Democratizing technology: Crossing the “CASM” to serve small and medium businesses has been added to your bookmarks.
SMBs are an attractive yet challenging market for technology companies. Fortunately, by applying current technology tools—cloud, analytics, social, and mobile—technology companies can exploit new ways of effectively redeploying existing products, services, and people to stay ahead of evolving SMB needs.
Small and medium businesses (SMBs) are an attractive market segment for large technology companies, most of which have products and/or services specifically targeted at SMBs. In fact, large technology companies that focus on SMBs demonstrate stronger revenue and operating performance as well as higher return on invested capital—making SMBs vital to the technology sector’s overall health. There is a catch, however: Competitive and market pressures are changing SMBs’ expectations of the technology products and services they buy.
These pressures include an increase in global competition and dynamic environments with the frequent emergence of new SMB competitors and technological innovation. A prime example is the increase in technology demands from local and regional telecom providers. Small telecom providers have responded to competitive offerings from the large telecoms by launching new Voice-over-IP and Internet telephony devices and services in both wired and wireless formats, and international calling cards allow access to multiple alternatives worldwide in telecom services.
Fortunately, for large technology companies, staying ahead of evolving SMB needs does not have to mean creating new products or services from scratch. By applying current technology tools—namely cloud, analytics, social, and mobile (“CASM”)—technology companies can exploit new ways to effectively redeploy existing products, services, and people to meet SMB market needs.
SMB performance is essential to US and global economic activity (figure 1).1 In the five years since the Great Recession of 2008–09, SMBs have been the backbone of economic recovery in both developed and emerging markets.2 In 2013, the National Federation of Independent Business stated that US small businesses collectively produced half of all US private sector GDP and employed more than half of the US private sector workforce.3 In Organization for Economic Co-operation (OECD) countries, SMBs employ 60 to 80 percent of the formal workforce.4 Furthermore, SMBs represent the top technology innovators: Among US high-patenting firms (i.e. firms that filed 15 or more patents in a four-year period), SMBs produced 16 times more patents per employee than their large company counterparts.5
Given their importance in driving overall economic growth, innovation, and job creation, SMBs are a vitally important customer segment for large technology firms. If targeted and their needs addressed successfully, SMBs can offer technology companies a sustainable and durable customer base to support significant growth. Indeed, for the technology sector, SMB spending on hardware, software, and services has been steadily rising in the US at above-market growth rates for the last decade, and is expected to continue to grow at 6.9 percent worldwide, two to three times forecasted GDP growth.6 Information technology (IT) spending by SMBs (hardware, software, IT services) was $543 billion worldwide in 2012 (figure 2) and is expected to reach $686 billion by 2017. Following a downturn during the Great Recession, global IT spending has rebounded, accelerating at 2.3 percent year-over-year in 2013 compared with 1.7 percent in 2012.7
An analysis of 84 large technology companies from 2003–12 reveals that companies with a stated SMB offering consistently outperformed their counterparts in revenue growth and operating income margin (figures 3 and 4). SMB-focused technology companies also experienced less volatility in revenue growth and operating margins. Finally, companies with an SMB offering fared better than their counterparts during the Great Recession, and their business performance rebounded more quickly as economic conditions improved. A combination of theory, empirical research, and real-world experience suggests that a cogent SMB strategy improves revenue growth and operating margins while providing insulation from market fluctuations. SMB offerings are also linked to higher employee and R&D productivity (figure 5).
For large technology companies, winning in the SMB market does not necessarily require fundamental product innovation. Instead, companies can pursue a nuanced strategy that uses novel technology solutions to redeploy existing products, services, and people to serve SMBs. The advantage of the latter approach is clear. Fundamental product innovation involves risk, time, investment, intellectual property, and unique human capital and competencies. In contrast, the emergence of new universal business tools—specifically, cloud, data analytics, social media, and mobile connectivity—creates opportunities for technology companies to expand their existing products and services portfolio to SMBs by adopting new business models that exploit these universal tools. In short, technology executives can leverage CASM tools to enhance their ability to serve SMB needs.
