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Malaysia’s SMEs looking to invest in digital tech

According to a recent news article, small and medium enterprises (SMEs) across Southeast Asia (SEA) are looking to invest in digital technologies within the next three years as the key enabler to drive new business propositions and user experiences, and deliver on significantly enhanced offerings.

However, they face challenges around digital talent shortage and transformation, cyber-security risks, as well as in determining how to incorporate a holistic strategy for continuous digital innovation, according to a new report.

The study revealed that transformative technologies will overtake current technologies to become an investment priority in three years’ time.

Transformative technologies cover digital applications such as artificial intelligence (AI), machine learning, blockchain and robotic process automation (RPA); while current technologies are defined as upgrades and expansions to existing infocomm technology (ICT) software, hardware and services.

Most Malaysian SMEs in the early stages of digital maturity

Only 6.8% of Malaysia’s SMEs are at stage five of digital maturity, where organisations have a single digital platform to scale technological innovations and consider themselves digital native enterprises.

The majority of SMEs in Malaysia (62.7%) are in the early stages of digital maturity, with digitalisation programmes remaining largely unaligned with the broader enterprise strategy and multiple initiatives running in parallel across business functions.

Over half of the SMEs in Malaysia are at stage two (52.5%) of digital maturity, where digital transformation initiatives have some alignment to the organisation’s enterprise strategy and are initiated at the functional or lines of business level, with multiple strategies running in parallel; while less than a fifth (Malaysia 10.2%, Southeast Asia 16.6%) of the respondents are still at stage one, or the initial phases of digital transformation, where initiatives are largely informal, tactical and separate from the organisation’s broader enterprise strategy.

It was noted that digital transformation shouldn’t be an end destination in itself. Instead, digitalisation is a critical business enabler that incorporates robust new technologies, operating models, cultures and mindsets to empower organizations to craft new business propositions and user experiences, or deliver significantly enhanced offerings.

Barriers to digital transformation

Among the top three challenges that Southeast Asian SMEs face with digital transformation are: a lack of access to digital talent (64.7%); pressure to focus on the short-term benefits of digitalisation (64.7%); and digital risks (64.4%).

One of the toughest challenges is securing qualified digital talents such as data scientists and social marketers. Individuals with the relevant skill sets are scarce, particularly in the emerging markets of Southeast Asia where digitalisation outpaces the supply of talent that can deliver on it.

As critical is the tendency to focus on immediate gains against investment in the longer term for digital future-proofing. Given the competing agendas vying for budget and limited resources, initiatives with more tangible and near-term returns may take precedence over digitalization programs.

Moreover, new technologies can be a double-edged sword, giving rise to opportunities as well as security and data risks such as cyber threats and data breaches.

In Malaysia, the top three challenges are difficult for existing staff to reskill and transition towards a digital-first culture (67.8%); lack of talent (66.1%); and pressure to focus on the short term (64.4%).

Digital transformation is both a cultural and technological endeavour. Understandably, Malaysia’s SMEs appear to focus more on current technologies to deliver immediate gains in the near term against budget and resource limitations.

However, as they seek to achieve digital transformation, the need to reskill and transition existing staff towards a digital-first mindset is crucial.

Steps that will enable digital transformation

The report highlights seven high-level steps that SMEs should undertake in their digital transformation journey:

  • Lay a firm foundation for digital success: Transformation begins with having strong and committed executive level sponsorship with oversight of digital technologies and foresight to prioritise these to champion change.
  • Balance legacies with new technology: 61.0% of Malaysia respondents highlight that IT limitations from legacy architectures are hindering their digital strategies. This is a pervasive issue, with organisations working on old fragmented infrastructures that constrain business agility.
  • Focus on end-to-end, not discrete initiatives: Organisations should create and embed the digital strategy into business operations, then design the right products, services or experiences to enhance performance based on these aspirations.
  • Share responsibilities collectively; digitalisation isn’t an IT-only initiative: Adopting emerging technologies should be cross-organisation such that no one individual or department owns it. The responsibility is shared across multiple divisions, with multiple users benefiting from the transformation.
  • Manage the people dimension: Talent is an extremely crucial actor as transformation creates new roles while impacting existing positions. Besides sourcing for new staff, SMEs need to engage incumbent employees to minimise resistance and drive the behavioural changes needed to integrate digitalisation.
  • Mitigate new dimensions of digital risks: SMEs should develop integrated risk management, compliance and security protocols as part of their initial design phase.
  • Integrate into an ecosystem-based world; don’t create digital islands: Transformation is a massive undertaking with limited success if undertaken in silos. With the customer typically driving the need for digital transformation, partnerships would be essential to raise competencies that support more holistic customer experiences.

Adopting a digital mindset goes beyond executing discrete projects within a specified timeframe. SMEs that successfully fuse digital into their DNA to deliver continuous innovation into everyday operations are those that are effectively redesigning themselves for the digital future.

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