AI Transformation in SMEs is not a technology challenge.

It’s a leadership, culture and people challenge, especially in regard to the squeezed middle.

Artificial Intelligence has well and truly arrived in the SME conversation.

For some business owners, it feels exciting and full of possibility whilst for others, it feels overwhelming, noisy and slightly threatening. Either way, AI is no longer something happening ‘out there’ in big corporates with deep pockets. It is landing firmly in small and medium sized businesses, often without much warning or understanding and, at times, with plenty of pressure attached.

What we are hearing more is SME leaders asking, Do we need AI? , If we use it, what will it fix?, closely followed by, Where on earth do we even start?

Those are sensible questions but they are often framed in the wrong way.

AI transformation in SMEs is rarely, and certainly not only, about the technology itself. It is about people, leadership, capability and culture. If these things are ignored, AI can become just another expensive distraction rather than a genuine driver of performance.

Why SMEs think they need AI

Most SMEs are operating in tough conditions. Margins are squeezed, talent is hard to find and retain, customers expect more and leaders are spinning a lot of plates at once, often with the capabilities to do so effectively.

In that context, AI is often positioned as the answer to everything such as increased productivity, faster decision making, lower costs, less reliance on scarce people, and enabling smaller businesses to stay competitive with bigger players.

And there is truth in that as research from McKinsey suggests AI can deliver productivity gains of 20 -40% in certain knowledge based activities. Gartner reports that the majority of organisations adopting AI expect it to augment rather than replace human roles.

For SMEs, that sounds compelling.

Here’s the uncomfortable bit that too many leaders don’t want to face, and that’s many SMEs don’t struggle because they lack clever tools. They struggle because priorities are unclear, decision making is inconsistent, managers are stretched or untrained, and because change is layered on top of already full workloads. They struggle because leaders, managers or leadership are ‘a bit shit’, and so issues creep in.

Introducing AI into that environment doesn’t magically fix those issues, in fact, to the contrary it often exposes these issues inc poor culture, comms or leaders.

The real challenge might be delivering change with limited capacity

Unlike large corporates, SMEs don’t have transformation offices, spare resource or armies of specialists. Change is delivered by the same people who are running the business day to day.

That makes leadership capability absolutely critical.

AI changes how work is done, how value is created, how performance is measured and how roles evolve. It also raises real questions for people about relevance, skills, workload and job security and such like. Those questions don’t get answered by software vendors or implementation plans. They get answered in day to day conversations at the human team level.

This is where many SME leaders underestimate the challenge time and time again. In a meeting yesterday I asked middle managers about their senior leaders and what might slow their AI adoption, the candid answer from one person might shock you, they said, of their leadership …’they are weak, immature and I cant trust them… and I’m stuck in the middle trying to do my best’.  Let that settle for a moment, and think of the challenges and opportunities therein.

Unfortunately, leaders often focus heavily on choosing the right tool or system, but far less on preparing the organisation to absorb and use it effectively. This gap is felt most acutely in what I often call the squeezed middle. As per the aforementioned comment. 

The squeezed middle in SMEs is invisible but critical

In SMEs, the squeezed middle is not a layer of bureaucracy, it is often a small group of managers, team leaders or senior specialists who are doing a huge amount of heavy lifting.

They are close enough to the strategy to be accountable for results and close enough to the frontline to feel every operational wobble. These middle leaders and managers have to translate ideas into action, manage workloads, deal with resistance, keep staff and customers happy and try to maintain standards while most things shift around them.

When AI or any form of digital change is introduced, these people become the lynchpin because they are expected to explain it to team members, implement it, motivate staff and make it work in reality.

Yet we know they are often the group of people least invested in.

Executives and owners get exposure to big ideas, coaching, advisors and thinking time. Frontline staff might get inductions and training on new tools…. Yet the squeezed middle gets more responsibility, more pressure and seemingly less support.

Research shows that middle managers are critical to successful transformation, but also the most likely to feel overwhelmed and under skilled during change. In SMEs, where there are fewer buffers, the risk is even greater.

Failure to support this group properly and any tech initiatives, such as AI are likely to stall, and therefore adoption becomes patchy, staff create workarounds, frustration ( which I have written about many times) builds and good people burn out or leave.

This is not a technology failure, it must be considered a leadership one.

Culture matters more than capability

AI doesn’t arrive in a vacuum,  it like other changes and innovation land in your existing culture.

If your culture avoids honest conversations, lacks psychological safety or does not support learning, then AI will probably amplify fear and suspicion. If decision making is unclear, then will AI create confusion rather than clarity. If learning is not valued and given space then people will most usually resist or disengage from the challenge and the opportunity.

In SMEs, culture is often shaped directly by the leadership team and business owner and over the years I know this to be both a risk and an opportunity.

AI will very quickly reveal whether your culture supports curiosity, learning, accountability and trust, or whether it relies on heroics, firefighting, bullying and unspoken assumptions.

Three ways SME leaders can do this less badly

There is no silver bullet, but there are some practical leadership choices that can help leaders be a bit less shit, and in doing so, make a significant difference in the business.

First, stop talking about AI as a solution and start talking about the problems you need to or are trying to solve. Most people engage far more with purpose than they do with technology. If you cannot clearly explain why AI matters to your business and how it helps people do their jobs better, you shouldn’t expect commitment.

Second, deliberately invest in the squeezed middle. This does not necessarily mean expensive programmes, more likely it means investing time or creating space for them, it means coaching, skill building and giving them permission to learn, grow and even fail. These leaders need help with prioritisation, decision making, communication and leading self and others through uncertainty. If you invest in these msanagers and leaders and they get stronger, most everything else becomes easier too.

Third, lead the human change before the technical change. AI adoption follows confidence and when leaders role model learning, openness and realism about what is changing and what is not, others follow and follow more easily or naturally. When leaders hide behind jargon or dashboards or business bullsh*t, people switch off and senior leaders can lose the trust and respect of the business and possibly the market.

A final reflection

For SMEs, AI has real potential, it can free up time, help improve focus and support better decisions. But this can only happen if it is introduced with a clear understanding of the business strategy, how work actually gets done and who is responsible for making change(s) usefully stick.

The squeezed middle is not a nice to have in this story – and sometimes we hear its not a nice place to be – however the squeezed middle is often the difference between progress and pain fir teams and he business.

Ignore these key people and AI may become another half-used system. Support them properly and AI can become a genuine accelerator.

I work with SME businesses and leaders to support their people through change and transformation, including AI, by strengthening leadership capability, clarity and confidence where and when it matters most.

If you want AI to work in your business, start with your leaders…. especially the ones in the middle.

Because technology doesn’t deliver transformation. People do.