TECH TALK: SMEs and Technology: Characteristics

Before we get to discussing how the new technologies can help the small- and medium-enterprises in emerging markets (SMEEMS) become more productive, let us discuss the characteristics of these organisations. They are the third tier of the enterprise pyramid, behind the large companies and the SMEs in the developed markets, from whom they are quite different.

SMEs are not very IT-focused. For many, IT is an after-thought. Part of the reason is that these enterprises do not necessarily have a dedicated IT department. Most of the decisions are made by the owner-managers or the finance people. As such, the use of IT is limited largely to some of the four basic needs email, productivity applications (word processor and spreadsheet), accounting and a website.

SMEs are hard to reach. They are small and distributed. While it is easy to get to the large companies (and for the large companies to get to the IT vendors), SMEs are a hard market to crack.

SMEs tend to still follow processes which are largely non-electronic. Because the organizations are small, the business knowledge is more tacit than in digital form. People, especially the senior management, know what is happening (and all that needs to be known). This also concentrates decision-making. So, ITs role needs to be to assist in this decision-making process.

SMEs need more hand-holding and support, and thus can be very demanding customers. This is because they may not necessarily have trained in-house IT staff. At the same time, their ability to pay is quite limited. Hence, as customers, they have been an unattractive market for the IT vendors.

The most important issue facing SMEs is business growth. They have a fairly close tab of the expenses, so there is little room for optimisation there. The challenge is to generate new business, and manage that new business with the same (or incremental) staff so as to maximise profitability.

It is not easy for SMEs to educate themselves about new technologies and the impact they can have on their business. While there are all kinds of training institutions for computer languages and software packages, the one segment that still has been addressed on the training side is the business applications of technologies.

SMEEMS are further characterised by an even lower ability to spend. They typically need solutions which are a fraction of the cost of what has been available so far. In the case of hardware (computers), SMEEMS have a low PC penetration. On the software front, piracy and non-consumption are the two extreme options available for them. In fact, for most SMEEMS, the cost of software is zero.

Even though technology has evolved a lot in the past few years, the IT infrastructure within SMEs has changed little. While historically, SME technology adoption has lagged that of big business by 3-5 years, this slowness in usage also needs to be understood in the context of the twin traps that most SMEs are caught in: a technology trap, and a marketing trap.

Tomorrow: The Twin Traps

TECH TALK SMEs and Technology+T

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.