Ahead of the Curve

Lessons on Technology and Growth from SmallBusiness Leaders

Boston Consulting Group
BCG 2013
43 pages
[@] getab.li/20923
Book:

Rating

8 Applicability
6 Innovation
7 Style

Focus
Leadership & Management
Strategy
Sales & Marketing
Finance
Human Resources
IT, Production & Logistics
Career & Self-Development
Small Business
Economics & Politics
Industries
Global Business

Take-Aways
Three kinds of small and medium-sized enterprises (SMEs) adopt new technologies at
different rates.

Leaders adopt new technologies faster and more broadly than other SMEs.
Followers adopt new technologies at a slower pace than Leaders.
Laggards do not use new technology, or use it very little, and their businesses suffer.
Tech leaders are more connected and efficient. They use the cloud to generate new
options and employ technology to enable new business models.

SMEs contribute greatly to national economies. If all SMEs had access to new
technology, national economies would benefit markedly.

National governments can help their SMEs succeed by removing legal barriers,
supporting the local IT market, and providing scientific and technical training.

Countries should embrace global standards and develop data security to help SMEs.
Women have less access to technology than men, but SMEs run by women flourish.
SMEs can build success by gaining more skills, experimenting and following their
customers leads to new technologies.

Concepts & Trends

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Relevance

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What You Will Learn
In this summary, you will learn:r1) How the use of technology correlates with business success, 2) How various
types of small and medium-sized enterprises (SMEs) adopt technology differently and 3) What governments can do
to help businesses succeed.
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Review
Do businesses that adopt the latest technologies outperform those that dont, and if so, by how much? This Boston
Consulting Group (BCG) report delves into truisms about technology and small to medium-sized businesses, and
provides answers in the form of workable, accessible data. It explains how and by what measures small and
medium-sized enterprises (SMEs) with access to technology perform better than their competitors that lack tech
access. It discusses when access to technology does not improve performance and why. The report offers policy
proposals showing governments how to support SMEs and their tech needs. Some steps may surprise you like giving
women access to technology and training. Throughout, the BCG provides numbers on the financial implications
of their data and illustrates the relationships between business success and technology with a host of graphics.
getAbstract recommends this insightful, in-depth report to investors, start-ups, small-business owners, politicians,
and those interested in the impact of technology on commerce and on developing nations.
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Summary

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Small and midsize
enterprises (SMEs)
are critical to fueling
economic growth and
job creation around the
world.
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Technology leaders
far outperform
their peers in the
marketplace.
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Small and Medium-Sized Enterprises and Technology

Small and medium-sized enterprises (SMEs) are essential to local, national and global
economies. They create jobs and drive economic growth. Technology, especially
information technology, provides important support for their business goals. SMEs can
apply some technologies that larger corporations also find useful, but SMEs tend to pursue
this capacity in a decidedly uneven fashion, creating the possibility of a new digital
divide in the business community.
Comparing technology adaptation leaders and evaluating the way technology benefits
them to other firms with less access and usage reveals a tech-adaptation road map that can
guide future growth for companies and national governments alike. Governments should
empower their SMEs, since those with better access to technology earn more and create
more jobs.
Worldwide, SMEs already generate a major share of GDP, from 60% in China to around
20% in India and Russia. SMEs provide many jobs, though numbers vary markedly by
country: 82% of jobs in China and 71% of jobs in Australia come from SMEs, while in
Russia and India, they contribute only 25%.
Technology has driven two other major business opportunities. The first occurred when
businesses broadly adopted PC use and implemented the productivity tools that small
computers enable. The second happened when the advent of global connectivity gave
businesses worldwide access to massively larger amounts of information. The third wave,
which the cloud enables, could be even larger. Cloud-based tools give SMEs access to
processing that until recently only major firms could afford. This makes new business
models possible and helps SMEs reach new markets.