A Gartner survey of the top business priorities for chief information officers echoes the high expectations for the future of CASM tools, all of which were ranked within the first 5 out of the top 10 (figure 6).8
The cloud is a collection of Internet-based or private network services that provide users with scalable IT capabilities including software, development tools for self-customization, and virtualized servers and storage. Technology companies can use the cloud to support SMBs in data management, networking, and real-time capture and distribution, as well as to help SMBs improve internal productivity and efficiency at minimal cost.
For example, HP’s IT-in-a-Box solution, developed with Google, leverages SMBs’ existing hardware resources to provide simple productivity applications that include business applications, communication tools, and collaboration tools. The cloud enables virtual storage by enabling real-time access to applications and processes. HP’s solution requires lower capital investment and has minimal ongoing maintenance costs. Tailored to SMBs’ needs, IT-in-a-Box offers several benefits to its users, including security and reliability, which are traditionally reserved for larger enterprise-class products. The challenge with cloud solutions is to address “closed platform” compatibility issues and associated switching costs, as well as the difficulty of scaling certain business models such as licensing for software as a service (SaaS) offerings. In such cases, SMBs may find hosting or “build your own” models to better meet their needs.
Analytics describes a fast-growing set of techniques for drawing insights from data. Analytics solutions range from descriptive to predictive in nature. While the focus to date has been largely on improving efficiency and operations, analytics can enhance decision making by capturing and clarifying shifts in consumer preferences.9 Analytics offerings can provide tangible benefits to SMBs in the areas of business intelligence, customer segmentation, targeted marketing, customization of products and services, forecasting and operations, and rapid service support—all at relatively modest cost. For example, SAS Analytics enables analysis and fact-based management to identify insights, reduce fraud, and streamline operations.10 In fairness, the effective use of analytics involves overcoming challenges such as sampling error, poor data quality (“garbage in, garbage out”), vagueness in framing hypotheses, and the uncertain accuracy of predictive algorithms.11 But given appropriate attention to such challenges, analytics has much to offer SMBs and represents an opportunity for the technology companies that seek to serve them.
Social is the platform of choice for companies looking to synchronize their internal activities with external voice-of-the-customer opportunities. Social approaches to customer insight leverage self-selected customer communities to capture user-generated or crowdsourced content (e.g. from social networks, discussion forums, wikis, webinars, blogs, bookmarking, tagging, and podcasts). Social platforms can be useful to SMBs to create virtual customer dialogues and to monitor consumer preferences or concerns. In these ways, social solutions can help SMBs customize and improve their products and services. Social can also help SMBs enhance their customer service capabilities in ways other than pursuing costly brick-and-mortar and call center models. To date, the SMB market for social remains underpenetrated because companies and consumers have focused narrowly on social media; applications for tech-based social networks, social software, and social data remain fertile ground for further opportunity.12
The mobile revolution is redefining connectivity across business models and value chains. Wireless devices and applications have changed interactions among companies, employees, customers, suppliers, business partners, and their underlying technologies. Mobile features self-selected content and highly customizable applications. Mobile is also “always on,” features global reach, and can provide ubiquitous access to communities ranging in scale from individuals to “smart” cities. SMBs use mobile both directly, to customize applications across different devices and operating systems, and indirectly, by developing purpose-built applications that customers can download and use on smart devices. Real-time information, geotracking, the “push” content model, and mobile’s low-cost infrastructure afford SMBs desirable service levels and sustainable business models. In short, mobile’s ability to integrate the value chain—from sales prospecting to logistics and supply chain—is transforming SMB business models and execution efficiency. Mobile’s value to SMBs is underscored by the high penetration of smartphones and tablets into the SMB sector (90 percent and 65 percent, respectively, compared to 55 percent and 22 percent for the technology sector overall).13 The new BYOD (“bring your own device”) trend creates further new opportunities for customer engagement and is expected to drive a 25 percent increase in enterprise mobility at SMBs in 2013.14 The primary headwinds to SMB mobile penetration are concerns over security and privacy. These concerns are being addressed by techniques such as continuous monitoring and a succession of sophisticated encryption tools.
