Digital divide remains as small firms focus on survival
Risk aversion and technology ‘confidence gap’ causing almost a third of UK SMEs to delay investment in new tech
London – 16 November 2021 – New behavioural science research from Xero, the global small business platform, finds that despite the critical role of technology during the pandemic, there is still a digital divide among small UK firms.
According to One Step, a study of more than 1,000 small business owners in the UK, carried out in partnership with behavioural science consultancy, Decision Design, there is resistance to change and a lack of confidence, preventing investments in new technology. This confidence gap stems from several behavioural barriers – mindsets and perceptions about technology and change that frequently recurred among small businesses.
“In times of stress requiring rapid adaptation, we have to choose between fight, flight or freeze responses,” said Sonya Dineva, lecturer in business psychology at the University of East London. “In many cases, such as the current pandemic, fear and inertia can hamper our ability to ‘fight.’ By focusing purely on survival, small business owners may inadvertently decide not to do anything at all, adopting a ‘freeze’ approach to managing change. This may obscure their broader strategic vision and shift their focus onto short-term goals; as a result, they fail to see the pitfalls of such actions and the plethora of growth opportunities that could be hidden in crises, including the benefits of digitalisation”.
A large portion of UK small businesses (six out of 10) claimed to be confident when embracing new technology, while the same number of respondents were excited about the prospect. However, there are still many barriers holding them back.
After what has been a tough 18 months for many, only four out of 10 UK small businesses are open to taking risks when making business decisions, while five out of 10 are reluctant to accept the risk of negative outcomes from tech-related decisions. Day-to-day survival is clearly a priority, with seven out of 10 admitting they are focused on this rather than how to better run their business. This filtered through to tech-based decisions too; only three out of 10 said they would consider themselves worse off if digital investment is postponed.
Compared to small businesses surveyed for Xero globally, UK small businesses were the least likely to agree that new technology would benefit them once integrated (four out of 10), or result in immediate cost savings (three out of 10), time savings (four out of 10) and immediate return on investment (three out of 10).
However, this scepticism could prove costly for those small businesses that will soon be required to submit tax digitally – with the looming Making Tax Digital (MTD) deadlines for VAT-registered businesses with a taxable turnover below £85,000.
“The greatest hurdles to harnessing the benefits of technology aren’t always lack of information or choice, but often a reticence to take risks and low confidence in the result of investments,” said Glen Foster, Director, Small Business, Xero. “With digital tax deadlines looming and the impact of Covid still being felt, small businesses are showing huge resilience, and with the right digital tools we believe they can thrive in the future. This is why we need to rethink how we encourage technology adoption in the small business and accounting industry – to nurture a more robust economy.”
The top five behavioural barriers for UK small businesses, were:
- Stuck in the present – even though you can see the long-term benefit of technology, you have more immediate priorities and just can’t get past the up-front costs.
- Resistant to change – you prefer things to just stay the same, even if you know deep down that change is ultimately a good thing.
- Ambiguity, uncertainty – it all feels like a huge leap of faith - you just don’t feel confident about deciding and there is too much uncertainty about the outcomes.
- Relative judgement – you don’t really know how to compare your options and make an accurate assessment of what will be good for your business.
- Hassle factor – at the end of the day, taking up new technology is just too much hassle. When you think about the effort needed, it is easier for you to stick with what you have.
Xero is a cloud-based accounting software platform for small businesses with over 3 million subscribers globally. Through Xero, small business owners and their advisors have access to real-time financial data any time, anywhere and on any device. Xero offers an ecosystem of over 1,000 third-party apps and 300 plus connections to banks and other financial partners. In 2020 and 2021, Xero was included in the Bloomberg Gender-Equality Index and in 2020, Xero was recognised by IDC MarketScape as a leader in its worldwide SaaS and cloud-enabled small business finance and accounting applications vendor assessment.
Xero partnered with behavioural science firm Decision Design to complete an anonymous and unbranded, nationally representative market study among n=4,211 small businesses across Australia (n=1,212), New Zealand (n=170), the United Kingdom (n=1,162), the United States (n=1,165), Canada (n=341) and Singapore (n=161). This behavioural science-led study measured perceptions, beliefs, behaviours and behavioural barriers related to technology and technology adoption. Data collection by Decision Design was conducted between 12 – 26 July 2021 and study respondents are all small business decision makers for businesses with less than 50 employees (less than 100 employees in the United States).
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