Make your resources go further - IT for SMEs

SMEs are often more innovative and nimble than their larger corporate rivals

It could be argued that small and medium-sized enterprises (SMEs) will suffer more than most in the present bleak economic environment. Shorter cashflow cycles, limited bargaining power, shrinking funds available for IT investment and a lack of internal resources all look to be daunting obstacles.

On the plus side, SMEs are often more innovative and nimble than their larger corporate rivals. Those canny enough to sniff out the best IT deals available can find themselves outpacing more leaden-footed competitors.

And there are growing signs that SMEs are exploring new ways to acquire and deploy technology to gain enterprise-class capabilities without having to pay top-dollar prices. Noticeably, the way SMEs are approaching outsourcing relationships is changing, according to Tim Jackson, chairman of technology consultancy Inflector. For example, the web hosting market has seen competition among vendors for SME business increase dramatically, he says. This trend is likely to be replicated in other areas, with SMEs expected to start outsourcing services to other countries in much the same way as larger enterprises do now.

“This move will be pushed by a number of elements including virtualisation, a reduction in computer costs, and the availability of faster network connections due to expanded broadband rollouts,” says Jackson.

Further changes to the way SMEs deploy technology are being driven by economic circumstances. A recent report by consulting group BroadGroup suggests that SMEs will increasingly turn to cloud computing and software-as-a-service (SaaS) as the economic malaise deepens. Both models can help smaller businesses to deliver new products and services quicker and at a lower cost, reports BroadGroup.

The SaaS model is gaining a lot of traction in the business world, with most large software vendors and application service providers, including HP, IBM, Microsoft and Salesforce.com, now offering business applications such as customer relationship management (CRM), databases, knowledge management and web development software as web-based utilities.

Analyst Gartner estimates that organisations are typically generating project savings of between 25 and 40 per cent by deploying SaaS-based CRM applications, with savings derived from reduced application expense and lower implementation costs.

SaaS is particularly appealing to the SME sector because it removes the high entry costs associated with some business applications. Users avoid hardware, installation and maintenance fees, software licensing charges and the expense of dedicated internal IT resources nee-ded to administer systems. SaaS offers a pay-as-you-go approach that allows firms to lease only the resources they need without the worry of installing, upgrading, maintaining or securing those systems.

“Some of the earlier adopters [of SaaS] were SMEs, but it is down to cashflow and the fact that many organisations do not need to keep their own servers under the stairs,” says David Mitchell, senior vice president of IT research at Ovum.

“Driving down cost is the obvious reason for moving to SaaS/cloud computing, but there are two aspects to cost – ­ total cost of ownership and cashflow,” says Inflector’s Jackson. “If you save 20 per cent off the cost of the IT over five years, that is nice, but if doing it involves spending 80 per cent of the money right now, that has a more dramatic effect.”

Flexibility is also part of the attraction. In the past, if a company wanted to offer a new service and forecast that it would have about 4,000 customers, for example, it would need to build the technology infrastructure to support that and factor in the cost of paying the money upfront.

“With the cloud model, you can actually try it out without incurring signi ficant capital costs,” says Jackson.

In future, suggests Jackson, some of the larger SMEs will start examining options that look more like cloud services, where they lease computer power to run intensive applications and storage space by the megabyte.

To date, the nascent cloud computing model has tended to focus more on the consumer market, with companies such as Google and Amazon offering simple and standard on-demand applications such as word processors or spreadsheets, coupled with online storage resources.

“Many executives are still very sceptical about the cloud,” says Jackson. “But there are millions of consumers already using it. It is gaining rapid and universal adoption – ­ 2009 will be the tipping point where a wider business community will start switching to the cloud as they come to understand it more.”

Other ways SMEs are avoiding the debilitating expense of software licensing include the use of open-source software, where firms pay maintenance and support costs but the software is free.

Nevertheless, the fees for commercial open-source packages such as those on offer from Red Hat, Novell or Ingres, can often equal the total cost of ownership of propriety software over time.

Small open-source projects especially have the reputation of being written by geeks for geeks. This is one reason why few SMEs trust open-source software for mission-critical applications, unless they have the expertise in-house.

“It is difficult to move people onto open-source software on the desktop if they are used to Windows and Word environments,” says Ovum’s Mitchell. “Also, is it actually going to save them anything by moving to OpenOffice and Linux for instance? Because when it comes to replacing those assets in two or three years’ time, there might be an issue.”

For many SMEs, however, IT delivers sufficient business benefits to justify owning their own hardware and software. In such cases, SMEs lack the clout to establish direct relationships with technology vendors, and instead buy goods and services through the reseller channel.

This does not mean SMEs should expect lower levels of service, says Glenn Morrison, managing director of UK business-to-business reseller Upgrade Options. Resellers are better able to forge a close relationship with the user, he says, and have better insight into available inventory, ensuring they can deliver orders to schedule.

“Resellers provide the basics ­ – product knowledge and implementation assistance. We are at the forefront of dealing with customers and provide a readily available point of contact and a quick response,” says Morrison.