Digital servitization in UK SMEs: Pathways to enhanced competitiveness

In the evolving landscape of UK manufacturing, Small and Medium-sized Enterprises (SMEs) play a pivotal role, contributing significantly to employment and economic output. Despite their importance, the adoption of Digital Servitization Business Models (DSBMs) within this sector has been notably limited, especially when compared to larger corporations. This research project, conducted by the InterAct Network fills a critical gap by exploring the implementation of DSBMs in the UK manufacturing SME context, blending insights from entrepreneurship and operations management to shed light on how digitalisation can be effectively harnessed by SMEs.

Context and objectives

The study is timely and relevant, addressing the pressing need for SMEs to adapt and thrive in an increasingly digitalised market.

Despite representing nearly 99% of all private sector businesses in the UK and accounting for a significant share of employment and turnover, SMEs have been slow in adopting digital technologies. This hesitance risks widening the digital divide and undermining the competitiveness of SMEs in the digital era.

The project aimed to develop a typology of DSBMs applicable to SMEs, gather comprehensive data from UK manufacturing SMEs on their adoption of these models, and identify configurations of factors that correlate with high performance.

Another key goal was to create an actionable toolkit for SMEs to assist in their transition towards digital servitization, considering specific environmental and organisational conditions.

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Findings and insights

The research revealed that SMEs could achieve high performance through a variety of DSBMs, demonstrating that there is no one-size-fits-all approach to successful digital servitization.

It identified multiple configurations for success across different models, suggesting that SMEs, regardless of their diverse contexts and organisational characteristics, have the potential to successfully embark on digital servitization journeys.

Digital maturity and service culture within SMEs emerged as crucial factors for the successful adoption of DSBMs.

These findings underscore the importance of digital transformation and the development of a service-oriented mindset among employees, highlighting them as vital components for SMEs aiming to leverage digital servitization for competitive advantage.

The research also developed a nuanced understanding of the applicability of different DSBMs across various contexts, illustrating how specific configurations of environmental and organisational factors could lead to high performance for SMEs adopting digital servitization.

This not only validates the proposed typology of DSBMs but also enriches the discourse on digital servitization by demonstrating its broad applicability and potential benefits across multiple scenarios.

Download the full report here.

The SME toolkit: A practical resource for transition

A standout contribution of this project is the development of a dedicated website and an SME toolkit.

This toolkit, informed by the research findings, provides a structured approach for SMEs to assess their readiness and potential for adopting DSBMs.

It guides users through a process that matches their organisation's characteristics with successful configurations identified in the study, offering personalised recommendations for the adoption of DSBMs.

This resource is designed to be accessible and user-friendly, incorporating training materials, a comprehensive questionnaire, and a mechanism for delivering tailored business model recommendations.

It represents a significant step towards enabling SMEs to navigate the complexities of digital servitization, equipping them with the knowledge and tools needed to make informed decisions about their digital transformation journeys.

Implications and recommendations for practice and policy

The study has profound implications for SMEs, consultants, policymakers, and academics. For SMEs, it highlights the viability of DSBMs as a strategy to enhance competitiveness and addresses the strategic, technological, and organisational challenges inherent in transitioning to such models.

It underscores the centrality of digitisation and the importance of fostering a service-oriented culture as keys to success in the digital servitization landscape.

For policymakers, the research underscores the need for targeted interventions to support the digital transformation of SMEs, including financial incentives, resources to overcome technological barriers, and programmes aimed at digital upskilling.

Such policies can empower SMEs to embrace digital servitization, ultimately contributing to the resilience and growth of the UK's manufacturing sector.

Limitations and future directions

While the project provides valuable insights into the adoption of DSBMs by UK manufacturing SMEs, it also acknowledges certain limitations, including the reliance on data collection through a single platform and the challenges associated with verifying the authenticity of respondents.

Future research could enhance the robustness of these findings through additional data collection methods, qualitative studies, and the triangulation of different research approaches.

The study sets the stage for further investigation into digital servitization within SMEs, inviting academics and practitioners to explore and expand upon its findings. It also calls for ongoing engagement with the developed toolkit and website, encouraging feedback and collaboration to refine and enhance these resources.

In conclusion, this research project makes a significant contribution to understanding the implementation of Digital Servitization Business Models in UK manufacturing SMEs. By identifying pathways to success, developing a practical toolkit for SMEs, and offering actionable insights for various stakeholders, it lays a foundation for future exploration and adoption of digital servitization to enhance competitiveness and innovation within the SME sector.

The implications of this research extend beyond immediate operational changes, suggesting a broader shift towards a digital-first mindset among SMEs. This transition, underpinned by strategic, technological, and organizational adjustments, has the potential to redefine the UK manufacturing landscape, making it more resilient, adaptable, and competitive on the global stage.

For policymakers, the findings emphasize the importance of creating a conducive ecosystem for digital innovation within SMEs, including supportive regulations, access to digital infrastructure, and opportunities for collaboration between academia, industry, and government. Such an ecosystem can accelerate the digital transformation journey of SMEs, ensuring that they are not left behind in the rapidly evolving digital economy.

This article was based on the work done by INTERACT. Original article can be found here.