Special Feature
Part of a ZDNet Special Feature: The new SMB stack

Outsourcing and everything as a service: Business tech priorities for 2020

The coronavirus pandemic is testing small businesses as never before, exposing any weaknesses in their tech setups. But with the right plans in place, SMBs will have a better chance of pulling through.

The new SMB stack: Equipping small businesses for flexibility and resilience
9:00

Running a small/medium-sized business (SMB) is challenging at the best of times, but these are not the best of times. From early March 2020, large parts of the world entered varying degrees of lockdown as governments sought to suppress the coronavirus pandemic and curtail the spread of COVID-19. As economic activity stalled, stock markets crashed and, in the absence of a clear exit strategy from the pandemic, a global recession -- almost certainly deeper than that which followed the 2007/8 financial crisis -- has become inevitable.

smb-stack-eurstat-wfh.jpg

Image: Eurostat

Even before the pandemic, working from home was a familiar experience for many people. In 2018, according to Eurostat, 5.2% of the EU workforce aged 15-64 usually worked from home, this arrangement being more prevalent among the self-employed (18.5%) than employees (3%).

Now, everyone who can do so is working from home, acquainting themselves with the delights of VPNs, video conferencing, online collaboration tools and more -- and doing so without the safety net of tech support staff on the premises.

SEE: Working from home: Success tips for telecommuters (free PDF)    

These arrangements could become more permanent after the workforce is released from lockdown. In a recent (30 March) Gartner survey, 74% of respondents said they would move at least 5% of previously on-site workers to permanently remote positions, while 23% planned to move at least 20% of on-site employees in this direction. Another Gartner survey, in early April, found that half of organisations had 81% or more of employees working remotely; around a third (30%) of staff surveyed had worked remotely before the coronavirus outbreak, but this was expected to increase to 41% post-pandemic.

Special Feature

Special report: The new SMB stack (free PDF)

This ebook, based on the latest ZDNet / TechRepublic special feature, helps small and medium-sized businesses build a technology stack that promotes innovation and enables growth.

Read More

Commenting on this likely new wave of remote working, Matt Middleton-Leal, general manager EMEA & APAC at IT security firm Netwrix, noted: "A significant challenge is the fact that many organisations still operate with legacy systems that were never designed for enabling remote access, or supporting new technologies such as IoT devices and therefore may be a long way off being suitable for remote teams. Added to which, staff being allowed to use their own personal devices to access corporate networks and data presents a very real security risk, which could well be compounded if this practice is continued post-pandemic".

All the more important, then, for SMBs to have the right people procuring, deploying and maintaining the technology that their employees use, both on-site and, increasingly, at home.

Unfortunately, according to the extensive Harvey Nash/KPMG CIO Survey 2019, tech skills shortages are at an all-time high, with 67% of organisations struggling to find the right talent (the three most scarce skills being big data/analytics, cyber security and AI):

smb-stack-hn-kpmg-survey-skills-shortages.jpg

Image: Harvey Nash/KPMG

The Harvey Nash/KPMG survey also found that larger organisations (with IT budgets over $250m) were less likely to retain their IT staff for as long as they would like compared to smaller ones (with IT budgets under $50m), the difference being 26% versus 44%. The reason, the report said, was that smaller organisations are more likely to offer innovative projects and the opportunity to learn new skills, and that tech professionals valued this more highly than salary or job security.

However, a June 2019 survey by UK recruitment company Robert Half found the opposite: 75% of respondents said that UK SMBs struggle to recruit tech talent because they prefer to work for large companies. Motivating factors for tech talent to change jobs included the desire for a higher salary (27%), the desire for greater work-life balance (21%) and the lack of desired training and development options (14%).

The combination of greater prevalence of home working and widespread tech skills shortages is a potentially worrying combination, even if the extent to which the SMB sector is disproportionately affected is unclear.

SMBs and the economy

Small and medium-sized businesses are mainstays of the economy. In the UK, for example, 99.9% of the country's 5.87 million private sector firms have fewer than 250 employees, and account for 60% of employment and 52% of turnover:

smb-stack-uk-sme-distribution-2019.jpg

Image: Business Statistics, December 2019 briefing paper, House of Commons Library

The size distribution of businesses in the US follows a similar pattern, although of course there are a great many more of them:

smb-stack-us-businesses-by-size.jpg

Data: NAICS Association / Chart: ZDNet

Although it's relatively early days, estimates of the economic effect of the coronavirus pandemic on the SMB sector are emerging.

