Small and medium-sized enterprises (SMEs) make up the vast majority of companies in Germany: 99%. Looking ahead to the future, SMEs should focus on digitising their processes and services. Digitisation offers a wide range of opportunities for companies to reduce costs, optimise business processes, and enter new markets.

Here, we’ll explain the benefits of digitisation for SMEs, why and how companies should develop a digitisation strategy, and which business processes are best suited for digital transformation.

What’s in this article?

• What are SMEs?
  
• Why is digitisation important for SMEs?
  
• Which business processes are particularly suitable for digitisation?
  
• Why and how should SMEs develop a digitisation strategy?
  
• What funding programmes for digitisation are there for SMEs?
  

What are SMEs?

SME stands for “small and medium-sized enterprise.” In Germany, SMEs are defined based on their turnover and number of employees, following the European Commission’s recommendation 2003/361. A business is classified as an SME if it employs fewer than 250 people and has an annual turnover of no more than €50 million, and/or an annual balance sheet total of no more than €43 million. There are different thresholds for micro, small, and medium-sized enterprises.

EU SME thresholds

Source: German Federal Statistical Office

The specified thresholds apply to individual businesses. For businesses that are part of a larger group, the turnover, total assets, and number of employees must be calculated accordingly, based on the size of the shareholding.

In 2021, the Federal Statistical Office counted around 3.1 million SMEs in Germany, which accounted for 29% of the total turnover generated. Around 55% of company employees work in SMEs.

What's the difference between SMEs and startups?

SMEs form the backbone of the German economy and are often active in traditional sectors, while startups often experiment with new business models. SMEs can include both new companies and established companies that have been around for many years or decades. Startups, on the other hand, are typically young enterprises, usually no more than five years old. The classification of SMEs based on the thresholds outlined in the table above clearly regulates the number of employees and annual turnover. Startups are not subject to any specific requirements in this respect.

Why is digitisation important for SMEs?

The Federal Ministry of Economic Affairs and Climate Protection defines digitisation as “the use of data and algorithmic systems to develop new or improve existing processes, products, and business models.” Four aspects are distinguished: digital products, processes, networks, and business models. Digital products are data-based services that can be used independently or integrated into physical goods. They include software and web applications.

Digital processes are data-based representations of reality that are used to organise and control processes. When companies map entire processes as integrated data models, they can, for example, operate online stores or automate their production. Digital networking describes how individual processes are connected within overall digital systems, whether within the company or with third parties such as customers. Digital business models exist when companies offer digital products or services for a fee.

Digital transformation refers to the process of converting analogue information into digital formats and integrating digital technologies into various sectors of the economy and society. SMEs and large enterprises alike should take advantage of the many opportunities that digitisation offers. Companies that recognise the opportunities of digitisation are better equipped to meet future challenges and achieve sustainable growth. On the other hand, digitisation is not a passing trend, but a necessity for SMEs to achieve long-term success.

Some of the benefits digitisation can have for SMEs include:

• Increased efficiency and reduced costs: By adopting digital technologies, SMEs can automate and streamline their internal processes. This results in more efficient use of resources and a significant reduction in operating costs. For example, by digitising data and eliminating the need for storage in bulky filing cabinets, businesses can save money on paper and rent. Automated processes can also save a lot of time.
  
• Competitive advantages: Companies that invest early in digitisation can gain significant advantages over competitors that do not. Digitised business processes, innovative products, or a robust online presence can go a long way toward establishing a strong market presence.
  
• Opening up of new markets: Digitisation enables SMEs to access international markets. For example, e-commerce platforms can be used to offer products and services globally. This offers significant growth opportunities that were only available to large companies before digitisation.
  
• Promotion of innovation: Digital technologies such as AI, big data, virtual reality, robotics and the Internet of Things enable SMEs to innovate and develop new products and services. These innovations can help SMEs explore and enter new business areas.
  
• Flexibility and agility: Digitisation enables SMEs to respond more quickly to market changes and customer needs. In addition, cloud-based solutions and mobile technologies, for example, facilitate flexible working models and enable employees to collaborate efficiently from any location.
  
• Enhanced visibility: In addition to traditional advertising formats such as print ads, sponsorships, or radio spots, businesses now have many new ways to get noticed. These include online and mobile advertising, email marketing, social media campaigns, and influencer marketing. SMEs can also promote themselves effectively and inexpensively on their own website.
  
• Improved customer loyalty and outreach: An attractive online store or a user-friendly website can improve customer service and increase sales. It’s important not to underestimate how digital has changed customer expectations. Customers now expect quick responses to inquiries, personalised solutions, efficient service, and a variety of payment options as standard.
  
• Sustainability: Digitisation in SMEs can also contribute to more sustainable business practices. By optimising supply chains, adopting energy-efficient technologies, and reducing paper consumption, SMEs can reduce their carbon footprint and lower their environmental impact.
  

Which business processes are particularly suitable for digitisation?

The potential of digitisation for SMEs is virtually limitless, since nearly every business area and process can be optimised using digital concepts. Here are some examples:

• Payment processing: With the help of suitable systems, businesses can automate and digitise their payment processes. This can be made simple with Stripe Payments. With Payments, you can accept and manage payments quickly and easily. You can also offer your customers access to use over 100 payment methods. If you aim to implement cashless payments at the point of sale using card readers or mobile devices and integrate them directly into your accounting, consider exploring Stripe Terminal.
  
