Canadian tech vendors grapple with SMB paradox

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Canadian small and medium scale businesses (SMBs) can serve as a massive and lucrative customer base for information and communication technology (ICT) products. But vendors need to position their offerings effectively before reaping profits, according to a recent survey by research firm IDC Canada Ltd. in Toronto.

The study titled ‘Does ICT matter to SMBs in Canada’ was commissioned by the Information Technology Association of Canada (ITAC), a network of technology companies dedicated to “[realizing] ICT potential for Canada.”

More than 82 per cent of Canadian SMBs polled believe ICT products are critical to their success. On the other hand, around 79 per cent believe improving productivity and efficiency take priority over technology investment.

This apparent paradox, between how SMBs view technology and their investment decisions, poses a challenge to the ICT industry, according to Doug Cooper, ITAC chair and country manager at Intel Canada.

Other survey findings also provide insights into how Canadian SMBs view ICT.

On the one hand ICT spending by these businesses remains strong. The survey indicated that collectively, SMBs here are poised to spend roughly $16.5 billion on IT hardware, software and services this year.

Yet 50 per cent of the companies polled identified “lack of trained staff” as the most significant barrier to ICT investment. Cost and difficulty in seeing quantifiable ICT benefits and return of investment (ROI) ranked as a second hurdle at 49 per cent.

SMBs are seen as a major revenue potential by ITAC since SMBs account for 95 per cent of companies in the country and provide more than 80 per cent of the jobs in Canada, said David MacDonald, president and CEO of online commerce company Softchoice Corp. and vice-chair of ITAC.

The survey however, shows more than half of SMBs spend only one to four per cent of the revenue on ICT.

Michael Hyjek, research director for customer segments at IDC Canada said 77 per cent of senior business managers agreed their ICT investments would significantly improve productivity over the next five years. In fact, more than 65 per cent said previous ICT investments produced expected ROI.

But again the survey indicates a glaring discrepancy between perception and actual capital allocation.

“Majority of the executives hold a positive view about the value of ICT, but roughly 20 per cent of the companies do not even have an ICT employee,” said Hyjek, who co-authored the study with fellow IDC Canada analyst Jamie Sharp.

Hyjek explained that technology adoption had been hampered by “lean cost structures” that had resulted in nearly half of all SMBs having just one or two full-time ICT staff.

SMBs also reported non-ICT investments on labour and operating expenses as higher priorities that ICT-related expenditure.

A member of the panel partly blamed the capital crunch on federal business and taxation policies.

“We need a deregulation of the market and lower corporate taxes,” said James Milway, executive director of the Toronto-based Institute for Competitiveness and Prosperity (ICP). The ICP is a non-profit organization funded by the Ontario government that studies the factors affecting the province’s economic progress.

Milway said the government should increase the goods and services taxes (GST) and lower taxes on businesses to bolster corporate investments.

“We should be taxing consumption not investments,” said Milway.

The survey underscores the need for vendors to align their products with their clients’ business priorities, according to Pino Biase, vice-president for business development at Mississauga-based CA Canada Inc. “Customers need products that are simple to set-up, operate and maintain, so they can concentrate on their business.”

For instance, Biase said, SMBs today face increased “brute force” attacks on their networks and business owners need to be educated on the importance of IT security before disaster strikes.

Companies want products that addressed their particular needs not stripped down versions of equipment offered to enterprises, said Biase.

This view was shared by another member of the panel who noted the need for initiatives that impress upon SMBs that technology is a driver for productivity rather than a cost of production.

“We shouldn’t be telling them what technology is cool but rather how it will improve the bottom line,” said Peter Kerr, vice-president of marketing, SMB division at Bell Canada.

The survey revealed SMBs deem spending on ICT software more critical than investments on hardware, services and telecom.

The top ICT spending priority for companies with 50 to 99 employees is finance and accounting solutions. Companies with 100 to 499 employees view inventory and material management software as more important and companies with 500 to 999 workers place a premium on networking projects.

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