(IDC) Small Business Digital Transformation

Research Insights by
2020 Small Business Digital Transformation

A Snapshot of Eight of the
World’s Leading Markets
Brazil | Canada | Chile | France | Germany | Mexico | United Kingdom | United States
1
Executive Summary
Digitization is no longer an option, it’s a necessity. followed by France and Canada. Small businesses in The right technology vendor, with the right
Once considered a way for companies to gain Mexico, Brazil, and Chile trail behind despite having technologies and expertise, will help overcome
competitive advantage, digitalization has now accelerated their digitalization amid the crisis. tightening resource constraints. Also, small
become a matter of survival. The COVID-19 businesses’ entrepreneurial spirit and growing
pandemic has exacerbated the digital divide In 2019, small businesses contributed 48%, or appetite for innovative technologies will help them
that was already present in the small business US$17 trillion, to the GDP of these economies. ensure business continuity in 2020, accelerate their
market, and it is forcing companies to accelerate Further digital transformation of small businesses growth, and become resilient for the future.
their digitalization. For digitally progressive small could increase the GDP growth of these countries
businesses, it is about building resiliency, while for by an additional US$2.3 trillion, or up to 5.6% of
those lagging behind and that are indifferent to
technologies, digitalization has become the answer
additional GDP, by 2024. US$2.3 trillion
could be added to GDP growth by 2024
to business continuity. IDC’s research shows that small businesses that if more small businesses advance their
are successfully transforming (Digital Challengers) digital transformation journeys.
To better understand the opportunities and generate multiple times more sales to aid their
challenges that small businesses face during this recovery, while the leading small businesses (Digital
crisis, Cisco commissioned IDC to assess the state
of small businesses’ digital transformation maturity
Natives) enjoy 8X higher growth. These small
business leaders are more resilient than those in the
8X
across eight key markets across the globe: Brazil, early stages of digital maturity. Leading small businesses (Digital Natives)
enjoy multiple times more benefits
Canada, Chile, France, Germany, Mexico, United
(revenue) than those in the earliest maturity
Kingdom, and United States. A similar study was Achieving this goal requires small businesses to
stage (Digital Indifferent).
also run across 14 Asia Pacific markets. make significant changes, from setting the right
strategy, to making the necessary technology
The results are telling. This crisis has driven
over 70% of the small businesses surveyed to
investments. Cloud, a foundational pillar for
digitalization, is the number 1 technology priority for 72%
accelerate their digitalization. And while the majority small businesses, allowing them to quickly provision of small businesses across the eight
of small businesses have already started their resources as the business grows. markets surveyed are accelerating their
digitalization journeys, only 24% are in the most digitalization rates to address COVID-19
advanced stages, with 4% in the digital native While digital technologies are more widely available challenges.
stage. Conversely, 26% of small businesses remain today and help level the playing field, small
in status quo mode – they have remained largely businesses, given their size, face constraints on
reactive to market changes and have made little many fronts. In the survey, small businesses cited Lack of digital skills
effort to digitally transform. digital skills shortages, cultural resistance to change, and cultural resistance
and lack of budget as their top challenges. are the top 2 challenges for small
Out of the countries surveyed, small businesses in the businesses undergoing digital
United Kingdom, United States, and Germany have Today, small businesses are under increasing transformation.
made the most progress in their digitalization journeys, pressure to build resiliency and to stay competitive.
2
About the 2020 Small Business Digital Maturity Study
IDC defines small business digital transformation
(DX) as the digitalization of businesses — a Respondents Company Size
customer-centric business strategy with the
goal to transform internal operations using digital
technologies, such as cloud, mobility, social,
2,030 50–499
augmented/virtual reality, Internet of Things (IoT), in 8 markets: employees
and analytics or artificial intelligence (AI), for Brazil
better engagement with customers, partners, and
employees. Canada
Chile Industries
To understand the state of small businesses’ France Construction
digital transformation maturity, IDC developed a
worldwide framework to help small businesses Germany Financial Services
clearly assess their current capabilities and Mexico Manufacturing
establish goals that work to synchronize business Media
United Kingdom
objectives with IT needs.
United States Resources
More than 2,000 small businesses Retail & Wholesale
across industries were surveyed in 2020,
Services
including financial services, manufacturing, IT Influence
telecommunications, media, transportation, Telco
Decision makers of their
construction, retail, and wholesale. Utilities
company’s IT purchases
Objectives
• To determine small businesses’ readiness for
digitalization in eight of the world’s leading Role
markets Manager-level and above,
such as business owners,
• To understand the impact of DX among small
businesses on driving economic activity
CEOs, directors and heads
of departments
• To understand the challenges and opportunities
that small businesses face when it comes to DX
3
Worldwide Small Business Digital Maturity Index:
Four Masteries
The Small Business Digital Maturity Index is made up of four dimensions: Digital Strategy and Organization, Digital Processes and Governance, Digital
Technology, and Digital People and Skills. Each dimension targets an essential aspect of digital mastery and can be assessed independently as a
measure of the relative maturity of a specific aspect of business functionality and performance, providing goals for small businesses to target on their
digital transformation journey.
• How is the company • What’s the level

