White Paper              SMB Comes of Age, Needs              IT on Tap!              Small and Medium Businesses feel the...
About the AuthorVenguswamy RamaswamyVenguswamy Ramaswamy, or “Swamy” as he is better known,globally heads the TCS Small an...
Table of Contents1.   Constrained working capital and low risk preference   52.   Empathizing wit issues in evolving busin...
IT vendors, business financers and telecom serviceproviders, all see a new business opportunity at the frontier.     SMBs ...
is to equip sales-force with mobile devices to update orders taken. Yet, today we have a spectrum ofvendors, with enterpri...
processes from an end-to-end perspective. We will rarelyfind investment in business process re-engineering in most        ...
compensate lower job security and social recognition thatan SMB can provide. The fear of hiring costly IT talent and      ...
SaaS model. Capital investments are low. Software andinfrastructure are remotely managed, and therefore there is       In ...
centralised hosting. The applications service is metered onusage and the cost is a function of it. The name is drawn from ...
A similar set of operations would be needed for the Network solutions. Network solution would also includesystem integrati...
Why iONiON provides comprehensive solutions that address varied IT requirements. From network to ERP, iON is offered as a ...
About iONiON is Tata Consultancy Services’ strategic unit for Small and Medium Business. iON providesend - to - end busine...
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SMB Comes Of Age Needs-IT OnTap


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Small and Medium Businesses feel the desperate need for adopting IT, yet no single vendor solution seems to serve their plight. Does this call for an entirely different service model?...

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SMB Comes Of Age Needs-IT OnTap

  1. 1. White Paper SMB Comes of Age, Needs IT on Tap! Small and Medium Businesses feel the desperate need for adopting IT, yet no single vendor solution seems to serve their plight. Does this call for an entirelydifferent service model? IT demand from SMB is growing. It is a market that is characteristically different from large enterprises. Till date, IT industry has seen this market attractive for niche solutions in hardware and software. Yet, the business needs of the SMB, demands holistic partnership. With too many options and very little in-house knowledge, the plight of SMBs is far from being met. This calls for a different service model, which relieves this segment from these challenges. IT on tap, though not literally, is about making IT available as remotely managed and hosted services. TCS, with 35 years of IT solutions experience and expertise in various verticals, is making this happen by bringing IT- as- a- Service catering to the needs of SMB.
  2. 2. About the AuthorVenguswamy RamaswamyVenguswamy Ramaswamy, or “Swamy” as he is better known,globally heads the TCS Small and Medium Business (SMB)-iON.iON is a strategic business unit of TCS and provides end- to- endbusiness solutions to the SMB segment.In his previous role, he was the Director of TCS Global ConsultingPractice (GCP) and was instrumental in the structural formation,development and positioning of TCS’ consulting offerings.Consulting Magazine has named him amongst the top 25consultants of the year 2007.During his 16 year tenure at TCS, Swamy has held several strategicpositions including managing key customer relationships,building and heading the Process Consulting group, managingthe Corporate Resource Management function, leading numerousCenters of Excellence, as well as launching TCS first steps ingeographies such as Hungary and China.Swamy is a firm believer in the power of IT to create businessvalue and is known for his interest in Innovation & Quality andexpertise in Six Sigma. He is also recognized as a champion ofmany digitization drives within TCS, including deploying digitalplatforms for Six Sigma, creativity and talent acquisition. 2
  3. 3. Table of Contents1. Constrained working capital and low risk preference 52. Empathizing wit issues in evolving businesses 53. IT talent – too expensive and volatile for SMBs 64. SaaS evolution - when adoptions fail, Technology finds a way out 75. Another spike in the Technology evolution curve – The Utility Model 86. IT-as-a-Service –bringing managed services to SMBs 9 3
