How can SMEs escape the vicious cycle of digital transformation?
Latest update time：2022-05-27
Reads：
Small and medium-sized enterprises, the last battle for the scale-up of the industrial Internet
Author | Yu Kuai
Editor | Wang Chuan
At 2:28 a.m. on March 14, a magnitude 4.1 earthquake occurred in the sea area of Huidong County, Huizhou City, Guangdong Province. That night, the tremors were felt in Shenzhen, dozens of kilometers away.
Wang Xingdong, who had not yet fallen asleep, also noticed it. After a brief shock, a more worrying question came to his mind: Can he pay the employees' salaries next month? The factory has been making losses for four months.
Wang Xingdong is not an isolated case. The small and medium-sized enterprises they represent are a contradictory group.
More than 50% of tax revenue, more than 60% of GDP, more than 70% of technological innovation, more than 80% of urban employment, and more than 90% of the number of enterprises.
As the foundation of the national economy, small and medium-sized enterprises are small in themselves, but the huge army they form possesses powerful potential energy.
The plate is big enough, but also fragile.
The digital storm, the repeated outbreaks of the epidemic, the changes in the international situation, any of these variables will put this group in a precarious situation.
At the just-concluded 2022 National People's Congress and the "Government Work Report" in recent years, small and medium-sized enterprises have been one of the focuses.
Digitalization and intelligence are the inevitable path to take, but for small and medium-sized enterprises, this path is both close at hand and yet far away.
1
The vicious cycle of SMEs
Under the wave of global digital and intelligent transformation, most small and medium-sized enterprises are trapped in a vicious cycle.
Let’s look at some data first.
Data from the fourth national economic census showed that 89% of Chinese companies are in the exploration stage of digital transformation, and have only explored digitalization in core links such as design, production, logistics, sales, and services; 8% of companies are in the implementation stage of digital transformation, and are digitally transforming core equipment and business data; and only 3% of small and medium-sized enterprises are in the deep application stage of digital transformation.
In other words, there are very few small and medium-sized enterprises that truly embrace digitalization wholeheartedly.
If we truly lower our perspective to thousands of companies, we will find that “few” is just an appearance.
In terms of digitalization and intelligence, most small and medium-sized enterprises have the "four no" problems: "unwilling, unable, not able, and not daring".
-
Unwilling to transfer
The first is the lack of awareness. Tan Zhang, general manager of LanZhuo, said that industrial digitalization has two cores: asset digitization and data assetization.
Whether it is digitally integrating assets or viewing data as means of production, these are awareness that most small and medium-sized enterprises currently lack, and the problem of not understanding data is particularly prominent.
"Why do we need to install sensors on equipment? Why is this solution the way it is now? Why does the focus change in the next stage? They may have no idea about how to use data at all," said Wang Zijun.
The second is business inertia. It’s not that we don’t understand the benefits of transformation and upgrading, but at the moment, it’s not necessary.
Chinese manufacturing companies have been accustomed to the extensive model of the past few decades. If they want to grow, the first reaction of most companies is to increase investment, expand factories, and recruit workers.
Wang Zijun told Leifeng.com that many bosses of small and medium-sized enterprises are also salesmen, and sales thinking is dominant, rather than manufacturing thinking. Compared with the drastic transformation, stacking people is more direct and easier.
The problem of transformation is actually a people problem.
-
Can't turn, won't turn
Rather than saying "can't", it would be more appropriate to say "have the will but not the power".
No funds, no technology, no talent. These problems are old news but are indeed the most prominent.
"The first problem that small and medium-sized enterprises face when undergoing digital transformation is that their automation foundation is weak. According to traditional digital transformation practices, equipment needs to be modified, and the investment in these hardware modifications will be very large. The transformation cost is high, the cycle is long, and the threshold is high. We are now solving these problems." said Tan Zhang.
Many factories today have outdated infrastructure such as IT and OT systems, and may not even have completed the most basic informatization. In the most basic data collection process, without automation and standardization as a prerequisite, it is extremely difficult to promote streamlined manufacturing, industrial management forecasting, and other aspects of industrial big data.
When the market environment is going down, the small and medium-sized enterprises will be like a boat in a precarious situation and cannot take care of too many things. Their first demand will be to survive.
The trend of industrial Internet has indeed made some companies excited, and some companies with better foundations are eager to try it out.
