Fresh N’ Good operates four retail stores in Chennai. They employ over 100 people, and use IT in most of their operations. But the software they use is non-customized, and they do not utilize over 80% of the application. They cannot afford a dedicated IT team yet. And with the rigorous expansion plans, they do not have the funds to reconfigure their IT systems at this juncture. At another spectrum, is Delhi based Su-Kam inverters. Su-Kam has been ramping up IT expenditure and spent over Rs 1 crore in the FY 2008. Using applications such as Power-Doc to remotely monitor their devices is the first step on a long list to accelerate them towards their potential.

The world of Small Medium Businesses (SMBs) has a similar introduction to IT.  With more than 75 million companies around the world, the SMB market spends more than $800 billion each year on IT and telecommunications hardware, software and service. By end of 2008, that figure is expected to top $1.1 trillion. Further, the IT and communications spending growth among SMBs tends to outpace that of larger businesses—even during periods of economic downturn. The purchasing power of this group, coupled with its apparent resiliency to recession, provides tremendous opportunities for early movers to capture market share and generate significant revenues. SMBs in India are likely to spend $9.7 billion on information technology infrastructure in 2008, up 22 per cent over 2007, due to a boom in the overall economy and a rise in the number of small businesses (or companies with up to 99 staffs).

The SMB world looks at IT as an operational strategy. It is also viewed as a source of competitive advantage by most of the users. In such a scenario, where IT is seen as an enabler is all aspects, we attempt to identify the key value drivers SMBs look for while making an IT spend. Present literature mainly revolves around price and that too concentrated on USA and European SMBs. To have a clearer picture of the needs and expectations of SMBs from IT, we talked to a number of SMBs in Pithampur Special Economic Zone and Bangalore industrial areas. The major value drivers for an IT spend  we identified  can be classified into these heads :  Pricing, Post Sales Service,  Level of Engagement/Control, Integration Abilities, Strategic Involvement of IT.

Elaborating on the drivers, pricing included total cost of ownership of the IT spend. This encompasses product cost, people cost, infrastructure and opportunity costs. Post sales service involved response time, cost and efficiency of the after sales service the Vendor provided. The proximity of vendor or service agents to the company was also a factor in Post Sale service evaluation. Level of engagement and control deals with the dependence on IT the system creates. SMBs are tightly controlled organizations and hence are averse at letting control slip away from their hands. High IT dependence is hence seen as a compromise of control. Integration abilities include the ease, adaptability and degree of seamless migration IT offers. Strategic involvement of IT deals on the issue of whether IT is a seen as a operational strategy or firm policy or a competitive advantage.

With the following value drivers identified, a survey was sent to 141 SMBs out of which 76 took the survey. The purpose of the survey was to rank the importance of the drivers behind an IT spend and also to identify new value drivers. The obsession of most of the literature presently available with Pricing being the most important driver has been proved otherwise. The sample results show that Integration abilities rank the highest as the biggest value driver. Pricing, though, comes second followed by Level of engagement/Control, Strategic Involvement and Post Sales Service.

The integration ability of the product includes everything from ease of assimilating operating competencies by existing personnel, providing plug and play abilities, seamless integration with everyday workflow and a clear view of how IT fits in to the bigger picture. This ability was ranked the most important virtue and also the most disruptive if absent. Pricing is considered to be as an important denominator in determining the choice set and the backbone in grouping offers but hardly the deal clincher.

Riding the  SMB wave

As modern information technology develops, small and mid-size businesses (SMBs) find that they have opportunities to compete in markets and industries that were formerly the province only of large multinational companies. The Internet has opened doors to new types of business models, fueled highly productive supply chains , and enabled global sourcing strategies for nimble companies. IT now is no longer another activity, it is seen as an enabler. To serve this market, the IT industry should move away from established business models, pre conceived notions and inertia developed due to success with bigger clients. The SMB industry is a different ball game altogether.

Small IT staffs , infrastructure hurdles and accelerating business agendas make it tough for SMBs to embrace IT like their bigger counterparts. As seen by services that have won  in this market and concretized by the survey, integration abilities of the product followed by intelligent pricing mechanisms are the prime drivers in penetrating this treasure trove.

Rapid Integration & Implementation

Small and midsized players have neither the time nor the expertise for tedious integration and trickle down of product and related competencies. Hence new technology and its updates should favorably be plug_and_play. Offering rapid integration ensures that the companies can leverage the IT advantage while working the same way they had been. The present scenario however is characterized by lack of Vertical specific IT solutions. This one for all approach has dented the ability for rapid integration as customer needs and usage are divergent across verticals. Hence, offering vertical specific solutions that require minimum customization in the last mile is of paramount importance.

Rapid integration does not stop at offering plug and play services at reduced time alone. It involves reducing technology complexities at the customer end and providing remote management and trouble shooting. This ensures that customers are oblivious to the complexities of the system and have financial and man power resources freed up to focus on their core competencies.

An apt example of the same would be the Cisco Unified Communications systems targeted at the SMBs. From providing rapid integration, plug and play and customized solutions, Cisco goes a step ahead and provides customers with leasing and financing options that simplify the process of technology acquisition and also protects customers from technology obsolescence.

Another striking aspect of integration requirement is for the product/service to seamlessly integrate with existing IT systems and networks. This includes other technologies and across platforms. For example, Oracle Identity Manager works with software such as Oracle Application Server Single Sign-On to provide a centralized management service for many different application environments. Perhaps most importantly to SMBs, these components can be quickly integrated with Oracle Portal, Oracle E-Business Suite, and other complementary products.

