Mid-market companies rarely receive much attention in the business section of major national newspapers but as all governments around the world know, the mid-sized businesses are the engine of economic growth. In broad terms they employ more people per pound of GDP and contribute disproportionately more revenue and corporate taxes. Keeping this sector of the economy thriving, particularly in a downturn is a priority for most politicians. Reducing red tape, fiscal and monetary policy are all important determinants of success but small businesses can also help themselves to flourish with sensible growth strategies and a positive approach to information technology.
It could be argued that mid-sized companies have never had it so good when it comes to the choice and pricing of IT solutions, yet cost is still one of the major inhibitors to IT investment. The other is the global shortage of skills that allow small businesses to take advantage of new technology or simply to get the best out of the systems they already own. So what are the key trends since the Dot Com era and what changes should mid-sized companies contemplate as we near the end of the first decade of the 21 st Century?
One of the most dramatic changes of the last few years has been the growing interest shown by traditional ERP vendors in the mid-market. After several false dawns the major ERP suppliers have at last recognised that mid-sized companies have their own set of needs which cannot be simply addressed by cutting down full scale ERP solutions designed for large multi-nationals. As a result, a large number of mid-range business solutions have emerged which though functionally rich are packaged and presented in a more accessible style for the smaller business entity.
In terms of value for money these systems offer a step change in capability, added to which, competition between Microsoft, Oracle and SAP for this centre ground has steadily driven prices down whilst extending the range of applications on offer. Whether this is a good thing is a question of debate. The raw cost of the solutions may appear to represent good value for money but implementation cost and complexity is still off-putting. After all, the large scale ERP vendors are faced with a delicate balancing act between the desire of the mid-market for value for money and the need of their dealers operating in this segment for adequate returns. With licence revenues under pressure dealers are turning increasingly to service revenue to take up the slack and for mid-market companies the promise of cheaper solutions can sometimes seem illusory unless they have the in-house skills to implement solutions on their own. Skills remain the key driver for success.
One way of removing complexity is to take advantage of services provided over the web and the last few years has seen dramatic changes, ranging from hosted e-commerce solutions to CRM and more recently on-demand accounting solutions – the unfortunately named Software as a Service (SaaS) which nobody in the mid-market appears to understand.
The appeal of these hosted solutions is that the IT infrastructure is taken care of. End user companies no longer have to worry about acquiring and configuring servers, backing up systems or maintenance upgrades. This is all carried out on their behalf.
Interestingly, the number and variety of on-line options is growing rapidly. PayPal, for example, hardly heard of a few years ago, is now an important part of SME trading and many mid-market packages provide integration capability with E-Bay and the ability to automatically reconcile bank transactions by importing files directly from major retail banks.
Integration in the broadest sense with the Microsoft Office Suite of software is also a major change for the better with most of the leading packages being able to exchange information with common Office productivity tools such as Word and Excel. This can confer significant competitive advantage if companies rise to the challenge. However, most small businesses inhabit two worlds when it comes to managing their interactions with customers, suppliers and employees. The 'transaction world' governs the generation of invoices, processing of supplier and customer orders and the management of inventory but when transactions are queried or invoices are disputed most businesses slide almost unnoticed into email exchanges, telephone conversations and meetings. This unstructured word of informal communications is what drives up costs and inefficiency. Some estimate that the cost of processing a queried transaction is at least 80 percent higher than a transaction that is processed correctly the first time around.
Historically, one of the main drivers of IT investment, cited by business owners of mid-sized companies is that they outgrow their systems but this seems increasingly unlikely as the scalability of most solutions on offer is growing. Being able to grow IT systems in sympathy with business growth is a major advantage since it avoids the need for costly changes in direction and processes just when a business can least afford the disruption and cost – i.e. when it is growing rapidly.
So what should mid-market businesses be doing to protect their position? Over the next few weeks we are going to take a close look at how mid-sized businesses can drive competitiveness, productivity and profitability, taking each of the above topics in turn in a major new series. The basic premise is that most companies have the tools and capability to improve their position – they just need to unlock the potential.
