Plan IT purchases carefully ahead of upturn

SMBs should prioritize their spending in terms of what hardware and software can better help drive their business, analysts advise.
Written by Sol E. Solomon, Contributor

The recession has forced small and midsize businesses (SMBs) to put spending under heavier scrutiny. But while these companies can delay some IT purchases, not all technology acquisitions can be put on hold until the economy recovers, experts say.

Michele Caminos, outsourcing and IT services research vice president at Gartner, said SMBs cannot afford to cut back mission-critical services contracts, security and other applications that will impact their business in terms of revenue or compromise brand or customer loyalty.

Avneesh Saxena, IDC's Asia-Pacific group vice president of systems, storage and software research, said spending on infrastructure software remains a key priority of SMBs. Infrastructure software includes operating systems and utilities built to help SMBs manage, and if necessary, automate some of their infrastructural assets such as servers, storage and networking equipment.

"They have to upgrade, they have to make sure they buy the latest stuff that will help them do things more efficiently as well as manage their complex environments," Saxena said in a phone interview.

If an SMB determines there is redundancy within its IT environment, it can invest in certain tools that will help the company use its existing systems more efficiently, Saxena said.

Such tools will improve systems utilization through better management so that there is less downtime, he said. For SMBs that have had to reduce IT headcount, the management capabilities in these software can also help the company better cope with the loss of staff.

Caminos told ZDNet Asia in an e-mail that SMBs in mature markets were also spending on business intelligence (BI). "This is to extract additional value from their investments in enterprise applications and data warehouse. So we continue to see a push to BI," he noted.

Saxena concurred that medium-sized companies, typically those with over 500 employees and that are seeing growth, do need better access to information. "They have to do something about their analytics or BI, [and] are more open...to invest in some of those," he said.

However, Saxena added, BI and analytic tools are a luxury for some smaller firms that cannot justify the investment simply to growth.

Both analysts believe SMBs can defer certain hardware upgrades.

This is particularly relevant for desktop upgrades, Caminos said, but noted that servers require careful evaluation. "Although the replacement cycle can be lengthened, they need to evaluate the long-term cost to the organization," she added.

Saxena said such deferment should not be long-term measures but based on a 12- to 16-month time span.

When good times come again
SMBs should also prioritize their spending in terms of what hardware and software tools can help drive their business.

Caminos said: "If the benefit can be quickly realized, and the cost is in line with budget, then it may move forward."

She added that businesses of all sizes have to be careful when deciding how they plan to reduce IT spending.

Compared to the downturn in the early 2000s, when the dot-com bubble burst, businesses today are implementing more IT tools. They are more reliant on technology now than they were seven or eight years ago, she noted, adding that this makes decisions on spending cuts tougher to make.

Saxena noted that SMBs that make the wrong decisions will not be able to build to the required scale quickly when the market turns around, and this would be a "huge problem" for them. There would be a time lag before these companies are able to reap the opportunities afforded by an economic rebound.

If a small or midsize company is not doing much to prepare for the turnaround, it would then be difficult for the company to leverage the benefits, the IDC analyst said.

However, he added, experience with past recessions in the Asia-Pacific region will prove valuable for these companies. "They probably understand what risks they will run into [if they are] not able to invest more today. It probably is an opportunity cost many of them feel they can forgo or deal with, and [instead] try to focus on controlling costs [for now]," he said.

Once the economy turns around, SMBs that have the products ready for customers will take advantage of the situation, while the rest would likely come through in the next nine or 10 months, said Saxena.

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