  4. 4. IT vendors, business financers and telecom serviceproviders, all see a new business opportunity at the frontier. SMBs are confused with too manyWe have been ignoring an impending market that has vendors touting their solutions andrecently surfaced and it is demanding attention. SMB is no services. There is little knowledge onlonger confined to niche products and services, which canbe delivered with little sophistication. Rather, it demands what is best suitable. SMBs arestate-of-art solutions to scale up and adopt matured clamoring for advisers to help them outoperating models. of the confusion created by a plethoraSMB is a burgeoning economic component that is capable of options.of driving economic growth in its own right. In Germany,46% of the GDP is contributed by SMBs. They have customers like Siemens, BMW and SAP setting standardsfor them. In India, contribution of SMBs to exports is 46%. Yes, SMBs too demand sophistication in the waythey operate; and it is high time IT services see the segment differently.For IT service companies, to scale up to service SMBs, one may be inclined to think that it would be a naturalaugmentation of services for them. For instance, we may think it is easier for the SAPs and Oracles of today,to service the growing ERP market. On the contrary, SMB is a different ball game. Products and solutions thathave traditionally served large enterprises will find it difficult to unlearn and rebuild solutions to thecharacteristic needs of this segment.Firstly, capital constraints for operations and raw materials thwart growth. Interest rates fluctuation andcapital investments in production assets continue to defer assets needed for IT adoption. SMBs would like toinvest on phased basis in order to allow investments return cash flows.Secondly, the business uniqueness is high owing to evolving processes. Level of standardization of processesis low. ERP implementation, for example, sees realizations in course of implementation on standardfunctionalities not matching with user scenario. SMBs have to redefine their processes from time-to-timeand bring in efficiency as they scale up.Thirdly, the main issue plaguing the SMBs today is talent crunch. With a huge demand for IT professionals inIT services industry, SMBs are starving for in-house IT work force. Not just that they are expensive, they arealso volatile. High attrition of Network or Database administrators, for example, leads to a loss of internalknowledge.In the midst of this, SMBs are confused with too many vendors touting their solutions and services. There islittle knowledge on what is best suitable. Very few vendors look credible to suggest a solution that fits theoverall requirement of the organization. If we think thatSMB would rarely need IT consulting, we are grossly wrong.SMBs are clamoring for advisers to help them out of the No single vendor today looks capableconfusion created by a plethora of options. to solving all the issues that lie with ITConsidering these aspects, we find that the SMB market is adoption in the segment. While thevery different from the enterprise market. Nevertheless, market for the SMBs has come of age,they demand similar sophistication. They are getting the suppliers are yet to!technology-savvy and looking at new business models toleverage the same. For example, an increasing trend in SMBs 4
  5. 5. is to equip sales-force with mobile devices to update orders taken. Yet, today we have a spectrum ofvendors, with enterprise service capabilities, jumping into the bandwagon to tap the now-very-attractiveSMB market. In the midst of this, the question that we would like to ask is “does the SMB need a newerservice model?” – A model that is different from how we served enterprises. No single vendor today lookscapable to solving all the issues that lie with IT adoption in the segment. While the market for the SMBshas come of age, the suppliers are yet to! The conventional service models do not serve the plight of thissegment. Or may be, we can not have just one breed of vendors to cater to this unique market. Rather,what we need is an ecosystem. We are strongly inclined to the vision that the service player, who will beable to drive an ecosystem of service providers, and provide a basket of services, will see betteracceptance in the SMB. Our discussion in the course of this paper will find the reasons for this and how anew business model evolves for it.Constrained working capital and low risk preferenceSmall business financing broadly, fall into three categories. One is working capital financing throughoverdraft accounts. Two, large credits to customers of SMB are funded though bill discounting. Three,capital investments are funded by hypothecating the invested asset to the bank; the repayments aredone in equated installments. Investments like software licenses and customized software cannot behypothecated generally, and therefore, there is the need forcollaterals like land and shares. We can take a cue from automobileToday with liberal and more professional banking services, industries. Organizations like Toyotathe financial sector has shown high keenness in funding IT and General Motors have their ownadoption ventures. However, with high interest rates anddemanding collaterals, there is always a difficult trade-off financing firms that provide car financebetween capital and operational expenditures. The to customers at lower rates of interests.capacity to take risks in large IT projects, for example, ERP This strategy has been instrumental inimplementation, is less in SMBs. Instances of cost over-run boosting sales by tapping the latentor failures in ERP implementation is rife in large enterprisesegments; similar experience in an SMB can be costly. demand.Rather, an SMB would like to pilot less complex solutionsand scale up as it reaps benefits. This however, leads to a business compromise, where you end up takinglesser solutions not meeting the desired need. Therefore, the service model has to mitigate the risk ofadopting expensive feature-rich solutions.Empathizing with issues in evolving businessesA medium scale fabric manufacturer in India selected an ERP package but wound up after makingextensive, unexpected and expensive modifications. The system could not handle the scenario where thecompany priced the same bolt of cloth in two different ways. Unfortunately, in that ERP, there was no wayto assign two prices to the same unit of the item, keeping inventory count accurate. One unit, two prices,said the manufacturer. Two prices, two units, said the ERP Vendor.Instances of such issues are not rare. In fact, it characterizes the SMB market. It is also common to findsuch unique processes in large enterprises. Yet, SMBs have made little attempts to standardize these 5