approaching of automation,
digitalization? standardization
and process
• What is their
Digital Digital transformation?
digitalization strategy?
Strategy and Processes and
• Which processes are
• Is the organization Organization Governance most automated
ready to execute?
Small
Business
Digital
Maturity
Index
• Does the company • How mature is the
Digital People Digital
have the right skills and company in leveraging
and Skills Technology
capabilities to source, key digital technologies
manage and retain the to increase its
right talent? competitiveness?
• Is it tapping into other
sources?
4
Worldwide Small Business Digital Maturity Index:
The Four Stages
The Index classifies small businesses across four stages of digital maturity, starting with the earliest stage of Digital Indifferent to the most advanced
group of Digital Natives.
Small Business STAG E 1 STAG E 2 STAG E 3 STAG E 4

Digital Maturity
Index DIGITAL INDIFFERENT DIGITAL OBSERVER DIGITAL CHALLENGER DIGITAL NATIVE
• Company is reactive and • Digital efforts in progress • Company focused on • Holistic strategy to
focused on efficiencies. but tactical. Starting to becoming agile. A digital digitally innovate exists.
No digital efforts exist or create a digital plan. strategy exists, but Proactively seeking to
starting. focused on short-term. transform the market,
expand operations and
drive CX.
• Majority of processes • Many processes still not • All core processes • Full process automation
are manual. automated. Focused on are automated and done; agile approach.
addressing inefficiencies. productivity rates Significant strides
improving. made in process
transformation.
• Tactical investments. No • Some cloud resources • There is a tech roadmap • Cloud-first and
cloud and spreadsheet being used. Very limited for digitalization. committed to using
centric. use of analytics. Focused Company is using hybrid digital tech. Broad
on the use of reporting cloud approaches. adoption of analytics.
tools.
• Lack of digital skills. • Making tactical • Strategic Investments in • The right digital skills
investments to acquire talent are being made, exist. Talent is a top
digital skills. Risk-averse particularly digital skills. priority and a competitive
leadership. differentiator. Agile and
adaptable culture.
5
Only a Quarter of Small Businesses Have Reached the
Advanced Stages of Transformation
Small businesses that have attained the highest level of transformation (Digital Native) form only a meagre 4% of these 8 markets. North America
and Western Europe have an equal percentage (a third) in stage 3 (Digital Challenger) and stage 4 (Digital Native). Latin America lags behind, where
more than half (54%) are only starting their digitalization journeys.
Digital Indifferent Digital Observer Digital Challenger Digital Native
COMBINED REGIONS
26% 50% 20% 4%
NORTH AMERICA
6% 56% 32% 7%
WESTERN EUROPE
9% 53% 32% 6%
LATIN AMERICA 1%
54% 44%
Source: Small Business Digitalization and COVID-19 Survey, June 2020
6
Digitalization Enables Small Businesses’ Recovery
Amid Global Uncertainty
Embracing digitalization proves to be the right investment bet for small businesses’ recovery in 2020’s great business disruption. A higher
percentage of small businesses (46%) with the highest level of transformation (Digital Native) are thriving and transforming during the pandemic
whereas 44% of Others are surviving or may have to shut down.
How would you describe the current state of your business under COVID-19?
We are thriving/ We are growing We are surviving/ Our business is severely

