At a time when many small and medium-size business (SMB) owners are questioning the value of IT as they struggle just to make ends meet, I think it's time to take a step back and look at this issue from a wider perspective. This article is not targeted at SMBs that are on life-support, but at those who are just not able to break through from the ranks of the SMB category.
What can IT do for my business?
Topmost on the minds of many SMBs is the fact that cashflow is king. Without healthy cash flow positions, most SMBs are unlikely to look at IT initiatives. Ironically, IT may help alleviate cash flow problems within many SMBs by allowing for better information flow and more accurate financial tracking.
Let us look at how a simple financial application can help an SMB manage its finances better. The basic equation that every business owner focuses on is 'Profit equals Revenues less Expenses'. Anything that increases revenues and reduces expenses will help increase profitability.
By having improved visibility into the finances of the company using IT, the business owner can know where the money is going to, and what can be reduced or rationalized in the event that further cost-cutting is required.
Having visibility into receivables potentially allows the business owner to make decisions on factoring should cash flow become critical. With a better understanding of purchasing volumes, business owners can also better negotiate with major suppliers for better terms and pricing. All these are examples of how technology can reduce expenses and improve cash flow for the organization.
On the revenues side, basic sales and marketing automation will allow improved customer relationship management (CRM) capabilities, thereby allowing the sales force to focus their efforts on customers and accounts that have the highest revenue potential. In an SMB, where resources are especially thin, having the sales team focus on the accounts that are most likely to yield results can be one major way of increasing sales success rates. CRM may be a fancy term, with connotations of high IT costs, but the reality is that SMBs can take baby steps towards CRM capabilities by having shared customer information and activity tracking through spreadsheets and simple database applications. Then when the results become apparent and the business volume warrants it, they can look seriously at investing funds into a more robust solution.
Better, faster, cheaper
SMBs often compete against more established players in most instances. As such, they have to be better, faster or cheaper than larger government-linked companies (GLCs) or mutinational corporations (MNCs). In some cases, they have to be all three!
How can you be better, faster or cheaper? Often, it is difficult to be perceived better than the GLCs or MNCs by the market, hence the SMB has to be faster and/or cheaper. Speed is difficult to achieve when processes are completely manual. Once business volume reaches a certain critical level, automation becomes a given. Of course, prior to achieving that critical mass, there is no point investing in capabilities based on forecasts (much as the IT vendor would like you to).
Cost effectiveness may be achieved through streamlined business processes and lower cost of goods sold. In this case, a key enabler is information. For example, streamlined business processes are usually tied to how quickly you can get information up and down the value chain. Without IT as an enabler, this would be difficult to achieve.
So, what next? Well, for a start, most SMBs already utilize IT to a certain extent within their organizations without consciously thinking about it. Most SMBs have email, and this in itself is a means of collaborating with both internal and external stakeholders.
Streamlined business processes are usually tied to how quickly you can get information up and down the value chain. |
In addition, SMBs typically have office suite applications. Spreadsheet applications can be extremely powerful tools to start on the automation path with. Although they are not scalable for the large enterprise, SMBs may find that spreadsheets may be a low-cost entry point for automating some of their transactional processes.
At the same time, wireless networks are now at affordable levels for providing connectivity within a small office. Gone are the days when networking costs would be prohibitive for the SMB. In addition to this, more progressive SMBs may be inclined to look at procuring enterprise-level applications.
For ERP implementations, systems integration accounts for 40% of total costs, while software licensing accounts for 25 percent. In SMBs, the number of legacy business processes tend to be less, and even if there are organization-specific business processes, these tend to be less ingrained and often less well-documented than in larger and more established organizations. As such, the underlying advantage for the SMB is that they can adopt the best practices espoused by these ERP solutions with less resistance as compared to larger entities. In the longer term, the vanilla implementation approach would be less costly to maintain as the software vendors will find upgrades easier to install. This would be the same whether the solution is CRM, SCM or any other enterprise application.
The best part of the story for SMBs now is the renewed focus on many IT vendors on the SMB segment. Long ignored, this segment is now viewed as the vast untapped market that will save these same IT vendors from largely-forgettable financial performances. With this in mind, the SMB can confidently engage with IT vendors knowing that power has shifted into their hands. Many IT vendors are also looking at ways to bring their products to SMBs, with innovative financing schemes, mid-market application suites, and so on.
In this electronic age, many subtle advantages that large companies had in the past over SMBs have been diminished. Taking the example of Dell, not many would have anticipated the overwhelming success that this company would have in the PC market through its Web channel strategy at its conception. The advantages that the physical distribution channel model built over many years by Dell's more established competitors were wiped out almost overnight. Dell is unique, but its story is not. Technology was used to support a strategy to help them turn into a mega-success in a very short period of time. If you, the SMB, want to beat the 'Big Boys', then IT must surely be part of that overall success equation.
Damien Wong is vice president and general manager of META Group
Singapore, a technology research firm. He is also a member of the CNETAsia SMB Advisory Board.