Small Business Gets Tech Savvy

Feb. 9, 2010
Nearly 30% plan to implement SaaS solutions in 2010

Today's small business is more sophisticated when it comes to investment in new technology. Innovative solutions such as managed services and software-as-a-service (SaaS) are being deployed in greater numbers by organizations with 500 or fewer employees.

A recent survey by information technology (IT) industry association CompTIA of more than 400 small and mid-sized businesses (SMBs) across the United States found that nearly 30% plan to implement SaaS solutions in 2010. That's up from 22% and 14% respectively in the two prior years.

Similarly, 30% of SMBs intend to implement managed services solutions in 2010.

SMBs cited a desire to lower costs and maintain and build on their competitive edge as top reasons for adopting the SaaS model.

The bulk of their IT spending continues to be allocated towards PC computing hardware and software followed by investments in security, service and support. But a sharp decline in the planned adoption of basic IT such as computing, software and communications is anticipated in 2010. The number of SMBs surveyed that plan to make PC upgrades or replacements in the upcoming 12 months dropped from 98% to about 30% looking forward to 2010. This is indicative of SMBs looking to leverage their existing IT infrastructure better; and a shift in mindset to IT investments that drive revenue generation.

To be sure, the majority of SMBs continue to be "value adopters" who prefer to wait until new technologies are proven in the market before buying, aiming for a justifiable return on their investment. But the percentage of businesses claiming to be early adopters of technology has doubled from 2008, to 31% in the latest survey. Manufacturing, finance/insurance and government are leading this wave, where 60% of the respondents in these categories claiming to be early adopters.

Significant investments in computing, networking, the Internet, Web sites, e-commerce and mobile communications have enabled SMBs to transition to more advanced technologies, leveling the playing field with larger competitors and helping to create competitive advantages.

Clearly SMBs are placing increasing importance on technology solutions that drive revenues, produce immediate results to the bottom line and have a direct, positive impact on the customer's experience. This is reflected in their growing adoption of enterprise resource planning (ERP), and other such solutions in 2009. Between 70% and 80% of the SMBs we surveyed consider the usage of ERP, CRM and online e-commerce capabilities as strategic to their business. One-third use virtualization and over half report having custom software in house to help tie their IT investments together.

Clearly the stage is set for leveraging technology to enable business growth by enhancing core business processes, productivity and efficiency; and increasing connectivity and knowledge access and sharing with customers, partners and suppliers.

Cautious IT Spending Outlook

When it comes to IT spending in the next 12 months, it appears that SMBs are being cautious. They're fairly evenly split between expecting their IT spending to remain flat or decline in the next one year (45%) versus expecting it to increase (55%.) The fact that 55% say they expect to increase spending is generally positive and encouraging given that this percentage has increased slightly from the same time last year.

Organizations in finance/insurance and government demonstrated the highest purchasing power, spending as much as three times the average. The former especially has recovered quite nicely from the credit crisis with the help of government incentives to boost lending and credit availability. Healthcare businesses have planned for the greatest increase in average annual IT spending in the next 12 months despite having the lowest average annual revenue.

Given budget constraints, receptivity to SaaS, managed services and virtualization to leverage pricing flexibility and lower IT complexity is likely to become more strategic in the next 12 months. All of the above technologies have the ability to scale with the business, outpace total cost of ownership and work within tighter budgets eliminating the need for formal IT personnel or upfront investments. Of the initiatives being taken to generate and drive revenues, business solutions that enhance customer facing efforts have gain in importance in the last 12 months and will continue to be relevant in 2010.

Buying Technology

SMBs indicated they will focus more on proven relationships and eliminate unnecessary risks in 2010. Nearly half of the businesses surveyed reported they will limit the number of IT brands they purchase to brands currently in use. At the same time, the number of businesses that said they will only buy leading brands rose from 44% to 56%. SMBs also appear to be focusing on fewer vendors and partners as well, with 56% stating they will buy IT solutions from a single vendor or partner.

As witnessed in previous years, pricing and product promotions alone are no longer effective levers in triggering SMBs into purchasing. Total cost of ownership (68%) and solutions that have the ability to scale with the business (68%) offer better insights into purchase decision-making in this economy. The willingness to pay more for solutions from a trusted partner (70%) and product reliability both ranked highly in 2009.

As for the criteria used to evaluate and select partners, in addition to competitive pricing (92%) and high quality service (90%), SMBs continue to demand partners that truly understand their business needs (86%) and are able to provide scalable solutions (83%.) Diversity of product offerings is also being used to evaluate partners and vendors.

Todd Thibodeaux is the president and chief executive officer of CompTIA, the leading trade association for the world's information technology industry.

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