It’s just that some either rashly follow the trend out of anxiety, or are pushed forward.
You must know that in all digital transformations, the enterprise itself is the main body. If you don’t know why, it will be like hitting cotton with a heavy punch.
Liu Zongchang, Chief Data Officer of Foxconn Industrial Internet, mentioned that digitalization is not just about investing in and introducing a technology, nor is it just about piloting a project or solving individual pain points. More importantly, it is about acquiring capabilities. However, most companies do not realize this.
"Some companies invested money to access the industrial Internet, but after a year or two, it was no longer useful and the invested money was wasted."
The result is that the value of data cannot be tapped, and the significance of platform optimization marginal benefits and cost savings cannot be reflected.
-
Don't dare to turn
The industrial Internet is still in its infancy in China, and both parties are in the process of learning from a master.
There are many successful cases of large enterprises in the industry, but even in the same industry, the basic foundations are different, and the methods of large enterprises may not be suitable for small and medium-sized enterprises.
Without a reference, many small and medium-sized enterprises are the first to go into the pond, and no one knows whether there are big fish or glass shards in it. This is probably the feeling of many small and medium-sized enterprises.
Moreover, digital transformation requires not only upfront investment, but also little output in the short term. Taking data value as an example, it is often a process of "hindsight".
The benefit cycle of an industrial Internet project can be as short as three years or as long as five years, which is difficult to match the one-to-two-year business planning cycle of small and medium-sized enterprises.
In mild cases, the patient will suffer from broken bones and no gain; in severe cases, the operation will fail and the patient will die.
The expected cost reduction and efficiency increase have too much uncertainty. Small businesses with no money and no technology are reluctant to do "useless work" and cannot afford to go through so much trouble.
In short, some companies are blocked at a certain link, while some companies are hit by all links.
Small and medium-sized enterprises have poor risk resistance, low technical levels, shortages of funds and talent, rising labor prices, and repeated epidemics. They are the first to be hit. The result of not transforming is worse competitiveness, which results in a vicious cycle.
2
Why do we talk about the difficulties faced by small and medium-sized enterprises?
Must cross?
In the early days of the industry, in every public occasion, when the successful transformation cases of various industry leaders enjoyed the attention of the public, small and medium-sized enterprises were rarely the focus.
There are 3.8 million industrial enterprises in China. Except for 380,000 large-scale enterprises, the rest are small and medium-sized enterprises. The large-scale promotion of the industrial Internet cannot be a solo performance of large enterprises.
From a national perspective, small and medium-sized enterprises are an important dimension in stabilizing employment and people's livelihood.
From the perspective of market and technology, the potential of small and medium-sized enterprises is definitely underestimated.
Small and medium-sized enterprises are hotbeds of innovation.
Xu Shaoyong, head of Heihu Intelligent Manufacturing Products, summarized the characteristics of small and medium-sized enterprises:
1. Large changes and high flexibility requirements.
Most of them are dependent on large factories. As suppliers, they need to constantly meet the changes in the upstream. The market they are in changes very quickly, and they have high requirements for the ability to respond quickly to demand. It is not uncommon for small B enterprises to transform every six months. This is vividly reflected in the clothing industry.
Taking China's cross-border e-commerce giant SHEIN as an example, the scale of its supply chain enterprises is generally a factory with about 100 people. They test the market in small batches and then adopt a mass production model after the products become popular.
In this context, excellent capabilities may enable a small or micro enterprise to quickly grow from a factory with a dozen people to a medium-sized enterprise with hundreds of people within two years, and the management model, operating model and business scale will change accordingly.
2. Focus on experience, simplicity and ease of use are the biggest demands; focus on cost, more orders are the primary goal.
Xu Shaoyong said that the implementation period for small and medium-sized enterprises is short and can be basically completed within 1-2 weeks. First, all employees must be trained (the cultural level of front-line operators is not high); second, rapid training is required, which can be completed within 1-2 days. High requirements are placed on the applicability of the product and the training system. Third, the training system must be simple, the platform functions must be clearly explained, and the system must be easy to use.
Xu Shaoyong emphasized that Xiao B pays great attention to cost and efficiency. "If there is no efficiency, we will stop halfway."
