What makes SMBs 'tick'
Rajesh Shetty, Cisco India and SAARC
There is no doubt that small and medium-sized businesses (SMBs) are the major drivers of economic development in emerging markets. More than 90 percent of all businesses globally and 60 percent of the workforce are represented by the SMB sector. The enterprising efforts of SMBs help to raise living standards, create a more favorable trade balance, and broaden the tax base.
However, despite the fact that most innovation, growth, and diversity come from fast-growing businesses in this sector, most SMBs are unable to take advantage of the market opportunities. This is because they are faced by many developmental challenges which include legal and regulatory compliance, taxation, access to financial capital, access to technology, poor-quality infrastructure, unavailability and unaffordability of broadband, lack of technical skills, insufficient resources (providers and services addressing the needs of SMBs), access to new markets and concerns about trust, security, and privacy.
In order to overcome these challenges and become links in global supply chains, SMBs need to make their business processes integration-ready. By making investments in IT hardware, software and networking equipment SMBs can increase operational efficiency, employee productivity, customer responsiveness, cost containment, network security as well as agility to react to business changes.
Cost of technology
Any comprehensive technology adoption or up gradation requires large monetary commitments. SMBs can meet these needs by exploring the route of leasing and financing that allow usage without the need to allocate capital budgets. Leasing and financing require SMBs to implement some form of IT hardware and software standards. It needs them to rethink, streamline and standardize organizational processes for acquiring, deploying and retiring IT assets. Through a more formal approach to technology refresh and deployment, SMBs can minimize ongoing support costs, improve productivity and maximize the usefulness of their assets.
Three main sources of financing for SMBs include banks, non-banking financing companies (NBFC) and technology providers (primarily OEM financers). While banks provide financing options, many of them lack the capability to cater to the end-to-end financial needs of SMBs. The procedures and regulations adopted by some banks are cumbersome. NBFCs provide financing options for technological requirements with more customer-friendly procedures than banks but the options provided are generally not as comprehensive or attractive as OEM financers.
OEM financiers offer products which gives SMBs flexible end-of-term options whereby they can return the equipment on completion of the lease period and upgrade to better technology. Alternatively, they can continue using the same equipment for an extended period by paying nominal rentals. This lowers the lease rental obligation during the period of use, providing a direct cash flow advantage. It helps redeploy/re-invest the differential cash into core business. It also provides SMBs with several options to shift/upgrade to better technologies in a much easier way as and when required.
Leasing helps to reduce upfront investment by focusing on a usage model where cost of equipment is matched to business revenue. This frees cash for alternative growth opportunities and helps SMBs opt for flexible upgrade options provided by technology players. Leasing is critical for those who want to use existing sources of capital funding to grow their business. Leasing helps better cash flow management because payments are converted into predictable, regular periodic expenditures. Since a lease is tied to a specific contract term, SMBs can use leasing as a means to routinize technology refresh.
Managed services option
In addition to acquiring new technology, SMBs must keep in mind that the demand for IP (internet protocol)-based services is increasing with customers today moving beyond the straightforward low-bandwidth applications to higher-bandwidth, business-critical multimedia applications that are network-intensive and time-sensitive. To understand the implications of these services for the near and far term, how they integrate into existing network architectures, their eventual selection and implementation, SMBs require time, expertise, and experience-typical assets that most of them do not readily have.
Therefore many SMBs are turning to their service providers who could work as deployment partners for running new applications and services for certain network management tasks helping to reduce operations costs and freeing IT personnel for value-added network development. Choosing to contract outside of the organization for managed services helps SMBs re-allocate resources and results in increased IT staff productivity enabling them to focus on new market opportunities.
Deploying a managed service helps SMBs ‘save’ because they do not have to purchase or upgrade hardware. They can offload the ownership of infrastructure as well as the software and platforms required to monitor the network. The remaining savings comes from reduced or re-allocated IT resources and low costs associated with setting up and deploying various network platforms and policies. Managed services provides SMBs access to leading network technologies and management expertise without requiring high CapEx or ongoing investment in technology upgrades.
Managed services providers act as business enablers and play the role of trusted advisors to help SMBs scale up easily. Going forward, managed service providers need to develop suitable offerings and sustainable business models that address the various needs of the SMBs, so that they can service the market profitably.