In the UK, research from business banking platform Tide released on 7 April revealed that 75% of small business leaders (with 0-49 employees) had already been negatively affected by COVID-19, and that this was set to worsen throughout April. On revenue, 80% expected a year-on-year fall in April, with 36% forecasting a decline by more than 90%. Revenue was expected to totally disappear in large parts of the leisure and hospitality (64%) and retail (38%) industries, although 23% of IT and telecoms businesses expected no year-on-year decline in revenue at all.

Overall, Tide calculated that small business revenue will decline by around 57% during April 2020. The research also found that 37% of small businesses have cash reserves to last them up to six weeks, while 19% will run out of cash in under three weeks. With small businesses contributing around £1.5 trillion a year (37%) to private sector turnover in the UK, Tide's figures suggest a 21% reduction in turnover just from small businesses.

SEE: Coronavirus: Business and technology in a pandemic

In a statement, Tide's CEO Oliver Prill said: "The government's support for small businesses is highly welcome and needed, and it has the potential to make a huge difference in helping SMEs survive. There now needs to be a focus from the government, and other organisations involved in delivering financial support, to do everything possible to get the money into small businesses' hands as soon as possible."

In the US, consultancy firm McKinsey has been tracking sentiment among SMBs -- which account for around 44% of the economy and employ some 59 million people -- as the coronavirus pandemic plays out.

smb-stack-mckinsey-survey.jpg

Image: McKinsey

Polling of 1,004 SMBs (defined by McKinsey as having annual revenues of less than $500m) between 26 March and 2 April found that businesses have been affected by the coronavirus (60% agree, 9% disagree) and that optimism over the economy has declined (61% pre-COVID-19, 30% after). Just over half (53%) of SMBs have extreme concern about business sustainability since the pandemic, ranging from 83% (information & cultural services) to 40% (agriculture, forestry, fishing & hunting). The steepest declines in revenue are expected among smaller businesses (<$20m in annual revenue) and those that rely on a brick-and-mortar sales channel (see chart above). Spending has already been significantly or somewhat reduced by 61% of SMBs, with a majority (~53%) citing 'being cautious and preparing for the worst' as the reason. Half of US SMBs, and over three-quarters (78%) of those with under $20m in revenue, have already laid off employees.

The SMB tech stack

So how should SMBs go about choosing the technology stack on which their businesses will be based in this uncertain, but undoubtedly challenging, future?

Obviously organisations that have already embraced digital transformation and restructured their business practices around cloud services, mobility and analytics will be ahead of the game -- especially if they have robust disaster management and recovery plans in place. However, businesses that need to accelerate from a standing or sluggish start will need all the advice and help they can get.

When it comes to technology purchasing decisions, there are a number of key factors that apply across multiple product categories. Back in 2016, Gartner collated some findings from Peer Insights, the analyst firm's platform for moderated user reviews of technology products. From a sample of over 2000 responses, the top 11 decision-swaying factors were:

smb-stack-purchasing-decisions.jpg

Data: Gartner Peer Insights / Chart: ZDNet

It's no surprise to find that functionality, performance and cost head up the list of key factors. The remainder form a secondary 'halo' around a product, and will likely vary in importance depending on the product category. SMBs, in particular, may be tempted to put cost front and centre in their technology purchasing decisions. However, it's always wise to remember the adage that 'you get what you pay for', and not to overlook other key factors like the product roadmap, services, customer focus and ease of use.

As noted earlier, the availability of in-house IT support is likely to be an issue for SMBs -- especially given that the average salary for IT professionals is £44,135 in the UK and $85,019 in the US, according to Glassdoor. Increasing the IT headcount might prove too much for many small firms, but fortunately there are numerous opportunities to outsource tech support, either on a subscription or pay-as-you-go basis.

And it's not just IT support that's being outsourced by SMBs. A 2019 survey of 529 small business owners and managers by B2B research, ratings and reviews site Clutch found that 37% of small businesses (<500 employees) outsourced at least one business process, and over half (52%) planned to do so going forward. The most commonly outsourced business tasks were 'technical' ones, such as accounting, IT services and digital marketing:

smb-stack-outsourcing.jpg

Images: Clutch

The main reason SMBs outsourced business processes, the survey found, was to increase efficiency, followed by better access to expertise, increased flexibility and freeing up employees' time for other tasks. Although outsourcing clearly offers many benefits, Clutch's survey highlighted the need for SMBs to consider the following aspects of their relationships with contractors: how they are vetted; the confidentiality of information sharing; communication methods; and how quality expectations are set.