Dynamic Pricing

In the demand side, same product/services offer different value propositions to different customers and differ in usage both in terms of time and impact. This is more specific to the SMBs. From the supply side, varying levels of customization support and collaboration is prevalent for same product/service across customers. This scenario is tailor made for intelligent dynamic pricing models. Such value based pricing propositions help foster engagement and better tradeoffs depending on customer needs.

Price in general and ROI in particular is a big evaluation criterion in the SMB landscape in deciding on IT spends. Offering dynamic pricing models can therefore make the crucial push for the product/service. A dynamic pricing model can be anything from pay per use to pay per upgrade. They offer the customer the asset of flexibility and take away the fear of spending in unused IT capacity. Such innovative pricing models have really taken on the SMB IT landscape and made IT managers take a serious relook at their IT spends.

Innovation in pricing has many dimensions. It can be pay per use (Salesforce.com ), open source (Think Linux) and the most revolutionary – Free Ad supported IT service/products (Think Google). Companies like Red Hat make money in the open source arena by offering maintenance and support along with free software. The success of the same depends on passionate community of software developers. The ad supported services/products are available free of cost to the end user, the trade off being exposure to tailor made advertisements and at times participation in market researches. Google’s recently-launched Docs and Spreadsheets application provides free online word processing and spreadsheet functionality covering many of the basic features in Microsoft’s dominant Office applications.

All this points towards one direction- the traditional shrink wrapped product model cannot survive for long. The license- revenue model of offering shrink wrapped IT has advantages of predictability and stability. However, the wait period between first sale and convincing customers to buy upgrades is one of stagnant revenues and is also longer as new upgrades have a number of incremental changes bundles. The future is for hybrid revenue and business models.

Service Model

If the present business models need some tinkering to serve the SMBs, the service models need a whole makeover. The present service model followed to serve SMBs is similar to that followed for every other clients, big and small. A basic understanding that the small and medium business segment have different personalities- smaller IT budgets, minimal IT staff, lesser resources and constrained infrastructure. Hence, there is a need to have a completely new service model.

Partnering Transformation: To start with, the concept of looking at customers as clients has to be done away with. Customers should be partners. Such a view ensures two things- Increased engagement and alignment of goals of vendor and user. Collaboration with the businesses ensures that not only is routine day to day operations are impacted, but also IT companies can look at offering transformational solutions. Moving away from the current scenario of offering transactional solutions, IT companies and vendors can look at gaining competencies from offering such transformational or high value adding solutions. This not only helps fostering more breadth and depth in engagement, this also offers avenues for service providers to gain consulting  competencies that will help them move up the value chain in global markets.

Channel Partners: Creating tailor made solutions for SMBs ground up and delivering them has an important intermediary between- the channel partners. These involve resellers and smaller integrators. Having easy to integrate, customized suite of products is very important. Even more is the need for integrators and resellers to identify the enterprise needs and offer the right mix of solutions. An example of an organization that has got this aspect right is Nortel. The innovative and comprehensive small and medium business (SMB) program that Nortel launched in India has been so successful that it's being expanded so SMBs in other Asia markets. The crux of this program is the nForce Select Partner initiative . The structure of nForce Select allows channel partners to focus on meeting the business needs of their clients, while enjoying the full breadth of Nortel's support capabilities. As members of Nortel Asia's new nForce Select Partner program , SMB channel partners have access to a technical helpdesk, training, demonstration and lab equipment, and tools such as ROI calculators, solution finders and reference guide

Marketing/sales Ratio: The IT industry, predominantly serving to big businesses now, is characterized by knowledgeable buyers with concrete requirements and transactional needs. The sale to marketing ratio is very high in this regard. However, the SMB IT market requires a different approach altogether. The transformational partnership demands a high marketing to sales ratio. From the marketing team, the IT heads of SMBs need a walk through into the servicescape and business impact of solutions on offer. Customer service should get the highest priority as issues involved will be predominantly mission critical demanding immediate attention. Creating and fostering forums, holding conferences and workshops will go a long way in continuous development of both channel partners and end users.

R&D Outlook: R&D capabilities, is another primary aspect of servicescape that needs to change. Smaller but more frequent online upgrades will demand new attitudes on deadlines and quality. The R&D department will need to expand its focus from the “product and allied features” to the entire delivery model, including tools for serving the software, billing the customer, and aggregating different software services. Last but not least, to ensure a smooth end-user experience during releases, R&D units must develop a customer service mind-set and collaborate with those parts of the company that manage sales and delivery. This shift will require new processes, such as joint release planning, that resemble the way application-development and infrastructure groups operate in traditional IT organizations.

Conclusion

Smaller and nimbler, the SMBs of tomorrow are leveraging the benefits of technology to move faster than their bigger counterparts. So stripped down versions of the same applications that are in vogue does not make sense. Less functionality for less price is not the means forward. To enable a future where they can compete in fair terms with the big corporations, they need to integrate rapidly- with technology, and globally at that. And when they are looking for a partner in this growth story, the vendors should be queuing up. SMBs offer technology companies avenues to develop and implement transformational IT and gain consulting competencies that they can leverage globally. Offering growth in terms of market size, revenue and capabilities, SMB IT is one space that companies should proactively establish their presence.