Becoming more productive with the cloud despite the shortage of young professionals

The shortage of skilled labor is not only a future threat. It is already limiting companies’ options today. A situation that is unlikely to improve any time soon in our aging society. The lack of specialists in new specialist areas is slowing down the transformation. Although digitalization can relieve the burden, facilitate processes and create new opportunities, it also requires new specialists.

When it comes to long-term HR planning, the mid-sized sector is caught in a bind between two challenging developments. On the one hand, demographic change threatens to reduce the number of future skilled workers. There is a shortage of young professionals to support future growth. On the other hand, specialization is on the rise.

The solution sounds so simple: increase digitalization and automation in companies to boost productivity and efficiency. Implementation is nevertheless a Herculean task. Especially in the mid-sized sector. The low level of digitalization to date, thin financial cushions and a lack of technical expertise in the new specialist fields are slowing down the necessary transformation. Even though management is aware of the shortage, too many companies still claim that manual labor beats computers.

The solution sounds so simple: increase digitalization and automation in companies to boost productivity and efficiency. Implementation is nevertheless a Herculean task.

Observers are alarmed. “SMEs are increasingly decoupling themselves from the overall development in the corporate world,” says Gerrit Sames. The professor of general business administration at the Technical University of Central Hesse (THM) in Giessen is a corporate resource planning expert. He sees the sluggish pace of digitalization as making SME employers even less attractive to graduates. Considering the importance of the mid-sized sector, that’s a troubling notion, Sames says. “More than 70 percent of the industrial workforce in Germany works for companies with fewer than 1,000 employees.”

The smaller the companies, the further they lag behind. According to a THM survey, companies with fewer than 500 employees have the lowest level of digitalization. Companies with up to 50 employees are particularly far behind. Procurement clearly shows the highest level of digitalization across all companies. In contrast, supply logistics, customer service and facility management have the greatest need to catch up.

Yet SMEs are definitely interested in digitalization: according to a study by Deloitte, 83 percent of the managing directors and board members surveyed are grappling with the topic of Industry 4.0. They do have reservations, however. One reason is the high cost. Setting up a new IT infrastructure costs time and money. There is also a great risk of planning that doesn’t properly reflect the needs.

So what approach should small businesses take if they want to counter the growing shortage of skilled labor? “Leveraging cloud services could be one option,” says Sames, who himself worked as a manager in an SME for many years. The advantage of cloud services is that a company can make targeted use of the required software without having to procure the applications and integrate them into its own architecture. If required, data can be uploaded to the cloud and processed there.

So what approach should small businesses take if they want to counter the growing shortage of skilled labor? “Leveraging cloud services could be one option.”

The dilemma for the SME sector is that digitalization is not initially a cost-cutting measure that reduces expenditure or creates efficiency out of thin air. Instead, digitalization is a major challenge that requires companies to develop expertise in entirely new fields.

This creates a severe shortage of precisely the specialists that are in particular demand today. Even traditionally analog companies need highly specialized digitalization experts. Data analysts, cloud architects and AI specialists: almost every company is looking for these job profiles today. This results in a scarcity of highly specialized IT experts while making them accordingly expensive.

Another potential problem is that, since the specialists they are looking for can freely choose their employers, SMEs in rural areas have a locational disadvantage when compared with corporations headquartered in urban areas. The medium-sized sector is thus facing an acute shortage of specialists.

The additional decline in the number of young professionals in Germany is more severe than in other countries. “A comparison with Austria and Switzerland shows that the German labor market will be disproportionately affected by demographic change,” according to a study by consulting firm PWC. The authors expect a shortage of four million employees in the German market in 2030. The service sector is experiencing the greatest shortage. A look at the size categories makes it clear that the shortage of skilled workers – including IT specialists – is particularly evident in the mid-sized sector, where one in five companies feels that their business activities are hindered as a result.

One reason for this is probably that many graduates see large corporations as the more attractive employers in any case. Small and medium-sized companies have also been reluctant to promote automation in the past – and are now particularly affected by the shortage of skilled labor. Studies repeatedly point to the untapped potential in this corporate segment. Personnel-intensive processes with a trail of paperwork, file boxes and office messengers are by no means extinct. For many an SME, the digital revolution is still limited to the classic use of computers.

Given the right infrastructure and creativity, numerous new opportunities open up for companies. On-site order processing applications can be combined with online payment services, for example. Customers can then pay their bills with the click of a mouse. The financial accounting system takes over the postings automatically. A selective connection like this allows smaller companies to gradually work their way into the digital world – and especially where they lack workers. The next stage would be to switch completely to using software in the cloud.

This not only applies to administration, but also to production – such as in industry. An example from woodworking: programs from the cloud can guide an automatic router to custom-process different panels. The more advanced the software, the more efficiently it can carry out its tasks. Updated control programs can already be downloaded directly onto the machine from the cloud with the click of a mouse and immediately put to use.

Models such as these can be extended in various directions. Smaller companies will possibly share certain facilities. In that case, machines are located at a central site and companies from the surrounding area use them only on an as-needed basis. They store the data required for their individual production processes in the cloud – and the facility’s control system accesses it as needed. This results in less investment in machinery. And the scarce HR resources are deployed where they are harder to replace.

Companies can leverage the cloud to digitize processes and create new product features. Rather than always investing in their own infrastructure, transformation within companies is faster and more cost-efficient when SMEs have recourse to the existing expertise as well as technical and personnel resources of others instead of struggling to build it all up on their own in the tough competitive environment. Before companies can benefit from new digitalization opportunities, they first have to build up their knowledge and capacity in new areas.

As this is often not feasible for internal departments, many companies turn to what are known as managed services: leasing rather than investing. This applies to infrastructure, manpower and knowledge. The idea is to lease the resources required for digitalization. Doing so allows companies to save on investments in their own cost-intensive resources for operational tasks in the new specialist fields.

The IDG study “Managed Services 2020” examines the motivation and experience of companies with managed services. IT managers leverage the services to accelerate projects and improve innovation while reducing investment costs and being able to plan costs transparently. At the same time, 73 percent of companies report they also use managed services for business-critical projects.