There are a lot of gaps that business owners and leaders must overcome. The labor gap is one that many industries are facing right now. The knowledge gap is another. The wage gap might impact workers more than their bosses, but it certainly does make hiring more difficult for firms looking to attract top talent.
You can add the “adoption gap” to the list.
No, it doesn’t have anything to do with children, though having a few more young professionals on the payroll could actually help bridge this particular gap. The adoption gap refers specifically to adopting new technologies, and the gap is particularly wide for small businesses.
Simple changes in habits and process could prove more effective than costly educational campaigns in helping small businesses take advantage of digital technology’s benefits, according to behavioral science research conducted by Xero, a global small business platform.
The One step study surveyed more than 4,200 small business owners in six countries — the U.S., Canada, the U.K., Australia, New Zealand, and Singapore. Carried out in partnership with Decision Design, a behavioral science consultancy, the report found that small businesses which readily adopt new technology enjoy on average 120% higher revenue. The owners also reported 106% higher productivity than those which repeatedly fail to do so and were 27% more likely to wake up excited about their work.
Yet despite technology adoption’s substantial and well-documented benefits, and even after the pandemic drove firms to deploy digital solutions en masse, only one in five small business owners consider themselves as technology adopters — compared to nearly one in three who admit they continually delay investing in new technology.
The research revealed that this adoption gap stems from several behavioral barriers — mindsets and perceptions about technology and change — that frequently recurred amongst small businesses all over the world. Small business leaders tended to believe that their current solutions were good enough even if new technology might help them do better; to focus on risks and short-term losses when considering change; and to freeze up when forced to compare, understand, and choose between numerous technology options.
The study found that amongst the six countries surveyed, small businesses in the U.S. were most likely to delay adopting new technology (31%), with only five in 10 being open to taking risks when making business decisions, and seven in 10 putting off technology decisions because they felt more comfortable working on day-to-day matters. However, small businesses in the U.S. were also least likely to:
- Stress about competitors gaining an edge by upgrading their technology (three in 10);
- Declare that the safest course of action is to stick to existing technology solutions (less than five in 10); or
- Say they can’t handle the effort needed to adopt new technology (less than three in 10).
“Relatively few U.S. small businesses feel challenged by insufficient internal support, the complexity of how new technologies work, or the effort involved in upgrading technology — yet compared to other countries, they’re falling behind on technology adoption in a substantial way,” says Ben Richmond, U.S. Country Manager at Xero. “The report’s findings suggest that while small businesses in the U.S. don’t lack confidence, they may be struggling to turn that into decisive choices — whether because of time or more short-term pressures.
“Communicating the value of technology adoption with greater urgency — by contrasting adopters’ performance to those who delay — might help spur U.S. small businesses to take that first step.”
“Is it any surprise that small businesses are so often portrayed as underdogs?” opines Gary Turner, co-founder and managing director for Xero UK. “Over the past decade, countless entrepreneurs have entered an unlevel playing field, battling insurmountable odds, dwarfed by gargantuan corporate entities.”
Take the software market, for example, says Turner. Not so long ago, small firms only had access to an extremely limited pool of software providers, offering comprehensive but often cumbersome all-in-one products under long, expensive service contracts. Netscape CEO Jim Barksdale once stated that there are “only two ways to make money in business: One is to bundle; the other is unbundle.”
“Barksdale’s throwaway quip is actually more profound than it might sound,” notes Turner. “Innovation in a given market invariably goes one of two ways. In order to succeed, a new entrant or product either must disrupt a market, often dominated by a large, single player, by disaggregating the components and services into discrete component offerings to provide more choice. The alternative, or reverse, is when the new entrant takes disparate products and services and aggregates or bundles them into a single, better-value-for-money proposition.
“In my experience, bundled service providers often included products that were borderline useless to blossoming businesses,” Turner continues. “Yet, many had no choice but to adopt these expensive packages wholesale, or simply go without. Today, we’re seeing that this dynamic is shifting.”
According to a McKinsey study, COVID-19 accelerated global digital transformation by seven years, Turner states. While many large businesses struggled with these changes, smaller companies proved to be nimbler when adapting to the increasingly digital world. With recovery now firmly underway for many of the small businesses impacted by the pandemic, a greater number are adopting digital tools to work smarter. In fact, according to a report by the Organisation for Economic Co-operation and Development (OECD), up to 70% of small to medium-sized businesses (SMBs) have intensified their use of digital technologies due to COVID-19.
While COVID-19 may have acted as a digital catalyst for a great number of businesses, many have barely scratched the surface of the software available to them, notes Turner. Now, many software providers boast extensive app ecosystems that demonstrate the breadth of capabilities many can now tap into. “However, such an abundance of opportunities poses its own challenge,” Turner says. “Namely: How do you know what’s right for your business? But small companies looking to capitalize on the growing selection of tools should not be overwhelmed.”
