Driving down costs

Maintaining downward pressure on costs remains the key focus for Europes small and medium-sized enterprises (SMEs),  according to a new survey by Datamonitor for the enterprise software company Oracle Corporation.

More than half the respondents (53%) said that becoming more competitive was still their top priority, compared with only 17% citing increasing sales or market share as their most important goal. But the survey shows that the desire to standardise IT  environments and technology platforms is high on their priority list, and that investment to this end is likely to result from any relaxation in IT budgets.

The survey, SME business issues in a re-emergent market, is based on detailed telephone interviews with 4,480 senior executives in companies across 19 countries in Europe and the Middle East. The companies surveyed employ between 10 and 500 people, or with revenues between 5 million and 250 million, in industries including manufacturing, utilities, professional and public services, finance, transport, retail, wholesale and other sectors.

Treading a thin line

The desire to be more competitive by reducing costs was top priority for SMEs, significantly beating the next two imperativesthe need for a consistent IT environment and improved internal collaborationwhich rated 34% each. Emerging from a heavy economic downturn is a turbulent process for the SME, said Datamonitors Nick Greenway. Many companies survived by running a lean ship across all facets of the business, including staffing, IT and core functions.

Some SMEs even admitted to taking strategic decisions such as lowering quality and withdrawing some customer support. Having learned to operate with lower costs, businesses will have a thin line to tread, deciding between when and if to re-invest for growth and transforming a low cost base into greater margins as revenues pick up.

While better fortunes may be in the offing, the report says that re-investment strategies probably remain six months to a year away, with uncertain times still ahead for SMEs in countries that Datamonitor sees as less well positioned for recovery, such as Germany and Italy.

Our survey for Oracle is one of the most detailed yet produced on the issues facing SMEs across Europe, said Greenway. It shows that the problems of diverse IT systems, lines of business operating as information silos and the cost of integration associated with most large IT projects are now widely recognised in the SME sector. But IT projects are being funded in order of urgency, not importance.

IT consistency is variable

The report states the demand for IT consistency varies by industry, with manufacturing and the public sector most interested and retail, wholesale, engineering and construction least interested. This, of course, reflects the fact that the retail and wholesale sectors have already invested substantially in IT homogeneity, said Anthony Peake, senior director of mid-market marketing at Oracle EMEA. Many of the arguments for a consistent IT environment centre on a desire for greater collaboration between departments, in order to deliver greater economies and better customer service.

One of the logical steps for SMEs today is to increase productivity from existing investment and employees as far as possible, the report says. SMEs looking to capitalise on any green shoots appearing in their markets will find potential for speedy productivity gains through collaboration projects such as investment in basic field-force contact management, workflow to support new and more vigorous business processes, real-time interaction and instant messaging solutions, according to Greenway.

The need for more and better management information was ranked fourth among SME business imperatives, scoring 24%. Other priorities listed by respondents to the survey were an improvement in external collaboration (18%), increasing sales or market share  17%) and compliance or alignment with industry standards and legislation (13%).

This demonstrates that for many sectors the strategic drive is still about survival, and that SMEs are not yet ready for the improving  conomy, said Peake. One of the interesting findings is the clear recognition in most sectors of the need for integrated solutions, real-time data and better business intelligence.

This is particularly the case in public services, biotechnology, wholesale, transport and process manufacture. Real-time business intelligence can help not just with the financial metrics of a company but also allow managers to target resources more efficiently and react more quickly to market shifts, and thus remain more competitive.

Datamonitor concludes that IT budgets that may have taken only three to six months to cut may take 18 months to rebound. The likely next steps for SMEs, the report says, may include incremental cost-cutting initiatives, internal organisational change, planning for growth and developing a roadmap for the IT and other resources needed. The report suggests that the focus for SMEs in planning any core IT overhaul should be on a clear, modular return on investment rather than a return on assets.

A full copy of the report, SME business issues in a re-emergent market, is available at http://www.oracle.com/start when promted enter key word: EMEASME Manufacturing & Logistics IT is interested in your response and comments to this survey. Please send your comments to editor@ibcpub.com