A new AMR survey reveals that "customer-driven issues" are now the main reason for budget increases.
Posted Feb 4, 2008
An AMR Research study released this week predicts that the majority of small and midsize businesses (SMBs) in the United States will increase their technology spending by an average of 5.3 percent in 2008. Respondents identified customer-driven issues as the main reason for the budget increase, ahead of competitive and economic pressures, according to AMR's "U.S. SMB IT Spending Report, 2007-2008."
Last year's survey revealed a three-way tie for SMBs' leading focus, with customer management applications, manufacturing operations, and enterprise resource planning (ERP) each garnering 19 percent of the response. This year, customer management breaks into sole possession of the lead position, accounting for 18 percent of strategic software investments.
"From a pure software perspective, customer management applications are [respondents'] lead software investments, followed by [business intelligence/performance management] and ERP in 2008," the report said. "These preferences should come as no surprise from this sector. According to the 'Customer Management Spending Report, 2007-2008,' nearly two-thirds of all companies in the midmarket reported a planned increase in customer management spend in 2008."
Simon Jacobson, senior research analyst at AMR Research, and his colleagues surveyed 343 U.S. manufacturing and services companies with 50 to 999 employees about their IT spending and investments in enterprise software. "Most small companies, for the most part, are behind the 8-ball, from an IT perspective," Jacobson says.
While the report found that roughly half (49 percent) of the average SMB's budget is currently going toward applications that help run the business, spending on applications that support both innovation and growth are surprisingly gaining ground: Respondents said that they were focusing 25 percent on innovation applications and 26 percent on growth applications, rounding out their budgets.
"This is intriguing for a market segment that has traditionally been characterized as 'strapped for IT resources' and focused largely on sustaining current market position," the report said.
But it's no surprise that these companies are prioritizing customer management applications, given increasing customer pressures. In order to compete with larger companies, SMBs must continue to cater to the tech-savvy customer. In fact, "technology requirements of key customers" ranked highest (25 percent) as the most important customer issue influencing IT spending. The study also found that 35 percent of those companies with fewer than 250 employees reported customer-related issues as having the greatest impact on their investments, and, of all the companies, consumer confidence and consumer spending were the most important economic factors influencing the use of their budgets.
"How can I be profitable if I don't respond to customer demand?" Jacobson asks, rhetorically. "It's [about] understanding your customers. It's not just the traditional automated sale."
While SMBs may report holding customer management in high esteem for 2008, the report suggests that that may change in the future, especially for SMBs in the healthcare and financial-services sectors, and those with fewer than 500 employees. The report foresees a clear shift by 2010 toward software comprising business intelligence (BI) and performance management (PM) applications. By that point, AMR's forecast has customer management applications garnering only 13 percent of software investments, with BI/PM raking in as much as 16 percent of overall investment.
"BI and PM tools have been increasingly important over the past few years, supporting the vital business initiative of better utilizing and analyzing data throughout the organization," the report said.
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