SMEs need to adopt AI to gain a competitive advantage and survive in an increasingly digital economy transformed by AI. They should begin by mapping important economic networks and data flows to identify opportunities to create and capture value through AI at scale. An action plan includes evaluating each network's potential and strengthening values. While AI removes constraints, it also changes competition. Traditional businesses must understand how to leverage strengths in new ways and transform operating capabilities. Adopting cutting-edge technology ahead of competitors is important for SME survival in this new environment.

1. Adoption of AI for
SME Competitive
Advantage
Arthur Siahaan, Henky Lesmana, Safril
Tjandraatmadja

2. Agenda
Introduction
01
Competitive Advantage
02
AI Adoption
03
Discussion & Conclusion
04

3. Introduction

4. The Age of AI
1. AI is becoming the new operational foundation of business—the core of a company’s
operating model, defining how the company drives the execution of tasks.
2. AI is not only displacing human activity, it is changing the very concept of the firm
3. When a business is driven by AI, software instructions and algorithms make up the
critical path in the way the firm delivers value
• Strong AI: capable of simulating human reasoning
• Weak AI: perform tasks that were traditionally performed by human being
4. AI have three magic words: Scalability, Scope, Learning
• Scalability: deliver as much value at the lowest cost (order taking is digitized)
• Scope: range of activities it performs (e.g. centralized warehouse, etc)
• Learning: to improve and innovate
• The system do not incur human complexity cost (communication and coordination), decrease in efficiency
and tireless

5. Transforming Competition
1. As we enter the age of artificial intelligence, the emergence of digital operating models
is transforming competition
2. This digital representation of human activity can learn and improve itself transform
the ways a firm can (and should) operate
3. Digital operating modes:
• Improve scalability, scope and learning of business VS Introduce set of challenges
4. As it collides with traditional company the digital operating model can overwhelm the
status quo

6. Traditional Business
1. Traditional business needs to understand how to leverage existing strengths in new
ways and transform operating capabilities to support new strategies
2. Size = double-edge swords
• As it grows:
• deliver more value at cheaper price
• operating model becomes more complex – come all kind of problem
• In other words: complexity becomes the downfall of traditional company
• Increase operational cost
• Decrease service levels

7. The Consequences of Digitalization
1. Business Model: firm promises to create and capture value
• In traditional companies à value creation and value capture created from same
resources
• In fully digital firms à value creation and value capture can be separated much more
easily and often come from different stakeholders (Google Ads)
2. Operating Model: deliver the values
• The goal is to deliver the values at scale, to achieve sufficient scope and to respond
to changes by engaging in sufficient learning.

8. Parameters Reflecting the External
Technological Environment
1. Availability of latest technologies à In a country, to what
extent are the latest technologies available?
2. Firm-level technology absorption à In a country, to what
extent do businesses adopt the latest technologies?
3. Foreign Direct Investment (FDI) and technology transfer à
To what extent does FDI bring new technology in the
country?
4. Individuals using Internet à Percentage of individuals using
the Internet
5. Fixed broadband Internet subscriptions à Fixedbroadband
Internet subscriptions per 100 population
6. International Internet bandwidth à International bandwidth
is the contracted capacity of international connection
between countries for transmitting internet traffic.
Source : Supriyo Das, Amit Kundu, Arabinda Bhattacharya, 2020
Both institutional capabilities
and external capabilities
emerged as significant factors
toward creating sustainable
technological environments for
entrepreneurs.

9. Competitive
Advantage

10. Competitive Advantage in Digital Economies
1. The ability:
• To shape and control the network (digital connections, carry data, powerful software
algorithm, ignore traditional boundaries, growing economy and social system)
• To harvest the volume and variety of the transaction carry.
2. Moves toward to most central in connecting business, aggregating data that flows
between and extracting value through powerful analytic and AI

11. Traditional Business Issues
1. Diseconomies of scale
• Small networks and little data
• And learning effect
• The stronger the network and
learning, the sharper the increase in
value with scale
2. Digital operating models will take
quite time to generate value by
traditional operating models à
why executives ensconced in
traditional model have difficult time
at first believing that digital model
will ever catch up
Scale
Scope
Learning
Diseconomies of scale:
- Small networks
& little data
- Learning effect
Traditional Business

12. Characteristics of SME in ASEAN
1. Productivity
2. Foreign ownership
3. Financial characteristics
4. Innovation efforts
5. Managerial/entrepreneurial attitude

