Half of SMEs have no IT strategy

Monday 27 October 2003 04:34

Throughout this month Computer Weekly will report on exclusive research into how small and medium-sized enterprises view and use technology. This week Helen Beckett examines how many SMEs have an IT strategy.

Small and medium-sized companies are the engine room of the UK economy. According to the Department of Trade & Industry, they were responsible for 52% of the UK's turnover in the past year. Within this disparate group of companies with less than 500 employees exists a wide variety of attitudes to IT, as revealed by a study of 1,200 IT professionals undertaken by Computer Weekly in association with BT.

The Computer Weekly/BT SME ICT audit paints a picture where half of the responding companies are using IT strategically and the other half take a much more piecemeal approach.

The good news is that a healthy 49% of respondents declare that they have an IT strategy and, in 58% of the cases, that strategy is formulated by their IT manager. A further 71% state that they are satisfied they have sufficient information to maintain their strategy. Where recognition of IT is high on the agenda, it tends to be prompted by external issues that threaten the business, most notably security. A total of 60% register a high level of concern about the threat posed by hackers and viruses and a further 32% express moderate concern.

However, a worrying 51% of IT professionals working in SMEs admit that their company has no formal IT strategy. Unsurprisingly, the cost of IT resources is put forward by 76% as a reason for not deploying new IT and 30% say that internal resistance to change within the company is holding back attempts to push the IT agenda forward.

These findings hold no surprises for Alan MacNeela, vice-president of research at analyst firm Gartner. "SMEs are much less formalised or structured in their thinking about IT. They have a more opportunistic approach to IT investment," he says. "Many SMEs have an older infrastructure and want to sweat these assets. This focus makes any new implementation of IT that would effect significant business change almost untenable."

MacNeela's observation about SMEs' opportunistic approach suggests there is a hidden pattern of spending which is not immediately apparent in the initial top-line reading of this audit. This is confirmed by Terry Watts, chief executive of the government-funded E-Skills Forum. "In my experience, when a company needs something done, it will go out and find the money and do it. The training component tends to be wrapped up within the cost of a project, rather than being done in a structured or strategic way," he says.

The audit underlines that training for IT staff does not appear to be a priority in small firms. Twenty seven per cent spent nothing on IT training last year and 18% do not know how much they spent. In small companies, money for IT seems to be tight in general; 50% spent less than £1,000 on IT per employee in the last financial year. But despite the lack of funds, exceptional examples of IT innovation are becoming more common.

Steve Benson, manager of Business Link's IT advice centre, gets to speak to a range of small businesses about a variety of IT issues. He says small businesses are using the internet to their advantage. He cites the example of a transport company with an £11m turnover where the firm had ambitions to build an £80m business using the internet.

"This was an SME start-up that saw it could provide a road haulage system more quickly and cheaply and make it a really good experience," says Benson.

However, most of Benson's anecdotes offer evidence of chief executives struggling to get their heads around how IT can add any value to the business. "Most chief executives I speak to are oblivious about IT's potential. When I asked a group of CEOs recently about how they would like to leverage IT within the business, they responded with basic questions such as, 'How can we use computers better?' There was no understanding of how IT should or could be used to further the business, or to what purpose."

At the bottom of the spectrum, Benson reports that few companies have policies to ensure that computers are even kept up and running. "If I ask, 'Who mends the computer when it breaks down?' more often than not the answer is 'my next-door-neighbour's son' or 'a friend'. If the virus-checker is on, it tends to be through good luck rather than good judgement."

This low-level approach to IT can be partially explained by economic conditions, which have seen all companies in the UK, big and small, focus on costs. "IT is seen as a significant cost," says Jonathan Cummings, director of e-business at the Institute of Directors. "This has been compounded by scepticism about the value derived from IT following some poor investments made three years ago in the dotcom boom."

SMEs have felt the pinch even more acutely. Many run a tight business model, relying on cash flow from the previous month to see them through the next, which does not leave a lot of slack for IT investment. Nonetheless, Cummings remains optimistic that this period of consolidation has provided a space where SMEs have been able to learn where IT can add value. "Although 51% of SMEs do not have a strategy, they do have a greater awareness of where IT can add value than they did two to three years ago," he says.

Cummings believes suppliers have played their part in this shift of awareness. "There is less hype and less noise from suppliers. The IT market has shifted its message from being feature-led to being more benefit-led," he says.

Rather than suppliers selling on features A, B or C, they are now explaining how technology can help achieve certain business objectives and how it can integrate with the business. This level of advice is particularly important to the smaller business that does not have its own IT department and where the jargon of IT might be so obscure as to deter any chief executive from pursuing it.

Cummings' view seems to be endorsed by the Computer Weekly/BT audit, which shows that 67% of users are satisfied with the level of advice they receive from software suppliers.

However, MacNeela does not think suppliers have gone far enough to make IT understandable and implementable. "The enter-prise space is near saturation point and so all suppliers have gone downmarket into the SME space. They have stripped out functionality and lowered the price, but they have not addressed the real needs," he says.

There also seems to be a large appetite for more information about leading-edge IT - the audit found that 40% are keen to be kept informed of emerging technologies.

One issue that could make a difference to IT take-up, if addressed by suppliers, is a more incremental approach to IT, says MacNeela. "I have seen a lot of big-bang approaches to customer relationship management, for example, where there has been nothing like the necessary bandwidth and resources as a buffer for such a large-scale approach." Instead, SMEs should adopt a more milestone approach, he says. "Suppliers should be selling the line, 'this is the return after 60, 90 or 120 days'."

A force for change may be the increased level of IT literacy and expectation among the workforce. This simply did not exist three years ago, says Phil Flaxton, managing director at Interforum, a not-for-profit organisation that promotes the online economy. "People have satellite communications in their cars and many have access to the internet. There is a general shift in expectations of what technology can do at home and in the workplace. There is a move towards a more efficient way of working," he says.

Which IT issues do SMEs need advice on?

The huge demand for advice on emerging technologies, expressed by respondents to the survey, comes as no surprise to Peter Scargill, IT chairman at the Federation of Small Businesses.

Advice on emerging technologies was top of the wish list of respondents, ahead of issues such as keeping networks secure, integrating IT with legacy systems or getting value from suppliers.

"New products are released all the time and businesses do not want to spend money on items they fear may become obsolete," he says. "It is a spiralling problem and goes way beyond just upgrading a website or browser."

Scargill's own organisation is typical of many small businesses, running on Windows 98 and working out how to move forward in the face of Microsoft's withdrawal of support. "It is a trade-off between having maintenance assured and the cost of upgrading to new licences. People are confused about these issues," he says.

Scargill's tips for SMEs looking for advice on IT are:

Go for independent advice l Use local trade organisations
Avoid some of the more famous high street stores which sell on commission
Use UK Online, the Department of Trade & Industry-led initiative. www.ukonlineforbusiness.gov.uk

Do SMEs know enough about IT?

"I think it is very positive that such a high number of respondents feel comfortable with their current levels of information, provided that they are keeping a eye out for new developments on the horizon," says Jonathan Cummings, director of e-business for the Institute of Directors.

"The main focus for all these companies is the bottom line. If a competitor is gaining ground or moving ahead, it is important that a company uses IT to respond."

Cummings says it is important to take follow-up action and seek detailed information about trends they may hear about in the media or through word of mouth.

Cummings counsels small and medium-sized businesses to keep up to date through three main avenues: