How SMEs can leverage on new digital opportunities: real insights with real applications

White Paper - Digital Transformation


Find the PDF Version of this White Paper below.


Leonardo Schulze Wierling

Matteo Gabbianelli

Roy Provost

Tristan Bauzon

 

Table of contents

Current Market Trends

The big picture

Digital Restaurant 2.0


Case: Moonbucks Coffee

Situation

Complication


Digital Business Plan

Redefining Business Models

Financial impact

Application to Moonbucks


Customer Experience

Growing Customer Expectations

Transforming Customer Experience

Application to Moonbucks


Internal Operations

Process digitization

Performance management

Workforce virtualization

Change management

Application to Moonbucks


 

Executive Summary


Digital Transformation is defined as “the use of technology to radically improve performance or reach of enterprises”(MIT Sloan). According to Microsoft, 61% of firms using digital tech see higher revenue than others. Moreover, KPMG reported that small and medium enterprises which adopted a digital strategy grew 9% higher profits than “offline” businesses. The opportunities for companies to grow profitability through digital transformation seem irresistible, yet only a small portion of SMEs have embraced this new reality.


After extensive research and analysis, we have created the following scorecard to help SMEs in the process of digitally transforming their businesses in order to adapt to the new market realities:

Digital Transformation Scorecard

 

Current Market Trends

The big picture

European Businesses are renovating their business models in reaction to the current Covid-19 pandemic. One key driver of change is digital transformation. The European Union decided to allocate 20% of the “Next Generation EU” Recovery Package to digital transformations (roughly €150 Billion) to further boost this growth.


Although SMEs are relatively active on social media (44%), they are generally far less digitized than larger businesses. Particularly, there is a large margin of improvement in the usage of Clouds, Big Data, ERP, mobile business application and cross-border eCommerce. SMEs must take this unique opportunity to catch up with their competitors.


In 2017, only 10% of SMEs used big data to make data driven decisions. According to McKinsey, companies which consistently used data as basis for their decisions were 1.5 times more likely to report revenue growth of at least 10% in the last three years.


The European Union stated that a large share of its firms has successfully adopted a first wave of digital technologies in the last 20 years. However, future adoptions will be more tough due to escalating complexity and the rapid pace of advancement. Moreover, the increasing need of skilled employees to successfully govern digital transformation is a crucial challenge faced by SMEs. According to a DTS survey, less than 50% of European firms have the right skills to adapt to digital transformations and only 28% of respondents are training employees to fill this gap.


Digital Restaurant 2.0

A 2017 BCG’s survey found that more than 33% of respondents placed a digital source as the most common way to find information about restaurants. Furthermore, more than half of the respondents claimed to have downloaded one or more restaurant apps (15% of them three or more). 25% of Panera Bread’s (American bakery-café chain) orders are online and the company’s share price increased by 30% per year over the last 3 years. Another good example of first movers in the industry is Starbucks. About 30% of the company’s sales are digital after they invested in building an app and a website which provide personalized experiences to users.


According to McKinsey, channel strategy (delivery) is one of the key innovation areas to survive during the Covid19 Pandemic. The research found that about 45% of users are planning to continue using delivery in the future. Another critical success factor is proactively communicating changes to customers on your Google profile and through your website/app (Eg: updating temporary closing or modified hours on Google search and Google Maps).

 

Case: Moonbucks Coffee


Identifying these general digitalization trends and insights about successful innovations in the F&B industry, we can now dive into a practical case in order to show the application of the scorecard we built. The case presented on this page will be addressed in the following pages according to the scorecard’s section.


Situation

Moonbucks Coffee is an italian coffee-retailer. It has been successful in recent years, and it is known by customers as a traditional comfy coffee place with quality products (snacks, hot drinks, cold beverages, …). People usually visit the various coffee shops to meet friends, study or grab a coffee on their break. Customers appreciate the traditional style of these “old-fashioned” coffee places which are also distinguished by the overall rustic atmosphere.


In recent years, Moonbucks has expanded across EU borders, as it experienced a rapid growth in its starting outlets. It has opened cafes in Paris and it is now also active in Madrid and Berlin.


Complication

The success story of this small business has been interesting to track so far. Yet, in 2019 the coffee-retailer suffered a tough year as its growth decelerated, due to the opening of aggressive international outlets. The reputation the company enjoyed in Italy has not reached the new cities so far. Thus, Moonbucks is facing low customer numbers in its Madrid, Berlin, and Paris outlets. This can be explained by a high market saturation with an increasing fierce competition. Many new players have entered the market in recent years and their business models and scales allow them to exploit the digital divide with smaller companies.


In 2020, the company was heavily hit by the impacts of the Covid-19 pandemic too. It had to close all its stores for several months dramatically reducing any revenue stream. Now that most countries allow restaurants and cafes to open back up, Moonbucks is asking for help to create a modern business strategy in order to adapt to the new market realities and reach profitability again.


