Growing concerns around the cost of living crisis, the skills shortage, and increased cyber threats have impacted the digital transformation of UK SMEs, according to the report.

IONOS polled 1,0004 UK SMEs in a partnership with YouGov to discern the key factors and challenges affecting digitisation.

While businesses recognise the importance of digital transformation, growing economic concerns are often holding them back.

79% of UK SMEs consider digitalisation important for the future viability of their business.

Top benefits of transformation they noted include presence and ease of discovery of the internet (78%), creating a modern image (76%), and the ability to win new customers (72%).

Despite the recognised vitality of digitalisation, 42% of respondents stated that the declining economy coupled with the threat of recession presents a high or very high risk to their company.

Further, 34% noted the increasing prices of energy and raw materials as high or very high risk to growth. 28% also found inflation to be a major barrier to further digitalisation.

The survey also found SMEs are heavily impacted by the skill shortage – over a quarter of SMEs (29%) said the ongoing shortage of skilled workers poses a high risk or very high risk to their company.

Additionally, a lack of technical know-how represented a major or very major barrier to digitalisation efforts for 31% of businesses.

Other barriers noted included cost (45%), a lack of time (45%), a lack of interest (21%), and uncertainty around security and data protection (24%).

Security should be a major concern for SMEs trying to increase digitalisation – only 16% of SMEs believe they are very well protected when it comes to cybersecurity, 31% consider themselves positioned averagely against threats, while 7% are not taking any protective measures at all.

“Those who don’t firmly anchor their business strategy in digitalisation will have a hard time surviving in the market in the future,” commented Achim Weiß, CEO of IONOS. “Of course, know-how must be built up first and resources invested, which isn’t always easy, especially for small companies. However, what they gain from digitalisation far outweighs that initial outlay: more security, new business models and greater resilience to crises.”

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The survey also explored how UK SMEs compare to their counterparts in France, Germany, Spain and the US. Interestingly, the results found that while a third of UK SMEs are feeling the impact of energy and raw materials increasing in price, the situation is worse in France and Spain where half of SMEs consider the rising costs as high or very high risk to business. Respondents in all countries rated the shortage of skilled workers as high to very high risk for their business, however the US came out highest with 44%.

While digitalisation may be seen as costly, the 2023 Spring Budget will allow all new purchases of IT technology to be written off as a tax credit for eligible businesses, creating an incentive for companies to continue digital transformation efforts.

Further, the commentary from recruiters have found a silver lining in the mass tech layoffs from tech giants – talented tech workers have now been released back into the hiring pool, and SMEs could benefit greatly by snapping up newly free workers.