Computer Weekly (SMB supplement): February 2006.

Watching the pennies

Why spending more on services could mean savings later
By Sue Norris

Although smaller businesses spend a relatively modest amount on IT compared to their larger rivals, the chances of wasteful spending are potentially much higher.

"SMEs face fixed costs associated with the introduction of ICT and its maintenance, which, compared to their sales, are substantially higher than in the case of large firms," notes market analyst firm Datamonitor in a December 2004 report exploring the allocation of SME IT budgets.

Yet as they seek to regain control over escalating IT costs, many SMEs make cuts in the wrong places.

Much of this comes down to management, according to Andy Poulton, an IT advisor at Business Link for Berkshire and Wiltshire. "Lack of planning is very common among SMEs," he says. "Small businesses tend to approach IT on a very reactive, ad-hoc basis. When something goes wrong, they panic and may even just buy a new PC because it’s seen as easier than sorting out the problem."

Over-spending on hardware is particularly common, as organisations may assume that they need a new server for every new application, or that every member of staff needs a PC of the same specification.

Yet it’s in the area of support where businesses really go off course, Poulton says. Because they can’t feel the direct benefit, many companies see money spent on support contracts as money down the drain. The right arrangement, however, could save a company thousands, both in lost business through downtime, and in general IT wastage.

As well as ensuring that networks and other critical IT assets remain fully available, a good support contract will include proactive measures such as ensuring that security and anti-virus measures are up to date, that regular backups are taking place, that system capacity is fully exploited and that redundant equipment isn’t proving a drain on the infrastructure.

"The finance director wouldn’t think twice about getting the company cars serviced regularly – if you can do it for a car, why not for a computer?" Poulton says.

Costs can be extremely reasonable now, too, thanks to the growing feasibility of remote, online support, which means fewer expensive call-out fees. Sophisticated remote support tools can enable an off-site engineer to take remote control of a PC and sort out any software problems, without any intervention by the end user.

"Outsourcing support means small companies don’t have to pay £30,000 to £40,000 for their own IT expert. Instead, they pay a small, manageable monthly charge and gain access to a much wider range of skills, with year-round cover (ie no need to plan for holiday cover)," says Poulton. "If they find the right IT provider, they could also gain help with planning a longer-term IT strategy, so that they don’t waste any more money in the future."

PC World Business is among those now offering proactive management services to small businesses. "Many smaller firms can’t afford their own IT manager and typically rely on an enthusiastic amateur in the office to sort out any problems," says Richard Harrison, PC World Business’s services director. "Yet it’s hard for that person to know how to optimise their IT systems to get the best return on investment."

PC World Business’s infrastructure management services are designed to take care of a company’s servers as well as its PCs, providing rapid fixes to problems such as lost Internet connections, slow network performance, or printing problems. "The sort of thing that would take an expert two minutes, but might take an amateur a couple of hours of browsing through a manual," Harrison notes.

For a firm of 20 people connected to a central server, this remote helpdesk service costs around £300 a month or £3,600 a year, which is a fraction of the cost of employing a full-time IT manager. The agreement covers all of the software and hardware support for a network, from ‘I can’t print’ type problems right up to ‘The email server needs rebuilding’. IT services provider Zeda offers similar services, costing £15 per month per PC at a workstation level (including patch management, and virus management up to application deployment), and from £200 for 24/7 proactive support for a server.

"A lot of vendors are now offering managed services for the smaller business now, so SMEs really shouldn’t exclude these as an option," says Mark Blowers, a senior research analyst at Butler Group, noting that businesses don’t have to stop at support when they consider letting someone else carry the burden. High-speed connections and a maturing of the application service provision (ASP) market mean that small firms can procure almost all of their IT facilities on a monthly basis now, leaving an external services provider to worry about such headaches as upgrades, bugs, security, viruses and backup.

From email systems to business applications such ERP and CRM, companies can now tap into the functionality they need as they need it, for a simple service-based fee. They needn’t own the software or the server hardware at all. Not only does this free them up from having to find the budget for an expensive upfront capital outlay (the ROI on which may be uncertain), they can also be more ambitious with the software applications they try out. Because the applications are there to be tapped into at any time, the companies that buy into them can enjoy unprecedented speed to market with new functionality, instead of having to wait for a long project to be rolled out.

The added benefit of having someone else host and manage the applications is that staff will be able to access the functionality from anywhere, and issues like business continuity are already taken care of by the service provider.

But nothing can beat developing a long-term IT strategy, which brings issues such as support, security and application access together with broader company objectives such as support for flexible and remote working, which may bring new IT issues to the table.

Says Jim Sampins, director of SME technology at database and applications software vendor Oracle UK: "Overspending arises when SMEs don’t think about a long-term IT strategy and simply make piecemeal quick fixes to their IT environment. By implementing IT solutions in an ad hoc manner, as is often the case with SMEs, they run the risk of having to rip and replace IT solutions as their business grows and changes. While they might be saving in the short-term, this way of managing IT, ultimately, is not cost-effective.

"SMEs need to start thinking like large enterprises and consider how they’ll be using their IT in five years time. By having a holistic view and clear roadmap for their technology use, they are more likely to invest in solutions that offer long-term, cost-effective support as their businesses move forward."

And if a financial kick-start is needed to help get the plan moving, SMEs could do worse than consider some of the many creative leasing options that are now on offer.

"Businesses can only project growth and can never be certain how fast they will expand or how quickly they’ll need to upgrade their technology to maintain their competitive edge," notes Aongus Hegarty, UK & Ireland director of home and small business at Dell, which offers a range of finance packages to customers of its PCs. "Flexible financing can support the business as it grows without hindering cash flow. It’s about maximising the return on IT investment and turning options into real business benefits."

The challenge in all of this is recognising whether spending a bit more money now could help generate savings later.

Box copy:

Further savings

Some more ways that smaller businesses can hang onto a few quid:

• Consider buying end-of-line PCs. Pulsar Computing (www.pulsaronline.co.uk) offers these direct from the manufacturer at a saving of up to 25% of the last list price – that’s for a new, powerful PC that’s covered by a full manufacturer’s warranty, with a next-day delivery service
• Consolidation – the more separate IT systems you run, the more of an admin and support headache you’ll have, and you may also be wasting unused capacity (especially in the area of storage). Get someone in to help you work out how you can consolidate and centralise your resources to get more from them. You could also gain from improved efficiency as you reduce duplication of data entry
• Use a virtual private network (VPN) for multi-site connectivity. They’re now much cheaper and secure than traditional leased lines
• Consider voice over IP. IP telephony is proven and cheap, potentially saving your business a packet on inter-site and international calls
• Don’t assume you have to use Microsoft just because everyone else does. Sun Microsystems’ StarOffice can be up to eight times cheaper per licence than Microsoft Office, and runs on Windows as well as Solaris and Linux. Meanwhile an Open Source email solution could work out at around 40% less than a Microsoft Exchange system (though it’s possible to buy hosted MS Exchange services for as little as £8-10 per user per month now)