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Technology Spending to Expand Again in '08
A new AMR survey reveals that "customer-driven issues" are now the main reason for budget increases.
Posted Feb 4, 2008
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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.

Related articles: IDC Eyes Technology's Future An interesting year ahead: new technologies to be harvested, new markets to be explored, and new ideas hovering on the brink of reality. SMBs Are Embracing Enterprise Software New research reveals that enterprise and CRM software isn't just for the big boys anymore. BI Will Be Pervasive Gartner analysts predict more business intelligence usage throughout enterprises, with increasing focus on seamless deployment into strategy and business processes. BI and PM: Two Sides of the Same Coin Spending on business intelligence and performance management is expected to balloon as companies seek to bring financial data and operational metrics to the corporate masses, according to a new study. Double-Digit CRM Growth -- But Double-Digit Failures and Double-Digit License Limbo, Too Companies will shell out 16 percent more on customer management apps next year, but nearly one-third of companies have experienced failed implementations -- and 25 percent of all CRM licenses go unused. Sizing Up the CRM Situation Software-as-a-service, focus on customer retention and acquisition, and verticalization are factors enabling the market's healthy growth. CRM's Expanding Horizon Gartner predicts CRM software revenue will grow 14 percent this year to exceed $7.4 billion, as SaaS, sales, and foreign markets continue to drive the market. SMBs Showing Increased Appetite for Converged Communications SMBs enjoy an expanding IP communications and managed services market, but no dominant players have yet emerged. SaaS Is a Four-Letter Word for SMBs Adoption by SMBs continues to increase, but many smaller companies remain wary of the software-as-a-service concept. SMBs Find Commonalities and Differences Small and medium businesses have similar broad needs when it comes to technology, but considering them one group may be a mistake.
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