13. UMKM Indonesia Issues
General Issues :
1. Low adoption of information technology among ultra-micro entrepreneurs
2. Low awareness of the benefits of SME IT applications
3. Intention to use advanced IT system is very low, however the usage of social media is
quite massive
4. Internal Factors
• Insufficient working capital for business development
• Human resources issues - entrepreneurs do not yet have an adequate entrepreneurial spirit
• Weak business networks and market penetration capabilities
5. External Factors
• The business climate (business ecosystem) is not yet fully conducive
• Limited business facilities and infrastructure
• Implications free trade act

14. AI Adoption

15. Machine Learning (ML)
is one of the branches
of AI that is being
increasingly applied to
real world problems and
systems
Machine
Learning
One of cloud offerings: a fully managed service that
enables any developer and data scientist to build,
train, and deploy machine learning (ML) models at
scale. By removing complexity at each stage of the
ML workflow, you can easily deploy machine learning
use cases such as predictive maintenance, computer
vision, and customer behavior prediction

16. Cloud-based AI Offerings
Chatbot.
Demand Forecast.
Image and Video Analysis.
Real-time Translation.
Fraud Prevention.
Text to Speech.
AI Offerings

17. Cloud-based Chatbot

18. IT/AI Adoption at Firm Level

19. IT Adoption in SME

20. IT Adoption in SME cont’d
• IT adoption by SMEs differs from larger organizations because of their specific
characteristics, such as resources constraints.
• To come up with more an organized and efficient deployment and application of IT, SMEs
must precisely realize their need for it and the proportionate advantages of IT for their
business.
• SMEs ought to judge costs and benefits associated with utilizing IT.
In general, IS/IT is regarded as a crucial resource required for better communication
and integrating business functions

21. Failure and Dissatisfaction of IT Adoption in SME
• Inappropriate connection between adopted IT and enterprise strategies,
• Inadequate realization of organizational issues,
• Inadequate realization of end user necessities,
• Lack of manager and employee involvement in different stages of IT adoption,
• Lack of required resources (knowledge, skills, finance, management),
• Inadequate teaching and preparation of end users,
• Business size and fund limitations to employ IT specialists,
• Unqualified management in highly centralized CEO structures,
• Inappropriate government assistance role and supportive regulation,
• Dissatisfaction with IT-created competitive advantages due to improper interactions with
competitors, suppliers and customers, and
• The particular characteristics of organizations, their culture and family involvement in the
business.

22. Discussion &
Conclusion

23. What should SME do?
1. Knowing their current position in IT adoption ?
2. Challenge the industry standards ?
3. Work with them and become their chosen, best suppliers ?

24. Action Plan to Adopt AI
1. Implementation of cutting edge technology ahead of other firms is an important
mechanism for firms to achieve competitive advantage
2. AI allows an organisation to obtain a competitive advantage, reduce costs (Press,
2016) and opportunities to transfer into new businesses (Ransbotham et al. 2017),
raise top-line profits, increase efficiency and amplify human intelligence (Curran &
Purcel, 2017).
3. Begins by mapping the most important economic networks connected to a business
and examining the flows of valuable data and the opportunities that exist to gain CA
through AI.
4. Evaluate the potential of each major network for value creation and capture at scale à
will strengthen or weaken the values

25. Conclusion
01
Artificial intelligence is transforming
the way firms function and is
restructuring the economy
02
Software, along with data- and AI-
centric architecture, is removing
traditional operational constraints
and enabling a new generation of
business models that cut across
industries.
03
This is transforming competition,
and we already see evidence of a
more concentrated, winner-take-all
world emerging in some traditional
market.
04
There is no many choices for SME
to survive: adopt new technology (AI)
or extinct!

26. Thank You

27. References
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Business Review Pres, Boston, MA
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Zulkifli (2012). Strategies for Successful Information Technology Adoption in Small and
Medium-sized Enterprises. Information journal
3. Supriyo Das, Amit Kundu, Arabinda Bhattacharya (2020). Technology Adaptation and
Survival of SMEs: A Longitudinal Study of Developing Countries. Technology
Innovation Management Review
4. Junghee Han & Chang-min Park (2017). Case study on adoption of new technology for
innovation Perspective of institutional and corporate entrepreneurship
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Participation in Production Networks. ERIA discussion paper series
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Adoption: AI-readiness at Firm-Level (Research-in-Progress)