Happy Medium?1 June 2005
Simon Hughes, head of medium business, Microsoft, weighs up the findings of new study - IT in Medium-sized Businesses. He reveals what UK finance directors are really thinking.
Today, the UK 'mid-market', which is home to about 85,000 medium-sized companies with revenues totalling approximately £1,400bn, is making the biggest contribution to the UK economy.
Indeed, the mid-market employs one-third of the UK's population, and similarly accounts for one-third of the country's GDP. We wanted to get a better understanding of this group's attitudes towards IT.
In particular, we wanted to know how involved those holding the financial reins are with the IT side of the business, to what extent they plan ahead, what emerging technologies they are planning to invest in, if they measure the impact of IT on their operational effectiveness, and if so, how.
With this in mind, Microsoft commissioned the Institute of Chartered Accountants in England and Wales (ICAEW) to conduct some research.
It interviewed 400 senior finance professionals in the UK working for companies employing 50 to 500 people across a range of sectors. The findings show that respondents are taking a firm interest in IT, in terms of setting spend and reviewing proposals.
Many are now working closely alongside the IT department to take an active role in technology-related decisions.
Interestingly, companies in this segment are also taking a much more long-term view of their IT systems than might previously have been the case, with 61% planning two to three years ahead.
Companies clearly view technology as integral to the success of the business, with many of those surveyed stating it was 'essential'.
The survey also suggests a positive view of the role of IT. Rather than judging the success of a product or service on its ability to deliver bottom-line impact, the majority of finance professionals now prioritise the 'positive' drivers of technology.
These include ease of integration with existing systems (63%), improved and faster communications (56%), and better planning and process control (52%). On the other hand, cost-related benefits such as reducing operating costs, cost of software licenses and cost of hardware scored 30%, 31% and 30%, respectively.
INNOVATION AND INVESTMENT
To understand where companies are going with their IT strategy, and to better gauge the uptake of 'e-technologies', we asked respondents to state which of 14 products / services they have or are planning to have in the future.
High penetration of email, internet access and a company website within medium-sized businesses was a given. However, we were pleasantly surprised to see the widespread adoption of remote working within this group, with 76% using this relatively new technology and a further 8% planning to do so within two years.
Companies are clearly looking to invest in IT tools that help employees to access the information they need. The future of work is changing; people are no longer limited to the confines of the office and are now having to work with increasing numbers of people to produce increasing amounts of data.
Companies need to think about all of these factors and look at how they can keep their workforce productive. This can be done by providing the tools that will allow them to access the right information in the right place at the right time.
THE IMPORTANCE OF E-TECHNOLOGIES
In most cases, these findings imply a progressive approach, both in terms of IT adoption and company culture. We can see that medium-sized businesses are continuing to embrace the opportunities afforded by new ways of working, enabled by remote working devices.
It is generally accepted that computing power doubles every 18 months, and this rate of development has opened up new possibilities for the ways in which small businesses operate.
What also came out of the research was a surprisingly low uptake within the e-commerce group, with just 27% having an e-commerce offering or planning to have one within the next two years.
Several other e-technologies did not seem to be a priority; for instance, e-procurement and e-invoicing, which scored 38% and 27%. One concern is that companies are cutting off their ability to trade with the UK Government and with one another.
The government will stipulate that all suppliers must be able to communicate using these e-technologies, and shunning such technologies could lead mid-market businesses into future difficulties. In addition, such tools can bring substantial cost and time savings.
Medium-sized companies should therefore move their core e-business technologies further up the agenda.
MEASURING PERFORMANCE AND ROI
We also wanted to find out how closely companies are measuring the impact of IT on the business. The study shows that while prior to the initial investment a lot of time is spent on choosing the right product or service, post-implementation there is a lack of interest in measuring either performance or ROI.
This suggests that a large number of companies will be unclear as to the strategic benefits or lack of benefits that they have seen from their investment.
While there is a great deal of informal measurement, with 73% of those surveyed saying they rely at least partially on 'gut feeling', 12% do not measure ROI at all and only 6% use a formal measurement model.
The study paints an interesting picture. Financial professionals are becoming increasingly astute regarding the perceived value of a new IT system, and are getting more involved in planning and decision-making, at least at the top level.
However, with companies now spending an average of 2.8% of their turnover on IT, the time and energy invested at the procurement stage should be supported by a more formal process for measuring the outcome of the project.
The planning stage should include analysis of the potential business value of the technology under consideration, and this analysis should cover both the economic and qualitative impact of the solution.
It helps to be as specific as possible, so if you are looking to save on staff productivity, for example, you should work out how much time you hope to save, based on specific figures. There should also be plans for best- and worst-case scenarios in place, so that the results can be judged against pre-agreed benchmarks.
Once companies have calculated the potential gains as part of the business case, they should be able to compare them with actual figures following the implementation. It is important to devise more basic measurement systems that will enable data to be easily generated and the resultant value assessed, particularly for smaller companies.
This exercise should be carried out several times at regular intervals following implementation. This could be monthly, quarterly or even annually, depending on the scale of the project and how important it is to ensure that costs are being justified.
At an agreed point, the results should be collated and presented to all stakeholders. If the system has met the original criteria, the discussion should centre on how it can develop in the future.
If it has failed in terms of the project objectives, companies should carry out an audit of why this might be the case, taking all variables into account. They should then decide whether to maintain the system, replace it or make it redundant.
Ultimately, it is only through proper measurement that the success of IT can be measured, its impact appreciated and future spending justified. Microsoft would like to see all organisations adopt this simple approach to support their gut feeling.