SMEs - Make your IT resources go further
Smaller businesses and organisations are having to move fast in order to keep up with and make the most of new technology opportunities. It has been suggested that 2009 will be ‘the tipping point’ where businesses start to switch over to the cloud, as they gain more understanding of it.
It is expected that small and medium-sized enterprises (SMEs) will suffer more than most in the current economic downturn. A combination of smaller cashflows, shrinking IT funds available for investment and a lack of internal resources are among the obstacles they all face.
The answer lies in the SMEs ability to be more adaptable and innovative than larger corporations and those who can find the best IT deals available will be heads above the rest. There are signs that this is exactly what SMEs are doing, by looking for new ways to gain technology without paying through the nose.
Tim Jackson, chairman of technology consultancy Inflector, has noticed that SMEs are moving more towards outsourcing their IT. He has seen the demand for web hosting rise dramatically. He says that, “This trend is likely to be replicated in other areas, with SMEs expected to start outsourcing services to other countries in much the same way as larger enterprises do now.” He also said that, “This move will be pushed by a number of elements including virtualisation, a reduction in computer costs, and the availability of faster network connections due to expanded broadband rollouts.”
BroadGroup, a consulting group has published a recent report suggesting that SMEs will increasingly turn to cloud computing and software-as-a-service (SaaS). Both models can help smaller businesses to deliver new products and services quicker and at a lower cost.
The SaaS model is gaining a lot of clout in the business world, with large software vendors and application service providers like HP, IBM and Microsoft, now offering business applications such as customer relationship management (CRM), databases, knowledge management and web development software as web-based utilities.
Analyst Gartner estimates that organisations are typically saving between 25 and 40 per cent by using SaaS-based CRM applications. The savings are made up of reduced application expense and lower implementation costs.
SaaS offers a pay-as-you-go approach, which is particularly appealing to SMEs as it allows them to only pay for the resources they need without the worry of installing, upgrading, maintaining or securing those systems. They avoid the expense of hardware, installation, maintenance fees, software licensing and the need for the dedicated internal IT resources needed to administer systems.
“Some of the earlier adopters [of SaaS] were SMEs, but it is down to cashflow and the fact that many organisations do not need to keep their own servers under the stairs,” says David Mitchell, senior vice president of IT research at Ovum.
“Driving down cost is the obvious reason for moving to SaaS/cloud computing, but there are two aspects to cost – total cost of ownership and cashflow,” says Inflector’s Jackson. “If you save 20 per cent off the cost of the IT over five years, that is nice, but if doing it involves spending 80 per cent of the money right now, that has a more dramatic effect.”
Part of the appeal is the flexibility it affords its users. In the past, if a company wanted to offer a new service, it would need to build the technology infrastructure to support that and factor in the cost of paying the money upfront.
“With the cloud model, you can actually try it out without incurring significant capital costs,” says Jackson.
In future, suggests Jackson, some of the larger SMEs will start examining options that look more like cloud services, where they lease computer power to run intensive applications and storage space by the megabyte.
Up until now, the new cloud computing model has tended to focus more on the consumer market, with companies such as Google and Amazon offering simple and standard on-demand applications such as word processors or spreadsheets, coupled with online storage resources.
“Many executives are still very sceptical about the cloud,” says Jackson. “But there are millions of consumers already using it. It is gaining rapid and universal adoption – 2009 will be the tipping point where a wider business community will start switching to the cloud as they come to understand it more.”
Other ways SMEs are avoiding the expense of software licensing include the use of open-source software, where firms pay maintenance and support costs but the software is free.
Nevertheless, the fees for commercial open-source packages such as those on offer from Red Hat, Novell or Ingres, can often equal the total cost of ownership of propriety software over time.
“It is difficult to move people onto open-source software on the desktop if they are used to Windows and Word environments,” says Ovum’s Mitchell. “Also, is it actually going to save them anything by moving to OpenOffice and Linux for instance? Because when it comes to replacing those assets in two or three years’ time, there might be an issue.”
For many SMEs, however, IT delivers sufficient business benefits to justify owning their own hardware and software. In such cases, SMEs lack the clout to establish direct relationships with technology vendors, and instead buy goods and services through the reseller channel.
This does not mean SMEs should expect lower levels of service, says Glenn Morrison, managing director of UK business-to-business reseller Upgrade Options. Resellers are better able to forge a close relationship with the user, he says, and have better insight into available inventory, ensuring they can deliver orders to schedule.
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