FT.com / Technology - SMALL AND MEDIUM-SIZED COMPANIES: Profit from picking the right IT partner

FT.com / Technology - SMALL AND MEDIUM-SIZED COMPANIES: Profit from picking the right IT partner

SMALL AND MEDIUM-SIZED COMPANIES: Profit from picking the right IT partner
By Stephen Pritchard

Published: April 18 2007 10:08 | Last updated: April 18 2007 10:08

Over the past decade, smaller enterprises have faced a paradox: the price of computer equipment appears to fall each year, yet smaller companies are devoting a growing percentage of their turnover to IT.

An office PC with a decent specification is now widely available for less than $500. Yet Gartner, the industry analyst firm, predicts that small and mid-sized companies in Europe alone will increase their spending on technology by 10 per cent this year – a higher percentage increase than for larger enterprises.

The discrepancy, however, is easily explained. Smaller companies are becoming more dependent on technology, and are using it in more areas of their business. This is especially true both of small companies that want to grow, and of mid-sized businesses that are looking to technology for efficiency gains.

In turn, this is putting pressure on the traditional relationship between small companies and their IT suppliers.

A few years ago, a business would be satisfied if its local computer dealership could supply a few PCs, some printers and perhaps install a network. But commoditisation of much computing hardware, along with SMEs’ increasing reliance on business applications such as CRM and ERP, is changing that relationship.

“SMEs often no longer have a supplier as such for computer hardware, printers or broadband services. They buy the cheapest,” suggests Andy Kyte, a vice-president and fellow at Gartner. “But if companies want to grow, they need to acquire [business] software, and at that point, they need a value-added reseller.”

Finding the right reseller should be a priority for company directors. As Mr Kyte points out, SMEs are often reluctant to change resellers once they have established a relationship, not least because of the time and costs involved in selecting a new supplier.

Selecting the right partner becomes all the more important if that company is also going to customise or adapt an application for the business, because it will be even harder to find a company prepared to work with someone else’s custom code.

It is not an easy task. The IT consultancy and reseller markets have undergone considerable changes since the end of the technology boom, and by no means all changes favour the smaller business that needs to invest in IT.

According to Jim Shepherd, senior vice-president at AMR Research, the number of hardware resellers is falling, particularly in North America. Market conditions favour a smaller number of larger resellers and distributors and software companies are encouraging their resellers to focus on volume sales.

Businesses have, of course, benefited from the lower cost of IT hardware and to some extent, software licences. But the “added value” integration and consulting that SMEs rely on so heavily to make technology work is often squeezed, as the larger resellers go after volume.

At the other end of the spectrum, Mr Shepherd identifies smaller, more localised IT companies whose owners all too often lack the ambition shown by their customers.

“These are ‘lifestyle’ companies: the owners’ motivation is to make enough money to fund their lifestyles but they are not aggressively trying to grow their businesses,” he says. Such resellers are often reluctant to invest in building expertise in particular vertical industries, yet such expertise is what their customers need to expand their own companies. “But SMEs cannot get the efficiencies they need in order to make money, without IT.”

The outlook for small and mid-sized companies is not universally bleak. Mr Shepherd says mid-sized businesses, in particular, stand to benefit from a trend for highly skilled IT specialists at large IT and systems integration groups to form their own, boutique consultancies.

These often focus around a particular vertical industry or enterprise software platform, and will charge rather less than the large international groups but offer a much greater level of expertise than local IT suppliers can offer.

Such consultancies – as well as individual, freelance IT experts – also give SMEs the option of sourcing the commodity parts of their IT systems, such as PCs, directly or through an online outlet at the lowest cost and spending the money saved on integration or customisation expertise.

The moves by software and hardware vendors such as Microsoft, SAP and IBM to support consultancies is also helping SMEs buy services in this way with greater confidence.

“We are making more of our services available for our partners to deliver, whether it is a security solution or a technology such as RFID,” says Rich Michos, vice-president of sales for small and mid-sized business at IBM.

Industry analysts agree that SMEs are more likely to trust their IT consultant or reseller to deliver a new or complex technology if they know their supplier is backed by a large, global vendor.

But this, Mr Michos says, is only one factor to bear in mind when picking an IT partner. It should also look for a company that can call on other resources, including external specialists, to help with projects; for a company that can integrate the technology and one that understands its business. Above all, however, it needs to be a company they can rely on.

“It is important that a technology reseller can be a one-stop shop, if necessary by collaborating with other people,” says Mr Michos. “But above all it is about working with someone you trust.

“Businesses are putting more thought into how they source their IT. They might not be able to afford the bills of the large consultancies, but with the right research they can still find a trusted partner with the skills to support them as their business grows.”

Copyright The Financial Times Limited 2007