3. The technical logic is the simplest and the threshold is relatively low.
Small and medium-sized enterprises are not like the G-end, which takes on everything; they do not have high technical barriers like the large B-end, nor can they conquer the world with one move like the C-end. However, the technical logic of small and medium-sized enterprises is the simplest. Small businesses do not need a large and comprehensive package of solutions, but rather a precise, standardized, and menu-based transformation plan.
What do these characteristics mean?
The industrial Internet will reconstruct the industrial ecosystem, often starting from low-end manufacturing and regional economy. Innovation often occurs in places with the lowest technical difficulty and the greatest value.
This view from industry expert Guo Zhaohui may be able to answer this question.
Focusing on experience and cost, the solution must be simple and easy to use, and must be able to flexibly perceive user needs and iterate quickly. The technical threshold is not high. To meet these characteristics at the same time, it is necessary to innovate the technology implementation method and payment model, reduce implementation costs, and improve customer experience. If the solution is simple and easy to use, it will be easy to promote on a large scale, and countless innovations will be born.
Small and medium-sized enterprises have a universal benefit effect of the times.
Looking at the common characteristics of the first three industrial revolutions: machine labor replaced manual labor and social productivity was greatly improved.
Now the Fourth Industrial Revolution is about to usher in the era of intelligence, which will transform from machines replacing physical labor to machines replacing brain power.
Note the key word: replace. What is replace? To replace one thing with another.
To achieve this, "widespread and large-scale" application is essential.
The first three industrial revolutions were:
The widespread use of steam engines, the widespread application of electricity and internal combustion engines, and the widespread application of information technology.
To realize the true Industrial 4.0 revolution, digitalization and intelligence must be widely applied in the entire industry.
This relies on 3.8 million industrial enterprises, especially small, medium and micro enterprises.
The demands of small, medium and micro enterprises are fragmented, scattered, small in size and revenue, but they are numerous and wide in scope, like a capillary-like market, with a strong scale cumulative effect, which is becoming an important weight for the industrial Internet to come to the fore.
More importantly, they represent market-driven forces beyond national policy.
When market drivers become dominant, various mobile industrial applications, endless innovations and services will emerge
.
The industry nature/characteristics of small and medium-sized enterprises contain the genes of platform economy.
The charm of platform economy lies in the pooling of resources and the reconstruction of the traditional economic chain-like upstream, midstream and downstream organizations into a circular chain around the platform.
The platform bends the originally lengthy industrial chain into a circular shape, allowing B-end users to directly reach C-end users through the platform, and each link saved improves industrial efficiency.
Industrial Internet companies need such a platform economy, and small and medium-sized enterprises also have this potential.
3
What is the logic behind small and medium-sized enterprises?
The reason why there is a distinction between large enterprises and small and medium-sized enterprises is essentially the contradiction between standardization and customization, and between scale market and profit model.
Leading large-scale enterprises are project-oriented with a high degree of customization. Projects are unique, one-off and irreversible. This 1+1 addition money-making model requires reinvestment of human and financial resources in the development of each project, and costs also rise significantly. Enterprises make money, but it is tiring.
Standardization, or reproducibility, is a fundamental characteristic of modern industry.
The more versatile a solution is, the more replicable it is, and it can adapt to the needs of different manufacturers at the same time, thereby diluting R&D costs and improving efficiency through economies of scale. It also represents, to a certain extent, how large the profit margins for suppliers can be.
At the same time, the high uniformity of product architecture is also conducive to strengthening the unified management of product quality and ensuring stability, reliability and controllability.
The degree of fragmentation and customization in the industrial field is at the top of the pyramid. Each vertical field has a large number of subcategories and a long industrial chain.
The technical logic is the simplest. It tends to be more ecological and business management systems, and most of the basic businesses are general and scenario-based.
LanZhuo general manager Tan Zhang told Leifeng.com that we must first distinguish the characteristics of large enterprises and small and medium-sized enterprises.
There are few leading companies in the industry, and the industry is customized and fragmented, emphasizing the thickness and depth of platform functions and the completeness of coverage of business domains.
There are a large number of small and medium-sized enterprises, and their functions emphasize lightweight and standardized functions, as well as breadth and rapid replicability.
This determines that large enterprises are the main source of industry knowledge, and small and medium-sized enterprises are the core channels for standardization and scale-up.
In other words, small and medium-sized enterprises are particularly suitable for digital reconstruction of industrial clusters through the industrial Internet.
