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.

Does IT innovation boost SME performance?
Although the 2008 financial crisis and subsequent economic downturn had a severe impact on economies, businesses, families and individuals, it did provide a useful 'natural experiment' for economists to analyse the factors affecting the resilience of SMEs under challenging conditions.

With this in mind, a section of the European Commission's recent study, EU SMEs in 2012: at the crossroads, focused on the performance of the high-tech and 'knowledge-intensive service' (KIS) sectors between 2008 and 2011. The study found that countries with a high share of their SME employment in high-tech sectors showed higher real value-added growth. However, the correlation is weak (significant at the 10 percent level), and mostly shows mitigation of the effects of recession rather than positive growth:

sme-eu-tech-intensity
Real value-added growth versus a technology intensity index for SMEs in EU countries for the period 2008-2011. Image and data: European Commission

The correlation is stronger (significant at the 5 percent level) when growth is plotted against the incidence of knowledge-intensive SMEs — although, as the UK figure shows, a high knowledge intensity ranking doesn't deliver guaranteed recession-proofing:

sme-eu-knowl-intensity
Real value-added growth versus a knowledge intensity index for SMEs in EU countries for the period 2008-2011. Image and data: European Commission

The EC study also found that, within the KIS sector, SMEs deemed to be 'innovative' — including film and TV production, sound recording and music publishing, telecommunications, computer programming, consultancy, architecture & engineering, technical testing & analysis, scientific research & development — experienced higher-than-average growth in both GVA and employment.

These results suggest that, if you're an SME, being in an innovative, high-tech and/or knowledge-intensive sector seems to offer some protection against the bad times — and, hopefully, allows you to exploit the good times when they return. Clearly, part of this advantage derives from the economic environments in which these particular classes of SME operate. However, it's arguable that companies in high-tech and knowledge-intensive sectors are also more likely to deploy leading-edge line-of-business IT systems, which must also have a bearing on their economic resilience.

Innovative technologies for SMEs
What technologies should an innovative SME be using, in order to 'punch above its weight' in the economy? Broadly, this means using modern 'cloud-era' solutions that deliver enterprise-grade IT without the associated cost, management overhead and lock-in risk that typify traditional enterprise tools. Here are a few pointers:

Agile, small-footprint IT
If you're a small business, and particularly a startup, it can make a lot of sense to outsource your software (SaaS) and IT infrastructure (IaaS) to the cloud, converting the upfront capital expense and ongoing management costs of running your own IT operation into a set of cloud-service subscriptions. You can get up and running quickly, and scale easily as the business expands. There are downsides to outsourcing your IT, of course (for more detail, see our special feature on SaaS), but this is still a strategy that forward-looking SMEs should be considering.

Next-generation networks
If you do choose to retain some or all of your IT infrastructure in-house, keep an eye on the latest development in networking — SDN, or Software-Defined Networking. SDN is the natural progression from server and storage virtualisation, and moves the decision-making over network traffic flow from the hardware to a software-based control plane. Theoretically, SDN holds the promise of interoperability (via vendor support for open-source initiatives such as OpenFlow), agility (simplifying the process of connecting to different cloud-based services in a hybrid cloud environment, or optimising network performance for particular applications), and efficiency (allowing IT managers to accomplish tasks via software that were previously manual operations).

Although SDN should make it easier to manage your IT infrastructure and align it to the needs of a growing or evolving business, it's an immature technology. It should certainly be on the roadmap of all 'innovative' SMEs, but implementation right now will only be for the most determined of early adopters. For more detail, see our special feature on next-generation networks.

The extended enterprise
In traditional enterprises, the majority of employees are office-bound, mostly using client-server applications running on in-house IT infrastructure. Forward-looking enterprises tend to support more flexible working practices, offering secure access to network resources from outside the company firewall — catering for home-based workers and mobile professionals, for example. Increasingly this means formulating and implementing a Bring Your Own Device (BYOD) policy, overseen by Mobile Device Management (MDM) or Enterprise Mobility Management (EMM) software.

Startups and SMEs looking to minimise the cost of office space and provide employees with the tools with which they can be most productive are a particularly good fit for this flexible approach to IT purchase, provisioning, management and security. For more detail, see our special feature on BYOD and the consumerization of IT.

The social enterprise
An aspect of the consumerisation of IT is the widespread use by employees of social media networks and tools, both to communicate with one another and to engage with the business's customers. This double-headed 'social enterprise' trend is a rapidly-developing area, and is particularly suitable for SMEs: there is obvious 'punch above your weight' value in tools that allow everyone in the organisation to easily access relevant information and expertise, and collaborate flexibly on projects, and also to gather and analyse information from public social networks about the business and its perception among actual and potential customers. For more detail, see our special feature on the evolution of enterprise software.

Conclusion
SMEs are a numerous and diverse group of businesses that form the bedrock of the private sector in most economies. Recent surveys of SME approaches to IT innovation reveal a 'defensive' outlook, focusing on managing existing infrastructure more efficiently rather than deploying cutting-edge solutions. This is only to be expected following a prolonged period of challenging economic conditions. However, there is evidence that SMEs in high-tech and 'knowledge-intensive' sectors fare better (or less badly) in these conditions than other businesses. We can expect these SMEs, which tend to deploy more innovative IT solutions, to reap the benefits quicker when economic conditions improve.

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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