Digital transformation and small businesses

By Rieva Lesonski

Digital transformation is a hot topic these days, but what does it mean for small businesses? Eric Lamarre, Kate Smaje and Rodney Zemmel, senior partners at global management consultancy McKinsey, released a book in June describing how companies can “build and flex their muscles by harnessing the power of AI, improving customer experience and profitability through an ever-evolving transformation process.”

They were recently interviewed for McKinsey’s “Author talksseries. And while much of what they cover is aimed at large companies, small business owners can learn a lot about “harnessing the power of digital transformation.”

Smaje says they wrote the book after seeing their clients “struggle with what it really takes to make a digital transformation work,” because the “how” of it is really hard.

The role of AI in digital transformation

Zemmel told Author Talks what everyone is talking about generative AI right now, and companies need to think about how they’re going to “get value out of it…and capture that value for your business.”

That advice also applies to small businesses. It’s crucial to find out what AI can do for your business and not worry about how others are using it. Of course, you need to monitor your competitors’ activities and understand best practices in your industry. But you need to deploy AI in a way that makes sense for your business – and no, that doesn’t mean you should lay off your workforce and replace it with AI tools. Smaje says you “have to think in a much more fundamental way about where the human being is in the loop.”

And as with any marketing technique you adopt, Zemmel says you should measure, apply and scale your AI practices.

Digital transformation is a continuous process

Digitally transforming your business is not a short-term commitment. As Smaje says, “One thing that irritates me about the term digital transformation is that it has the connotation that I’m done with it at some point. [But] I don’t think you’re ever done. This is a journey; it is a muscle that you are constantly building to get better.”

Business leaders should be technology leaders

To truly transform your business, Zemmel says technology needs to be “fully embedded” in your business and “business leaders need to be technology leaders.”

He distinguishes between companies with an “old IT culture” and a new digital one. Companies, he explains, need to create a “digital culture” with a major focus on being digital, don’t do digital.

“Doing new things”

When asked what the most important part of a digital and AI transformation is, Zemmel says companies need to focus on “where the money is and how you’re going to reshape the business to really create value.” It’s not, he says, about “taking a bunch of processes and doing them better.” Instead, you should be thinking, “This is how we’re going to make more money as a company doing new things.”

But that is not enough according to Smaje, who says: “Even if you know where the value is, [it doesn’t] doesn’t matter unless you actually have a way to convey it. She says everyone “spends so much time on the what, ‘What are we going to do,’ they miss the fact that someone eventually has to use that technology.”

In a separate article for McKinsey, the three senior partners wrote:Digital is not a destination; it is a permanent state of work based on learning and adapting faster than the competition. But that can only happen if CEOs act as digital guardians of their company’s transformation.”

How your small business can are digital

That may sound easy for the large companies that McKinsey typically serves, but small businesses must also become digital businesses. In a blog post on its site, Salesforce acknowledges that “with the requirements of small business ownership, you may wonder if you have the capacity to take on a digital transformation.” But it adds that optimizing your digital presence “isn’t as daunting as you might think” and is essential for small businesses to reach customers and drive growth.

According to a Small Business Digital Transformation Surveysmall businesses engaged in digital transformation achieved eight times higher revenue than those without digital efforts.

Before going digital, it is essential to understand exactly what a digital transformation entails. Salesforce explains:

• Digitization was “the shift from analog to digital, such as converting paper documents into digital scans.”
• Digitization introduced “new, efficient tools into older business models”, such as “introducing software to track records in your business”.
• Digital transformation is “using technology to disrupt your business model, reshape your corporate image and engage customers.”

Driving digital transformation in your small business

If you’re ready for a digital transformation, here are some tips from Salesforce:

Think about your business. What could go better? Conduct an internal assessment of your biggest gaps and where you want to see change. And make sure you involve everyone in the company in the assessment. There are plenty of free assessment tools you can find online to “help you identify your current level of digitization, compare your digital maturity to that of your peers, and spot any opportunities for improvement.”

Prioritize your plan. After the assessment, discuss with your team the biggest challenges your company faces and how technology can help solve them. It can be as simple as adding a chat tool to your site to improve customer service.

Analyze your data. According to Salesforce, data analytics is “the practice of examining large and diverse sets of data from a variety of sources to gain insights that help make decisions for your business.” For a small business, that data could come from a website, a Facebook page or Instagram account, an email campaign, or even your receipts.

Data analytics helps you understand how customers find you, what they do or don’t buy, how and when they shop, what device they shop from, etc. You can then identify customer patterns and tailor your marketing and sales practices accordingly. For example, if you know when your customers are shopping online, you can grab their attention by social media posting at that time.

Consider outside help. Does this still sound like it’s too much for you? Consider hiring a consultant to help you review and understand the data, or make sure you invest in the right technology.

More of AllBusiness.com:

The benefits of a digital transformation

While digitally transforming your business may seem like a lot of work, there are plenty of benefits, including:

• Increasing efficiency and productivity: Digital tools and technologies streamline business processes, automate repetitive tasks and, as mentioned above, provide real-time data and analytics. This improves operational efficiency and allows employees to focus on revenue-generating activities, resulting in higher productivity.
• Expand your market reach: Digital platforms and online marketplaces allow you to reach a wider customer base beyond your local market.
• Save money: Using digital solutions can help you reduce operational costs. Automating manual processes can reduce your overhead (you need fewer employees). Using cloud-based services is cheaper than investing in expensive hardware and software. And digital marketing, especially social media, tends to be much cheaper than traditional advertising methods.
• Becoming more agile and flexible: Digital technologies allow you to respond quickly to market demands, implement changes and experiment with new ideas.
• Improve collaboration and communication: Digital communication and collaboration tools for tasks like video conferencing and project management are especially important if your business is virtual or hybrid.

Your digital transformation is a never-ending journey

Once you’ve started your digital transformation, remember that McKinsey’s senior partners wrote, “Digital is not a destination.” It’s more of a never-ending journey. By embracing digital transformation and adopting innovative technologies, you can deliver superior customer experiences that strengthen customer loyalty and enable you to expand and grow.

Yes, there will be challenges along the way, but the potential rewards make it all worth it.

About the author

Rieva Lesonsky is CEO of GrowBiz Media and SmallBusinessCurrents.com and has been dealing with small businesses and entrepreneurship for over 30 years. Get a better understanding of business trends by signing up for her free currents newsletter.