Once the universal share becomes larger and larger in scale, demand will promote ecology, and ecology will promote platform, thus giving birth to a platform economy.
Therefore, the model of reintegrating industries through the industrial Internet platform is particularly suitable for upgrading regional characteristic industrial clusters.
The industrial product industry chain behind the business of small and medium-sized enterprises involves non-standard links such as design, construction, and acceptance. It is not a transaction-based, circulation-based, or social-based platform as commonly understood.
The industrial Internet platform takes the strengths of the platform economy and makes up for the shortcomings of the industrial product industry chain.
Platform-based enterprises have projects, tools and funds, and need products and solutions from the ISV group, as well as regional agents/service providers, to meet the localized, community-based and grid-based operational services needs of small and medium-sized enterprises.
Regional agents/service providers have fragmented coverage capabilities and localization advantages, fast response speed, extensive personal connections, service efficiency and quality, but lack digital capabilities and require underlying technical support.
If there is a form (ecosystem) without strong business connections, in which personalized needs are handed over to developers and service providers, the service providers develop the market, and the third and fourth-level agents go down to form a low-cost, high-efficiency, high-quality team, and platform-type companies stand behind them to provide technical, tool and marketing support, it can be regarded as a win-win approach.
When supply and demand form a closed loop, linking demanders and service providers, and then integrating them into the platform, we can achieve the one-stop service of procurement, purchase, and sales at the front and back ends of the industrial chain, and pre-sales and after-sales, and then form the closed loop of the industrial Internet that we have always dreamed of. It not only integrates partners in the industrial chain, but also has the effect of revitalizing and expanding the ecology.
4
What should Industrial Internet companies do?
How can small and medium-sized enterprises quickly form templates for industrial Internet applications?
Tan Zhang, general manager of Zhejiang Lanzhuo, has built three model platforms based on different market entities and characteristics.
First, focusing on leading enterprises, we will build a chain-leader networked manufacturing collaboration platform to drive the digitalization of upstream and downstream enterprises.
First, based on the region, build an industrial chain collaboration and sharing platform based on the industrial brain/industrial brain model.
For example, a certain area in Zhejiang Province mainly produces fasteners, and has built a quality inspection center and quality traceability system shared by small and medium-sized enterprises at the district and county level.
First, focus on vertical industries and build a platform with industry cloud platform + government + service provider model.
In regions or industries where small and medium-sized enterprises gather, industrial software service providers have gradually grown into small vertical industrial Internet platforms. Most of these service providers have been deeply involved in a certain industry for 20 years. In the early days, they were able to solve corporate problems, but they were small in scale and lacked the manpower and financial resources to invest in digital technology.
"Some companies that are doing very well in vertical fields may have less than 100 employees including hardware, software, development, and engineering services."
Landro provides a standardized large platform and an operating system base for small platforms in traditional industries to meet their scalability issues and ultimately empower small and medium-sized enterprises.
Small, medium and micro enterprises belong to the latter two.
LanZhuo reduces costs by covering regional industrial clusters.
"If we only run a few businesses, we will definitely suffer losses, and the business model will not be sustainable. We must focus on a group of businesses, such as gathering hundreds or thousands of similar businesses in one place, so that we can share costs," said Tan Zhang.
The reason why small and medium-sized enterprises can achieve regional coverage is determined by the geographical distribution characteristics of China's industry.
Leading companies in various industries are scattered across the country, but small and medium-sized enterprises are characterized by regional industrial clusters. For example, the industries in a city's districts and counties may mostly be auto parts, cosmetics, luggage, etc., producing the same products with similar production processes and management procedures, and similar digital needs.
In the early stage, we will serve as an industry benchmark and invest heavily in typical common functions of the industry. In the mid-term, we will develop APPs for specific regions and industries, and in the later stage, we will implement standardization for enterprises.
"Small and medium-sized enterprises do not need the heavy and complete functions of leading enterprises. The management level is basically order-production plan-inventory-logistics, and the process is relatively simplified. The solutions of large enterprises can meet the digital needs of 70%-80%/core links of small and medium-sized enterprises."
The functions required by small and medium-sized enterprises are relatively simple, and through universal solutions + customized modules/optional menus, a large number of surveys and cross-verifications are conducted in areas to explore common needs and basic functions.
“The commonality is like the base of a car, and the interior decoration is optional.”
