Driving business digitisation

Surprisingly, despite the productivity increase that digital technologies provide, a large percentage of New Zealand SMEs continue to drag the chain on their implementation. With AI making its presence felt in 2024, it’s time for business owners to understand and realise the true cost-benefit return from digitalising their processes.

It seems that the entire world is infatuated with artificial intelligence. Individuals and businesses everywhere are busy exploring how to harness and apply its extraordinary capabilities.

However, while AI hogs the headlines and captures our collective attention, many New Zealand small businesses continue to drag their heels on the real technology game-changer that’s been steadily infiltrating the market for some time.

We are, of course, talking about digitisation. This is the application of digital tools and technologies that speed up a business’s processes or systems, thereby improving customers’ experiences, creating greater efficiencies, and ultimately boosting profitability.

So why is it that many New Zealand businesses have been so slow to appreciate the benefits and the savings that digital technologies and applications can deliver? 

Perhaps, for many, it’s simply the ongoing battle for survival.

In 2024 we live in interesting, and yet incredibly tough, times for businesses. The latest data from Auckland firm BWA Insolvency has revealed that almost 50 businesses in New Zealand are declared insolvent every week.

There is no easy answer. Since the arrival of the Covid pandemic so many factors outside our control have collectively made business ownership and profitability a challenge. 

Could digitalisation make a difference? There are many experts who believe it is indeed a game-changer.

Greg Clark, director – SME and Consumer at Spark, reminds us that in today’s high-inflation environment, the number one concern for SME owners and managers is escalating costs, which is driving a focus on productivity and efficiency. He says SMEs continue to suffer digital lag despite the benefits that digitisation brings in productivity and points out that the digitisation of SMEs has the potential to deliver a gross benefit of $8.5 billion to our economy. 

“The opportunity to continue driving growth through SME digitisation is substantial, but you’ve got to have the right model to reach what is a highly fragmented and time-poor audience.”

The sooner, the better

When it comes to the adoption of digital technologies, it really is a matter of ‘the sooner the better’. NZIER principal economist Christina Leung has been quoted as saying that digital transformation is not a matter of choosing ‘if’ to proceed but ‘when’, and it is a continuous process. “Organisations choosing not to integrate digital technology into their operations will fall behind in their ability to meet their customers’ expectations.”

If you want to see the opportunities that digitisation can bring, Spark Business Lab is a good place to begin. It showcases the latest digitisation technologies and hosts the brightest minds from overseas to help businesses stay one step ahead.

The key to digital technology adoption – technologies such as AI, IoT and data analytics – is in ensuring that the technology solution is integrated into your business strategy.

“Adopting a new technology will not drive change, in and of itself. You must start with your business challenge and work back to the technology solution,” explains Greg.

As businesses explore the opportunities of AI, for example, they must also make sure they’re investing in building the skills and capabilities of their workforce, he says. “So that they’re prepared to take advantage of the new roles that will emerge through this technology. And making sure that we do this in an inclusive way.”

If businesses aren’t sure where to start, Digital Boost is a great free tool, suggests Greg. 

“It helps small businesses to get their business online and adopt digital tools, allowing them to adapt today and prepare for tomorrow.”

Take small steps and choose wisely

There can be legitimate technical excuses for Kiwi businesses not being able to adopt some digital technologies new to the market. 

“Some digital technology doesn’t cater to New Zealand’s local market directly,” warns James Bergin, the EGM technology research and advocacy for Xero. He says with a lot of development originating in the US, often the associated costs are in US dollars and sometimes it’s not even possible for Kiwi users to sign up and access these products.

“This can lead to legitimate technical excuses for not being able to adopt certain technologies.” International development also means users can run into issues where products don’t factor in local and regional laws, customs or requirements, he says.

“Don’t forget, everyone is also extremely busy,” adds James, “especially during the current economic climate. And running a small business is intense.” 

He believes the large number of digital options available to business owners can be intimidating. ‘Decision paralysis’ is very real when you’re busy ‘doing the doing’, he says.

However, by speaking with the right experts and understanding where there are pressure points within their business that digital tools can address, business owners should quickly find themselves with more time and flexibility to pursue more digital capabilities going forward.

Look for the gaps digital tools can fill

You certainly can’t afford to ignore digital technology, but at the same time it would be foolish to just jump in and blindly make huge changes.

“Business owners should first spend the time to get their fundamentals sorted,” says James. 

His advice is to also look at your business as a series of jobs that need to be done to help your customers. Then focus on understanding where there are obvious gaps that digital tools can fill.