  6. 6. processes from an end-to-end perspective. We will rarelyfind investment in business process re-engineering in most The positive side is that SMBs today feelcompanies of these segments. This does not mean that such the imperative to change – to be a part ofinterventions would be overkilled. Rather, process re- the global economy, and transgress theengineering is being more pertinent in SMBs who are boundaries that hold it from being globalstriving to be participants in the global supply chains. Theyhave to adopt standard interfaces and benchmarks that players.their enterprise customers demand. On the flipside, atypical SMB is always evolving, scaling in operations, locations and scope. They are often family owned andhave traditional practices overriding best practices. Many of the processes are very orthodox and stubborn.For instance, in accounting, we still have book keeping practices that comfort an archaic system ofgovernance, and thereby become impediments to better integrated processes. In manufacturing executionsystems, which is what the production process is commonly referred to as, the uniqueness is higher. Forexample, estimating stocks for work-in-progress, is done on heuristics and it takes radical rationalization fortransition to better practices. Does this not warrant a new mindset to run SMBs?The positive side is that SMBs today feel the imperative to change – to be a part of the global economy, andtransgress the boundaries that hold it from being global players. China has shown how SMBs evolve intoglobal players in short time. The same is happening in India and many emerging economies. Hence,aspirations are high. The demand for process solutions in SMBs along with IT adoption is natural and waitingto be tapped.We are talking about a convergence of two evolutions here. On one side, we have SMBs with uniqueprocesses and aspirations to benchmark those with better ones. On the other side, we will have serviceproviders trying to make their solutions flexible and expect users to standardize their processes.IT talent – too expensive and volatile forSMBs SMBs have made little attempt to standardize these processes from an end-We see the need for SMBs to maintain a miniature internal ITorganization that would maintain and administer the to-end perspective. We will rarely findsolutions that are running. For instance, you would need a investment in business processnetwork administrator for your network. You would also reengineering in most companies of theseneed database administrators for applications running to segment. This does not mean that suchrecover from corruptions. Above all, you would needsomeone who would understand your business process and interventions would be overkill.who would be a functional expert in helping yourorganization use the software applications. Also, you would like the people to stay in organization for a longperiod so that the knowledge is retained.With I.T. off-shoring boom in many countries, IT talent is hugely attracted to the large enterprise segmentsand IT Service organizations. With talent resource exhausting, and increase in demand is leading to risingsalaries and high attrition. In midst of this, SMBs are finding it difficult to attract and retain IT talent.It is common to see salaries for IT staff higher in SMBs than in enterprise segment. This is simply to 6
  7. 7. compensate lower job security and social recognition thatan SMB can provide. The fear of hiring costly IT talent and SaaS is just a part of the service model thatthe vitality of it, which can leave your systems stranded, is can truly tap the IT potential that lies in thedeferring IT adoption in SMBs. Effective cost of IT is higher SMB segment. Impersonal services likeand the risk of business stoppage increases as you adopt standard CRM can be a successful model inmore sophisticated and integrated IT solutions. While theimperative to adopt IT for efficiency and innovation is there, SMB, but for ERP and Manufacturingthe fear of scarce and volatile IT talent is no less deterring. Execution Systems, the software needs to be flexible and customized within anSaaS evolution - when adoptions fail, extent.Technology finds a way outSoftware investments are expensive. It curtails your capacity to fund operation by taking a slice of yourworking capital. Again, capital investments, like software and the infrastructure involved, are needed forbusiness change – to adopt new processes and bring