Tan Zhang emphasized that the key to the actual implementation of this model lies in exploring industry commonalities + rapid standardized implementation methods.
Of course, industrial Internet platform technology, platform thickness, functional richness, low-code development capabilities, ecological richness, operational incubation capabilities, as well as business pricing strategies and service strategies are also very important.
This model is actually a consensus in the industry.
Huawei Cloud minimizes the time and cost required to achieve personalization based on a standardized platform, so it strengthens the standard components of the Industrial Internet so that business developers in thousands of industries can quickly develop the required personalized industrial applications in a low-code or no-code Lego style.
Some companies do not seek to be large and comprehensive, but only to be refined and specialized. Based on their technological genes, they take root in one place and take each step steadily, aiming to be the hidden champions of specialization, precision and innovation.
General-purpose industrial Internet companies accumulate and settle down, enriching their solutions, while vertical industrial Internet companies go deeper and specialize, cultivating unique skills.
Segmented application companies mainly use general-purpose SaaS products, which have a high degree of standardization and are easier to scale in terms of customer numbers and revenue scale.
This type of product meets the general needs of enterprises. It has a high degree of versatility, a short deployment cycle, and can be quickly launched at the customer site.
For example, Heihu Intelligent Manufacturing directly targets the MES system, directly provides customers with productized SaaS applications, and provides digital products for collaborative production in all links of the factory.
In view of the lack of awareness and poor foundation of small and medium-sized enterprises, Heihu has adopted a phased transformation.
The first step is to start with the work order and visualize the production execution.
Xiao B is sensitive to costs and needs to see value as quickly as possible. The work order is the main line, connecting important information from the consumption of manufacturing resources to the final output of finished products throughout the production process. By replacing offline paper document circulation with work orders, collecting on-site data in real time, and generating production reports with one click, the factory can perceive immediate changes.
Then continue to deepen to all links of the factory. For example, since most of the bosses of small B are sales-oriented, the Black Lake small work order has a "mobile priority" feature. The progress and reminders of all work orders can be checked on the mobile phone, and the system can also be used to know what employees are concerned about.
The second step is to coordinate upstream and downstream industries. In view of the differences in needs of different industries, it is combined with the industrial Internet platform.
By sharing links or QR codes, customers can obtain real-time information about the execution of work orders, such as production progress and quality inspection information, effectively avoiding obstacles to information flow, saving communication costs, increasing customer trust in the company, and enhancing the collaboration efficiency between manufacturers and upstream and downstream companies in the industrial chain.
XCMG Hanyun also agrees with the model of "large enterprises take the lead in innovation, and small and medium-sized enterprises follow suit."
Based on products and innovative technologies, XCMG Hanyun has focused on talent training, which is neglected by most companies. They believe that one of the biggest problems currently restricting the industrial Internet is the shortage of compound talents.
It is reported that XCMG Hanyun is the first 1+x training and evaluation organization in the field of industrial Internet in China. XCMG Hanyun has built industrial Internet industry colleges with enterprises, colleges, think tanks, scientific research institutions and local governments in the industry, such as the "Industrial Internet Implementation and Operation and Maintenance" pilot colleges. There are currently 143 pilot colleges across the country.
5
Conclusion
Of course, the digital transformation of small and medium-sized enterprises is not that simple.
Cost factors, product standardization level, and user experience are all important. It must be low-cost, easy to implement, have a low threshold, and be suitable for large-scale promotion.
Industry standards, common standards for industrial data interaction, platform standards, APP standards, and component microservices.
On the user side of industrial enterprises, consumption habits need to change.
From a one-time buyout of products and services to annual fees and subscription models, from insisting on private deployment to accepting online models, these are all necessary conditions for scaling.
At the legislative level, legal issues and technical means for data transactions, data sharing, data traceability, data security, and data rights confirmation need to be improved.
To make the value of the industrial Internet truly benefit small and medium-sized enterprises, this requires joint promotion from the government level, the enterprise level, and the platform level.
The "14th Five-Year Plan for the Development of the Digital Economy" issued by the State Council proposes that the penetration rate of the industrial Internet will be 14.7% in 2020. The document requires it to reach 45% in 2025, a three-fold increase.
This is the country's expectation for the success of its industry, and it is also a prediction based on foreseeable economic planning.
This is a signal from the country to start large-scale application and prepare to start snowballing.
京公网安备 11010802033920号