With information technology getting increasingly affordable and it giving organisations a definitive edge, SMEs should go the IT way

Even as recently as a decade ago, say circa 1994-95, this question would not have arisen in India. IT was for large organisations.

If you were an SME, you almost certainly managed all your business processes manually, the way it has been done very smoothly — thank you very much — for almost a century.

But now, it is almost safe to say that IT is becoming mandatory even for SMEs. There is a lot to gain by doing it with IT, and IT is becoming affordable.

But like every other investment, one needs to understand the 'WHY' and 'HOW' and whether 'WHY' is greater than the 'HOW' — meaning whether 'returns' justify the 'investments'.

How would you manage your operations differently if everybody in your organisation had a computer, is the question that Rajesh Jain, MD, Netcore, wants every SME to ask itself. It is not just the automation of flawed processes, but the potential to re-engineer every business processes and the benefits that come along that needs to be considered.

Rajesh points out that there are almost 4m SMEs in India and they employ close to 40m people. But the number of computers in the SME sector is hardly 4m. This means only one in 10 personnel in the sector has a computer.

This hinders collaborative use of IT. Rajesh strongly believes that intense deployment of information technology will help small organisations to grow business and become mid-sized organisations.

And mid-sized organisations, on their part, could deploy information technology to bring in efficiency and cut costs.

Clearly, satisfying all IT requirements at the lowest cost should be the top priority. For example, information technology supports the functioning of Breach Candy hospital in Mumbai at a very low cost. Breach Candy's annual revenue is to the tune of Rs 60 crore per annum, while IT costs are barely Rs 30 lakh.

And IT costs have only come down, informs Dilip Desai, head-MIS, Breach Candy. Servers at Breach Candy are Intel machines — Netfinity 5.5, X205/X220 machines costing around Rs 2-5 lakh. PCs are Celerons costing less than Rs 20,000 and the operating system — you guessed it — is Linux.

The lesson from Breach Candy is that there is a need to examine what applications are necessary, and not invest in unnecessary technology. One should choose a technology that delivers required functionality at the lowest cost. SMEs should deploy CRM type applications to grow their business, advises Rajesh.

He says that ERP companies are realising that their next growth potential is in small and middle level enterprises and, hence, are tailoring their offerings to suit the SME sector. These typically cost as low as Rs 5 lakh and are certainly affordable.

Vendors, both hardware and software, are gearing up their offerings so that SMEs can spend on IT as if it is an operating expense and not a capital expense. Of course, SMEs have an option to get software developed by an independent software vendor too.

When getting customised applications developed, the focus, Rajesh advises, should be to get the information on the change happening, and not report the norm. The need is to distil information and get the right kind of information. Another good examples of keeping IT costs on the lower side is Crossroads mall and Piramyd group of stores.

The entire Crossroads mall is IT managed at a cost of less than Rs 10 lakh per annum, informs Abel Correa, assistant general manager, systems, Crossroads. IT at the Piramyd stores costs around Rs 35 lakh per shop.

This is not to say that IT costs have to be necessarily low for retail operations. Consider Shoppers Stop: IT expense — not disclosed — is fairly a large segment of its revenues. Pantaloon group of stores is actively considering deploying state of art ERP package to replace its home-grown software.

Here, we have three scenarios in the same sector — Crossroads and Piramyd which manage their IT very frugally; Shoppers Stop that matches the IT deployed in the best of retail operations in the world; and Pantaloon that is slowly climbing the curve.

The lesson for the SME sector here is that they can start by investing in IT at a minimal level and then slowly upgrade it in tune with affordability so as to be able to manage the operations better and strategise better.

Rajesh says that the vendors should gear themselves up to provide hosted IT services to SME clients. SMEs should be able to receive one bill — that includes the use of hardware, software and communications.

He says that while the ASP (application service provider) model failed a few years ago, as it focused on organisations that already had IT infrastructure, there is a clear case for redeploying ASP.

True, affordability and the return on IT investments is of concern for SMEs but the utility offered in terms of computing needs can not be ignored.