efficiency. This dilemma continues to dog smallindustries.Amidst this, an interesting evolution has happened in software industry. Few years back, the softwarecommunity had been talking about software applications being rendered on the Internet, instead of beinginstalled on the desktops and Local Area Network (LAN). This concept was touted as the “Applications ServiceProvider (ASP) paradigm”. Ironically, this didn’t turn out to be a paradigm literally. The problems were many.Internet was still evolving, though very rapidly. Its ability to provide logically intensive content was limitedthen. Bandwidth explosion that we see today was then a pipedream. Software makers deferred their agendato provide software in an Internet-hosted model, looking at low immediate realization. The industry becamemore cautious and realistic after the dot com bubble burst. While Internet became popular for emails,collaboration and portals, rich software remained in the domain of local networks hosted within theorganization.As it often happens, a disruption starts with an innocuous beginning. Such a beginning is done by people Asit often happens, a disruption starts with an innocuous beginning. Such a beginning is done by people whopursue vision against all odds. After the dot com bubble bursts, we saw new-age star-ups working out newbusiness models around hosted software. In 1999, Mark Beinoff, from Oracle saw CRM and Sales ForceAutomation (often a part of CRM) to be a solution that can be offered over the net. In those days, CRM was ajust a buzzword and the industry was weary about its returns. Moreover, CRM practices varied fromenterprise to enterprise with very little standardisation. Therefore, adoption of CRM was buffeted byinstances of failed implementations. Beinoff decided to make the adoption capital friendly by rendering it asa service hosted on net. Salesforce.com was formed. Beinoff’s concept underwent many striking realisationsand it became an eye opener to the IT industry. One was that, more than large enterprises, the model turnedout to be a boon for small industries who could experiment with new software with little investment. Theparadigm got re-christened as SaaS – Software as a Service. This time around, it is a paradigm, because SaaSproducts are mushrooming. Conducively, Internet bandwidth is increasing three times year-on-year. Google,with office suites on the net, and ERP vendors, with re-engineered SaaS solutions, have jumped into thebandwagon. SaaS is here to stay.It seems that some of the perennial problems that lie on the way of IT adoption in SMBs are solved by the 7
  8. 8. SaaS model. Capital investments are low. Software andinfrastructure are remotely managed, and therefore there is In the utility model, all the softwarelesser in-house talent dependency. Upgrading software with applications are centrally hosted andchanging business is managed by the service providers. All managed, and rendered on demand. Bythis sounds to be a winning model. The question that doing this, your maintenance of ITremains is whether the panacea can aid the plight of services and infrastructure can beevolving SMBs? administered as a separate organizationIn fact, SaaS is just a part of the service model that can truly and can also be outsourced.tap the IT potential that lies in the SMB segment. Impersonalservices like standard CRM can be a successful model inSMB, but for ERP and Manufacturing Execution Systems, the software needs to be flexible and customisedwithin an extent. The necessity for in-house talent for functional knowledge of the systems will remain.Moreover, a good part of the infrastructure would have to be in-house, such as network routers, client PCs.Above all, how would the SaaS provider provide the consulting and system integration service needed at thelast mile? The confusion with the user about identifying the system that would help the best way to improvetheir processes would still exist.SaaS is a foundation to a larger service model in the making - the model that will mitigate the hassles on lastmile integration, provide the much-needed advisory service, and bring multiple solutions to the basket. Howcan an ecosystem of software service provider, hardware vendor, Internet and network service providers andprofessional process and quality consultants be brought together? Tapping the promising SMB marketneeds a service provider, who will drive such an ecosystem.Another spike in the Technology evolution curve– The Utility ModelNot all systems can work on a SaaS model. For instance, a point of sales system (typically the billing softwareused in retail outlets) would ideally be a locally hosted system so that it can be compatible with complexlocal devices like bar code scanners. Vendors and advocates of SaaS may argue that a SaaS can integrate withlocal devices. While this argument is valid, with technology maturing, such scenarios are currently moreconveniently sufficed by having local systems.Therefore, a holistic IT solutions model for the SMB would have a few applications residing within theenterprise. This would include the legacy applications. Investment in servers to host mission-criticalapplications locally is an expensive capital investment. With applications