March 31 2004

Dilemma at the heart of buying decisions:
Small companies want more value out of their IT investments, but that could raise up-front costs, writes Stephen Pritchard


The sheer diversity of the small and medium enterprise sector makes it hard to paint a general picture of its technology needs.

A small company might be an intensive user of IT; a larger firm might have only rudimentary technology needs. And a business that is an SME in one country could easily rank as a larger player in a neighbouring land.

Higher end, or more advanced, smaller businesses can have many of the characteristics of larger companies in technology terms. "At the high end, SMEs might be looking at solutions from Microsoft, SAP or Siebel. They are doing this because they are looking at IT to reduce costs," says Roger Williams, a specialist in smaller businesses at PA Consulting.

None the less, there are pressures that appear to affect smaller businesses, independently of size or market sector.

The most common is probably the drive for better valuefrom technology. Falling IT prices make this easier, but smaller businesses especially retain a degree of scepticism about the benefits IT can bring.

"Choice and value will improve," suggests Richard Porter at Deloitte, the consulting firm. "But as companies invest in IT, they will want to see longer-term value, not just better value in the initial implementation."

This goes to the heart of the dilemma facing both IT and finance directors in smaller businesses. All too often, the best long-term value in IT comes from technologies that cost more up front.

This applies both to the direct cost of IT itself, and its total cost of ownership, and to the cost savings that come from automating business processes. A fully integrated, electronic supply chain might be the cheapest way to source materials, but it remains out of reach of many smaller companies.

And for companies that may not have a board-level executive responsible for IT, deciding which technology will fit their strategy best remains the greatest challenge. "As smaller businesses move up the scale, nobody stands back and takes a strategic look at IT," says John Dennison, partner at professional services firm BDO Stoy Hayward. "They end up with a hotch-potch of systems."

Taking that time out to think longer term about IT could well be the best way for SMEs to ensure decisions represent value for money.


Employees in many small companies already spend most of their working day using a computer, a mobile device, or some other form of technology. As IT prices continue to fall and smaller businesses see the efficiency benefits new investments can bring, the likelihood is that an ever-larger number of workers will deal day in, day out, with technology.

Although there will always be businesses that will never need a great deal of high technology, their numbers are falling as a new generation of more technically-literate entrepreneurs makes their mark.

Some small firms, especially in sectors such as technology, communications and professional services are gaining a competitive advantage, and growing, by using technology more smartly than their rivals.

"In the world of IT, there is always a drive to make things more efficient and achieve more bang for your buck. But most of our investment has been for growth," says Ely Pinto, IT manager at Etagon, a data centre automation company from New York, with 40 employees. "As the company gets larger we need to grow the IT staff and infrastructure to meet demands and stay competitive."

Expanding the IT infrastructure can mean moving away from familiar desktop tools and towards server-based applications accessed through a web browser or portal.

Although these systems can seem rigid and restrictive to staff used to working mainly on the desktop, there are advantages. Centrally-run systems should be more resilient, and a well-written business application will work with almost any browser, including thin clients or mobile devices. This holds the promise of more flexible working for employees.

In this respect, small and large companies are closer together than some of the evidence suggests. "If you look at the processes in smaller businesses, often they are not so different from processes in larger companies," says Hans-Juergen Uhink, senior vice-president for SME solutions at SAP.

For the workforces in smaller companies, the likelihood is that more of these processes will take place in software rather than on paper, and where they take place in software it will be written for the task, rather than built out of desktop applications and standard messaging or e-mail utilities.

The added benefits of greater security, resilience and better integration with customers' or suppliers' systems are also bolstering the case for enterprise-style applications. This might mean a learning curve initially for SMEs, but the payback should be more efficient and more effective IT.