What is the Role of Digitalization in a Post-COVID World?
When the COVID-19 pandemic disrupted the livelihoods of millions of entrepreneurs last year, digitalization offered small businesses around the world a promising solution. In this Q&A, TechnoServe’s Global Entrepreneurship Director, Juan Carlos Thomas, speaks with the Executive Director of the Argidius Foundation, Nicholas Colloff, and Dalberg Advisors’ Global Knowledge Lead, Kusi Hornberger, about the future of digital technology for supporting entrepreneurs.
Before the COVID-19 pandemic, organizations supporting small- and medium-sized enterprises (SMEs) carried out 24% of their support services in a digital format. By November 2020 – according to a new report from the Argidius Foundation, the consulting firm Dalberg, and the Aspen Network of Development Entrepreneurs (ANDE) – 72% of services were digital.
While COVID-19 accelerated the rate of digital transformation for businesses and organizations of all kinds last year, the question now is how to carry forward the best lessons from this rapid process.
COVID-19 Accelerated the Pace of Digitalization for SMEs Worldwide. How Can We Use Digital Technology to Help These Businesses Grow?
Digitalization – the strategic use of digital technologies – offers a promising avenue toward business growth as small businesses in low-income countries rebuild and recover from the impact of COVID-19. The newly-released guidebook from the Argidius Foundation, Dalberg, and ANDE lays out the best ways to help small businesses grow, adapt, and build resilience through digitalization.
The report highlights key considerations to help small businesses determine the right approach to digitalization, such as the following:
- Should a small business re-integrate in-person delivery after the pandemic or maintain a digital focus? Are remote services even the best way to reach some clients?
- To what degree will this digitalization trend continue?
- For businesses that decide to keep providing services digitally, what are the best ways to ensure they are effective?
Q&A: How Digitalization Can Help Small Businesses Build Resilience and Grow
1. Juan Carlos Thomas: How was the SME sector in developing countries affected by the COVID-19 pandemic, and what impact did that have on the economies around them?
Nicholas Colloff: Across the geographies in which we work, some businesses were placed in mortal peril, while others continued to flourish or even accelerate. It all depended on the sector, the security of the supply chains, and the severity and length of lockdowns as to how those percentages played out.
It’s also important to acknowledge the creativity and flexibility of entrepreneurs and whether and how well they were embedded in ecosystems of support. Our enterprise data for 2020 as a whole shows that businesses survived better than we had expected, and job creation was still net positive (if much slower).
Many employers had cut employees’ hours rather than shed jobs. We also noticed that women entrepreneurs were experiencing more challenges than men.
2. JCT: The Argidius Foundation works with organizations supporting SMEs around the world, many of which had to adapt their programming to work with SMEs remotely during the COVID-19 crisis. What were some of the main ways you saw organizations adopt new digital strategies?
NC: Many, though not all, doubled down on their existing clients, utilized the simplest of available technologies — WhatsApp, Teams, or Zoom — and flexibly adapted their interactions to focus on the critical challenges of controlling costs, ensuring supplies, and using digital means as enterprises to service their clients.
Organizations with an existing digital presence could explore ways of extending their client base, adapting their offerings to survival rather than growth. Some organizations received positive feedback on how virtual enterprise development support worked better and was more convenient than face-to-face work.
Kusi Hornberger: There are three primary pathways we say organizations use to become more digital. The first is what I would call the ‘enhance’ archetype – that maintained focus on offline services but complemented them with online tools.
The second is what I could call the ‘shift’ archetype, which moved content designed for offline consumption to online channels. The final is the ‘transform’ archetype, which reimagined how to deliver support services using digital channels.
The Most Promising Solutions to Support Digitalization and Business Growth For Entrepreneurs Building Pathways Out of Poverty
3. JCT: Which factors are the most conducive to successful digital strategies to support SMEs? And under which conditions would digital strategies not work as well?
KH: Our research revealed organizations not only have different business models and types of programming for supporting small and growing businesses (SGBs), but they also place different strategic weight on the importance of digital delivery, both before and during the COVID-19 pandemic.