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Given the importance
and size of the SME
sector, governments
that fail to encourage
growth among SMEs
today will face stagnant
economies tomorrow.
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In most countries,
women lag men in
education, wages and
access to technology.
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Programs that
encourage technology
adoption to enable
mobility and flexibility
have disproportionate
benefits for women
competing in the
traditional workplace.
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Equal economic
participation by both
men and women is a
goal for many nations.
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Leaders, Followers and Laggards

Not every SME adopts technology at the same rate. A strong connection emerges between
how aggressively SMEs pursue new technologies and how well they do financially. Using
this data, researchers divide SMEs into three groups:
1. Leaders These firms integrate a range of current technologies. They use software to
enhance productivity, mobile technology to stay in contact and cloud-based services
to support their business functions. They utilize big data and, sometimes, custom
software. Leading SMEs grow faster than their surrounding economy. Worldwide, these
leaders outperform other SMEs. In fact, Leaders reap multifaceted benefits from the
technology tools they adopt.
2. Followers They use well-established technology tools extensively. For example,
60% have a website and 30% use voice over Internet protocol (VoIP). Followers use
social media and mobile devices, but no cloud-based platforms.
3. Laggards Laggards remain behind the technological curve. They lack an online
presence, and only 60% use computers. Leaders and Followers outperform them, and
Laggards risk falling further behind.
Five Growth Drivers
Leaders use technology in five ways that differentiate them from Followers and Laggards:
1. Connection Leaders connect with customers via technology, access new markets,
and enable collaboration. Among Leaders, 88% maintain an online presence and use
VoIP and social media to connect with customers. Technology gives Leaders access to
a wider, more varied employee pool.
2. Cloud-based scalability and flexibility Because the cloud gives SMEs access to
a higher level of computing, they can compete with larger firms. Cloud-based services
reduce SMEs need for large capital investments and allow them to enter new markets.
3. Efficiency Leaders adopt technology first and use it to work more effectively. They
deploy technology creatively, find new ways to use older technologies and hire techsavvy people to enable efficiency and better decision making.
4. Tech-enabled business models Leaders dont use new technologies to drive old
business models. They make the transition to new business models that integrate and
rely on new technologies. They embrace crowdsourcing and social media; they create
and use digital games. They experiment with new funding models like freemiums: A
company offers two versions of a game. The simpler version is free and engages users,
but those who want to play the more advanced version must pay.
5. They use technology better Leaders use technological tools more effectively. They
dont outspend their competition. Rather, they invest in a focused way, using in-house
expertise to leverage IT investments.
Lessons Learned from Tech Leaders
Introducing new technologies changes national economies as it changes business
performance. National policy makers must consider what sort of technology-related actions
can strengthen their SMEs and their economies. Consider these examples:
United States Enabling more SMEs to adopt new technologies would boost the rate
of economic growth. The entire US economy created only 2.1 million new jobs in 2012.
SMEs alone could generate two million more. If Followers and Laggards grew more
quickly, they could add $360 billion in revenue. SMEs growth often correlates with
technology adaptation.

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Already the founders
of business created in
the past three years are
about 1.5 times more
likely than the founders
of older businesses to
credit technology for
their existence.
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Governments must
foster the right
conditions to fuel
the growth of the
next billion-dollar
enterprises.
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Policy makers must
act now. They cannot
wait until the next wave
of technology breaks.
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Incompatible
technologies, especially
among cloud adopters,
was cited as a major
challenge by a
significant number
of the SME decision
makers we surveyed.
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Germany In 2012, Germany grew just .7% and added only 150,000 new jobs. SMEs
could generate at least $150 billion more in output, as well as create 670,000 new jobs.
India Laggards here utilize little technology: Only one Indian small to medium-sized
enterprise in 10 has Internet access, compared to China, where 78% of SMEs have
Internet access. India has tremendous untapped business potential. And some of that
potential is in its informal SME economy, which is much larger in India than that of
other nations surveyed. If the Indian government could help its Laggards embrace new
technology, the benefits would be immense: one million new jobs and $56 billion in
added economic output.
Brazil Providing help to the existing large SME sector so it can grow would greatly
benefit Brazils economy. The country shows the biggest performance gap 16%
between Leaders and other SMEs. Enhancing SME production could lead to $120 billion
in output and 2.5 million new jobs. If Brazils informal economy which provides a
third of its GDP and more than a quarter of its jobs also received help, returns would
be even greater.
China While Brazil shows the biggest gap between technology Leaders and other
SMEs, China provides the opposite example: Its companies do not evidence as strong a
correlation between technology adaptation and growth. This may be due to the overall
speed of Chinas economic growth more than 17% between 2010 and 2012. All Chinese
SMEs saw double-digit revenue growth during this period.
Improving SMEs Technology Adoption
The rate of technological innovation never slows. In fact, technological change accelerates,
and many SMEs fall behind. When small businesses stumble, national economies also
stumble. SMEs and national governments should work together by focusing on these three
core goals: helping technology Laggards shift to positions of leadership, helping Followers
move to the cutting edge of IT adoption and keeping Leaders on the path of efficient
technology application.
National policy makers cant wait for the next wave of technology. They must act now.
While specific policies would vary according to national conditions, all governments should
address several essential components:
Access For governments to ensure that their small and medium-sized businesses
compete, they must help them achieve access to world-class infrastructure and
networks. Governments should assist SMEs in gaining advanced tools that enable
superior performance. As more SMEs use cloud-based technologies, their need for
broadband access will grow. Governments need to make multiple options available,
secure and affordable. SMEs level of Internet access varies radically. Just about every
person in South Korea has web access, but fewer than 8% of Indians do. Other countries
fall between these markers: The US has 95% Internet access, Norway has 94% and
Germany 82%. Kenyas surge from 8% access in 2008 to 25% in 2012 shows how
quickly a nation can go online.
Security and privacy More than 60% of leading SMEs worldwide are concerned
about data privacy and security. Governments need to work with the private sector, as
the US government did when it developed a certificate program for cloud computing.
Governments should eliminate rules that impede data transfer across national borders.
For customers to trust the cloud, they must be able to access their information freely and
control where the cloud stores it.
A strong local IT ecosystem SMEs that lack executives who specialize in IT
depend more heavily on local experts. Laggards specifically say that they would invest