being resource intensive, especiallyin the peak transaction time, enterprises are compelled to have separate servers for separate applications.This leads to redundancy of resources, since average consumption of server resources range between 30-45%. The idea that comes to our mind is that we can cross-utilise server resources to support each other’speak periods and thereby do with lesser number of servers. While this idea is quite old, only recently, hasthis taken a practical shape with a technology called virtualization. This helps to host multiple virtual serversin one physical server, and have “many-to-many” relationships with those. Virtualization dynamicallyallocates resources to applications depending on the resource consumption.With server costs being very high, virtualization is an attractive infrastructure option in SMBs. However,virtualization is a foundation to a larger service model in store – one that would be more relevant andattractive to SMBs. Utility Computing is a paradigm where applications are rendered on demand through 8
  9. 9. centralised hosting. The applications service is metered onusage and the cost is a function of it. The name is drawn from How can an ecosystem of softwareutility services like electricity and water, where billing is done service provider, hardware vendor,on usage. This computing paradigm sounds similar to SaaS, Internet and network service providersyet it is a more matured model. In the utility model, all the and professional process and qualitysoftware applications are centrally hosted and managed, and consultants be brought together?rendered on demand. By doing this, your maintenance of ITservices and infrastructure can be administered as a separate Tapping the promising SMB market needsorganization and can also be outsourced. We are yet to see a a service provider, who will drive such an100% utility computing enterprise (may be it is too ecosystem.theoretical to expect one in following years) but partialadoption of utility computing within companies is growingvery rapidly.What if this centrally administered IT is managed by a vendor who provides end-to-end IT capability? Is it notthat the impending evolution of utility computing model and SaaS indicate a new service model for theSMBs?IT–as-a-Service – bringing managed services to SMBsIf we have to connect the dots, the need of the hour is managed services: a vendor who would provide allthese components and would relieve the business by taking the ownership of IT management. The vendorhas to drive an ecosystem of support partner, niche software vendors, financers, network service providers,datacenters and hardware vendors. This in turn, would complement its software solutions and consultingcapabilities. We call this IT-as-a-Service.We find six layers of IT Services needed for this model, with each layer towards the top getting more nicheand specialized. Niche Vertical Applications Space Mgmt, Loyality Mgmt, Business Analytics Vertical Core Applications POS, Inventory Mgmt Common Business Applications Payroll, CRM, Accounting HR Mgmt Common Office Applications email, Document Mgmt, Collaboration Suite Network LAN, WAN, Routers Access Devices Desktop, Laptop, POS devicesAccess devices like client PC, laptops and Point-of-Sales accessories would require an efficient vendormanagement to bring about best prices against the requirement. It would also include considerations likelogistical convenience, support availability and management of support contracts. Financing the investmentwould need partnership arrangements with the financing institution. 9
  10. 10. A similar set of operations would be needed for the Network solutions. Network solution would also includesystem integration services and security setups, which will have to be provided at the last mile mostly.An SMB would need office collaboration suites and messaging. Many of these can be provided as a SaaSmodel, for instance email messaging and office suites. To lower the license cost, open source options areattractive.In case of business solutions, transition to SaaS mode, will depend on a few factors. Engagement withcustomer to understand the business requirement and IT roadmap is important. There is also a need tounderstand the degree to which the customisation would be needed in the application. However, theservice model will have to focus on standardising the functionalities of these solutions so that most of thecritical process requirements are met. At the same time, consulting service and implementation support willneed to help the business find opportunities to rationalise their process to standard and best practices.An SMB would have concerns about the security of their data, particularly when it resides in remotedatacenters owned by the service provider. Therefore, the service provider has to ensure that it complieswith and implements adequate security policy that protects data privacy. Fortunately, technology hasevolved to provide high data privacy and security in managed services models. Moreover, sophisticatedintrusion detection systems can be deployed to alert any unforeseen event of intrusion or leakage. There arealso security process standards, compliance of which indicates the vendor’s