Digital Transformation and Small Business

By Rieva Lesonsky

Digital transformation is a hot topic today, but what does it mean for small businesses? Eric Lamarre, Kate Smaje, and Rodney Zemmel, senior partners from global management consulting firm McKinsey, have a book coming out in June that addresses how companies “can build and flex their muscle by leveraging the power of AI, enhancing customer experience, and driving profitability through an ever-evolving process of transformation.”

They were recently interviewed for McKinsey’s “Author Talks” series. And while much of what they address is aimed at big businesses, there is a lot small business owners can learn 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.”

AI’s role in digital transformation

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

That advice applies to small businesses too. It’s crucial to figure out what AI can do for your business and not worry about how others use it. Of course, you need to monitor your competitors’ activities and understand your industry’s best practices. But you need to deploy AI in a way that makes sense for your business—and no, that doesn’t mean firing your staff and replacing them with AI tools. Smaje says you’ve “got to think about where the human is in the loop of this in a much more fundamental way.”

And like any marketing technique you deploy, Zemmel says you must measure, adopt, and scale your AI practices.

Digital transformation is an ongoing process

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

Business leaders need to be technology leaders

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

He distinguishes between companies with an “old IT culture” and a new digital one. Businesses, he explains, need to create a “digital culture” with a key focus on being digital, not doing digital.

“Doing new things”

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

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

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

How your small business can be digital

That may sound easy for the big businesses McKinsey typically serves, but small businesses also need to become digital companies. In a blog on its site, Salesforce acknowledges that “with the demands of small business ownership, you may be wondering if you have the capacity to take on a digital transformation.” But it adds that optimizing your digital presence “is not as daunting as you may think” and is essential for small businesses to reach customers and foster growth.

According to a Small Business Digital Transformation survey, small businesses engaged in digital transformation saw eight times the revenue growth of those without digital efforts.

Before going digital, it’s essential to understand exactly what a digital transformation means. Salesforce explains:

• Digitization was “the shift from analog to digital, such as converting paper records into digital scans.”
• Digitalization introduced “new, efficient tools into older business models,” such as “introducing record-keeping software into your business.”
• Digital transformation is “harnessing technology to disrupt your business model, reimagine your company image, and appeal to customers.”

Driving digital transformation in your small business

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

Think about your company. What could be going better? Do 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 your peers, and discover any potential for improvement.”

Prioritize your plan. After the assessment, discuss the biggest challenges your company faces with your team and how technology can help solve them. It could 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 different sources to get insights that help in decision-making for your company.” For a small business, that data might come from a website, a Facebook page or Instagram account, an email campaign, or even your sales receipts.

Data analysis 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. Then you can identify customer patterns and customize your marketing and sales practices to fit them. For example, if you know when your customers shop online, you can grab their attention by slotting social media to post at that time.

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

More from AllBusiness.com:

The benefits of a digital transformation

While digitally transforming your company sounds like a lot of work, there are numerous benefits, including:

• Boosting 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 enables employees to focus on revenue-generating activities, resulting in increased productivity.
• Extending your market reach: Digital platforms and online marketplaces enable you to reach a broader customer base outside your local market.
• Saving money: Adopting digital solutions can help you reduce operational costs. Automating manual processes can lower your overhead (you’ll need fewer employees). Using cloud-based services is less costly than investing in expensive hardware and software. And digital marketing, particularly social media, is typically far less expensive than traditional advertising methods.
• Becoming more agile and flexible: Digital technologies let you quickly respond to market demands, implement changes, and experiment with new ideas.
• Enhancing 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 the McKinsey senior partners wrote, “Digital is not a destination.” It’s more of a never-ending journey. Embracing digital transformation and adopting innovative technologies allows you to deliver superior customer experiences that cement customer loyalty and enable you to expand and grow.

Yes, there will be challenges along the way, but the potential benefits make it all worthwhile.

About the Author

Rieva Lesonsky is CEO of GrowBiz Media and SmallBusinessCurrents.com and has been covering small businesses and entrepreneurship for over 30 years. Get more insights about business trends by signing up for her free Currents newsletter.