Digital Transformation Gap for SME Restaurants in SEA

Digital Transformation is Good, but Done Incorrectly

Restaurants play a significant role in our society and economy. The restaurant industry not only fosters regional job growth, it also preserves food cultures and promotes community bonding across generations of people. In a small country like Singapore, the total sales value of its Food & Beverage (F&B) industry sector can reach S$669 Million in total in a single month despite the COVID restrictions in place.

However, the current pandemic has also revealed many deficiencies. Maintaining a successful restaurant is more than cooking good food and serving hungry customers. Restaurant owners or managers need to make timely and complex decisions to ensure business operations run smoothly. A meticulous owner may stock up additional ingredients when a football tournament is happening in a stadium nearby, or reduce ingredients par stock when the college next door is on summer break.

During unusual circumstances like the current health crisis, restaurants need valuable information in order to adapt and survive effectively. One of the ways to gather this information is through data collection using digital tools such as Point-of-Sales (POS) systems, inventory management systems, accounting solutions, and customer relationship management (CRM) systems. Some restaurants go the extra mile and implement business intelligence tools to grow their business. This is where digital transformation can aid in decision-making.

Indeed, talk of industry-wide digital transformation (DX) is not new. Many restaurant owners have spent years adopting state-of-the-art digital technologies in hopes of growing their business. However, if the right mindset is lacking or the organisational practices are flawed, digital transformation can simply deteriorate the situation. For example, 70% of all DX initiatives do not reach their DX goals and 84% of companies fail at digital transformation. This means that billions of dollars are wasted. In the F&B industry, it is revealed that 42.9% of managers see their companies struggling to implement coherent digital transformation projects.

Despite the benefits, why are many digital transformation projects in F&B failing? Our main observation is in the oversimplification of DX. While technology plays a key component in its implementation, DX is also about people and user experience. Below we elaborate on some of the common gaps in DX for small and medium restaurants in South East Asia.

Data Silos and Operational Knowledge Gaps

Data silos can be harmful as they defeat value creation and collaboration. Naturally, different roles in restaurants are interrelated as they require assistance from each other. However, friction in collaboration can exist across different teams and responsibilities. Each team may have their own data isolated from others. This problem hinders the transformation of data into decision making power.

Take this scenario about Finance and Marketing teams as an example. Finance receives the invoice for marketing campaigns but is not able to directly correlate with the increase in outlet sales. Marketing does not look into the software used by Finance to better understand how they should be creating a marketing campaign that can be better tracked for return on investment by Finance. If both teams are working in silos with their data, restaurants cannot get good results from promotional campaigns.

Besides data silos, operational knowledge gaps are also a big obstacle in DX. The effort needed to learn a new technology that another team is using can discourage collaboration. For example, Finance teams typically do not want to know how the POS operates and are not able to suggest how the data setup on the POS can be improved to provide a cleaner data pipeline for financial analysis. Human Resource (HR) teams do not know how outlet operations perform, and thus staff scheduling is not measured against the day’s or time periods’ sales volume, causing additional manpower to be not scheduled when marketing runs a popular promotion at a specific outlet.

The problem is worsened when many restaurant owners try to find help from outsource companies. They outsource their digital marketing, finance and even HR functions to avoid the responsibilities of internal collaboration. What they fail to realise is that the burden of coordination still lies on them as the business owners instead of the individual outsource business service providers. Over-relying on other outsource providers potentially widens the existing operational knowledge gaps, resulting in  further breakdowns in communication and collaboration.

The best technologies still rely on teams of people to provide holistic data and to share operational knowledge. Without addressing this human element, DX will not meet its intended goal.

Mismatch of Solutions

Technologies for F&B have advanced considerably over the past few years. There are plenty of options for business owners to optimise their operations. However, the leap in advancement has also brought upon a lot of confusions. Many people mindlessly adopt technologies without knowing what they are and how they work. They base their adoption on biased recommendations and buzzwords. In trying to modernise their operations, these businesses unwittingly introduce more discrepancies.

In Southeast Asia, the technical solution market is commonly divided into tech solution providers and consultants. Tech solution providers are experts in their own products and tools. Meanwhile, tech consultants are advisory services that suggest technologies to businesses to optimise performance. These are services that are required if a business wants to engage in DX without an in-house research and development team.

