Digital Turnaround Needed in SME Sector

Innovation

Angelika Szalay, sales director for small and medium businesses at Microsoft Hungary.

The majority of small- and medium-sized enterprises, including nearly two-thirds of mid-sized companies, say they need to take more decisive digitalization steps to remain competitive. According to the Hungarian ICT Report, a survey of SMEs commissioned by Microsoft and carried out by BellResearch, the importance of this will increase in the near future for between one-third and a quarter of businesses.

Change is also needed because the Hungarian SME sector is lagging behind its regional competitors in digital transformation. The current uncertain economic situation is pushing companies to take further efficiency measures, with several tenders available. Still, to be eligible for these, companies need to have a vision and concrete development plans in the digital field.

More than half (59%) of Hungarian SMEs do not have a developed IT strategy, and the vast majority of them are not expected to have one, according to the recent Hungarian ICT Report survey. The Digital Transformation Index (DTI) for the domestic SME sector currently stands at 33.1 index points, which is low, despite the progress made in recent years. While digitalization has already played a significant role in managing customer relationships and transforming workplace culture, it has only just begun to change strategic planning, products and services, operations and logistics.

The vast majority of SMEs in Hungary (81%) still see ICT as a service activity, with only one in seven medium-sized enterprises and one in five small enterprises considering IT a strategic area.

“Although the vast majority of respondents see ICT as a service function, many, especially in the mid-market, are aware that it will play a key role in their future competitiveness,” said Áron Jakab, director of partnerships at BellResearch, pointing out the apparent contradiction.

“What we are witnessing today is that technology is fundamentally influencing and shaping workflows, teamwork, innovation, services and products themselves, and is therefore deeply embedded in business processes. This is something that more and more people are recognizing,” he added.

Áron Jakab, director of partnerships at BellResearch (at right).

Accelerating Transformation

Digital transformation has been accelerated in recent years by the pandemic, with many businesses moving to the cloud to keep their operations going during shutdowns. Now, the energy crisis and uncertainties in the economic environment are pushing enterprises to operate more efficiently than ever before. These conditions are driving the need for companies to move to the next stage of digital transformation.

High aid intensity tenders will play an essential role in the digital transformation of the economy. Typically, the grant provider expects the applicant to spend 20% of the grant upgrading digital infrastructure. The chances of a successful application are significantly increased if the applicant has concrete plans for the development direction.

Funding is also available to Hungarian businesses to support the digital developments needed for this. However, the Hungarian ICT Report revealed that more than half of Hungarian SMEs do not have a developed IT strategy.

“Putting together a tender is a serious, time-consuming job. Usually, the companies that win grants are those that know exactly what tools and services they want to buy and for what purpose,” Angelika Szalay, sales director for small and medium businesses at Microsoft Hungary, said.

“Microsoft is committed to supporting Hungarian SMEs and is ready to provide them with all the help they need to make their IT investments efficient and successful. In cooperation with tender specialist companies, Microsoft partners can provide professional advice on planning, pre-qualification for EU funding, and even the preparation of the specific tender documents,” she added.

Reasons to Invest

According to respondents, the main reasons for investing in IT are that it enables businesses to meet customer expectations (41%), respond more flexibly to change (38%) and reduce costs and increase efficiency in the long term (31%). Another increasingly common reason is to create the conditions for teleworking. Nearly two-thirds of respondents already do this, although mostly (also two-thirds) complement on-site work.

“Hungary has excellent foundations for the digital transformation of the economy: we have a well-developed digital infrastructure by European standards, and a higher proportion of Hungarian businesses employ ICT specialists than the regional average,” Szalay noted.

“Nevertheless, Hungarian businesses are lagging behind their regional competitors in the use of cloud technology and artificial intelligence. These are essential for innovation and ultimately for maintaining competitiveness,” she warned.

The contribution of the domestic ICT sector to GDP is comparable to that of the much-touted digital frontrunner Estonia, at more than 5%. At the same time, however, Hungary lags behind the regional average by 8% in terms of the number of companies using cloud technologies. According to research for Microsoft’s Digital Futures Index, Hungary’s level of investment in ICT, cloud AI, and IoT technologies is still below the regional average.

This article was first published in the Budapest Business Journal print issue of June 3, 2022.

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