• Online sales platforms: The creation and optimisation of an online shop can help businesses expand their reach and thereby increase their sales opportunities.
  
• Marketing and sales: Search engine optimisation and marketing improve online visibility and enable businesses to target potential customers more effectively. The same goes for email and social media marketing. And customer relationship management (CRM) systems facilitate personalised marketing campaigns and streamline customer interaction management.
  
• Automated accounting and invoicing: Digitisation for SMEs isn’t just about optimising customer-facing processes; it’s also about optimising internal processes. Digital accounting software reduces manual effort, saves significant time, and minimises errors. With Stripe Invoicing, for example, you can generate and send legally compliant invoices quickly and easily. This also applies to e-invoicing, which will be mandatory in business-to-business (B2B) transactions in Germany starting from 2025. Stripe Billing can support you with recurring billing and can help you manage your accounts and access detailed financial and revenue reports directly from the Dashboard. By using tools such as these, companies save resources, and also gain a clearer view of their financial status – enabling them to make more informed decisions.
  
• Personnel management: HR management software simplifies the management of employee data, performance reviews, and training initiatives. Digital platforms also enable more efficient recruiting, applicant management, and onboarding processes.
  
• Communication and collaboration: Internal and external communications can be enhanced through video conferencing and digital meetings, helping to reduce travel costs. Cloud-based tools can be used to foster collaboration and enable real-time document processing regardless of location. Businesses can also enable employees to work remotely from home.
  
• Production processes and quality management: The use of the Internet of Things and robotics can automate production processes, significantly speeding up the manufacturing of goods and reducing errors. Quality control and assurance can be managed by digital systems that continuously monitor product quality.
  
• Logistics: Digital solutions can improve the traceability of deliveries and facilitate communication with suppliers. Inventory and warehouse management can also be optimised.
  

Why and how should SMEs develop a digitisation strategy?

Digitisation in SMEs can proceed gradually, focusing on selective solutions. However, it’s important to create a digitisation plan first to ensure that all the individual efforts work well together and produce combined benefits. Developing a well-planned digitisation strategy should follow these steps:

• Analyse the current situation: The first step is to analyse and assess the current situation. What business processes are already digitised? What areas offer potential for improvement? What new business models and areas can be addressed?
  
• Define the goals: The second step is to set clear goals for the digitisation strategy. First, identify the areas and processes that need to be digitised. Then determine the expected outcomes, such as cost savings, increased revenue, or improved customer satisfaction.
  
• Identify relevant technologies: Once the objectives have been defined, the necessary requirements must be established. The organisation should evaluate which digital technologies and tools are appropriate for the specific projects at hand.
  
• Prioritise and budget: The next step is to prioritise the desired actions or initiatives. Which initiatives should be implemented first, and which are less urgent? These questions should be answered based on established goals and the available budget. Implementing new tools comes with a cost that must be accurately calculated.
  
• Train employees: Employees must be trained to become familiar with new processes and technologies. Therefore, SMEs should ensure that everyone involved is adequately trained.
  
• Monitor and adjust: Finally, SMEs should establish mechanisms to monitor the progress and success of their digitisation strategy. If necessary, the strategy can be adjusted based on new insights, developments, and market requirements.
  

Graphic: Roadmap for developing an SME digitisation strategy

What funding programmes for digitisation are there for SMEs?

Many organisations in Germany offer funding programmes for digitisation in SMEs. Businesses seeking advice or financial support for their digitisation projects should gather comprehensive information about the available programmes. The following list is just a selection:

• go-digital: The Federal Ministry for Economic Affairs and Climate Protection (BMWK) offers go-digital grants for consultancy services to help SMEs set up or expand their IT systems. The main areas covered by go-digital include digitisation strategy, IT security, business processes, data literacy, and market development. It subsidises consulting services up to 50%.
  
• State funding programmes: State-level initiatives and programmes also support SME funding for digitisation efforts. In Baden-Württemberg, companies can apply for Digitalisierungsprämie Plus. They can receive between €5,000 and €100,000 for implementing new digital systems and training employees. SMEs in Hesse can receive funding that ranges from €4,000 to €10,000 through the DIGI-Zuschuss programme, while businesses in North Rhine-Westphalia can receive up to €40,000 in Digitalisierungsgutscheine for digitisation purposes. Similar funding programmes are available in many other federal states.
  
• KfW Bank: Through the ERP digitisation and innovation loan, KfW Bank offers promotional loans ranging from €25,000 to €25 million to German companies. Funding is provided for specific investments and working capital, and it can cover the entire financing needs of an innovative company.
  
• Other programmes: Digitisation funding for SMEs is not only available through programmes specifically designed for small and medium-sized businesses. There are several funding programmes with different focuses that are also suitable for SMEs, provided they meet the relevant requirements. For example, the Central Innovation Programme for SMEs (ZIM) is an innovation funding programme open to all sectors. It supports innovative research and development (R&D) projects that lead to new products, technical services, or improved production processes. As a result, this programme is not only aimed at SMEs, but also at research institutions.