SMEs undergoing digital transformation

Dr Duy Dang-Pham – Associate Head of Business Innovation Department, The Business School, RMIT University Vietnam.

Clear understanding needed for proper evaluation

To assess the digital transformation progress of small and medium-sized enterprises (SMEs) in Vietnam, I believe the first step is to agree on what digital transformation actually is. Without a clear definition, it's difficult to have a reasonable "measure" to evaluate businesses against.

It's not difficult to find numerous examples of digital transformation in Vietnam. With a simple search using Google or an AI tool, you can read about how AI, blockchain, and the Internet of Things (IoT) have been integrated into the core products and services of big tech corporations, as well as micro, small, and medium-sized startups in sectors like energy, environment, finance, and education. With so many examples, it’s entirely reasonable to deduce that digital transformation in Vietnam is progressing rapidly.

However, I believe the picture is incomplete if we only list technologies. In fact, most SMEs don't begin their digital transformation journey with complex technological problems. They start with rather mundane issues: stagnant revenue but ever-increasing operating costs, fragmented data, owners making decisions based heavily on intuition, and a lack of coordination between departments. In such cases, digital transformation isn't about AI or blockchain, but about helping businesses recognise their problems more clearly, make faster decisions, and better manage their operations.

Throughout my teaching, consulting, and business management experience, I've never viewed digital transformation as just a matter of applying technology. If I were to simplify the operational challenges of an organisation, I would categorise them into two fundamental elements: the revenue at the top of the income statement, and the expenses at the bottom. Only by optimising these two elements can a business survive and achieve sustainable growth.

With this in mind, digital transformation can be seen as the process of implementing a digital strategy to increase revenue or optimise costs with digital solutions and technologies. Importantly, cash flow should not come from what technologies a business owns, but from the value created by the use of such technologies. That value must be good enough for customers to accept and be willing to pay for.

The focus of digital transformation, therefore, lies in enhancing organisational capabilities. Technology is merely a tool. The real value comes from businesses doing more effective marketing, better sales, better human resources and process management, or creating new capabilities that previously did not exist. With this approach, a business can say that they are undergoing digital transformation even though the systems they are implementing are no longer “trendy”, for example, CRM (customer relationship management), ERP (enterprise resource planning), or HRMS (human resource management systems). Even a small business adopting accounting software or a point of sale system, or simply managing data better on Excel to increase transparency and accuracy, has already embarked on this transformational journey.

As the Vietnamese government is strongly promoting digital transformation through policies related to technology, data, and information security, and young entrepreneurs and professionals are already familiar with technology, I believe that SME digital transformation in Vietnam will advance strongly.

Achievements and challenges

Beyond the positive developments, SMEs also face many difficulties. The first challenge is a misunderstanding of the nature of digital transformation. Without a clear direction, many businesses fall into the trap of FOMO (fear of missing out). They chase after new, expensive technologies that are not aligned with their specific business goals, leading to a waste of resources.

The second challenge lies in neglecting core elements such as people and processes. In many cases, digital transformation projects fail not because the technology is bad, but because the organisation is not ready to change the way it works.

Throughout my digital skills training and consulting work, particularly focusing on AI, I often encounter a familiar phenomenon. Businesses hire experts to conduct training, in which employees participate enthusiastically, gain knowledge quickly, and ace tests. But shortly after the course, things revert to how they were before. Employees are caught up in the pressure of daily work, and the new knowledge is gradually left behind.

The core issue isn't the quality of training, but how to sustainably integrate digital knowledge and skills into the workplace. Technology adoption is an event, while digital transformation is a process of changing organisational behaviour. Training is just the starting point. The key factors are corporate culture, process redesign, and technology integration into daily work.

Vietnamese people have the advantage of curiosity and the ability to quickly adapt to new things. Therefore, conveying digital knowledge and skills is not too difficult. The bigger challenge for SMEs in the coming time is building a digital culture and a digital work environment.

Steady moves in the right direction

My students often ask me whether the knowledge they learn will quickly become outdated, given the rapid development of AI and other technologies. In reality, any technology goes through a similar development cycle. Take the internet, for example. It was a technological marvel in the 1990s, then gradually became a given in work and life.

Every technology goes through these stages. Initially, technology gives an advantage to early adopters. In the middle stage, technology becomes the minimum standard. And in the later stage, competitive advantage returns to those who have business acumen, organisational capabilities, and customer understanding. When a technology becomes a convenience for everyone, it ceases to be an advantage.

Therefore, the core strategic question is: what do customers truly need, and what capabilities does the organisation need to meet those needs? Answering this question requires a solid foundation of expertise and practical experience. For SMEs, the role of leadership is crucial. Business owners can be the biggest bottleneck, but also the most important catalyst for digital transformation. When leaders view technology solely as the responsibility of the IT department or vendors, digital transformation struggles to make a difference. Conversely, when leaders use technology as a tool to question how operations are conducted and how value is created, digital transformation has a chance to flourish.

In the context of rapidly changing technology, moving fast isn't always the best approach. Moving steadily, with a solid foundation, is what's truly necessary.

Lessons from international experience

Experts have suggested that Vietnam learn from countries like Singapore, South Korea, or Estonia. While I agree with these suggestions, I also believe that digital transformation is a journey that is heavily context-based. What once worked for one country may not work for another country at another time.

Instead of searching for a role model to copy, it’s more productive to focus on identifying and solving your own specific problems. Address the issues that the business is facing, and do what’s needed for the business.

Digital transformation is a complex journey involving many stakeholders. Businesses need to understand themselves and develop appropriate strategies. Customers need to be ready to embrace digital products and services. The government needs to create a policy framework to ensure sustainable development. SMEs account for a large proportion of Vietnam’s economy, but have very little room for experimentation. Meanwhile, digital transformation sometimes requires risk-taking.

Therefore, what these businesses need most is support and collaboration from the digital transformation ecosystem, including tech companies, regulatory bodies, associations, universities, and research institutes. Each stakeholder has its own role, from legal support, capital, knowledge and technology transfer, to training and consulting. The government plays a leading role, creating mechanisms for this ecosystem to operate effectively.

At the start of a new year, perhaps the most important thing is not to care about how fast Vietnamese businesses are progressing, but whether they are steadily heading in the right direction. Digital transformation is not a technology race, but a journey of organisational growth. In that journey, technology is necessary, but good judgment, courage, and the ability to choose the right things to do will decide how far a business can go.

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