businesses that use digital tools without a strategic plan will struggle in a tough economy

Small businesses across Australia and New Zealand are facing one of their toughest periods in decades.

A flat economy and shifting consumer behaviour have put pressure on already thin operating margins. A 2024 survey by business finance company ScotPac found 29% of Australian small businesses say they could face insolvency if they lose a major client.

Accounting organisation CPA Australia’s latest small business survey shows only 48% of New Zealand’s small businesses grew in 2023. This is significantly down from 60% in 2022. There have also been a record number of business liquidations in both New Zealand and Australia.

Yet some small and medium-sized businesses are thriving. Part of the reason for this is because they have embraced the concept of “digital leadership”.

This is the ability to strategically integrate digital technologies – such as artificial intelligence, cloud computing, data analytics and automation – into a business’s operations, decision-making and long-term vision.

Digital leaders use emerging technologies to improve efficiency, redesign business models, scale operations and reach new customers in ways that wouldn’t be possible otherwise.

Our review of the research on digital leadership, recently published in Digital Leadership and Contemporary Entrepreneurship, found that firms treating digital leadership as a core business strategy, rather than just using technology for isolated tasks, are the ones that successfully scale, grow and future-proof their organisations.

Without this change in mindset, firms risk stagnation and missed opportunities. That difference is critical in an economic environment where small margins separate thriving businesses from struggling ones.

Why some small businesses fall behind

It’s easy to assume small businesses lag in digital adoption because of costs or technical complexity. However, most of the studies we reviewed suggest the real issue is hesitancy at the leadership level.

Some business owners are risk-averse and take a “wait and see” approach. Others believe their current solutions are sufficient even when new technology could improve efficiency.

A 2021 survey commissioned by cloud accounting software company Xero, found fear of change, overconfidence in existing processes and decision paralysis are among the biggest barriers preventing small businesses from embracing digital solutions.

Even businesses that already use digital tools – for example, to manage their social media – often fail to go further and integrate technology into core operations such as supply chain management and automation.

Embracing digital leadership

The lesson is that simply adopting digital tools without a strategic plan doesn’t lead to growth. True digital leadership requires businesses to rethink how they operate, compete and scale.

The firms making the most of digital transformation embed technology in their core strategy. They use data-driven decision-making to refine products, forecast demand and identify new opportunities.

They streamline operations by automating routine tasks, such as using AI-powered invoicing, chatbots for customer inquiries and predictive analytics for inventory management. This frees up time for strategic initiatives such as product development and market expansion.

At the same time, they invest in training employees to effectively use and adapt to new technologies. Perhaps most importantly, they take an experimental approach – testing, learning and adapting in real time.

Learning to thrive in digital economy

Businesses that have successfully grown through digital leadership illustrate this approach in action.

Set up in 2016, New Zealand-based investing company Sharesies fundamentally changed how everyday people access financial markets.

Traditional investment firms required large deposits and complex paperwork, excluding many potential investors. Sharesies took a different approach. The company designed a mobile-first platform where users could start with as little as $5. The company now has more than 650,000 users and NZ$3 billion in investments.

In Australia, The Very Good Bra, a sustainable bra company, used digital leadership to create a global, sustainable fashion brand without traditional retail infrastructure.

Founder Stephanie Devine developed a direct-to-consumer model through e-commerce, bypassing wholesalers and physical stores. She utilised digital tools such as social media platforms for community engagement, online surveys to collaborate with customers to design products, and data analytics software for demand forecasting, ensuring every product had a market before it was manufactured.

Both companies succeeded by leveraging digital technologies to disrupt traditional business models. Sharesies democratised investing by making it accessible to individuals with minimal capital, while The Very Good Bra utilised e-commerce and customer collaboration to create sustainable fashion products.

Their digital-first approaches enabled them to identify and fill market gaps effectively.

To thrive in the tougher economic climate, businesses need to think beyond software tools. The question is no longer whether to go digital, but how fast a business can rethink their work for the digital future.