The economic crisis will hit medium-sized businesses the hardest. They have neither the agility of small businesses, which can change tack at the drop of a hat, nor the economies of scale of corporations, many of whom have the cash to sit tight and weather the storm.
Although it is a large company by any measure, the fate of iconic high-street retailer Woolworths – which in November 2008 filed for bankruptcy – illustrates the pressure that medium-sized companies face.
Once in a comfortable niche, the company has faced fierce competition from above, with supermarket chains such as Tesco expanding into its market, and from below, with online and high-street discount retailers nipping at its heels. As retail spending began to dip, the first point to give way – as in many other instances – was the middle market.
Unlike many small businesses, mid-sized businesses show a clear commitment to investment in sophisticated IT, a real appreciation of what IT can do for the business. But unlike large organisations, mid-sized business don’t have the luxury of getting it wrong or experimenting: IT projects need to be 100% tied to the achievement of business goals, with an intense focus on payback and benefits.
The IT departments of medium-sized businesses are used to doing a lot with a little. Their budgets are dwarfed by those of their corporate cousins, but the expectations for scale and quality of service they must meet are no different – in terms of streamlining global supply chains, enhancing customer acquisition and retention, locking down security and other key areas.
So while there was certainly an air of trepidation among delegates at Information Age’s IT for the M Business conference, it was mixed with a quiet confidence that IT can help medium-sized organisations through the current downturn.
The situation now facing businesses of all kinds is grave; revenues are expected to fall in almost all industries. But according to Natalie Ayres, chief operating officer of managed IT service provider Virtual IT (and a former Microsoft UK board member), one of the gravest dangers is to overreact to that situation.
“In a shrinking economy, growing the business while simultaneously cutting cost is challenging,” she explains. “Most businesses go into survival mode. But that is not a strategy that will see you outride the downturn.”
Fortunately, IT practitioners are not panicking yet, according to Mike Atherton, an analyst for IT watcher Freeform Dynamics.
“Our research shows that few IT departments have been hit by the credit crunch so far, but people are preparing themselves,” he explains. “They are feeling sensible and pragmatic, and in control. Maintaining that sense of control is vital.”
Atherton identifies four ways in which IT can help businesses through a downturn. These are optimising IT, optimising how it’s used in the business, enabling business efficiency and, finally, increasing revenues.
“Optimising IT is as far as most businesses get,” he explains. Techniques such as server virtualisation and desktop management have yet to fully penetrate the mid-market, he says, and today offer medium-sized businesses ample opportunity to improve the performance of IT. “If you looked at these things three years ago and passed on them, you will find they have moved on since then in terms of maturity and ease,” he adds.
But businesses must move beyond IT-centric efficiency drives. One approach to improving the way IT is used by the business is to introduce application training, Atherton explains.
“Employees generally use only a fraction of the functionality of their applications,” he says. “Organisations that implement application training see real productivity benefits.”
The other side of that coin is removing applications that do not contribute enough to the business to justify their cost. “If you’ve got some dogs that need taking outside and shooting, now is the time,” says Atherton.
“It’s about making all your IT systems count from a business point of view,” he adds.
Moving further up the value chain, IT can improve the efficiency of the business itself. A tried and tested technique is to remove ‘dead time’ from the work day by enabling employees to work and communicate while on the move. “Using unified communications and mobile technology, you can get employees on the phone and talking to people,” says Atherton.
IT for business growth
The final imperative – using IT to grow revenues – is the most often overlooked in a downturn. “It’s easy to ignore when cutting costs,” says Atherton. “But if we don’t improve the top line, we don’t have a business. In a downturn, we need to improve top line just to stand still,” he adds.
Virtual IT’s Ayres presents the following example to demonstrate how IT can contribute directly to business growth: The Sanity Group, a hygiene products manufacturer, was looking at ways to upscale its business. It found that its customer service process was too expensive and time consuming, and was therefore limiting the number of new customers it could handle.
The company built a customer relationship management CRM) system based on mobile devices for its field services agents. It allowed them to look at exactly what equipment their customers were using, which meant they could prepare all the tools they might need and therefore reduce the frequency of supplementary service calls.
“By putting that CRM in, the field service agents got 30% of their time back, and therefore expanded the number of customers they could service,” explains Ayres.
By treating technology as an enabler for business growth, medium-sized organisations have an opportunity to take on corporate competitors – and win.
Commercial training provider 7city Learning is a case in point. Its smart use of technology allows it to keep one step ahead of its larger competitors that are too tied to their existing processes to exploit new techniques, says 7city’s co-founder chief of learning Jonathan Shaw.
“We employ 120 people, and we compete with companies with 5,000 employees, and still we have a reputation for being more professional,” he says. The company, which targets financial services companies who need to ensure employees are certified to regulatory standards, has been listed in The Sunday Times’ Fast Track list of the 100
The company’s breakthrough idea was to use email both to assess and teach its trainees, and it has since expanded its use of technology to include online training.
An important lesson, says Shaw, has been to avoid getting caught up with high production values: while corporate competitors find that they waste time making a TV-quality product, 7city has been able to release services quickly that are more naturalin presentation style and yet are just as effective.
Another benefit of 7city’s small size is its ability to give its developers a sense of ownership of their software projects, says Shaw. “You can have a team 100 coders, or a team of three coders, and the small team will be more productive if they have better motivation,” he says.
These examples offer a glimpse of how IT can be used not just to help contain costs, but also to reverse the downward pressure on revenues that medium-sized business in particular will feel in the coming months. And that offers managers in charge of IT the opportunity to be lifesavers.