maturity is protecting customerdata.When data is located remotely, one would also be concerned about business continuity and disasterrecovery. While technology today is capable of ensuring real time replication of data to backup andcontinuity, partnerships with well-established data centers who have adopted such technology is important.TCS brings IT solutions in each of these spaces, in a concerted way. We call it “IT on Tap” because we provideone shop IT solutions that is rendered on demand. The demand may be in terms of scalability with businessexpanding, or in terms of new solutions as business adopt new operating models to evolve and compete.Our managed services, most of the time, remotely hosted and administered, relieve users from complexitiesof IT management. Therefore, our users get maximum benefit of the solutions they adopt, with our peopleinnovating on it and managing it on their behalf. By centralising and standardising solutions to multiplecustomers, we are able to achieve cost advantage for the customer. We are able to relieve the customer fromenduring capital investments and therefore allow them to fund operations.TCS has been serving large enterprises for 35 years now. Our rich expertise, diverse pool of talent andtechnology capabilities has brought us to a threshold where we can redefine the way SMBs leverage IT. 10
  11. 11. Why iONiON provides comprehensive solutions that address varied IT requirements. From network to ERP, iON is offered as a singleservice, in a pay-per-use model, allowing you to leverage the solution’s true potential. iON ensures integration of all processesalong with ease of use.iON promises:n High performance in normal broadband;n Stringent security and data privacy;n Guaranteed availability (99 per cent uptime);n Disaster recovery;n Reduced need for IT staff.iON, therefore, manages your processes while you use the software. You gain fromIntegrated solutionsWe ensure that all your solutions are connected. For example, if you are using a CRM along with an ERP, and have a documentmanagement system to organise your files, we ensure that these solutions are connected and work as one. So for you, it issimply IT and not applications.Increased agilityWe bring in the agility to keep pace with changing processes or a new line of business. We help you configure the processes towork differently or simply choose new practices recommended by the software. Our activation system flags on best practiceswhile the system is running. As you pick and choose, we give you more options to choose from.A pay-as-you-use modelThis model eliminates capital investment as we provide the IT infrastructure and software on rent. You pay as you use and onlyfor the number of users who actually use the software. The rent is charged monthly. Typically, the cumulative rental for threeyears is equal to the capital cost of acquiring similar or lesser software with one-time payment. Usually, the ROI exceeds rentalwithin three months, when best practices are well followed. The rental includes maintenance and training, with no hiddencosts.Personalised solutionsAlthough this is a cloud service, the software is configurable to each business. You will always get the flavour of your ownbusiness by picking and choosing what processes you would need.Automatic upgradesWe continuously invest in our solutions to ensure best practices. We enrich the software based on user feedback and businessand statutory changes. We ensure the upgrade without disrupting the user. 11
  12. 12. About iONiON is Tata Consultancy Services’ strategic unit for Small and Medium Business. iON providesend - to - end business solutions to the SMB segment, the growth engine of the economy. iONcaters to the needs of multiple industry segments with best practices gained through TCS’global experience, domestic market reach, skills, know-how and delivery capabilities.For more information, visit us at www.tcsion.comContactTo know more about iONToll Free Number 1800 209 6030Email ion.salessupport@tcs.comSubscribe to TCS White PapersTCS.com RSS: http://www.tcs.com/rss_feeds/Pages/feed.aspx?f=wFeedburner: http://feeds2.feedburner.com/tcswhitepapersAbout Tata Consultancy Services (TCS)Tata Consultancy Services is an IT services, consulting and business solutions organization thatdelivers real results to global business, ensuring a level of certainty no other firm can match.TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineeringand assurance services. This is delivered through its unique Global Network Delivery ModelTM,recognized as the benchmark of excellence in software development. A part of the Tata Group,India’s largest industrial conglomerate, TCS has a global footprint and is listed on the NationalStock Exchange and Bombay Stock Exchange in India.For more information, visit us at www.tcs.comIT Services TCS Design Services I M I 09 I 11Business SolutionsOutsourcingAll content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here iscorrect at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed inany form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark andother applicable laws, and could result in criminal or civil penalties. Copyright © 2011 Tata Consultancy Services Limited