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To connect,
collaborate and
compete, SMEs
need information
and communication
technology (ICT)
networks that are
accessible, affordable,
trusted and secure.
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Customers have
confidence in the cloud
when they have control
of their data and can
access and move this
information freely.
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Intellectual-property
incentives and
protections are key
to promoting such
innovation.
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more in new technology if they had professional guidance. SMEs need all parts of
their regional IT ecosystem to be robust: They need the support of good vendors,
software developers and service providers. And, they need their governments to
provide reliable protection for intellectual property.
Skills Many prospective employees lack technological skills. Governments can support
SMEs by providing strong academic training in math, science and engineering, by
offering training in related business skills, like accounting, and by providing strong
vocational programs.
Women Often, women have less access to technology or technological training than
men. For example, fewer than 9% of sub-Saharan African women have Internet access.
This is striking because female-owned SMEs tend to be more technologically advanced,
innovative and successful. SMEs founded by women are more likely to use social media,
have a web presence and market their services online. Technology can help historically
disadvantaged groups attain greater equality. Womens lack of access to technology and
training is counterproductive. Governments should offer grants to support womens entry
into business and to offset their firms initial investment in technology.
Remove government barriers Some countries impose heavy import duties that
increase the local price of new technology and make it more expensive to start new
businesses. Taxes and regulations in India and Brazil inhibit new businesses there. Overly
complex laws make starting a business more difficult. Governments should remove these
barriers wherever possible. Supportive governments provide tax cuts and subsidies for
businesses that are trying to acquire new IT.
Support standards Shared international technological standards deserve government
backing. SMEs that can build on familiar platforms find it easier to generate innovation
and new value. Under internationally certified standards, SMEs information is relatively
safe, with a basic level of privacy. Companies can predict the quality and privacy status
of internationally accepted technological platforms. This makes them cheaper to use than
locally developed platforms. Conversely, SMEs find that internationally incompatible
technology is an obstacle, especially when dealing with the cloud.

The Future
Small and medium-sized enterprises cannot wait for their governments to raise them to
a higher level of productivity. They should take the following actions to foster their own
adoption of technology:
Develop key skills SMEs need a workforce with appropriate skills. They must
continually remain alert to new developments and maintain their skill base.
Review financial decisions As SMEs gain understanding of technologys benefits,
they should re-evaluate investments and costs in light of potential long-term growth.
Embrace the new Technologys new opportunities are not always immediately
apparent. Those seeking to lead must experiment.
Follow your customers Even SMEs that want to lead neednt break all the new ground.
They can learn from customers who are early adopters.
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About the Author

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The Boston Consulting Group, a management consulting firm, provides business strategy advice from its officers
in 43 countries.
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