 

Digital Business Plan


Redefining Business Model

Digital Transformation has had a huge impact on how businesses redefine their Business Models. Deep diving into how they are evolving, few key trends which must be taken into account emerged .


1. Digitalization creates opportunities for retailers by creating new customer touchpoints for their business, mainly through the increased use of mobile.


The main question any non-digital business should ask themselves is how to adapt their “offline” offer to an online ecosystem in order to engage new customers. As a matter of fact, the first step to online should be the focus of taking advantage of data analytics. Yet, it comes at a price. Thus, for “brick and mortar” F&B businesses that have not taken the digital transformation shift yet, implementing a digital transformation strategy to generate new revenue streams leads to shifting their entire initial core business. To smoothly overcome this challenge, companies can simply add digital capabilities by using websites, mobile Apps and Social Media, without changing their core business. These options allow businesses to collect and analyze existing customer insights to then adjust their products and services accordingly.


2. Using omnichannel strategies to boost sales and avoid losing market share to new emerging competitors.


Leveraging new digital sales channels such as an efficient and intuitive mobile app can be a key factor of success for small businesses in many aspects. It may enable them to shape new go-to market strategies by reaching a bigger customer base as well as better address the demand by analyzing customer data. In concrete terms, this leads to a direct positive impact on F&B’ business activities in the form of increased revenue and increased operational efficiency. In the context of the current Covid-19 pandemic, the use of digital channels becomes even more crucial and therefore, a common pattern in this industry. Current trends are online delivery, click-and-collect, and no-contact ordering. With delivery volumes set to be likely to endure, F&B players need to assess such opportunities, thus adapting their operating business model.


3. Optimizing costs by leveraging the use of customer data to remain profitable and counteract the decrease in market prices due to fierce competition.


Fewer market barriers have increased the number of overall competitors, which now drives prices down as the internet enables customers, who have low or zero switching costs, to have a better overview of this new bigger supply market. Moreover, data analytics enables businesses to optimize costs as well as to faster reshape their business model and value proposition according to customers’ needs. Smarter, faster, more accurate, and more targeted approaches can now be taken by companies in order to generate larger profits and combat the falling prices.


4. Overall, there is a larger threat of more digital and agile competitors, that take better advantage of data analytics and reach customers faster.


Numerous new players born in the digital era have understood the importance of customer data. Currently, the current Covid-19 outbreak has created an opportunity for F&B players to adapt to the digital market. Thus, considering the increasing importance of customer data and digital channels, creating new partnerships with third-party delivery platforms (e.g. Deliveroo, JustEat, UberEats…) is essential to survive to the crisis in the short term, and to leverage on these new channels to address the increasing online demand in the long term.


Financial impact

According to McKinsey, fewer than 15% of companies can quantify the ROI of their digital transformation strategy. This specifically shows the need for guidance on how to transform the business through new strategic plans and organizational change with the aim to boost revenues as well as providing substantial added value.


Assessing the ROI is one of the main key points in this regard. ROI can be defined as the amount of new revenue attributed to digital investments on a macro-level.


On a macro-level, it all comes down to making an accurate opportunity cost analysis by comparing the profitability from a Status Quo strategy vs the profitability from going digital. Another KPI to track for small


businesses is the time-to-ROI for new digital capabilities, meaning the breakeven point in time when the company will start achieving higher revenue than the investments resources rolled out.


On a micro-level, financial impact is measured by assessing the digital traction metrics first, which gives practical data and insights that enable the measurement through more traditional key performance indicators. In fact, to measure success in the digital era, businesses need to assess the scale (number of visitors, number of registered users, user acquisition…) as well as the active usage (daily active users, conversion rate, ratio of new users to repeat customers, ...) and the engagement (time spent on the app, NPS, downloads, bounce rate, traffic, churn rate,…).


Application to Moonbucks

Leverage digital capabilities in order to shift parts of your business model online, using omnichannel strategies to boost sales and data analytics to better target your customers and drive internal costs down are our suggestions for the client.

Internal approach : Introduce a mobile app that provides features to enable online delivery, click-and-collect, no-contact ordering while providing seamless payment methods for pre-ordering on the app. Moreover, Moonbucks will gather customer data through the app to better understand how to target its customers.

External approach : Leveraging third-party delivery platforms (e.g. Deliveroo, JustEat, UberEats…) to boost sales by generating new revenue streams by addressing a new customer-base, while optimizing its operational costs.

 

Customer Experience


Growing Customer Expectations



Companies have come a long way from the old era of “Product-Oriented Marketing”, in which businesses solely focused on the production process to make goods which are viewed as superior by potential customers. After the economic crisis of 1929, companies realized that it was no longer enough to manufacture efficiently. The first sales and promotion strategies were launched, in which companies focused on producing the best quality goods and convincing people to buy them. This philosophy of convincing customers of the product's superiority has been followed until today.