Some organizations always saw themselves as digital-first models, and COVID-19 only underscored the need for these services. Others still believe they are primarily in-person and have only temporarily shifted to providing services digitally during the pandemic.
NC: Success is rooted in understanding your customer – not only their learning preferences, but also their digital accessibility, and designing an appropriate strategy accordingly. If you support startups in urban areas propelled by tech-savvy entrepreneurs, you can imagine a pathway that places a great emphasis on digital.
Suppose you support rural enterprises on a formalizing or steady growth trajectory where internet access is limited or mobile costs are prohibitive. In that case, you can expect face-to-face interactions to be more common.
Likewise, structured learning can work well digitally, but the informal networking and conversations that see knowledge shared and applied may be more challenging to host in a digital space. Inevitably, success will depend on getting the blend right – and seeing digital as a successful support to effective learning, not as a virtuous end in itself!
4. JCT: The “Digital Delivery” report noted that the average share of digital services provided by organizations supporting SMEs had risen from 24% in January 2020 to 72% in November 2020. Which aspects of digital services do you expect to outlast the COVID-19 pandemic, and why?
KH: Our research showed that traditionally delivered services in a classroom or modular format, such as management training or talent development, are more likely to stay digital after COVID-19 because they can be more easily packaged and consumed asynchronously.
Other commonly provided services, such as peer or investor networking and mentorship, are more likely to shift back to being primarily offered as in-person services, given the need to build relationships and trust. As an overall principle, elements focused on behavior change will continue to be better delivered more effectively in person.
NC: Yes, I agree. I think we will see the more generic, informational aspects of training stay online, with the more tailored consulting, problem-solving, and networking activities reverting to face to face. However, each organization will undoubtedly experiment with its own pathway, striking the right balance that reflects its aptitudes and resources and that of its clients. One size will not fit all.
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5. JCT: What do you think are the most important ways to support SMEs in emerging economies in the wake of the COVID crisis and beyond?
NC: Finance and technical assistance are essential, but before both, I hope we can get better at taking what is often seen as the ‘SME blob’ and segmenting it more effectively — recognizing that SMEs come in multiple shapes, ages, and growth trajectories. We need a diversified ecosystem of related products and services that help them grow at different stages of their journey.
The simple step, for example, of helping banks better segment their SME customers has unlocked significant innovation over customer relations, products, and the flow of capital and non-financial support that has made a real difference in the access to money and knowledge.
KH: There are two aspects to this question – one is financial and the other non-financial. As the COVID crisis began, the most immediate need of many SGBs was the restructuring of their existing financing obligations and access to more flexible and patient sources of working capital with simplified approval processes.
On the non-financial side, SGBs needed technical assistance to build resiliency and adapt their business models to new market challenges (and opportunities). On the resiliency side, leadership and coaching services around how to manage through a crisis and stress management via guided meditation and yoga were particularly useful.
On responding to changing market dynamics, guidance on learning how to shift to digital sales/marketing channels and cash flow management were particularly needed and useful. The exact type of technical assistance and needs very much depend on market context and business segment.
6. JCT: Women are often most vulnerable economically in times of crisis. How can digital models help support women entrepreneurs in particular?
KH: Our work has revealed how deeply unequal the impact of COVID-19 has been, particularly on minority and BIPOC communities, but also on women. Due to the often unequal burden of caretaking at home, women have been disproportionately impacted and driven from pursuing their entrepreneurial dreams.
In this regard, I am not sure I would characterize digital as a unique opportunity for women during the crisis. However, it could be an opportunity for women entrepreneurs who are most agile and resilient to respond to the crisis and thrive.
Beyond the entrepreneurs themselves, enterprise support organizations like TechnoServe must place the unique needs of women entrepreneurs at the center of their strategies. This means more broadly considering them as they assess target customers, cultivating and supporting a network of women mentors, and supporting businesses that create products and services that empower women and eliminate the gender pay gap for the SGBs they support.
NC: Yes, hopefully, digitalization, coupled with better market segmentation, will unlock more inclusive, accessible interventions that enable women to be better supported on their entrepreneurial journey. As always, it begins with allowing oneself to be led by human-centered design, experimentation in which your target audience genuinely participates and can help shape viable outcomes that meet their real needs.