You would think that the high profile attached to IT would be recognised by businesses in much the same way as they might view salaries, training and office costs. In other words, you might expect many companies to have something as simple as an IT budget in place – which just goes to show how dangerous it is to make assumptions about anything.
Four years ago, the Small Firms Association (SFA) conducted a survey, in tandem with Microsoft and HP, of over 300 small businesses, employing an average of 29 people each. The survey asked how many had an IT budget and found that half of all the companies surveyed did not have one. Those that did have an IT budget spent around €19,500 per annum.
The first thing to say is that there are probably many small businesses that would balk at such a figure. They are not alone. The survey found that 49 per cent of respondents viewed the cost of IT products and services as being too expensive, with 43 per cent revealing they had changed provider because of “dissatisfaction with service provision or due to different system requirements”.
IDC’s IT trends survey last year included 120 organisations with less than 50 employees and found that just under half of them spent less than €10,000 on IT in 2004, but a third spent between €10,000 and €50,000.
John Gilsenan, IDC consultant, adds the proviso that because there were fewer businesses included in the IDC survey that had five or less employees, “the actual proportion of organisations that spend less than €10,000 per annum on IT is larger”.
He also believes that the SFA’s four year old finding of half of small businesses not having an IT budget “wouldn’t be too far out and too low if anything”.
More information can be gleaned from the Chambers Ireland SME eBusiness Survey 2005, published in November last year, which found that the 601 small businesses polled had an average spend of 4.4 per cent of annual turnover on hardware, software, telecoms and IT support. The percentage varied by industry with manufacturing showing the lowest spend and business services/real estate the highest. Interestingly, nearly 40 per cent expected to increase their spend on IT as a percentage of turnover in 2005, but half expected the figure to remain the same. This would suggest some of them had to have an IT budget or at least a decent idea of what their IT spend was to be in a position to predict what it would be like the following year.
In keeping with the findings from the SFA research that the cost of technology was an issue, 59 per cent of those in the Chambers Ireland survey identified the cost of hardware and computer equipment to be a problem.
In 2002, the SFA published IT Management Guidelines for small businesses, arguing that IT was “managed on an ad-hoc, fire-fighting basis. Problems are only countered when they have arisen and technology is randomly purchased from a contingency fund rather than a carefully planned IT budget.” Has anything changed in the past four years?
Not according to Mary Ashe-Winton, small business manager at Microsoft. She says that in many focus groups conducted by the software giant it is apparent that “very few have a form of IT budget or an IT budgeting process”.
She describes small businesses as having a “very unstructured and very ad hoc” approach. Price sensitivity also plays a part with many owner/managers anxious to ensure they know what the return on investment will be for every penny they spend. Ashe-Winton believes there are three drivers for small businesses investing in technology. The first is break/fix where they have to replace a machine that dies. Obviously, this is an ad hoc arrangement because no one can predict when a PC will break down.
Small businesses will also devote resource to IT when their circumstances change i.e. they might move office or take on an extra employee. In many ways, this can be more structured, although the unpredictable nature of small business growth can catch some off guard. Finally, there is the temptation to invest in a “killer application/new technology” that can drive small businesses to spend cash on IT. Ashe-Winton cites remote access as a potential for such investment.
All of these areas require small businesses to find some budget to pay for them and Ashe-Winton argues that “most people seem to be able to find the money to do that”. Is it the best way to do it? She argues not. “We recommend they should at least budget. Anyone who does budget tends to look at what they’ve done and to figure out what they need and what it will cost.”
Perhaps the shorter decision making process in small businesses makes it easier to live without an IT budget, but it also means there is a lack of planning and very few approval mechanisms because so many small businesses don’t have a budget.
Of course, there’s always the alternative argument: small businesses don’t need to budget for IT because they only pay for it when they need it. Very few small businesses have the time or the luxury of resource to make long-term decisions about their IT requirements. It could be argued that small companies buy IT on an ad hoc basis because that is the approach which is best suited to them.
As Ashe-Winton appears to concede, most small businesses only buy IT when there is a pressing and visible need for it. Their unwillingness, for the most part, to buy IT on a strategic basis may say as much about the suitability of solutions put forward by IT providers as it does about the short-term nature of most small business. Put simply, if small companies don’t think an IT product – software or hardware – is essential to their operation, they won’t buy it. Convincing them otherwise is the issue which Ashe-Winton puts her finger on when arguing that many small businesses settle for ‘good enough computing’ but ignore what she terms the “greater productivity gains” that can be acquired through using technology in a structured manner. “Small businesses don’t understand that technology can grow their business,” she claims. “It’s a fundamental issue.”
But as Patricia Callan, assistant director at the SFA, points out, many small businesses feel they have been oversold technology in the past. A supplier might be pushing a CRM package when all they really need is an accounting system. “You have to have IT but it’s best to have a good look around and see what’s available rather than rushing in. You need to plan a bit more around it – seek out a good expert or access the free advice which is available.”
She argues small businesses should “identify key business partners and find someone with the relevant accreditations. There are various degrees of specialisms among resellers but you’re better to go to someone who deals with small businesses.” Like Ashe-Winton, Callan feels there are some small business that are “very clued in” about IT but there are others “who are not tapping into the business benefits”.
As for IT budgets, the SFA has no hard and fast guidelines “because every business is specific. The core costs are different. Something could be a big issue for one business but it could be minor for another.”
Finding a trusted partner is something Ashe-Winton also advocates. “Make sure you’re got a trusted partner and good relations with your IT provider. You need to find the right IT supplier to build a relationship of trust. We would encourage small businesses to talk to an outsourced IT provider.”
But as the figures demonstrate – remember the 43 per cent who changed provider because of “dissatisfaction with service provision”? – many small businesses aren’t happy with the service they’re getting. The Chambers Ireland survey also found that just over half of all small businesses thought the cost of specialist/technical skills in computer/ebusiness specialist companies was a problem.
There are two sides to the story of course. Providers might find it hard to establish trust and loyalty with someone keen to get the lowest price for their technology purchases. They might find it a waste of time trying to develop any kind of relationship with a customer that only buys IT on an ad hoc basis.
Without the trust and loyalty of a proper relationship, small companies could find the level of service from IT providers to be perfunctory and casual. Ashe-Winton believes small businesses should try and formalise the process – once they’ve found someone they can trust – by signing up to a software and support contract because it gives them predictable costs, tax benefits and there is no need for a large upfront fee. In other words, they sign up to something which, to all intents and purposes, provides them with a readymade IT budget. Callan at the SFA also suggests leasing and other payment schemes as a way of spreading costs and bringing a level of discipline to IT spend.
Such an approach might work for some small businesses, but there are bound to be others that shy away from it. Very small companies might not have the resource to put into a formal software and support contract. Others might prefer to retain tighter control of their IT spend, even if it is conducted on an ad hoc basis. It’s easy to overlook the fact that much of the spend may be ad hoc because, like other areas of expenditure, it is dependent on the owner/manager’s say-so. The issue could be as much about the culture of a small business as it is about how it budgets for purchasing equipment.
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