The next logical step from traditional outsourcing is to embrace the 'everything as a service' or XaaS model, in which all manner of business processes are delivered over internet connections as cloud services. The benefits are familiar, including a shift from capital to operational expenditure on IT infrastructure, greater flexibility and scalability, and access for SMBs to enterprise-grade applications such as ERP and CRM that are managed, secured and frequently updated by the service provider. 

SEE: The future of Everything as a Service (free PDF)

Given that IT skills are in short supply in small businesses, XaaS could play an important role in freeing up tech staff from low-level tasks so they can concentrate on creating and developing new business opportunities. These are likely to be increasingly centred around data science, analytics (including ML and AI) and the Internet of Things (IoT). In the present circumstances, IT staff would be freed up to concentrate on supporting the new wave of remote workers.

Of course there are potential downsides to 'as-a-service' adoption, including: service outages; security, governance and compliance issues; inadequate performance; hidden costs (including the cost of integrating and managing multiple cloud services); service provider lock-in; and customer support issues.

One potential issue that has been tested by the coronavirus pandemic is the resilience of the internet itself, which has seen big traffic spikes as millions work from home or are locked down with time on their hands. So far, the internet seems to be holding up well -- to the extent that internet analysis company Thousand Eyes noted a 40% drop in global outage events among ISPs, public cloud provider and UCaaS provider networks in early April:

smb-stack-1000eyes-outages.jpg

Image: Thousand Eyes

Most of the potential XaaS problems noted above can be minimised with good planning and a tightly-defined SLA (Service Level Agreement). However, businesses will need to remain vigilant, and also realise that cloud deployment will not be the answer for every IT workload or business process.

The defining characteristic of small and medium-sized businesses is limited financial and human resources compared to those available to enterprises, which means that SMBs must apportion their resources with extra care. So what are the most important technology trends for SMBs? Spiceworks' The 2020 State of IT report shows two clear front-runners in terms of the adoption of emerging technology in companies with less than 500 employees: IT automation and Gigabit Wi-Fi networking:

smb-stack-spiceworks-tech-trends.jpg

Image: Spiceworks

When it comes to the top IT challenges that organisations expected to face in 2020, the coronavirus pandemic was not on the horizon at the time of Spiceworks' survey (July 2019) -- at least, not specifically. Still, it's noticeable that standout concerns for small businesses (<100 employees) were 'Following best security practices' and 'Maintaining disaster recovery policies':

smb-stack-spiceworks-tech-challenges.jpg

Image: Spiceworks

To find out more about key product and service sectors for SMBs, read the rest of this ZDNet/TechRepublic special report, which covers: computers, telecommuting, cybersecurity, password managers, routers, video conferencing, collaboration, AI and ML, point-of-sale systems, inkjet printers and 3D printers. We also take a look at some free COVID-19-related tools and services for businesses.

Outlook

SARS-CoV-2 is a Darwinian test for businesses -- and especially for SMBs, which lack the resources that are generally available to enterprises. Those that were pre-adapted for the extreme selection pressure imposed by the coronavirus pandemic -- with optimised procurement, digitally transformed business processes, good tech support, flexible work culture, disaster management and recovery plans in place -- should prove resilient and emerge from lockdown to prosper again. 

For the remainder, hard times will highlight weaknesses and provide opportunities for improvement -- assuming they survive, of course.

A recent (March 2020) survey of 2,135 UK business owners by Hitachi Capital Business Finance found that 20% of small businesses felt the prospect of working remotely for months on end was a major concern; 30% said their tech setup was holding them back, and half of those were concerned they might have to close until the virus was under control. Small businesses were twice as likely to have concerns about their survival during the pandemic than large businesses.

In a statement, Gavin Wraith-Carter, managing director at Hitachi Capital Business Finance, said: "Extreme situations will stretch businesses to limits, and expose areas that require attention. Smaller businesses, without the same resources and facilities as their larger counterparts, will have felt this bump the hardest. However, many of these issues can be fixed, and these improvements will offer significant competitive advantage over the years. Where small businesses have an advantage over their larger counterparts is the speed at which these changes can be implemented and incorporated into the core business practice."

There have been plenty of warnings about the likelihood of a global pandemic in recent years -- and yet here we are, with populations widely locked-down, three million cases and 200,000 deaths (and still rising) globally, and economic activity barely ticking over.

The driving forces behind zoonotic diseases such as COVID-19 are still in play: widespread consumption of wild meat, and the continuing destruction and conversion of pristine habitats for farming and urbanisation, all of which result in closer proximity of humans and their domesticated animals to previously rarely encountered wild species and their pathogens. So, from governments to SMBs, there is no excuse for being unprepared the next time a major spillover occurs.

RELATED CONTENT