The basic demands of establishing and operating SMBs—from product development, commercial launch, supply chain and manufacturing, fulfillment and inventory management, distribution and logistics, customer service, financial planning, and workforce management—all require a portfolio of technologies in today’s global and fast-moving markets. Competitive pressures among SMBs, and between SMBs and large incumbent competitors, also drive SMBs’ demands for superior, differentiated technology solutions. Large technology companies understand these demands and pressures on SMBs, and have benefited from this dynamic. Not surprisingly, SMBs are well targeted and served by a broad range of technology suppliers. Our recent analysis of large technology companies shows over 80 percent penetration into SMBs across the hardware/networking and the software/services subsectors (figure 7). Conversely, semiconductor and equipment manufacturers, as well as electronic and industrial equipment manufacturers—as makers of components that go into products integrated by downstream hardware suppliers—have fewer SMBs as customers.
Despite being targeted by a plethora of offerings, SMBs continue to raise their expectations of—and change their buying behavior with regard to—technology products and services.15 Due to their relatively small scale and limited resources, SMBs require immediate productivity and rapid returns from investments in technology. Consequently, SMBs tend to be more strategic and discerning in their buying behaviors related to new technology.16 SMBs are highly cognizant of search costs and the costs required to implement new offerings, which slows their adoption of products that require major infrastructure investments, development time, or resources. For example, in the 2000s, SMBs adopted enterprise resource planning (ERP) systems at a significantly slower pace than their large company counterparts due to start-up costs, ongoing investments in tracking and maintenance, process compatibility and integration, and reluctance to be platform-locked. Consequently, we have seen SaaS ERP growing significantly as Oracle and SAP continue to pursue development acquisition strategies focused on SMBs.17 These business realities and demands limit the success of traditional innovation strategies by large technology companies seeking to sell to the SMB market.
We characterize SMB technology demands as the “5S needs”: self-customization, scalability, service, security, and sustainability. Examples from Google,18 Facebook,19 and Salesforce.com20 offer a look at how the use of CASM tools has addressed these needs.
Self-customization. To compete in dynamic global and local markets against often better-equipped competitors, SMBs use specialized competencies to establish a compelling and differentiated value proposition. Furthermore, SMBs often create more tailored offerings to capitalize on nuances in global market demand as well as regional and local customer preferences and behaviors. SMBs therefore need readily available and easily deployable tools that enable them to adapt a core technology product or platform to their business’s and value proposition’s specific needs and nuances. SMBs are increasingly demanding self-customizable technology to bolster their competitive position, augmenting their historical reliance on adaptability, nimbleness, execution, and talent.21
Google Analytics enables SMBs to customize their offerings based on the need (e.g. increasing traffic to a site) and thereby develop content dashboards that suit their specific business requirements. Similarly, consumers and SMBs alike have extensive flexibility in self-designing and hosting social pages on Facebook for informational, transactional, or social use. Facebook provides SMBs with simple design tools to build web pages, link to key information or value chain partners, and build a virtual community that is accessible online and via mobile. Facebook is also open-source via the cloud to other application providers to integrate web services. SMBs can use Shutterstock’s Application Program Interface (API) and search capabilities to access images directly within Facebook's ad creation tool. There is evidence that this results in greater use traffic: Through Shutterstock’s API and search engine, SMB’s photos generate 53 percent more “likes,” 104 percent more comments, and 84 percent more clicks than an average Facebook user post.22 Additionally, Facebook Insights helps SMBs evaluate their advertisement effectiveness and is easy to deploy through Facebook’s Graph API.
Often, self-customization can be cost-prohibitive or challenging in markets with established or dominant standards. SMBs sometimes discover configuration costs to be disproportionately more investment-intensive versus expected business results. Salesforce.com has addressed this issue by building a sales management and service platform that enables SMB clients to build a customizable interface for mobile and web users, depending on the clients’ needs and budget constraints. Salesforce enables sales administrators and financial trackers to tailor sales tools from a menu of offerings. These tools are integrated into a final product interface managed via the cloud for customers covering sales prospecting, lead generation and qualification, forecasting and ordering, supply chain and inventory management, customer service, and ERP systems. The resulting benefits are extensive analytics to inform targeted sales and marketing campaigns, as well as order forecasting and fulfillment.
