s wealth. And, similarly, that approximately 20% of products contribute to 80% of companies’ sales. In its application to the business world, the “Long Tail” economy has meant a new paradigm of innovation in traditional business models. The best-known examples have perhaps been in the book and record distribution businesses. In its stores, El Corte Inglés basically offers best-selling books, but not those that only a very small number of people would buy. In the same way, if we search for a record at Fnac, we will find the records that interest a wide audience. The high cost of distribution and storage does not allow them to offer other alternatives. However, web 2.0 has changed the laws of distribution and the rules of the market. Physical restrictions are no longer significant in online business models such as those of Amazon or Rhapsody. This allows them to have a very wide catalog of products, with which they can cover the tastes and interests of a larger group of customers. Amazon, for example, has a catalog of more than 2 million books, and Rhapsody offers users about a million songs. In the graphic representation of sales, the upper left part (the head) would correspond to best-sellers. The right part, which seems to stretch towards infinity, would represent the products sold in a few copies. This “long tail” is what the Internet makes profitable. Similarly, the application of the “Long Tail” economy to SMEs can lead us to new business models based on the creation of completely personalized products and services. The graphic representation of this model would be as follows: a “head”, formed by the sale of the most generic products demanded by users, and a very long “tail” made up of personalized products, focused on a large number of small segments, which due to their extension can generate more money than the head. In other words, the most demanded products contribute a lot but are few; the products that are not in demand contribute much, but there are so many that they can generate more income than generic ones.
Where to start
We have talked about the need to transform the production model of our SMEs. But to achieve this, we have already explained that we must first adopt a new vision of reality. Where can we start? I propose three ways of exploration:
1. Leave your comfort zone
If you always do what you have always done, you will always achieve what you have always achieved. To adopt a new vision you must be able to modify your mental schemes. And that is only achieved when you leave your comfort zone, that sheltered space in which you carry out your daily management without changing absolutely anything, as you have always done, comfortably and routinely. If you want to obtain different results, you must introduce changes in your life, in your mental models, in your way of managing situations. You can start by designing your own personal agenda. Reflect on what is happening around you, question the old ways of working, introduce new activities into your daily routine, listen and learn the new language of collaboration. That is the way to develop transformative leadership.
2. Interact with the new reality
Most managers and executives have received a very restrictive education regarding technology. On the other hand, a few years ago technology had little to do with today’s, and its presence in our lives and in our work was not so pronounced. We have all heard the famous “Don’t touch” many times. That fear of “breaking devices just by touching them” is one of the reasons why it is still so difficult for us to relate to new technologies. There is still a kind of stage fright that prevents us from trying and learning new things. The reality is very different. Technology does not bite. It is becoming simpler. Web 2.0 is designed for the end user, and not for a gifted computer scientist. That is precisely one of the secrets of its strong impact on the productivity of companies. The key is to start practicing without fear. You can start by participating in a blog, sending your first messages on Twitter, searching the web for the content you need. As you gain confidence, you will be able to take new steps. Our children are the best example that technology not only does not bite but can also be a lot of fun. It is not difficult for them to learn new programs because they enjoy it. In this playful sense lies the success of their learning. We must also try to understand that technology is not torture, but a means to access a new world full of possibilities.
3. Develop new 2.0 skills
The core values of the Industrial Age were efficiency and scalability. In the Age of Collaboration, these values are still important, but they are no longer central to creating value. The new era is characterized by the typical values of networked organizations, such as collaboration, transparency, creativity, participation, authenticity, talent, and commitment. These new values correspond to new skills that many managers have not yet internalized. We are used to operating in hierarchical, slow, and bureaucratized structures, but what we need now are new agile organizations, capable of adapting and reacting quickly to changes. We need to develop these new skills that will allow us to generate value by collaborating in open and global networks. And one of the most important is to interpret reality also from an emotional perspective, because only in this way will we be able to attract and retain the new digital talent that SMEs need to compete.
The future of SMEs
Faced with the challenges we have described, SMEs must seriously rethink their business model, their value proposition in terms of products and services offered, and the ways in which they relate to their customers and suppliers. Because transformation has proven to be the most appropriate option to face crisis situations and take advantage of the opportunities opened up by new value creation models. The most important part of the changes lies precisely in innovation in leadership models, management processes, and organizational structure. The goal is to create an agile organization, capable of adapting to changes and attracting the new digital talent that companies need to compete.
For all these reasons, I am convinced that the transformation of our productive fabric and the route towards the long-awaited “new growth model” is essentially a matter of people, and not a question of technologies.
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