rebuilding/ and scaling up sustaining our business impacted and may have
transforming to shut down
DIGITAL NATIVES
46% 17% 32% 5%
Digital Natives have the highest ratio of small businesses recovering

and thriving through business agility and resiliency
OTHERS
37% 18% 37% 7%
7
Digital Natives Enjoy Higher Revenue Growth Rate
Business agility, a key ingredient to staying competitive in today’s volatile and disruptive environment, is a trademark of Digital Natives. Small
businesses able to respond faster to changing market conditions are growing their revenue 8x faster than their Digital Indifferent counterparts and
over 2x faster than Digital Observers.
From the ICT (Information and Communication Technology) investments made,

how much revenue growth did it add to your organization?
3.2%
Revenue growth
of Digital Natives
2.5% Over
2x
faster than
Digital
1.5% Observers
0.4% 8x
faster than
Digital
Indifferent
DIGITAL INDIFFRENT DIGITAL OBSERVER DIGITAL CHALLENGER DIGITAL NATIVE

8
Crisis a Key Driver Behind Small Businesses’
Accelerated Digitalization
Digitalization is no longer a choice; it’s a necessity. Over 70% of the small businesses globally surveyed said COVID-19 has been a key driver for
fast-tracking their digitalization journey. Among the markets, small businesses in less digitally mature Latin America are accelerating their digitalization
efforts even more as they prepare to inject greater momentum and dynamism to their business.
Yes, it’s a key driver to accelerate Our plans for digitalization No impact, and
the digitalization of the business remain unchanged. we plan to scale back
COMBINED REGIONS 3%
72% 25%
NORTH AMERICA
71% 24% 5%
WESTERN EUROPE 2%
63% 35%
LATIN AMERICA 2%
80% 18%
9
Accelerating Small Businesses’ Digitalization Could
Add US$2.3 Trillion to GDP
Three quarters of small businesses are still in the early stages of digitalization (Digital Indifferent and Digital Observer). Accelerating the digital
competencies or maturity of half of these small businesses to the Digital Challenger stage (or beyond) could be an economic booster: contributing an
additional US$2.3 trillion to the GDP, or 42% growth, of those markets, while their economies could increase by 5.6% by 2024.
Percentage of Small Businesses Cumulative GDP from Shifting Small Businesses

in the Four Stages of Digital Maturity to Aspirational Curve (US$T)
Aspirational
Business as Usual $2.3
Aspirational Total GDP* 42%
2020 Additional
50 50 $5.5 GDP growth
5.6%
of total GDP
26
$35.9 $35.9
30 20
10
10 4
DIGITAL DIGITAL DIGITAL DIGITAL 2019 Best case
INDIFFERENT OBSERVER CHALLENGER NATIVE
*Source: National statistics
10
Small Business Digital Maturity Snapshot of Eight of
the World’s Leading Markets
Small businesses in the United Kingdom, United States, and Germany have made the most progress in their digitalization journeys, followed by
France and Canada, and Latin America trailing behind.

