By CHEN HUIFEN

A DECADE ago, it would have been much harder to sell SMEs the notion that spending on information technology (IT) is an investment, rather than a cost.

Today, many SMEs have accepted that they need IT to communicate with customers and suppliers, streamline administrative functions, and to innovate. According to the SME Development Survey 2008 conducted by DP Information Group, among the SMEs that intend to adopt technology innovation in the next one to two years, 52 per cent plan to introduce innovation in IT solutions, while 47 per cent want to innovate on their IT infrastructure.

'SMEs in Singapore mainly invest in IT infrastructure, desktop productivity applications,' said Sun Whye Mun, director of Microsoft Operations Pte Ltd. 'About 55 per cent of IT spending today is focused on what we term 'basic core IT infrastructure'. This includes desktop and server software systems.

'Twenty per cent is spent on business productivity tools, with a focus on desktop business productivity. This includes functionalities such as word processing, basic communication through e-mail, storage and printing of documents.'

However, it appears that the focus of IT adoption still revolves around supporting core business processes, rather than in transforming businesses. Mr Sun estimated that only 5 per cent of IT spending is spent on business applications, leaving plenty of room for SMEs to explore.

Said Nicholas Tan, general manager at IBM Singapore: 'For instance, today's self-service kiosks are ultra compact, can be deployed quickly and easily in any environment without adding a single square foot of real estate.

'Small retailers can now offer customers instant access to information, innovative services, and online commerce in a rich multimedia format that includes full-motion video, high-quality audio, realistic 3D graphics and advanced infrared touch-screen technology.'

But against a backdrop of declining consumer sentiment, cost-cutting pressure and weakening business conditions, is investing in IT still relevant?

Yes, comes the response of consultants, but the IT adoption strategy would have to be executed with greater care and a tighter lid on costs. 'Technology adoption will be the key to survival for many SMEs,' said DP Info Group managing director Chen Yew Nah.

'In times of economic slowdown, reduced budgets and tightening belts, SMEs need to squeeze every ounce of efficiency out of the resources available to them. The SME Development Survey indicated SMEs are enthusiastic about using new technology to grow their businesses.

'Rather than putting this expenditure on hold, it would be prudent for SMEs to maintain their level of investment in technology, otherwise they may be left behind by their competitors. That's why investment in IT solutions and IT technology is still relevant - even in a protracted downturn.'

Case study

Sin Hwa Dee Foodstuff Industries is an example of a local SME that has successfully leveraged on IT solutions to drive its sales and marketing strategy. The manufacturer of pre-mixed sauces and food pastes installed a van sales automation system in 2000 that allows its mobile sales force to update stock availability on their vehicles using their personal digital assistants.

When the sales personnel return to the company at the end of the day, the transactions are uploaded and merged with information stored in its backend system. This cuts out the additional step of manual data entry that would have had to be performed. 'When we first thought of this, people thought that we were crazy because who would have thought that a food sauces business would need to track its customers,' said Sin Hwa Dee managing director Jocelyn Chng. 'But then business conditions are changing, so we also have to follow suit, to be faster than competitors.

'So many things are happening around us. Today, we have Facebook and Linkedin, which are influencing the way people communicate and build relationships with their customers and obtain brand exposure.'

Ms Chng was unable to provide details on return on investment. But she was sure that IT adoption played a key role in helping to improve sales and bottom lines over the years. From being a mere supplier taking orders from customers, Sin Hwa Dee can now predict market trends more accurately. The periodic sales reports generated allow the company to analyse buying patterns of customers. This knowledge comes in useful when identifying products to introduce for various customer segments, and in new product development.

Alternatives

Strangely though, while SMEs are willing to innovate on the IT front, they are unwilling to pay for it. In the same SME Development Survey by DP Info Group, it was found that only 12 per cent are willing to pay more than $100,000 for technology innovation - including in the IT solutions and infrastructure fronts - and 51 per cent do not wish to incur any costs.

'This gives rise to a concern as to whether our SMEs have perceived technology innovation correctly as 51 per cent are assuming that technology innovation adoption can be achieved at no cost,' said DP Info Group.

For SMEs with a tight budget, Singapore Computer Systems (SCS) grid computing director Lim Jee Yen suggested moving to a software as a service (SaaS) model. Instead of buying customised, off-the-shelf infocomm solutions, the SaaS model allows companies to subscribe to an application that is hosted on the Internet.

'SaaS is a model which SMEs should seriously consider,' said Mr Lim. 'It offers no upfront investing, pay per use (based on application needs and number of users) model and the SME can scale up or scale down the number of users based on how the company performs in this economic environment. On top of this, they do not need IT personnel to maintain their systems.'

To support his argument, Mr Lim gave an example of an SME that decides to implement a HR/finance system for an organisation of about 100 people. He estimates that a customised solution provided by a vendor would have cost the company nearly $84,000, including maintenance for three years. On the other hand, a 10-user subscription of a HR/finance application on the SaaS model costs about $58,000.

Amid the current economic climate, Microsoft's Mr Sun suggested that SMEs invest in IT solutions that would help them improve overall efficiency, reduce cost and improve cashflow. One way is to make use of mobile technologies, like what Sin Hwa Dee did. Other ideas include unified communications technologies to cut inefficiencies and customer relationship management tools to help SMEs gain deeper insight about their customers and competition.

'SMEs can turn to IT to rid productivity killers like spam, computer viruses or data theft,' said IBM Singapore's Mr Tan. 'A regional manufacturer found itself inundated with spam and e-mail viruses that took each employee an average 20 minutes a day to remove.

'With only minor modifications to its e-mail servers and firewalls, the manufacturer took advantage of an e-mail filtering solution hosted offsite. Now, spam and virus e-mail no longer reach the company's network, giving the company back an estimated 2,500 hours of labour per year.'

This article was first published in The Business Times on January 20, 2009.