Supporting SMEs in the Digital Transformation

The fourth policy paper of the Digital Revolution and New Social Contract Research Program examines how governments should design programs to support SMEs in the digital transformation through the case of Germany.

Digital transformation involves significant resource investment and access to talent - two areas that small and medium-sized enterprises (SMEs) historically struggle with. Their distance from internet giants and international industrial companies with regard to digital capabilities grows rapidly. In addition, the Googles and Amazons of this world are increasingly recognizing SMEs as an interesting customer group. 

Digital products and services are supposed to smooth the SMEs' transformation and attract them as consumers to the respective company ecosystem. Without relevant digital literacy, their own capacities, and an understanding of their own haves and needs, many SMEs might soon experience unexpected dependencies. 

For years, national governments and supranational groups such as the European Union are therefore increasingly supporting SMEs in order to enable capacities for evaluating existing solutions and developing their own. We wish to reflect on one of these activities: the five-year project Gemeinsam digital which is part of a larger program Mittelstand 4.0 funded by the German Federal Ministry for Economic Affairs and Energy (renamed the Federal Ministry for Economic Affairs and Climate Action in 2021) to boost the digital transformation of SMEs in Germany. 

We formulated the following guiding question in order to share and reflect on our experiences: 

How can publicly funded programs be designed to support SMEs in the digital transformation?

Building on our experience with Gemeinsam digital, we have outlined five lessons and proposed corresponding actions to strengthen future SME support programs. We hope that policymakers will recognize the untapped potential of SMEs across Europe, and of research and support programs to assist them. The key lessons are:

- SMEs differ significantly in demands and capabilities, support programs should thus leave room for flexibility and adaptation

- Barriers to enter a format must be low and permeable, formats must ask for highly practical and tailored service

- The mountain does not come to the prophet, build legitimacy in advance is a key requirement for reaching relevant SMEs

- Perils of one-off training and support activities should be addressed by building and developing resources within SMEs collaboratively

- Trade-offs between tactical support vs generating scientific insights should dissolve in scientific research becoming a core element for support programs, not the byproduct

The stakes are high: SMEs are a crucial economic factor, in Germany and in Europe, and we can hardly afford to miss the opportunity for a bottom-up, decentralized digitalization movement equipping SMEs with the knowledge and skills to evaluate solutions in the market and perhaps even to offer adequate alternatives themselves. The COVID-19 pandemic accelerated certain digital developments across sectors, but many barriers and challenges persist. 

SMEs are for small participants in global markets that are increasingly dominated by digital giants. Despite the demonstrated areas of improvement, projects such as Gemeinsam digital make a crucial contribution to supporting these small but important market participants. In this context, SMEs in other European countries and also social sector organizations and NGOs might serve as target groups for future support programs. They face similar challenges of resource scarcity, yet bear much potential for bringing about sustainable and inclusive digital innovations that society as a whole would benefit from – there is still much to be done.

Philip Meier, Humboldt Institute for Internet and Society

Sonja Köhne, Humboldt Institute for Internet and Society

Miriam Wolf, Association for Digitalization in the Social Economy

Christoph Gerling, Humboldt Institute for Internet and Society

To read more about the topic and download the full paper, click here.