In the second of our reports on exclusive research into how small and medium-sized enterprises view and use technology, Helen Beckett examines what is driving the adoption of IT by SMEs.
Small and medium-sized enterprises are the new big spenders in IT and their increased appetite for products and services is driven primarily by a desire for greater efficiency and to cut costs.
With the growth in spending on IT products and services by SMEs almost double that of large enterprises, their motivations and outlook remain conservative. However, they have also wised up to the value that IT can bring, according to a survey conducted by Computer Weekly and BT.
Kris Wicka, managing director at Kew Associates, says spending on IT is directly related to the economy - and smaller companies are growing faster. They also have a lot of catching up to do as they are not second or third-generation users.
These are the main reasons for an increase of 6.8% in IT spend last year by businesses with less than 500 people, nearly double the 3.5% spend by companies with 500-plus employees for the same period, says the Kew Associates research. The research by Computer Weekly has revealed some of the key motivations for their spending.
SMEs are keener than ever to sweat their assets and are conservative when it comes to investing in new IT infrastructure. The survey shows the top drivers for IT investment for this community are efficiency and cost cutting, 77% and 54% respectively, ahead of ambitions to grow customer base or increase revenues, which polled 35% and 33%.
The focus on efficiency reflects a concern across business to hammer down the cost base, says Jonathan Cummings, director of e-business at the Institute of Directors. Cummings believes reducing the cost base should not be seen as a negative but rather as a healthy response to the dotcom fallout of three years ago.
"We have gone through a consolidation period and people are starting to understand where IT can add value. I use the term value rather than ROI. In the past, firms may have spent a lot of money, relative to size, on a website and expected a return. Now businesses are asking, how can this investment cut costs, support another process, or offer a better customer service."
But while the eyes of the chief executive and the IT manager may be drawn to the budget sheet as a steer for IT investment, their ears are tuned in to the voices of their customers. Increasingly, this could prove to be the real driver for future investment and change, say commentators.
A total of 28% of SMEs said pressure from customers was a reason for introducing IT, just a couple of percentage points behind "taking on rivals".
As the world becomes more connected, being part of one giant supply chain is also a pull towards IT investment. However, it would seem from the low 9% indicated by respondents, that this is a reluctant pull.
"As major customers find new ways to move physical goods and electronic data - for example, smart tags instead of bar codes, the internet instead of proprietary networks - SMEs may need to rapidly change their technologies to remain competitive," says Gary Lynch, chief operating officer of e.centre, the UK supply chain standards body.
Phil Flaxton, head of InterForum, a not-for-profit organisation aimed at promoting the digital economy, agrees. "In the middle enterprise market, whether through competition or the supply chain, smaller companies are being forced to deal with much larger companies. They are being told, 'if you want to continue to supply us, then you must have the right technology to do so'."
In the next two years, government is the single biggest driver towards a wired economy that will eventually suck in most SMEs, whether they like it or not. At present, however, local and central government register just 8% on the scale of drivers.
InterForum is working with the Department of Trade and Industry on producing content for an e-procurement roadmap for SMEs selling to local authorities. "At present 8,000 SMEs are supplying local authorities with equipment and services - and by 2005, those companies that are not yet enabled must be so."
Michael Sinclair, partner with international law firm Simmons and Simmons, similarly identifies relationships with customers as the single biggest reason why SMEs will invest in IT to achieve legal compliance. However, this recognition appears to be some way off as just 24% of the sample are amending IT to comply with Data Protection laws, followed by 13% for spam regulation.
The Waste Electrical and Equipment Directive evoked a mere 8% positive response from respondents while obscenity laws followed with an even punier 7%.
The trend for large corporations to outsource business processes such as call centres and customer invoicing to small, specialist providers will rapidly bring those suppliers up to speed with data protection, spam and obscenity laws - if they want to keep the business, says Sinclair.
The increasing pervasiveness of broadband in the UK, providing a faster operating environment is greeted by ambivalence by SMEs. Faster internet connectivity and growth in online IT is viewed by 44% as an incentive for investment while 42% says it is not and a further 14% do not know.
David Bunting, treasurer for the Communications Management Association says that as long as broadband remains untried, its impact on business will never be known. "It is one of those things that you do not miss until it is gone," he says.
This was first published in October 2003