by John M. Covaleski

Scottsdale, Ariz. -- After two years of declines, information technology buying by small and midsized businesses should rise appreciably in 2004, according to technology industry researchers Gartner Inc.

“There is unrealized potential in the SMB market and it’s all up for grabs,” said Gartner research director Robert Anderson. He cited Gartner research that finds that SMBs’ budgets for IT products and services in 2004 are 7.6 percent greater than their budgets a year ago, following year-to-year IT budget declines of 0.2 percent in 2003, and 7 percent in 2002.

Gartner projects that total SMB IT spending, estimated at $141 billion in 2002, will grow to $275 billion by 2006. The SMB market in the United States includes 8.3 million small businesses, 23 million home offices and 110,000 midsized organizations, according to Stamford, Conn.-based Gartner.

Gartner’s projected SMB spending surge is still less than half of the 15.9 percent increase that SMBs had in 1999 over 1998 to prepare for compliance with the Year 2000 issue. Anderson said that SMBs in 2004 will be much more demanding in their IT decision making.

“SMB is the place to be, but it’s still not Easy Street,” Anderson said in a presentation at the fall conference, held here, of the Information Technology Alliance, a consortium of tech vendors and tech consulting practices, including some of the most successful practices affiliated with accounting firms.

Anderson said that, more than ever, SMBs are looking for IT solutions that give them competitive business advantages. That compares to the late-1990s boom that was primarily fueled by the need to have Y2k-compliant systems.

SMBs responding to Gartner’s 2004 IT budget survey most often cited improving productivity as their main reason for buying this year. Anderson said that SMBs typically want technology capabilities similar to ones employed at much larger companies, including “collaborative” systems that enable them to simultaneously handle such matters as order processing and order fulfillment. SMBs are also looking for increased financial transparency; the abil­ity to work globally; and a better ability to compete and work with trading communities.

“We face a revolution of rising expectations from small and midsized businesses and we need to think of new ways to serve this new environment,” Anderson said.

Following the need to be competitive, the other top reasons that SMBs cite for buying IT in 2004 are: to replace aging or broken systems; to meet specific initiatives; to accommodate expansion; and to deal with “competitive pressures from the Internet.” Indeed, many of the trading communities that SMBs now compete with, or work in concert with, are Internet-based, Anderson noted.

Gartner expects the following technology areas to be most in demand by SMBs in 2004: integration of customer relationship management systems with back-office accounting software; executive “dashboards” that provide rapid access to information on all of a company’s operations; warehouse management systems; project management; and business alerts.

Anderson said that CRM should shape up as a very competitive SMB selling area in 2004. He noted that, while SMBs are showing strong demand for CRM, only 20 percent have CRM systems in place and no single vendor dominates the SMB CRM market .

SMBs are also following larger companies’ lead in outsourcing. According to Gartner, 60 percent of businesses with 500 or fewer employees will each spend $1 million to $5 million in outsourcing in 2004. The prim­ary outsourcing areas include technology, finance and accounting, sales and marketing, and human resources.

“Companies are saying, ‘I want to focus on my core business, not on information technology, but I need the IT to compete,” Anderson said.

He also urged the ITA members to gauge their competitors to figure out ways to distinguish themselves. “There are a lot of players out there. How are you going to be two decibels higher and not be drowned out by the others’ noise?” Anderson asked the ITA audience.

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