Scalability. SMBs face the dual challenge of growing rapidly while operating from a small base. They value rapid growth through simple investments to maximize capital efficiency, and they need technology solutions that provide a consistent and durable infrastructure and backbone as they move through different phases of business growth. Technological scalability and flexibility are thus critical to an SMB seeking to expand its reach, whether by adopting new business models, growing volume, increasing its range of products and services, targeting different customer segments, or pursuing new geographic markets.23 Scalability can also be a double-edged sword: SMBs require solutions that can scale from small to large with minimal investments, learning curve, or compatibility issues. Technology solutions—especially those amenable to self-customization—sometimes fall short due to their inability to scale from serving a few individual customers to a significantly larger and diversified customer base.
Google, for example, recognized this challenge. The Google AdWords Premier SMB Partner Program provides services to improve customer targeting such as AdWords guidance, campaign management, and customer support. Google leverages its portfolio of assets to provide SMBs with tools for growth. Salesforce employs a similar approach with the CASM tools for its SMB partners. Salesforce’s Marketing Cloud offering enables SMBs to reach customers via various modes such as email, social, mobile, and web marketing. Various forms of real-time mobile connectivity further enable Salesforce offerings to grow with its customers and sales opportunities. Spotify, a music-sharing service and client of Salesforce, has been a fast-growing SMB. With a business model based on social, Spotify’s objective was to deploy a solution suite that would enable tracking of sales targets while improving internal efficiencies and processes. Sales Cloud and Work.com from Salesforce have helped Spotify to achieve discrete objectives such as monitoring company sales, and enhancing employee collaboration in a rapid and cost-efficient manner.
Facebook’s solutions are scalable. For example, its simple, common, and integrated interface, independent of scale of user, allows SMBs to attract new “likes” and followers for their products in a social context online and via mobile. Facebook features additional functionality and tools for ad creation to enable SMBs to run marketing and awareness campaigns. Sam’s Chowder House, a small restaurant based in San Francisco, uses Facebook Insights to measure the effectiveness of its social presence. The restaurant, which primarily targets the local community, shared photos including latest menu items and locale with each post. With Facebook Insights, it tests and measures how a post is performing and also receives guest feedback in a timely manner. Over time, as customer inflow expanded, Facebook proved to be a useful tool to both build customer relationships and collect feedback. Moreover, as fans on the Sam’s ChowderMobile Page grew over time, the restaurant was able to efficiently reach hundreds of people through its Facebook Ads. The restaurant, with the help of Facebook Insights, was able to analyze sales by the dish, by the hour, and by the day—an example of managing analytics on an SMB scale.24 Given this data on customer demand, Sam’s was able to assess Facebook’s effectiveness against its advertising spend.
Serviceability. Given their smaller scale and streamlined operations, SMBs need technology to work well as much as their larger business counterparts do. SMBs’ reliance on a smaller customer base makes their business susceptible to the loss of even a few important customers. SMBs therefore place even more value on products that feature high uptime, minimal maintenance, easy vendor access, and rapid self-service tools. Often characterized as multichannel or omnichannel customers, SMBs are increasingly demanding tiered service levels depending on issue severity, efficient response times, and transparent issue resolution.25 SMBs rely increasingly on their suppliers and vendors to provide first-line or end-to-end customer service, versus large clients that due to their scale, can afford to set up their own services and support infrastructure.
Service for SMBs can be enhanced through CASM investments. For example, Saleforce’s Service Cloud offering entitles customers to tiered service options that match SMB needs to response time and issue severity. On Facebook, SMBs are able to attract users and build a social community behind their commercial mission by using Facebook’s service tools for user self-selection, self-tagging, and keyword reference matching. In addition, for SMBs and corporate customers, Facebook provides analytics services that provide analysis of customer segmentation, buying behaviors, attitudes, and preferences to optimize marketing, transactions and advertising. SMBs are also equipped with tools for self-servicing their respective Facebook pages as business needs change. This information is stored and virtually hosted on Facebook’s cloud network and storage infrastructure.