Small business leaders can better select the products that best fit their business needs in today’s unique technology ecosystem, Turner adds. For instance, there are opportunities to make use of human-powered advisory services, with partners cherry-picking the right apps for your specific needs. Small business owners can embrace tools that use algorithms to simplify the search for new software — enabling them to customize their own app stack based on what suits their company and clients.
“With access to an unprecedented number of apps — and support to find the right ones — small businesses have never been better placed to innovate,” Turner states.
While the adoption of digital tools is vital to the future success of small businesses, it will mean little if workforces are ill-equipped to use them. In fact, the World Economic Forum suggests we are on the brink of a “reskilling revolution,” as more companies work closely with intelligent machines, data, and algorithms.
This drive to develop skills is a necessity, with many large businesses already embracing increasingly advanced technologies to spark recovery and lay the foundations for the future. The McKinsey report on artificial intelligence reveals that 61% of high-performing companies increased their investment in AI amid the pandemic.
Failing to equip workforces with the skills they need to adopt this technology could have disastrous repercussions for businesses of any size. A report by Korn Ferry revealed that without more high-tech workers, the U.S. alone could lose out on $162 billion worth of revenues annually. For those looking to capitalize on the new opportunities presented by small business technology, equipping workforces with digital skills is as important as adoption itself.
So, what does the future hold for small businesses that are now equipped with the tools to go toe-to-toe with many of their larger competitors?
“First, it’s likely we’ll see more small businesses run entirely through apps,” suggest Turner. “In doing so, owners can gain better insight and control over every part of their business, from marketing and customer service to financial performance. This change is already taking place. In the U.S., 84% of small businesses have turned to at least one major digital platform to connect with customers, according to findings from the U.S. Chamber of Commerce. In the U.K., my organization’s research found that more than 25% of small businesses already use productivity-boosting technology.
“Second, is a greater reliance on data and the insights derived from it,” he adds. “Apps are providing small businesses with access to the same quality of data as bigger corporations. This enables them to make better, more proactive decisions in real-time to drive growth and efficiency, and stand alongside even the most well-resourced businesses.”
Slow adoption is nothing new
Habits are hard to break and reversing the reluctance among small business leaders to adopt new technologies will require some rewiring of ingrained mindsets.
A 2018 Deloitte small business study commissioned by Google found that 80% of U.S. small businesses are not taking full advantage of digital tools.
That’s notable because Deloitte’s analysis found that, relative to businesses that have low levels of digital engagement, digitally advanced small businesses realized significant benefits.
These organizations realized the following business benefits:
- Earned two times as much revenue per employee;
- Experienced revenue growth over the previous year that was nearly four times as high;
- Were almost three times as likely to be creating jobs over the previous year;
- Had an average employment growth rate that was more than six times as high; and
- Were also three times as likely to have exported goods or services over the previous year.
What’s interesting is small business owners aren’t blind to the advantages of embracing technology. Thirty-eight percent of small businesses surveyed in the Deloitte study cited increased sales and revenue as a benefit associated with using digital tools. Women-owned small businesses, which were found to be more digitally engaged than their male-owned counterparts, were more likely to identify increased sales as the top benefit resulting from the utilization of digital tools.
However, organizational benefits such as improved communications, flexibility, and lower business costs are less likely to be identified by small businesses as drivers of technology adoption. Digitally advanced small businesses were twice as likely to have employees that collaborate regularly, as compared to businesses at a basic level of digital engagement. Many small businesses also believe that digital engagement is associated with happier employees: 69% of digitally advanced businesses stated that digital tools improve employee satisfaction.
One indicator of whether a business is digitally engaged is the tech savviness of its leaders. That’s because personal use of technology helps small business owners develop digital skills and improves their understanding of how to use digital channels effectively for customer engagement. Deloitte found 77% of U.S. small business owners are regular users of technology for personal reasons, such as online shopping or consuming digital media.
With so many small businesses not fully embracing the digital age, one might expect to find a broad range of barriers that are tough to overcome such as inadequate broadband, a lack of technical skills, or huge financial barriers to investing in technology. However, the issues are actually much simpler, according to Deloitte: Many small businesses still need to be made aware of the benefits of the internet and other digital tools.
Amongst the least digitally engaged small business, 40% believe that digital tools are “not relevant for my business,” and 38% feel that “they are not effective for my business.” That is an astounding finding and indicates that less digitally engaged businesses may be unaware of the benefits associated with digital tools. This suggests that efforts to improve digital use across the U.S. should focus on exploring and increasing awareness of the benefits that can be realized through digital technologies. In addition, 34% identified “privacy and security concerns” as amongst their top three digital barriers.
