By Dr. Thomas Goldsmith

The Brookfield Institute for Innovation + Entrepreneurship’s newly released report, Picking up Speed: Digital Maturity in Canadian SMEs and Why Increasing it Matters, was created in partnership with the Toronto Region Board of Trade, Scale-Up Institute –
Toronto, and with support from Xero, a cloud-based accounting software platform for small businesses.

For any firm working with SMEs or looking to help them scale up or even initiate their digital and online marketing efforts, the information revealed in this brand new report can provide a guideline for creating its own business model and strategy to engage this part of the market. Here’s what the report reveals and what insights it brings to the table for ad agencies, consultants, eCommerce platforms, content marketing specialists and digital-based services providers.

Ultimately, a company’s digital maturity hinges on its successful use of technology. While not every technology is relevant to every business, a range of them almost certainly are. Almost every company could benefit from use of a foundational technology such as having an online presence. Important bridging technologies, such as cloud computing, or customer relationship management, might not be applicable for everyone, but they can have big impacts in terms of transforming internal operations. Advanced technology uses, such as AI, big data analytics, or the Internet of Things, might only be relevant to a much more select group, but even then, these technologies are likely to be useful to a much larger number of companies than those already deploying them.

Finally, cybersecurity is not the sole concern of large corporations or banks with large financial assets. It is instead something that every company (and individual) needs to be aware of and only increases in importance as digital maturity increases.

Foundational Technologies
Foundational technologies such as social media use, having an online presence, and selling goods and services online are often the starting point for SMEs to increase their digital intensity. These technologies are generally customer facing, though they can feed into back-office functions, such as through analyzing data from social media or eCommerce. Almost every company could benefit from use of a foundational technology such as having an online presence.

The use of these digital technologies is driven by consumer demand. As of 2018, over 91 percent of Canadians aged 15 years and older were using the internet. Of them, 84 percent bought goods or services online, spending $57.4 billion.84.04 percent of Canadians also used the internet in 2018 for finding information about goods or services, the 6th highest rate in the OECD. The pandemic has only served to accelerate the use of eCommerce, with online sales up far more than in-store sales across the board, with growth far outstripping pre-pandemic levels.

Yet despite these demand side factors, Canadian companies as a whole are not at the digital frontier when it comes to increasing the rate of adoption of these foundational technologies. As Figure 14 shows, as of 2019 Canada was solidly mid-table in the OECD for businesses with a website or home page, lagging behind the leader Denmark by just over 12 percent. When it comes to businesses using social media, it is a similar picture with Canada behind the leader Norway by just over 15 percent.

Canadian small enterprises, in particular, are lagging in their online presence. As of 2019, 17 percent of small enterprises have no web presence at all, and only 74 percent have a company website versus 91.5 percent for medium-sized enterprises and 95 percent of large enterprises. There is a smaller gap between small and medium-sized enterprises when it comes to social media use — 55.4 percent to 64.4 percent respectively, though both still significantly behind large enterprises with 74.8 percent having a social media account.

Not only are there gaps in the baseline adoption of technologies, but also in the strategies around how they are used. Data from the March 2021 Environics survey commissioned by the Scale Up Institute Toronto shows that small enterprises are using social media for more basic uses compared with larger companies. For example, companies with 10-99 employees are three times more likely to report that their social media use is not designed for actively engaging with new and existing customers, verses companies with over 500 employees.

There is a mixed picture in terms of industries which have no web presence (Figure 18). Across the board, small enterprises lag behind medium-sized enterprises. This lack of web presence harms enterprises when it comes to selling products and services online. One area where SMEs are using the web in high numbers is in their procurement. 67.7 percent of small enterprises ordered goods or services over the internet in 2019, along with 77.4 percent of medium-sized enterprises and 81.3 percent of large enterprises.

Despite this, only 22.5 percent of small enterprises receive orders or make sales of goods or services over the internet. SMEs are apparently adept at making purchases online though not enough are taking advantage of the internet to make both business-to-business and business-to-consumer sales. Recent analysis highlights some of the trends in online sales during the pandemic. Though, as noted earlier, there was a substantial growth in eCommerce during the pandemic, this was not matched by large numbers of enterprises shifting online. Indeed, in 2020 just 9 percent of Canadian businesses of all sizes made 60 percent or more of their total sales online, up just 3 percent from 2019.

Businesses majority-owned by women reported a higher increase in companies that made at least some of their sales online in 2020 compared to all private sector businesses, though were also more likely to have reported a drop in revenue of 30 percent or more in 2020 compared to 2019 — speaking to the disproportionate impact of the pandemic on women despite higher levels of digital adoption.96 When it comes to proportion of online sales than in many other digital technology areas there is less of a distinction between SMEs and larger companies. There is almost no difference between enterprises with 20 to 99 employees and those with more than 100 employees in proportion of sales made online in 2020, with the smaller companies actually having a slightly higher proportion making more than 60 percent of their sales online — 9 percent versus 7 percent.

The full report is available from The Brookfield Institute. Dr. Thomas Goldsmith is an independent researcher and policy consultant collaborating with the Brookfield Institute. Tom works with innovation-focused organizations to help them understand public policy, and create coalitions and partnerships to help build an inclusive innovation economy in Canada. Report created in partnership with the Toronto Region Board of Trade, Scale-Up Institute – Toronto, and with support from Xero, a cloud-based accounting software platform for small businesses.

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