With a $16 billion price tag, IT adoption in small Australian companies is gaining ground, albeit slowly but money is not holding it back. Perspectives, attitudes and internal IT skills hinder its uptake and the benefits it can bring to a business.
Most large organizations are already reaping significant benefits through investment in IT infrastructure and have successfully linked their IT strategy to business strategy. While small- and medium-sized enterprises have traditionally lagged behind in its uptake, they are now getting on board at faster rates and starting to see the benefits of IT in larger numbers.
Information technology can play a key role in innovation but SMEs often see it as a cost rather than a way of adding value – as was the case for enterprises in the early days of their adoption programs. Technology spending by small businesses in Australia now accounts for $16 billion annually, according to research company IDC. They account for 59 percent of the overall IT market in Australia and yet only one-third of SMEs have an IT manager. What SMEs want are products and services that will grow their business, at an acceptable cost, with a small investment in time and in-house technical expertise.
Surprisingly, a lack of financial resources is not behind this slow adoption of IT among SMEs; it's the perspective and attitudes of the owner/CEO towards IT. In SMEs where technology has been successfully adopted, the owner or CEO had a leading role in its development and acquisition. They understood the positive implications of IT and their personal commitment was critical to the success.
Phasing it in
Few SMEs play a leading role in adopting IT; they are generally followers of technology trends. The driver for innovation is predominantly market-oriented and is based on a combination of existing products and existing technology. There are plenty of opportunities for such companies to use IT for innovation. It is a gradual evolutionary process. The IT scenario model from Knoll & Stroeken (2001) provides SMEs with strategic application of IT from a broader perspective and is based on six evolutionary phases, the most critical of which is where companies, having automated internal process, start to extend connections to suppliers and customers. The phases are:
- No use of IT: This is typical of a startup SME. Virtually no automation is used except for fax and voicemail. Most one- and two-person` companies in Australia do not use IT.
- Internal automation: In this phase, the existing activities such as quotation, order processing, invoicing and accounting are automated using a stand-alone PC. The main objective is to improve efficiency.
n Internal multifunctional integration: In this phase, the owner/CEO realises the benefit of automation and starts to integrate applications to improve effectiveness. This typically includes integration of the order processing with accounting applications and tax applications. The systems are still based on stand-alone PC with out any network.
- External connections: In this phase, the focus is broadened and technology is upgraded to connect effectively with customers and suppliers. This is a critical phase where IT becomes a key enabling technology to spur growth through increased scale of operation, segmentation and specialisations with the existing base of products and services. Most SMEs do not understand the effectiveness of a networked IT infrastructure in connecting with their customers and suppliers and fail to transition to this growth phase.
- Business process redesign: Most SMEs believe that business process redesign is only for large enterprises but in reality it has more significance for an SME, as the benefits can be immediately realised. In this phase the focus is on the creation of new services and extension of products through computerisation of business processes.
- Business scope redefinition under influence of IT : This is the desired target state and not many SMEs reach this target. In this phase the IT plan is integrated with the business plan and the primary objective of IT is to introduce new products and services.
Most Australian SMEs are behind the curve and are either in the first or second stage. Moving from internal automation to external connections is the critical step and provides more than just incremental benefits; it is a great leap forward as the organisation starts focusing externally and realises untapped opportunities for market expansion, segmentation and specialisation. This phase entails a move from stand-alone equipment to networked IT infrastructure.
Moving up the value curve
The two factors that significantly impact on the adoption of IT in SME enterprises are management perspectives and attitudes towards IT adoption and use, and development of internal IT competencies. The commitment of the owner/CEO is critical to make the cultural shift to the point where IT is regarded as an enabler of business strategy.
Where the owner/CEO understands that IT is key enabler of business success and supports the IT adoption, they move to create an organizational environment and internal competencies to gain more knowledge of IT and to develop an IT plan that supports the business strategy.
Transitioning internal to external stages provides significant benefits and is a critical step; however, it is the most difficult transition to make because it needs a cultural shift, from internal focus to external focus and a more complex IT infrastructure is required. To make this transition painless, integrated server solutions will enable smaller organizations to reap major benefits out of IT investments.
Ramesh Vaikuntam is principal consultant, Microsoft Services