The digital economy in Malaysia is booming, but much still needs to be done to achieve its national digital transformation agenda. The country’s digital economy has experienced dynamic growth, contributing 18.5% to the nation’s economy in 2018 with a CAGR of 8%. However, digital adoption by certain economic sectors is still lagging. The latest study by YCP Solidiance, “Accelerating Your Digital Transformation: Are Malaysian Companies Geared to Digitalise?” encourages businesses to digitalise work processes and realise untapped value-added opportunities, as its importance has been highlighted even more during the COVID-19 pandemic.

The state of digitalisation of SMEs and large companies

Malaysian businesses have echoed the notion to accelerate and ramp up beyond the basic digitalisation stage in the short and medium-term, to further capitalise on potential value-added opportunities and maintain competitiveness. Currently, a vast majority of Malaysian companies is skewed towards digitisation, in which 73% of companies inferred digitalisation to be the use of IT system (30%), converting manual to digital (27%) and use of data (16%).

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However, Malaysia is still in the early stages of digitalisation, leveraging on digital tools and technology to convert traditional or manual methods into digitally-enabled process. The core element of digitalisation as an overall shift in business strategy and work processes to enhance decision making, improve productivity, and create untapped opportunities is yet to be realised by most Malaysian companies. 

Within the digitalisation spectrum, both SMEs and large companies have allocated approximately half of their digital resources to improve processes and operations, such as utilising basic operation software, digital payments, and databases to improve accuracy and increase productivity levels. This is reflective of the current state of digitalisation whereby digitisation remains to be the primary focus.

Based on the findings, SMEs allocated only 19% of technology enablers for tools to enable better decision making, presenting opportunities for SMEs to accelerate digitalisation while large companies may consider ramping up its resources for building online awareness which currently constitutes only 25%, the least amongst other technology enablers.

The adoption of automation is still notably low at 4% against other technology enablers as automation would require calibrating existing workflow processes as well as reskilling employees to operate with the new technology adopted, which is often seen as a disruption to existing operations. As such, manufacturers can take an incremental approach to kickstart their automation journey after they have laid the needed groundwork of successfully digitalising basic processes

On top of that, big data and analytics are some of the pivotal enablers to propel companies towards becoming a knowledge-based organisation. However, the adoption rate of relevant tools is also currently one of the lowest where only 5% of the companies surveyed indicated that they are applying big data and analytics to aid their decision making.

While majority of companies acknowledge that digital transformation is imperative to sustainable progress and would like to be a more effective, digitally-powered organisation, these ambitions were not always translated into actionable digital strategies. 

Addressing the barriers to digitalisation 

The research findings, following a scan amongst Malaysian companies, are found to be consistent with past studies – main hindrances to actively digitalise are unequivocally gaps in digital talent and competencies within the company as well as the inertia to changes due to organisational silos or ineffective change management, leading to a lack of follow-through in digitalisation plans.  

To address the barriers to digitalisation, the government via selected key government agencies, such as the Ministry of International Trade and Industry (MITI), Malaysian Investment Development Authority (MIDA), Malaysian Digital Economy Corporation (MDEC), and MCMC, has also put in place various initiatives including disbursement of grants to qualified companies as well as providing digital competency programmes to support and accelerate this transformation.

Whilst the public sector continues to focus on enhancing the digital infrastructure and capabilities, the private sector should also continue moving forward in its digital transformation journey in tandem. 

Accelerating digital transformation 

SMEs will need to overcome its main barrier of digital competency by upskilling or reskilling existing talent within their company through trainings, or attracting new digital talents to diagnose the digital needs of the business and implement the right digital tools and workflow. 

Conversely, large companies have relatively larger human resources and financial capacity to devise and implement digital transformation plans. However, they face more deeply intertwined issues to move forward in their digitalisation journey in which obtaining organisation buy-in is highlighted to be the root cause. This is largely due to the resistance towards change and disruption of current workflows stemming from the larger number of departments and employees involved. 

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While there is no one size fits all solution, the critical factor to a successful digital transformation is the management’s resolve to drive and instil the importance of a digitally powered company starting from communication to ensure that the digital ambition is cascaded to every employee within the business. Larger companies may consider establishing a dedicated taskforce and allocating skilled digital talent in every department to minimise workflow disruption and facilitate effective collaboration across various departments.

Start small, start now

While embracing digitalisation is often seen as a large scale, complex, and multi-year plan.  companies are recommended to kick start their digitalisation transformation journey, from the angle of one transformation at a time, materialising the intentions into actions.

Companies should adopt an incremental digitalisation approach to achieve quick wins and subsequently realise the bigger picture. Start with one area, start small. Identify a prioritised area to be digitalised to set in motion the evaluation process of digital transformation and its subsequent impact to solidify the next steps to take.

Contributed by U-Yun Wong, Partner, YCP Solidiance

About the author

U-Yun is a Partner at YCP Solidiance, based in our Singapore office, with operational oversight of the Malaysia, Philippines, and Australia offices. He has over 20 years of experience spanning across management consulting, investment management, private equity advisory and SME finance. He has led more than 200 strategic consulting engagements for Fortune 500 and Public Sector clients across varied industries focusing on corporate strategy, M&A advisory, and organizational transformation. He holds an MBA from the University of Chicago Booth School of Business, and a Bachelor of Engineering from the Royal Melbourne Institute of Technology, Australia.