Digital Transformation Dimension
Mexico UK
Brazil USA
Chile Germany
Canada
France
N=2,030
State of Maturity
11
Comparing the Eight Markets to Asia Pacific Countries
The majority of small businesses in North America and Western Europe are ahead of most of their peers in the Asia Pacific region in which a similar
survey of more than 1,400 small businesses across 14 markets was conducted. Singapore stands out as the most digitally mature, followed by those
in United Kingdom, United States, and Germany.
Australia
Canada
Digital Transformation Dimension
China
Korea
France
Taiwan
Hong Kong
India
Thailand
Malaysia Singapore
Mexico UK
Brazil USA
Chile Germany
Philippines Japan
Indonesia New Zealand
Vietnam
8 key markets in NA, WE, LA (N=2,030)

Asia Pacific countries (N=1,424)
State of Maturity
12
Small Businesses Grapple with COVID-19’s
Far-reaching Impact
The coronavirus crisis has impacted businesses on various fronts. Overall, a change to work styles head the list of greatest impact, followed by
employee safety, cash flow, and sales.
Which of the following have been most impacted by COVID19? (Showing top 7)
13%
12%
11% 11%
10%
9%
8%
Style Employee Cash flow Sales Production Customer Supply chain

of work safety performance engagement and logistics
13
Small Businesses’ Top Digitalization Priorities for the
Months Ahead
As their overall top priority, small businesses across the regions are focused on digitalizing their business to improve their overall operations and
service delivery, to achieve market growth and expansion, and to deliver better customer experiences. As their business stabilizes, small businesses
are looking to introduce new products and services and develop better financial viability and predictability.
What are priorities for your company thinking about digitalization?
17% 17%
16%
14%
13% 13%
11%
Operations and Market growth Better customer New product Financial viability Sales and Talent sourcing
service delivery and expansion experiences and service and predictability marketing and employee
improvement improvement experience
14
Technology Is Front and Center for the Future of
Small Businesses
Almost all small businesses have become more reliant on technology as a result of this crisis. More than a third (43%) expect 11%-30% of their
business to be digital by 2021, while an almost equal number (45%) have bigger ambitions.
Has COVD-19 made your company Percentage of business to be digital by 2021

more reliant on technology?
Big digital expectations
A third of small businesses expect
93% 31%-50% of their business to be
digital, while 12% expect an even
More reliant higher proportion.
on technology
43%
33%
7%
Not more
reliant
on
technology
12% 12%
At least Between Between More than

10% 11-30% 31-50% 50%
15
Small Businesses Focus on Building Business Resiliency
Investing in technologies that help employees work remotely is firmly at the top of small businesses’ strategies to ensure organizational resilience,
followed by adopting technologies to support digital payments and improve online sales. Other focus areas include creating a digital strategy and
investing in talent and skills to create products and services to realize their digital ambitions.
Top investment focus areas for the next 18 months to ensure organizational resilience
36%
33% 32% 32% 32%
31%
27%
Enabling Improving online Creating a digital Investing in talent Creating or Automating Improving
remote working sales and/or strategy with and digital skills improving digital or digitizing decision making
supporting digital clear goals products processes processes
payments and services
16
Small Businesses Are Investing in Cloud, IT
Infrastructure and Security to Enable Their Digitalization
In terms of technology priorities, small businesses plan to invest in cloud solutions as well as on-premises software and hardware infrastructure over
the next 18 months. Recognizing the importance of protecting their businesses against growing cyberattacks, small businesses have security among
their top 3 priorities. Customer experience and collaboration solutions rank among small businesses’ top 5 investment areas, with the most mature
small businesses prioritizing AI/Analytics to drive business competitiveness.
Rank Digital Indifferent Digital Observer Digital Challenger Digital Native

Overall
STAG E 1 STAG E 2 STAG E 3 STAG E 4
1 Cloud solutions Cloud solutions Cloud solutions Cloud solutions Cloud solutions
Purchase/Upgrade Purchase/Upgrade Purchase/Upgrade