The most successful businesses adopted a more modern approach in the 1950s: “Customer is King”. Under this philosophy, a company's primary goal is customer satisfaction.


In 2020, everyone can possibly access unlimited information at any time with one “click”. The use of the internet, smartphones, smart devices, and cloud services has become the normality. The new “digitally conscious customer” expects to always get what he wants almost exactly at the time he needs it. These new “highly engaged customers” are constantly connected, app-native and aware of their technological capabilities.


This client-driven digital transformation is now forcing most companies to change their philosophy and adapt to this new market reality. To make matters worse, the impacts of the Coronavirus pandemic on the markets have created a battleground, in which only the most agile and relevant companies will survive.


Transforming Customer Experience

In order to meet the growing expectations of the previously described “highly engaged customers”, SMEs must give consideration to the following trends.


1. Optimizing the entire customer journey to be easy, didactic, and seamless is nowadays a key factor of success to achieve a better Customer Experience. From social media advertisements to online ordering and payment to geo-location store-finders, the customer journey starts with the first customer touchpoint and ends with 360-degree customer service. Digital trends in customer service include a proactive eco-system consisting of social media, review sites, forums and communities.


2. According to Forbes, 51% of digital commerce is executed via mobile phones. SMEs have the chance of hopping on the train and creating their own mobile apps or utilizing the services of existing mobile platforms in order to capture the customer at the place where they are most.


3. An Accenture study revealed that 75% of customers admit to favor products from a business that recognizes them by their name, knows their purchase history and recommends products based on their past purchases. Personalized coupon codes, birthday offers, and data-driven product suggestions are only few of many measures a company can use to satisfy its customer base.


4. Entertain your customer in every part of his life, so it is impossible for him to forget you. “Always connected customers” are 6-times more likely to try a new product from their preferred brand. In order to build strong customer relationships and ultimately achieve customer loyalty, it is necessary to engage with them as much as possible. Modern content creation and user engagement involve influencer-, social media- and event marketing in order to keep the customer involved and entertained as much as possible.


Application to Moonbucks

Transform the digital customer experience of Moonbucks Coffee in order to meet growing customer expectations by creating a convenient, flexible and personalized customer journey while focusing on digital and mobile channels to build relationships with clients through active brand building and content creation


➔ The Moonbucks Coffee mobile app can implement a “find the nearest location” feature

➔ Personalized coupon codes, birthday specials and data-driven product suggestions can be sent out to customers via push notifications, SMS or email.

➔ Moonbucks Coffee needs to create a social media presence, allowing customers to apply discounts to their purchase when tagging the companies’ profile.

➔ The individual outlets can host special events to invite influencers and content creators, further increasing brand awareness

 

Internal Operations


Going beyond the visible aspects of digitizing a company, it is important to look at how we can improve internal processes by leveraging new technologies. There are some main aspects of how digital transformation can be applied to support internal operations, which can be condensed into the following categories:


Process digitization

Automation is the keyword in process digitization. Through the automation of repetitive tasks, management can refocus precious resources to more strategic areas of an organization, while saving costs by moving the workforce more efficiently. Especially ERP Software creates big cost reduction opportunities.


Performance management

Data is the main focus in this sense. An organization should be capable of gathering and analyzing data at every stage of its internal and external processes, while also being able to analyze it and gather valuable insights from the analysis. Strategic decision-making will become faster, more accurate and efficient using internally analyzed data. The use of cloud services allows companies to more efficiently collect and share information at a generally low cost.


Workforce virtualization

Technology has enabled everyone to be more connected and this could not be truer in this period threatened by COVID-19. Software such as Trello, Asana and various virtual communication tools (Microsoft teams, Zoom, etc.) allow the workforce to interact from a distance and the company to reduce fixed costs. Moreover, organizations should leverage on modern and agile project management methodologies (Scrum, Kanban) in order to empower employees and make the company more flexible to change.


Change management

After such big changes in the structure and workflow of a firm, we must take into consideration a certain degree of change management, distributed vertically across the whole organization. Adopting a technology is easy but management should be focused on an efficient and optimal implementation of it on every level.


Generally, an organization should be most flexible in these volatile times. This can be achieved through an asset-light operating model, and a decision making powered by data and technology.


Application to Moonbucks

Automating internal processes using software to reduce fixed costs and improve employee efficiency.


➔ Placing QR codes on the tables for customers to be able to order their coffee quickly from their seat, reducing movement by the employees.

➔ Introducing a modern ERP software to better manage inventory, analyze customer data and suggest best performing products

➔ Marketing campaigns will be organized on Trello in order for all employees to be informed and involved

 

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