Security. Security is a top issue for companies of all sizes as the cost of cybercrime and IP loss is estimated at over $250 billion per year and expected to double in the next decade.26 Fifty-nine percent of technology companies experienced a breach in 2013, and 12 percent of those breaches were considered high impact.27 The growth in electronic transactions, tracking, and communications over the last two decades has significantly increased the need for security solutions. SMBs are no less vulnerable to crime than their larger business counterparts and, in many cases, due to their want of infrastructure, SMBs may be even less equipped to handle threats. For instance, SMBs are more susceptible to breaches and cyberthreats as they often purchase low- to middle-end prepackaged security software and protocols rather than enterprise-class security. SMBs also have less infrastructure and bandwidth, resulting in less tracking and monitoring against security threats. Moreover, the consequences of a security breach, including loss of revenue and reputation, can be more damaging to SMBs than to larger businesses.
Technology providers often offer features that recognize these security concerns. Salesforce, for example, provides cloud backup and remote security monitoring to protect confidential end-customer information and vital information exchange among sales and marketing teams. Its Chatter feature enables confidential collaboration between employees with measures that provide a level of data security. Facebook also features platform security including Facebook for Websites (a set of APIs) and OAuth 2.0 (for authentication and authorization) that protect applications and users from potential security attacks. Its security protocols and ease of use make these applications useful for SMBs to guard against malware and other cyber infringements. Facebook also has improved mobile encryption methods to reinforce confidence in user privacy and SMB corporate security.
For consumers, Facebook secures user authorization in advance to share select social information, such as preferences and usage, that has analytics or social value in user or SMB targeting, marketing, or advertising efforts. Similarly, Google’s online payment product—Google Wallet—features encryption systems that mitigate the risk of data or identity theft. For SMBs, transactional integrity is critical to customer confidence and building the brand to reach a wider audience in the mobile and web community.
Sustainability. A study by IDC in 2013 showed a 20– to 200–fold difference between SMBs and large companies in their IT spending budgets.28 For a technology solution to be sustainable for an SMB, it must have low infrastructure and build-out costs as well as affordable maintenance and service costs. Secondly, it must have a flexible platform that is compatible with past investments and/or products in order to minimize the cost of change. Often, modularity or product versioning can give technology companies a way to help SMBs make sustainable technology investments. For example, SAP’s Business One provides SMBs with a prepackaged and lower-cost model for integrating financial management, warehouse and production management, customer relationship management, purchasing, mobility, reporting, business intelligence, and analytics.
Making an “enterprise” solution attractive to an SMB often requires delivering the desired features without the up-front capital investment or ongoing management costs usually associated with such solutions. For example, Google+ enables SMBs to leverage the vast Google user community in a cost-effective way. The fact that many of Google’s products are low cost—including search, e-mail, personal websites, cloud-based productivity, enterprise computing, and operating systems—reinforces a sustainable business model based on advertising revenue to a loyal customer community.29 Most of Facebook’s services and social networking features are also freely available to SMBs and individual consumers. Facebook leverages its data analytics capabilities and social media access to user attitudes and behaviors (likes, preferences, search, and such) to target advertising and other revenue-generating offerings. Meanwhile, Salesforce uses the cloud and online solutions to provide virtualization of their capabilities, products, and services while leveraging existing SMB infrastructure. While Salesforce’s costs depend on the level of customization and analytics intensity, compared to alternatives their offerings feature relatively low start-up costs and easier exportability of analytics data to other platforms.
Making an “enterprise” solution attractive to an SMB often requires delivering the desired features without the up-front capital investment or ongoing management costs usually associated with such solutions.
While the technology sector often pays SMBs a high level of attention, not all technology companies are focused or aligned for success in this market. Large technology companies committed to winning market share for SMBs need a competitively differentiated approach that leverages innovative technology solutions and goes beyond traditional product innovation. In the past, this was challenging because the advantages afforded by larger-scale architectures were largely unattainable to SMBs. The emergence of new, pervasive CASM tools creates opportunities for technology companies to redeploy existing products, services, and people to deliver on unique needs of SMBs. Technology companies can explore CASM to “democratize” their technologies and create a more expansive presence in the vitally important market of SMB customers.