“After all, the point isn’t what tech you have under the hood, but what that tech enables you to do. These are tools to help business owners deliver outcomes to customers as productively and profitably as possible.”

Digital tools deliver value for both employees and customers, adds Bergin. “Being able to deliver more tailored customer outcomes faster, while cutting down on the effort required to deliver them, or the tedium of day-to-day admin.”

A positive cost-benefit analysis

While in 2024 SMEs may be a little more cautious about any new spending, digitalising just one or two processes in a business can deliver a substantial cost-benefit return.

“In 2022, MYOB worked with Infometrics to model the potential returns of investment in digital tools by New Zealand SMEs with the lowest adoption levels, and the results showed that for every $100 invested in incrementally improving the use of digital business tools in a small business – digitising just one or two processes – the return would be $240 to $310,” says MYOB’s head of digital experience Martin Longley. 

The modelling also highlighted the significant flow-on effect this would have for the local economy – a potential gross benefit of NZ$8.5 billion, he says.

“As well as a strong cost-benefit ROI, there are many well-charted benefits from digitising business processes that can offer a strong boost to businesses where it counts,” explains Martin. He’s talking about everything from productivity improvements, to streamlining employee management, helping to save business owners and their teams valuable time on admin tasks, and even improving cashflow – “with solutions like Online Invoice Payments and eInvoicing helping to speed up payment times and securely improve the flow of money.”

Martin believes any assessment of digital adoption rates by New Zealand SMEs and the success of efforts here compared with other countries, also needs to account for differences in the business environment and policy settings across the various markets.

“It’s not always a level playing field and in countries like Australia and Singapore, a different approach, which includes initiatives like tax rebates on digital solutions, will have helped to foster and incentivise more investment in digital solutions.”

AI and digital tools

It’s true that digitalisaton and artificial intelligence (AI) are intertwined. 

“Artificial intelligence or AI is a term that captures a broad range of digital tools from automated data reporting, diagnostic tools, advanced analytics, advanced pattern recognition, and natural language recognition, to generative AI,” explains Malcolm Luey, director of innovation at MBIE. 

“Many of these digital tools are already commonly used by businesses and the public already. 

“However, the latest digital AI tools that take natural language prompts and advanced analytics to create documents, images, websites, software coding etc – for example ChatGPT-4o – have lifted public awareness and are likely to have a significant impact on business productivity and economic resilience.

“These interactive digital tools may also change expectations regarding customer service which will eventually impact New Zealand businesses and Government services,” says Malcolm, adding that with many AI tools now being made part of software and devices, an increasing number of New Zealand businesses are already seeking information on how these tools might be incorporated into their current business operations, or to help develop new products or markets.

To remain competitive, think digital

Many Kiwi businesses have been steadily adopting digital technologies. But given the longer-term issues and perceived barriers to digital adoption, Malcolm says it’s difficult to predict whether New Zealand businesses will significantly increase their rate of digitalisation over the next 12 months.

“Global trends will likely make it more challenging for New Zealand businesses to remain competitive, both domestically and globally, without adopting more technology and digital ways of working.”

Malcolm says just over half of all New Zealand businesses believe they would benefit from being more digital – up slightly from 49 percent in 2021. And 19 percent ‘strongly agree’ that this is the case.

“Most other businesses remain ‘on the fence’ regarding the benefits of digitalisation. However, we do see a trend toward businesses agreeing with the benefits of digital rather than dismissing them,” says Malcolm.

“Those who don’t see the benefit in being more digital, believing return is not worth the cost and thinking digital tools are not relevant, are our two main barriers. This suggests there is still work needed to communicate the relative benefits of becoming more digital.

“Additionally, of those who have difficulty choosing the right tools, 62 percent see the benefits in being more digital. This is clearly an issue affecting the more digitally motivated businesses.”

As part of improving the uptake, businesses need a clear understanding of what ‘digital’ means in its broadest sense, what kind of tools would help their particular business, and what kind of benefits those tools will bring.

Barriers to adoption

For an overview of New Zealand businesses’ digital capability and trends in the use of digital tools and technology, check out the MBIE Business Digital Capability Monitor. It captures the digital capability of businesses in a way that enables the monitoring of digital progress over time – including by size and industry.

MBIE research has found that reported barriers around digitalisation include:

• Concerns about information security/fraud.
• Difficulty in choosing the right tools.
• Affordability in the current fiscal climate.
• Staff skills.
• Lack of time to learn.
• Lack of knowledge on what tools are available.
• Concerns regarding the lack of value/return for the investment.

This article was originally published in the June 2024 issue of NZBusiness magazine. To read the issue, click here.