Which Comes First For Small And Midsize Enterprises – Digital Transformation Or High-Revenue Growth?

Hernan Marino

Part 8 of the “Thriving in the Digital Economy” series 

I read an item recently that really stunned me. According to the book Big Social Mobile, 50% of small businesses fail within their first five years, and 10% of mature organizations fail each year.

Think about that. This study is saying that half of all small businesses worldwide are going to become dinosaurs before they really establish themselves. That, to me, is almost unfathomable.

Is this really happening? I don’t know. But then, who could have predicted that newspapers and local bank branches would struggle to survive, teetering on the brink of extinction?

The larger point here, I think, is that, in this day and age of hyper-innovation, companies – all companies, large and small – need to adapt or they risk the misfortune of closing their doors forever.

The interconnected global economy has created new opportunities to small and midsize businesses that never existed before. Some firms are not only growing, but they are disrupting entire industries and overtaking established leaders.

The way they are doing this is clear and simple: They are embracing digital technology. According to a recent IDC survey, “Thriving in the Digital Economy: How small and midsize enterprises are adapting to digital transformation,” commissioned by SAP, there is a clear association between higher revenue growth and positive attitudes toward digital technology adoption.

revenue growth vs attitudes toward digital transformation

Figure: Revenue growth vs. attitudes toward digital transformation

While these findings are encouraging, it forces me to ask the chicken or egg question: Does high-revenue growth happen because of digital transformation? Or is digital transformation a byproduct of that growth?

To get the answer, I spoke with some SAP customers about their own approach to digital transformation. Hopefully, one of these businesses will inspire your own journey.

Choice Organic Teas: Redefining sustainability as a competitive differentiator

Choice Organic Teas is the first exclusively certified organic tea company in the United States and the first U.S. tea company to introduce Fair Trade Certified™ Teas. Through its commitment to great tea that is also socially responsible and environmentally friendly, the company has grown to include more varieties, more employees, and more facilities – straining its backend systems. For a company focused on conservation, it was hard to stomach that kind of waste.

Eventually, management concluded that a cloud-based ERP solution, SAP Business One, would reduce hardware and IT costs. The new system makes management decisions far easier – with data from raw ingredients all the way through to customers’ teapots at home. Reports from receiving, product fulfillment, shipping, and invoicing have all improved considerably, and redundancies are a thing of the past.

LinkTech Nearshore: Leaping forward through digital transformation

LinkTech, an IT services provider with offices in Mexico and the United States, experienced exponential growth over the past three years – opening a new office in the United States and launching a brand-new offering for the Mexican and U.S. market.

Three months after going live with SAP S/4HANA as its digital core, LinkTech’s employees started to realize the benefits of working from one source of information. They were spending less time collecting data and more on data analysis – the key to growth. Now that the information is real time, LinkTech can see which of its services are underperforming, change its strategy if needed, and find opportunities to increase its value to customers. With greater visibility into its profitability and income, the company’s leadership can determine the best time to expand services, hire new people, and extend its reach.

Digital transformation or high-revenue growth: It may be both

As my colleague Rinse Tamsma said in his blog last week, “The key to growing – and winning – in our digital economy is to start transforming your business before your revenues and sales volume decline.”

But I wonder if that’s only part of the larger picture. As these stories prove, maybe the best time for digital transformation is when you’re on the cusp of significant growth and right before any sign of decline. So you get the chicken AND the egg.

Get ready to embrace everything the digital economy has to offer. Check out our blog series “Thriving in the Digital Economy” and the IDC study, co-sponsored by SAP, “Thriving in the Digital Economy: How small and midsize enterprises are adapting to digital transformation.”

Hernan Marino

About Hernan Marino

Hernan Marino is Chief Operations Officer of marketing and Global Head of SME/Partner Marketing at SAP, the market leader in enterprise application software. SAP (NYSE: SAP) helps companies of all sizes and industries run better. Hernan leads SAP Marketing’s digital transformation, marketing automation strategy and SAP’s growth plans in the SME marketplace.