IT innovation for small businesses: An overview

Summary:Small and medium-sized businesses are a numerous and diverse sector that form an important part of the economy. We examine how they approaching IT decision making, whether IT innovation pays off, and what technologies they should be considering.

Small and medium-sized enterprises (SMEs) are typically defined as having up to 250 employees, and can be subdivided into 'micro' (0-9), 'small' (10-49) and 'medium' (50-249) sizes. Whichever way you cut the numbers, SMEs cover a multitude of business categories, are qualitatively as well as quantitatively different from large publicly quoted enterprises (although departments in some large enterprises may have SME-like features) and are extremely numerous.

SMEs form the bedrock of the private sector in most economies, and so the effectiveness with which they implement IT becomes an important issue — not only to the SMEs themselves, but also to the many hardware, software and services vendors seeking to exploit this potentially lucrative market.

Because they're such a heterogeneous bunch, SMEs will inevitably exhibit a diversity of approaches to IT deployment, ranging from neo-Luddism to untrammelled enthusiasm for the cutting edge. However, it's arguable that, because SMEs — particularly startups and growing businesses in the 'micro' and 'small' subcategories — are unlikely to be encumbered with legacy IT systems, they should have more freedom to deploy innovative solutions that deliver added business benefits.

How many SMEs are there?
The most recent analysis from the UK's Department for Business Innovation & Skills, covering the start of 2012, puts the number of private-sector businesses in the UK at 4.8 million. These companies employ some 23.9 million people and generate £3,131 billion in turnover. The vast majority (99.2 percent) of the UK's private sector comprises small or micro businesses employing less than 50 people. Only 29,750 (0.6 percent) companies are medium-sized, while larger businesses with 250 or more employees form just 0.1 percent of the total. SMEs contribute over half the employment (59.1 percent) and just under half the turnover (48.8 percent) in the private sector. Once again, small and micro businesses (0-49 employees) account for the lion's share of this contribution — 47 percent of employment and 34.4 percent of turnover:

sme-uk-businesses
Data source: Business Population Estimates for the UK and Regions 2012 (UK Department for Business Innovation & Skills, October 2012)

The UK private sector encompasses a wide range of business categories. At the start of 2012 it was dominated by the construction industry with 907,480 businesses or 18.9 percent of the total. Along with Professional, scientific and technical activities (665,265/13.9 percent) and Wholesale and retail trade and repair (515,805/10.7 percent), the top three categories account for 43.5 percent of the entire private sector:

sme-uk-sectors
Data source: Business Population Estimates for the UK and Regions 2012 (UK Department for Business Innovation & Skills, October 2012)

The pattern in the EU is very similar, with the European Commission reporting that, at the start of 2012, there were 20.8 million non-financial private-sector enterprises, the majority (92.2 percent) of which were micro businesses (0-9 employees). Small (10-49 employees) and medium-sized (50-249 employees) businesses comprised just 6.5 and 1.1 percent of the total respectively, while large businesses (250+ employees) accounted for a minuscule 0.2 percent.

The EU distributions for SME employment and finances (Gross Value Added, or GVA, in this case) also look very similar to the UK's, with SMEs accounting for 87.5 million out of 129.8 million private-sector employees and generating €3,587.5 billion out of €6,179.3 billion GVA.

In the US, whose SME population is similar in size to the EU's, the most recent comparable figures from the US Census Bureau relate to 2008. At that time, there were 29.2 million private sector enterprises, of which 94.6 percent were micro businesses (0-9 employees). Small (10-49) and medium-sized businesses (50-299 employees) comprised just 3.8 percent and 1.5 percent of the total respectively, with large businesses (300+ employees) accounting for a minuscule 0.1 percent.

The US distributions for SME employment and finances (payroll in this case) also look very similar to the EU's, with SMEs accounting for 78.2 million out of 139.6 million private-sector employees and generating $2,858.0 billion out of $5,891.8 billion in payroll.

Topics: SMBs

About

Hello, I'm the Reviews Editor at ZDNet UK. My experience with computers started at London's Imperial College, where I studied Zoology and then Environmental Technology. This was sufficiently long ago (mid-1970s) that Fortran, IBM punched-card machines and mainframes were involved, followed by green-screen terminals and eventually the pers... Full Bio

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