IT infrastructure IT infrastructure IT infrastructure
2 hardware and hardware and hardware and Security Security
software software software
Purchase/Upgrade
IT infrastructure
3 Security Security Security hardware and
AI/Analytics
software
Purchase/Upgrade
Customer Customer Customer
IT infrastructure
4 experience experience experience AI/Analytics
hardware and
solutions solutions solutions
software
Customer
Collaboration Collaboration Collaboration Collaboration
5 solutions solutions solutions
experience
solutions
solutions
dfd
17
Top Challenges in Small Businesses’ Digital
Transformation Journey
Lack of talent and digital skills is the top challenge for small businesses, followed by cultural resistance to change. Lack of budget and management
commitment, and lack of necessary digital technologies and mindset are among the top 5 challenges faced by small businesses.
What are the biggest challenges in digital transformation? (Showing top 7)
13% 13% 13%

11% 11% 11% 11%
Shortage of Cultural resistance Lack of budget/ Lack of necessary Lack of Lack of a proper Lack of
digital skills to change Commitment technologies digital mindset digital roadmap insight
and talent
18
Small Businesses Seek the Right Partners to
Overcome Their Digitalization Challenges
System integrators, ISVs and service providers/telcos are small businesses’ preferred partners.
Top Partner Preferences
45
Sources of Information for Technology Investments
%
of Latin American and
System integrator 39%
36
Independent software vendor (ISV)/
38%
% Technology vendor
Service provider/Telco 36%
of Western European Ecommerce/online 35%
small businesses
prefer to engage with
Partner 29%
system integrators. Distributor 27%
Almost
Reseller/Value-added reseller (VAR) 27%
half
of North American
small businesses
prefer independent
software vendors (ISVs).
19
Conclusion and Recommendations
The digital transformation journey for small businesses is an important one, and the stakes are high. Small businesses contribute to half of
global GDP and two-thirds of the global workforce.
However, small businesses’ ability to compete is under rising pressure from rapidly changing market conditions and evolving technologies,
with 86% of small businesses strongly agreeing that “technology is changing the industry”. COVID-19 has accentuated the importance
of technology, forcing small businesses to recognize that digitalizing is no longer an option but a necessity, and that accelerating their
digitalization is key to becoming resilient and ensuring their future growth.
You don’t have to be an expert in technology to transform your business. Here are seven steps to guide you in your journey towards
becoming a digitally resilient small business.
Seven Steps to Become a Small Business Digital Challenger
1 2 3 4 5 6 7
Develop Prioritize Evaluate Invest in Find the right Keep up Simplify,
a three- the critical and right- digital talent technology with industry start small,
year digital business size the and skills partner for trends learn and
technology processes to technologies your journey and best scale
road map automate to invest in practices
LEARN MORE
20
Brazil
Aspirational GDP Additional Growth: US$9 Billion
Technology Investments Digitalization Challenges Digitalization Priorities
16 % 18 % Deliver better or
improved customer
Cultural resistance experiences
Cloud
to change
12 %
17 % Improve operations
or service delivery
Upgrade
Lack of skills
IT software
9 %
12 % Market growth
and expansion
Upgrade Lack of enabling
IT hardware technologies
Average of Eight Markets

12 %
13 %
18%
Improve operations
or service delivery
Cloud Lack of skills
10 %
13 %
18%
Market growth
Upgrade Cultural resistance and expansion
IT software to change
10 %
13 %
16%
Deliver better or
improved customer
Security Lack of commitment experiences
21
Canada
10 % 14 % Deliver better or
improved customer
Cultural resistance experiences
Cloud
to change
10 %
or service delivery
Upgrade Don’t know where
IT hardware to start
9 %
13 % Improve finance
viability &
Upgrade IT
Lack of commitment predictability
middleware

12 %
13 %
18%
Improve operations
or service delivery
10 %
13 %
18%
Market growth
10 %
13 %
16%
Deliver better or
improved customer
22
Chile
15 %
15 % Market growth
and expansion
Cloud Lack of commitment
11 %
14 %
Improve operations
Upgrade Lack of or service delivery
IT software digital mindset
10 %
13 % Improve finance
viability &
Remote learning/
training Lack of skills predictability

