SCORE

Andy Grove, the late founder and CEO of Intel wrote a book whose title will be forever remembered, Only the Paranoid Survive. He advised executives to always be on the lookout for destructive forces impacting their business. He challenged executives to exploit these forces as opposed to being overcome by them.

But what about the normal everyday functions of a company? Shouldn’t executives be paranoid about streamlining them? I am not talking about savings on phone bills or office supplies. I’m taking about shaving substantial costs off marketing, sales, operations, inventory, customer relations, accounting, human resources and information technology.

Companies spend 9-12% of revenues on marketing and 7-15% on sales. Delivering necessary marketing and sales tasks while keeping costs in check could net significantly more to your bottom line and perhaps double your profits.

Here are some benefits that digital transformation will bring to your business.

Creates Barriers to Entry

Digital transformation is not easy to accomplish. But once in motion its value becomes evident. Companies that institute an agile culture across all departments will have a competitive advantage over their competitors.   

Your customers will notice your new and improved culture and welcome it. Additionally, your employees will appreciate their jobs, careers and roles in moving your business forward to reach company goals.

Overcoming digital transformation challenges by less adept competitors or new entrants to the market may make them reconsider their options.

Think of the difficulties you will face overcoming your digital transformation as barriers to entry for others. The bigger the challenge, the bigger the barriers for them.

Streamlines the Value Chain

Your value chain is the lifeblood of your business. The faster, smoother, more robust and effective it is, the more successful your business will be.

In a previous post, I mentioned that I like to call the value chain, the “value train”, since it is always moving. Companies should constantly consider and evaluate ways to improve their value chain; when improvements stop, decline eventually follows.

Digital optimization and transformation enable CEOs and small business owners to look for new ways to revamp their value chain. You don’t have to look for state of the art technologies or science to accomplish that. Many are taking advantage of mature and proven technologies and daisy-chaining them to digitalize their entire value chain, or the parts that can be digitalized.

Digital Optimization and Transformation for Small Businesses eBook

Improves Workforce Efficiency

Digitalization facilitates automation. Computers are ubiquitous. Start by automating mundane and repetitive tasks within each department. Then, look for ways to automate interdepartmental tasks. Continue to look for areas where you can create efficiencies with automation. When you digitalize your value chain, you can allow the automation of many processes. This improves workers’ efficiency.

Minimizes Routine Work

Many employees become complacent, burn out or get demotivated when expected to do the same task repeatedly for a long period of time. Do you remember the Dunkin Donuts commercials from the 80s? Time to make the donuts with Fred the baker is a great example of how tiring routine work can be, even if you pride yourself on what you do. Automation that ensues digital transformation is a blessing. It improves employees’ productivity and morale.

Prolongs Company Lifespan

With higher barriers to entry, higher employee morale, higher profitability and lower costs, your company’s lifespan increases significantly. With a prolonged lifespan, owners of small businesses will enjoy greater income from the hard work they put in when they started their company. Employees will have longer career spans within the company and safer futures. Customers will have fewer disruptions or transition complications.

Ameliorates Customer Experience

Customers will notice your agile culture and will encourage you to continue down that path. They will show approval with repeat orders, survey responses, positive ratings, and feedback. An engaging and transparent customer experience coupled with a prolonged company lifespan enable you to build customer intimacy and increase repeat business.

Increases Profitability

Increasing your company’s profitability brings a lot of benefits; most are obvious ones. Here are a few that you may not have thought of:

Lowers Debt and Interest Payments

Profits are the best way to pay off debt. Startup debt, often inevitable, can be a drag on your growth. Paying off debt early eliminates interest payments and possibly other obligations that you must fulfill when servicing a note; low-benefit expenses such as excessive insurance and guarantees. Your company’s value will increase proportionally to the decrease in liabilities.

Less Worrying About Cash Flow

Lower or negative profits often lead to cash flow problems. Increasing profits will enable you to put cash flow worries to rest.  You can direct your attention to more urgent matters such as servicing your clients the best way you can and by growing sales.

Funds New Investments

Handsome profit margins allow further investment into the business. Digital transformation or optimization will not be free. But the return on investment with early implementation can finance additional digitalization undertakings and will justify future investments. A company that does not invest in its future is a stagnant company in decline.

Enables Diversification

Take profits out of your company and diversify into varying portfolios. You do not want to be fully dependent on one source of income, plus you want to save for your retirement. A bountiful business exit is never guaranteed.

Allows Generous Retirement Plans and Peace of Mind for Owners & Employees

Diverting profits into retirement plans is an excellent way to save for your and your employees’ retirement. Some of these profits can be distributed tax free via defined benefit and 401(k) plans. Hire a good plan administrator and make sure the funds are properly allocated for diversification and risk according to individual tolerance levels.

Generous contributions to retirement plans will gain employee loyalty. Long term financial security will lead to financial independence, tranquility and peace of mind.

Is Digital Transformation for Everyone?

The short answer is yes. Many CEOs and small business owners use the size of their companies as an excuse not to undergo digital transformation. They believe that they cannot compete against much larger organizations with their relatively unlimited resources. These executives are mistaken. Being a small nimble company is an advantage, not a liability.

According to a McKinsey study in Oct 2018, “At organizations with fewer than 100 employees, respondents are 2.7 times more likely to report a successful digital transformation than are those from organizations with more than 50,000 employees.”

One of my SCORE mentor colleagues owns a couple of men’s hair styling franchises. His stores are highly dependent on digital technology. The minute a client enters his store, he knows it. He also knows how much time the customer waited, what service was ordered, who delivered it, how long it took to complete it and if the client was happy. This information is available online.

Another SCORE mentor orders his coffee from Starbucks using his smart phone while heading to his meeting there. He walks up to the counter, picks up his coffee and heads to his meeting with his client.

If hair salons and coffee shops, two traditionally very low-tech operations, can digitalize their transactions and value chains, think about the possibilities for your business.

Below is a table that McKinsey published depicting the status of digitization across all industries. Obviously, some industries can leverage digital optimization opportunities more than others, but the opportunities are there for virtually all to capitalize on.

Take a close look and find out how your company compares to the industry you operate in.

McKinsey: status of digitization across industries

Digital Optimization or Transformation?

Many CEOs and small business owners ask if they should attempt digital optimization or digital transformation. They are comforted to know that either path is appropriate. Digital optimization can lead to digital transformation. Furthermore, by committing to digital transformation, you have indirectly committed to digital optimization.

As a matter of fact, many companies have effected digital transformations unwittingly. They reached that destination by embarking on a mission to create efficiencies wherever feasible in their organizations. Inadvertently, they applied digital optimization techniques to their processes that succeeded in reducing costs or improving bottom lines. As they built an agile digitally savvy workforce and culture, they accomplished true digital transformation. They did it before the term was coined, and so can you.

I tell my SCORE clients, worry about destructive revolutionary trends, but more about evolutionary improvements that you are not bringing (on a daily basis) to your ongoing operations. It is the little important things that you don’t do that will add up to the long-term disruption of your business.

If you need help with digitally transforming or optimizing your small business, contact SCORE today!

About the Author(s)

Nabil Freij

Nabil is a certified SCORE Mentor, problem solver and entrepreneur. He draws from various technical & management skills to streamline business processes & operations, minimizing costs & maximizing profitability. Skilled in all aspects of running a small business including Finance, Operations, Marketing, Sales, IT & HR. Author of Enabling Globalization, trilingual, MSEE from Brown, MBA from Bryant.

CEO, GlobalVision International, Inc.
Digital Transformation Benefits