The UK SME community still has a lot of digitisation work to do. And this time, the decision is being made for us.
The way we submit our Tax and VAT returns in the UK is changing. As of 1 April 2019, maintaining and keeping paper records of financial transactions within businesses will no longer meet the legal requirements, which means that switching to digital record-keeping moves from being a “here’s how to run your businesses efficiently” conversation to one which reads, “here’s why you risk financial penalty if you don’t”.
The UK’s HMRC has introduced the Making Tax Digital initiative and as of 1 April 2019, this initiative kicks into action officially. Following the estimation that avoidable tax errors cost the Exchequer almost £9 billion every year, the HMRC is on a drive to become one of the most digitally-advanced tax administrations in the world. And because of this focus, businesses above the relative threshold will now be required to maintain digital accounting records.
This sparks a new discussion.
How digital is UK business, really?
In a report commissioned by a consortium of companies led by the Institute for Employment Studies (IES) and SQW investigating the digitisation of the UK business community, it was noted that “the adoption of basic digital technology is now nearly ubiquitous, but the adoption of more advanced applications is more variable – with larger businesses tending to lead the way. Certain applications are more relevant to some sectors than others; for example, in 2014 the proportions of businesses making e-commerce sales were highest in the Retail (27%) and Wholesale (22%) sectors, and lowest in Construction (4%). UK businesses appear to be broadly in line with the European average levels of adoption in many respects, but are lagging somewhat in the adoption of Enterprise Resource Planning systems and Customer Relationship Management systems. UK firms are above the European average in terms of their use of social networks and cloud computing, however“.
Generally good news that the UK business community is building a future on digital.
But, there’s still work to be done
In the same report, there are a few distinctive areas that form the priority action list for UK business to prepare for future growth.
- raising the levels of digital leadership: This included recognising the importance of digitisation for the firm’s future success; ensuring that the firm has people with the right attitudes and skills to lead digital-enabled change; assigning annual budgets for information and communications technology (“ICT”) which are proportionate to its level of importance for the business; and thinking through and agreeing explicit plans for what ICT-related changes should be implemented over the forthcoming period.
- getting up to speed on cloud options and cyber security: 28% of 398 SME respondents in a BT/BCC survey said that they were aware of cloud-based applications but not sure how they are relevant to their business; and unpublished recent research by SQW also found cloud computing to be the area of ICT in which SMEs’ management teams were least informed. Regarding security, a PwC survey for the UK Government found that only 60% of small organisations have a documented information security policy (vs 98% of large organisations); and KPMG found that 70% of procurement managers in large UK businesses felt that SMEs should be doing more to prevent cyber attacks and protect valuable client data.
- implementing and exploiting CRM solutions: According to the report, this is also an area in which the UK is significantly lagging EU best practice at present: 30% of firms with 10+ employees using CRM in the UK versus the 33% EU average, and 47% in the Netherlands. The adoption of CRM typically entails significant changes to business processes; those firms prepared to invest in getting these complementary changes right (weaving in CRM to their various processes, in a user-friendly way) are likely to out-perform those who treat their system as a glorified address book.
- professionalising digital marketing activities: SMEs rated themselves least capable at e-marketing (mean of 2.53 out of 5), using social media (2.76) and maximising sales through SEO (2.86). These were also the areas most frequently cited as those where advice and support would be useful in the future – with 41% agreeing that advice/support on SEO would be useful and 39% agreeing that advice/support on digital marketing would be useful. This suggests that there is significant current demand for support in helping SMEs to professionalise their digital marketing efforts.
- migrating off end-of-life systems: Any customers continuing to use products past their end-of-life date will face increasing risks of security breaches from hackers seeking to exploit vulnerabilities in older software.
- optimising e-commerce implementations and addressing international opportunities: “Not all businesses have products or services that are appropriate for e-commerce, and, in fact, studies would suggest that the proportion of businesses adopting e-commerce seems to have flattened out over recent years. For those firms which do have e-commerce implementations, however, many are rather ineffective as yet – for example, the BMG research for BIS found that (of those that were using e-commerce and who provided an indication of the value of e-commerce sales) 69% earned less than £50,000 from e-commerce in the previous 12 months. There is a large gulf between the ‘excellence of the few’ and the ‘mediocrity of the many’ in e-commerce, which suggests that more could be done to diffuse better e-commerce practice among businesses – through search engine optimisation and the ‘tricks of the trade’ that maximise click through rates and conversion rates on e-commerce websites. Furthermore, most UK e-commerce websites are only currently targeting customers in the UK: in the BMG research for BIS only 37% of SMEs with e-commerce operations had exported in the previous 12 months. Although one of the most frequently cited benefits of e-commerce is that it opens up world markets to businesses, it appears that most UK SMEs are not actually taking advantage of this – even amongst those who do offer e-commerce via their websites.”
An operational health check
To have any hope of responding to the constant change in operational demands, increasing changes in regulation, financial pressures and changes in strategy to match customer expectations and behaviour, SMEs need to be seeking ways to constantly improve the way they operate.
From regular internal operational assessments to revision of management structure and direction, keeping focussed on continuous improvement puts you in the perfect position to quickly respond to shifts in operating environments.
But you need to be aware of them first.
Without being aware of the work that needs to be done to execute a successful growth strategy while having a successful and risk-proof action plan in place to activate, anything you do is futile. You may as well close your doors today. But we don’t want you to. We want you to grow – exponentially.
Which is why we’re inviting you for a chat. We are experts in growth – and we’d like to help you see that growth to fruition.