Vendors have pretty much wooed (and won) most of the CIOs at the big end of town. Now they have a new object of their affection: small-to-medium enterprises. But are SMEs ready, willing and able for courtship?
When Yarra Valley Water went looking for companies to outsource its information technology to in late 2001, it approached a broad range of suppliers. The large IT companies ignored the call for Expressions of Interest.
Yarra Valley Water (YVW) employs about 200 people and supplies water and sewerage services to approximately 1.5 million Victorians. The three-year contract was worth $10 million, with options for the following two years. CIO Simon Soon says the largest companies that did respond were Fujitsu and Logica (which eventually won the business). He was disappointed at the response, having hoped that "the big companies could bring innovation and ideas that the smaller companies could not provide us, but they did not respond".
However, he knows why.
Back in 2001 Soon's business was not important enough to lure the interest of big suppliers. "It costs money to tender for work and when there are big fish to fry then they will concentrate on them because the effort and the time to tender for the small versus the large contract is not much different," he says. "They may put more effort into the bid for the $100 million worth of work, but the effort and the work required is very similar."
In 2003, though, there are not as well-heeled beauties to court, so IT vendors are looking to win the affections of companies previously considered "less attractive".
Some vendors have been there a while: IBM, for example, has had a small-to-medium enterprise (SME) sales unit for five years targeting the 640,000 businesses with 1-100 employees in Australia and the 360,000 similar-sized businesses in New Zealand. It is now one of Big Blue's fastest growing divisions.
Greg Cassano, manager of the unit, says that historically the IT needs of SMEs have been provided by white boxes and small service providers. Today, though, branded computer prices are lower, and as demand from enterprise-scale businesses has flattened, other vendors alongside IBM are now seeking SME sales. "We're not seeing increased competition but increased focus from the other vendors," says Cassano.
And that focus is coming from far and wide. Joining IBM in the SME space is its services sibling IBM Global Services, and Oracle and PeopleSoft, all of which are courting SME business. EDS is exploring with Telstra ways to reach into the SME market and offer bundled services. Optus has announced the creation of a new division to target SMEs after setting up 27 small business direct sales offices around the country last year.
According to Neil McMurchy, regional vice president of market and business strategies for research firm Gartner, EDS's proposed alliance with Telstra is particularly savvy, because one of the barriers to large corporations wishing to reach SMEs is that they have no existing relationships with that group. Telstra does.
McMurchy consults to IT vendors regarding strategy and he says that the renewed focus on the SME has been driven because the "low-hanging fruit from large enterprises has gone, and there is a fundamental shift taking place in how large businesses see IT. Let's call it the David Murray syndrome." (David Murray is the chief executive of the Commonwealth Bank of Australia who has a famously agnostic approach to IT.)
"So the large corporations are buying smaller projects, seeing if it works then moving on," says McMurchy. Hence even large enterprise sales are taking on a more SME flavour. This, says McMurchy, is leading to some confusion about what an SME actually is, as these large enterprises select technology as though they were an SME, looking for perhaps departmental or regional solutions. And what might be considered a small business in the US (Gartner suggests revenues of below $US500 million) would be gargantuan in Australia.
In Australia and throughout the Asia-Pacific region the SME focus is intensified simply because more of the national economy is made up of SMEs than is, say, the European or US economy. According to Sensis, which tracks SMEs in Australia, around 95 per cent of all businesses fall into the SME category, and contribute just over half of all turnover in the country. Whatever the market's demographics, it is of renewed interest to the IT vendors because, as McMurchy succinctly points out, "the easy stuff has dried up".
"The obvious answer, if superficial, is that there is this great untapped market down below. But that is far, far easier said than done," he says It could get even harder. In the most recent quarterly survey of SMEs, Sensis found that although 55 per cent of SMEs remained confident about their business prospects, "capital expenditure for the quarter fell three percentage points from the previous quarter and reached its lowest level in 12 months". Hardly encouraging for the IT vendors looking for new prospects.
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