Charting New Paths: The Journey of Philippine SMEs Towards Digitalization

For the past two years, I have been teaching digitalization and coaching entrepreneurs with their business improvement plans. Some micro and small businesses (MSMEs) do not practice proper bookkeeping and inventory management. A good number would be recording business-related transactions through numerous spreadsheets and documents.

Although having an integrated system would be ideal, we are far from seeing digitalization optimized in MSMEs.

Resistance to digitalization

Cebu-based digitalization expert Mike Jurado of Prime Software has worked with many SMEs in implementing enterprise resource planning (ERP) systems. He observed that numerous Philippine SMEs are hands-on, family-owned, mostly baby boomers and earlier, and their business organizations are not “corporately structured by the book.” They follow their traditional ways of running a business and would require convincing about digitalization.

Jurado shared, “A lot of SME’s information is usually recorded and processed on spreadsheets. Very few have adopted software solutions with an integrated view of the business. I noticed that business heirs, millennials, and Gen Y are more open to embracing digital transformation and are expanding their businesses.”

ERP adoption in businesses

Enterprise Resource Planning (ERP) is a software system that integrates and automates core business processes such as finance, supply chain, operations, and human resources. It helps organizations manage business activities, including accounting, human resource management, procurement, manufacturing, sales, and customer relationship management. It serves as a centralized platform to optimize organizational efficiency and data management. ERP experts customize its implementation depending on the industry.

Some entrepreneurs associate ERP with global software brands and immediately equate to high-cost implementation they couldn’t afford to invest in. However, there are homegrown ERP solutions that businesses could explore for their digitalization needs. Cost should not stifle digitalization efforts.

Leading ERP brands run the business information bloodlines of the US Fortune 500 companies and other top global companies. To expand their market, they are now offering these to developing countries’ SMEs at lower prices but the cost of acquisition, maintenance, or subscription is still relatively high. Despite that, results could still be uncertain.

A typical ERP implementation would vary from $10,000 to $60,000 annually. For locally-made ERP solutions, the cost may be at half, but you need to trust that the company will be reliable and existent in the years to come.

A typical ERP implementation will take a year of working with your ERP software and implementation service provider.

Month 1-2: Requirements Analysis, Definition, and Project Planning
Months 3-5: Design and Customization
Months 6-7: Data Migration
Months 8-9: Testing
Month 10: Training
Month 11: Go-Live and Deployment
Month 12 and Beyond: Post-Implementation Support and Optimization

Although some local ERP solutions providers believe a shorter timeline is possible. Jurado explained, “When a new special dish gets served, you eat it first and comment later. The same is true for a complex dish like ERP. Eat it so you can “go live” earliest to experience the basic ERP features, reaping 80-90 percent benefits from the integration alone. The necessary minor software customizations are usually defined early and are part of the inclusive deliverables as you go along the project timetable. However, major software customizations would take time, cost more, and cause delays if done first. These must be set aside or delivered at a later date. So don’t overthink, start by adapting first, and take it there.”

Jurado believes ERPs give businesses the digital transformation needed to streamline and be efficient in their operations. “Currently, management is overwhelmed with the volume of new daily unprocessed transactional data from the business. There are no real-time system-generated updated ledgers, management operations dashboard views, and reports. Add no transparency, lack of immediate controls, delays, paperwork, etc. When SMEs optimize their use of digital tools, they are guided with updated information, grow properly, and make our economy grow faster.

A successful ERP implementation could give enormous benefits to the business via digital integration of all business information. It is the only way to go when one wants to grow the business tenfold or exponentially. It will become your new daily business routine for years, so always ask the would-be provider what warranty, technical support, and the cost thereof you could get years from now. Most businesses change software later because there is no more technical support. These scare them about the future.”

Impact of digitalization on employees

ERP implementation can significantly impact employees. In some cases, the automation and efficiency brought by ERP systems may lead to fears about job security. Alleviate these concerns by communicating the purpose and benefits of the ERP system.

Employees may need to adapt to new tasks, workflows, procedures, and reporting structures. Some will need to focus on strategic work rather than routine manual processes. These require time and effort, and some may find it stressful.

Once acclimated, employees often find that an ERP system makes their jobs easier and increases productivity. They spend less time on manual data entry and more on analysis, decision-making, and other higher-value tasks.

Training staff and providing support during ERP implementation are critical. Trained employees can perform tasks faster and more accurately, making the most out of the ERP functionalities. Post-implementation support helps in fine-tuning the system and ensures continuous improvement.

Training also helps build in-house expertise, reducing dependency on external consultants for every minor issue or change requirement.

Successful ERP implementation can lead to positive benefits such as::

• Streamline business processes by integrating functions like finance, HR, sales, and inventory into one platform. These reduce manual data entry and errors, leading to more efficient operations.
• With real-time data and analytics tools, ERP systems provide accurate and up-to-date information, enabling business owners to make informed decisions quickly.
• ERP systems offer robust financial management tools, helping businesses manage their cash flow, budgeting, and financial reporting more effectively. Over time, the efficiencies gained through an ERP system can lead to significant cost savings by reducing labor costs, operational expenses, and even inventory costs.
• For businesses with complex supply chains, ERP systems can improve visibility and control, leading to optimized inventory levels, reduced costs, and improved supplier relationships.
• With better access to customer data and history, businesses can provide more personalized and efficient service, enhancing customer satisfaction.
• With centralized data storage and built-in security features, ERP systems ensure the integrity and security of business data.
• A smooth transition with adequate support can boost employee morale, while a problematic implementation can lead to frustration and dissatisfaction.
• ERP systems often have better tools for measuring employee performance and productivity.

SMEs wanting to start their digitalization journey should take the risk. Seek out providers, conduct due diligence, and get that ERP that would fit your budget. ERP is a sound investment for the continuity of your business.

Government’s commitment to digitalization

It is laudable that President Marcos Jr. has shown a commitment to advancing digitalization in the country. Some of them are:

• Make more e-government services available online and reduce the need for physical transactions.
• Improve the country’s internet access, quality, and reliability, especially in rural areas.
• Support the digital economy by fostering e-commerce, providing startup support, and encouraging innovation in the tech sector.
• Integrate digital education in schools and provide training programs for adults to equip them with the necessary skills for a digital economy.
• Institute cybersecurity measures to protect data and prevent cyber-attacks.
• Improve healthcare through telemedicine and electronic health records.
• Using digital tools to modernize agriculture, improve productivity, and support farmers through technology.
• Promote financial inclusion and simplify transactions using digital payment systems and fintech solutions.
• Create an environment conducive to investment and innovation in the digital sphere.
• Updating and enforcing data privacy laws and regulations to protect citizens’ data.

I hope the Department of Trade and Industry (DTI) and Small Business Guarantee Fund Corp. (SBGFC) can make digitalization software investments affordable or accessible via credit. I recall one of the programs SBGFC created when I was in the Congressional Oversight Committee for the E-Commerce Law was a loan program accrediting vendors who could provide e-commerce/ICT-related services to MSMEs. The accredited vendors will offer their services with installment payment plans to businesses. SBGFC will give the resources needed in advance to complete the project.

ICT service providers should explore opportunities to make digitalization accessible and affordable to SMEs. Help them become competitive and cost-efficient to grow their business.