Business relies on technology
Interestingly, while small businesses are slower to adopt new technologies, the overwhelming majority of them use some form of technology in their day-to-day operations. The ubiquity of technology in the 21st century is just that hard to escape, at least if you want your business to survive.
In August, the U.S. Chamber of Commerce released a new nationwide survey and economic analysis measuring the effect of technology platforms on small businesses and the economy.â¯The analysis, conducted by Teneo, found that not only have various technology platforms played a critical role in helping small business owners start, run, and grow their business — as well as survive economic turbulence — but also those small businesses that fully embrace technology are outcompeting their peers and are more optimistic about the future.
“Despite historic inflation and two quarters of negative economic growth, small business owners have proven themselves resilient time and time again, aided in part by technology platforms like digital advertising, business software, and delivery apps that power operational efficiencies and provide increased access to customers,” says Jordan Crenshaw, vice president of the U.S. Chamber’s Technology Engagement Center.
According to the analysis, when small businesses use technology, it delivers tangible economic benefits. Small businesses that utilize technology platforms directly employ or support the employment of more than 99.8 million jobs in the U.S. and contribute $17.7 trillion to the economy annually.
“By leveraging technology, small businesses are playing an outsized role and are essential to America’s economic growth. Congress must prioritize policies that encourage technological development and adoption to ensure America’s small businesses can continue to innovate and serve their communities,” Crenshaw concludes.
Among the U.S. Chamber’s findings, 93% of today’s small business owners report using at least one type of technology platform to help run their business, with the average owner utilizing three different platforms. Of those, 85% report that technology platforms helped to get their business up and running, and 94% report that technology helps them run their business more efficiently.
Eighty-six percent of small business owners in the U.S. believe that technology platforms have helped their business survive through COVID-19, and 87% believe technology has helped them grow in challenging conditions.
Small businesses that incorporate more technology platforms into their operations are also more likely to have seen growth in their sales, profits, and employment since 2020. Eighty-four percent of small business power adopters (those using six-plus technology platforms) saw an increase in profits, 82% saw increased sales, and 74% increased their employment compared to their low adopter peers (using one or less platforms) who were less likely to see growth in these three areas — 65%, 59%, and 54% respectively.
In addition to the economic benefits, small business owners are seeing personal benefits as well. Nearly nine in 10 (88%) of small business owners say that the use of technology platforms helps them to find more enjoyment in running their business and 80% agree that it helps them have more time to spend away from their businesses and with their family instead.
When it comes to the future, 89% of small businesses are either very or somewhat optimistic — and that faith is enhanced based on their utilization of technology. Those small businesses adopting technology the most (six or more platforms) are twice as likely as those with low adoption (zero to one platforms) to be very optimistic. And small businesses using a wide range of technologies are expecting faster growth in everything from customer acquisition to sales, to employment, to profits over the next two to three years when compared to businesses that have adopted fewer technologies.
As a result, most small businesses plan to continue making investments in their use of technology with 83% reporting they will boost their use of technology platforms across their business in the next two to three years, and 63% plan to use the most advanced tech, from artificial intelligence to virtual reality.
Momentum in manufacturing
Buckley Brinkman, who directs the Wisconsin Center for Manufacturing and Productivity (WCMP), believes there are two kinds of manufacturers — those who have adjusted to a changing world and those who must do so to survive.
A survey completed last year of 400 Wisconsin manufacturing executives commissioned by the WCMP, which is connected to the national Manufacturing Extension Partnership, offers a snapshot of both.
Supply chain worries are rising to the level of workforce challenges, larger manufacturers are more likely to embrace technology solutions than smaller firms, and cybersecurity threats are something that happens to “other” companies versus their own. Those are some top-line observations from an otherwise upbeat survey conducted by a WMCP consultant.
“The ones that are getting it are really leaning into the future,” says Brinkman. “They’re investing in technology, they’re engaging their workforce, they’re finding creative ways to solve their supply chain issues.”
However, there is also a split between larger manufacturers — in this case, defined as 50 or more employees and $5 million or more in annual revenues — and smaller firms.
According to Tom Still, president of the Wisconsin Technology Council, larger firms are thinking more about automation, robotics, artificial intelligence strategies, and other technologies as a hedge to workforce shortages. Experts have been warning about a demographic tsunami in the Wisconsin workforce for years, but it took the COVID-19 pandemic to drive home the reality.
The survey drew proportionately on manufacturing C-level executives across Wisconsin’s geographic regions, so it wasn’t Milwaukee-heavy or Fox Valley-heavy, and most Wisconsin manufacturers are adapting or trying to do so, says Still. The pandemic was hard on almost all of them, but perhaps it also accelerated willingness to change.
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