Ideally, the tech solution should comprise different compatible products and services that support restaurant operations. However, there is a tendency for many tech solution providers to offer a single one-size-fit-all product to cover as many features as possible to appeal to the widest range of use cases. One possible reason for this is because they usually have little incentive to do organisational change or do deeper integration with other unique operations in small and medium restaurants. In the end, this causes small businesses to adopt superfluous technology that may not guarantee revenue and profit.

Simultaneously, tech consultants are hired to fill in that organisation-wide transformative role to modernise businesses. They are supposed to analyse different business strategies and match them with the current processes. Consultative services are generally not cheap as consultants have to spend significant time interviewing the staff and designing new operational flows. To save time and effort, some consultants only recommend products to which they are affiliated with.

To make matters worse, some consultants use ‘industry standards’ to design the Standard Operating Procedures (SOPs) , which may not be suitable for small or medium restaurants. For example, the SOP may assume clearly defined roles like those found within large franchises or organisations. But in a small business, it is typical for employees to take on multiple roles. Hence to adopt the SOPs, small businesses may need to hire additional headcount which they cannot afford. Furthermore, consultants may not ensure enforcement of the SOPs; instead pushing this burden to the managers.

Consultants need to be practicing more empathy in this aspect to try and craft an SOP that is appropriate for the current stage of the business instead of insisting on ‘that’s not how other companies do it’.

Staff Training

A technology is only as good as the people using it. It is undeniable that DX is intertwined with workforce transformation. Indeed, proper talent development still remains the biggest challenge in business. Unfortunately, this growing talent gap is not taken seriously by many managers. Consequently, many F&B businesses have lost their competitive advantages due to a lack of digital training. Even with the right digital tools, a lack of training and enforcement will result in the digital solutions being used wrongly or not used at all.

Many businesses who rush towards DX often ignore the confusion and misgivings felt by the staff. This is not a change that only involves the management. Without convincing the management and staff on the benefits of DX, employee resistance will be rampant. Software solutions for F&B are often too complicated for the staff to learn on their own, making it difficult for them to extract value from the technology.

It is naive to think that DX does not come with its risks and costs. Businesses need to provide manpower to change internal operations, spend time to teach new workflows, learn about the market’s myriad of third-party tools and promote cross-team collaboration.

Roadmap to an ecosystem of digitisation

DX is one of the highest priorities for small and medium restaurants to keep up with modern advancements. However, the process of  transformation does not seem to be fully understood. We believe that in order for more small and medium restaurants to digitise their operations, it is beyond just using a digital POS, buying a CRM system, fitting a self-ordering kiosk or adopting QR ordering and digital payment. Internal vigilance is needed to ensure the initiative does not excessively increase complexity or ruin employee morale. The human factor must not be overlooked.

Here are some important requirements for DX to consider:

• Focus on use cases, not technology. With this vision, you can evaluate which transformation initiatives will drive you towards your goal using quick prototypes. The costs and complexities that would arise must be acknowledged, planned for and mitigated. This includes plans to train the staff and enhance employee satisfaction.
• Create stages of DX for your staff. It is unlikely that employees will be able to absorb the wide range of changes expected during DX immediately. By breaking up the changes into smaller steps, it is easier to communicate the benefits of DX to your staff and minimise the dangers of increased staff turnover during the transformation program.
• Think longer term. Since DX can be a costly endeavour, it is useful to look beyond existing functions and consider what roles will be needed in the next 5 to 10 years after implementation. This would advise businesses on how to re-skill their workforce to fulfill tasks that would unlikely be automated.

It is important to understand that digital and workforce transformations are closely interconnected. DX should be seen as part of a larger workforce transformation that takes into account the cultures, talents and technologies involved in the industry. A critical gap exists in upskilling F&B operations teams with practical and simple-to-understand concepts. To smoothen the journey of DX in F&B, it helps to have an ecosystem of digitisation evangelists who do not mind getting their hands dirty to help small and medium restaurants. The industry needs to have a ready pool of digitisation ambassadors who can help to provide a coherent and integrated digitisation strategy for individual restaurants. By formulating an innovative business model to incentivise these digitisation ambassadors, a sustainable ecosystem of modernisation can occur even for smaller businesses with lower budgets.