Why we need digital solutions for the post-COVID recovery

The economic response by governments to the COVID-19 pandemic has seen a vast array of solutions aimed at helping businesses cope with the personal and economic tragedy of the past few months. SMEs are, without a doubt, in a particularly tough situation. Plunging demand has forced them to lay off workers, and many do not have the financial resources to survive in this climate. In many countries, up to one-third of SMEs may fail to survive within three months of the pandemic starting in their countries. The success of SMEs is fundamental to any recovery - SMEs typically account for two-thirds of our country’s employment and half its GDP. SMEs must be protected at all costs or we risk systemic failure in the economy.

SMEs can continue to be the spearhead for our economic development and the country’s engine post-crisis, but Government support will be vital. Our recovery depends on it. Whilst all companies have had to change and cope with unimaginable disruption along with uncertainty, SMEs have been more susceptible. In particular, SMEs have had three issues:

Plunging demand and liquidity challenges – Of course, demand has collapsed since COVID-19 struck. Surveys in OECD countries show that 50% of SMEs show significant losses and face only a few months of reserves.

Inflexible supply chains and operations – SMEs typically do not have the management bandwidth to be able to react to such shocks such as the pandemic. This lack of bandwidth results in an inability to adapt quickly.

Disproportional SME representation in hardest-hit sectors – many sectors, such as retail, hospitality, restaurants, entertainment and construction, are predominantly SME-led. In the OECD, 60 - 70% of SMEs do business in these sectors and these sectors have been severely impacted.

But how are SMEs doing right now? Simply Business surveyed 3,700 small businesses and self-employed people across the UK for their SME Confidence Report. The survey revealed the Pandemic would cost them £11,779 on average. Applying this figure to the 5.8 million small and medium-sized businesses in the UK, this amounts to a total cost of over £69 billion. They also asked business owners whether they are likely to close down:

  • 41% of small business owners fear their business is at risk of permanently closing due to the pandemic
  • 14% believe they’ll be likely to close within one to three months
  • 12% believe they’ll be likely to close within three to six months
  • 11% think they’ll close within six months to a year

Worryingly, 4% of small business owners say they’ve already closed permanently because of the pandemic – an estimated 234,400 closures across the UK.

So, what can be done?

A digital-led recovery

Due to the current UK Government measures related to people working from home, SMEs have had to increase their use of technology and software to facilitate online meetings, information sharing and allow employees to carry out their day-to-day duties. SMEs need to embrace the new digital normal and be ahead of the curve – but what shape is that curve?

In the post-COVID-19 world, digital tools and analytics will play even more important roles. Physical distancing could continue, making consumers less likely to visit brick-and-mortar stores, and a contact-free economy could emerge, raising e-commerce and automation to a new level.

The implications of these trends will differ for each company, depending on its digital starting point and strategic orientation. Digital and analytics leaders have an advantage today but could quickly lose it if other players accelerate their transformation. On the other hand, laggards have an opportunity to make an “all in” bet on digital and analytics—and perhaps gain market share with smaller capital-expenditure investments, which used to be a limiting factor for many brands.

That said, digitisation won’t be a panacea. Companies should direct investments to areas in which the highest business value lies—which might not be in sales but rather elsewhere in the value chain. Equally important, companies should avoid “gold plating,” aiming instead for the fastest minimum viable digital solution that will achieve the business goal.

Many SMEs have had to fight this pandemic by developing rapid e-commerce solutions but there is a need for more innovation and digitisation. Support for SMEs must prioritise those most in need and match them with the right technology, infrastructure, and capability-building solutions, recognising that they are a vital engine for the postcrisis economic recovery. Ensuring support reaches SMEs is key and targeted actions will accelerate SME recovery and set them up for sustained success.

 

By Professor Mark Jarvis, Manchester Metropolitan University Business School