12 %
13 %
18%
Improve operations
or service delivery
10 %
13 %
18%
Market growth
10 %
13 %
16%
Deliver better or
improved customer
23
France
13 14 % Deliver better or
% improved customer
Cloud Lack of skills experiences
10 %
13 % Launch new products
or services or
Upgrade
Lack of commitment improve existing ones
IT software
9 % 12 % Market growth
and expansion
Security Cultural resistance
to change

12 %
13 %
18%
Improve operations
or service delivery
10 %
13 %
18%
Market growth
10 %
13 %
16%
Deliver better or
improved customer
24
Germany
12 %
or service delivery
Upgrade Lack of commitment
IT software
11 % 15 %
Market growth
Too expensive/ and expansion
Security not worth it
10 % 14 % Launch new products

or services or
Workforce Lack of
digital midset improve existing ones
management

12 %
13 %
18%
Improve operations
or service delivery
10 %
13 %
18%
Market growth
10 %
13 %
16%
Deliver better or
improved customer
25
Mexico
14 %
15 % Improve sales
or marketing
Upgrade Lack of enabling
IT software technologies
12 % 15 %
Market growth
Lack of and expansion
Cloud digital midset
10 %
Upgrade or service delivery
Lack of commitment
IT hardware

12 %
13 %
18%
Improve operations
or service delivery
10 %
13 %
18%
Market growth
10 %
13 %
16%
Deliver better or
improved customer
26
United Kingdom
13 %
or service delivery
13 %
15 %
Market growth
IT hardware to change
10 %
14 % Launch new products
or services or
Customer Lack of commitment improve existing ones
experience solution

12 %
13 %
18%
Improve operations
or service delivery
10 %
13 %
18%
Market growth
10 %
13 %
16%
Deliver better or
improved customer
27
United States
Aspirational GDP Additional Growth: US$1.37 Trillion
13 % 13 % Improve operations
or service delivery
Security Lack of skills
11 % 13 %
Market growth
Lack of enabling and expansion
Cloud
technologies
10 %
12 % Deliver better or
improved customer
Upgrade Lack of insights experiences
IT hardware

12 %
13 %
18%
Improve operations
or service delivery
10 %
13 %
18%
Market growth
10 %
13 %
16%
Deliver better or
improved customer
28

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Research Insights by

2020 Small Business Digital Transformation

• How is the company • What’s the level

Small Business STAG E 1 STAG E 2 STAG E 3 STAG E 4

Digital Indifferent Digital Observer Digital Challenger Digital Native

26% 50% 20% 4%

Source: Small Business Digitalization and COVID-19 Survey, June 2020

We are thriving/ We are growing We are surviving/ Our business is severely

46% 17% 32% 5%

Digital Natives have the highest ratio of small businesses recovering

37% 18% 37% 7%

Source: Small Business Digitalization and COVID-19 Survey, June 2020

From the ICT (Information and Communication Technology) investments made,

DIGITAL INDIFFRENT DIGITAL OBSERVER DIGITAL CHALLENGER DIGITAL NATIVE

Percentage of Small Businesses Cumulative GDP from Shifting Small Businesses

Digital Indifferent Digital Observer Digital Challenger Digital Native

Digital Indifferent Digital Observer Digital Challenger Digital Native

8 key markets in NA, WE, LA (N=2,030)

Style Employee Cash flow Sales Production Customer Supply chain

What are priorities for your company thinking about digitalization?

Has COVD-19 made your company Percentage of business to be digital by 2021

At least Between Between More than

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Rank Digital Indifferent Digital Observer Digital Challenger Digital Native

Purchase/Upgrade Purchase/Upgrade Purchase/Upgrade

Source: Small Business Digitalization and COVID-19 Survey, June 2020

What are the biggest challenges in digital transformation? (Showing top 7)

13% 13% 13%

Top Partner Preferences

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Seven Steps to Become a Small Business Digital Challenger

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

10 % 14 % Launch new products

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

Average of Eight Markets

Source: Small Business Digitalization and COVID-19 Survey, June 2020

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