Midsize businesses prepare for a slowing economy—and new opportunities.
by David Baum, February 2009
Just because dark economic clouds have gathered on the horizon doesn’t mean your business will be caught out in the rain. According to the U.S. Bureau of Labor Statistics, certain businesses will continue to experience growth throughout the next few years, including investment advice and tax preparation services, health practitioners, food and consumer staple companies, and engineering firms. Indeed, business leaders who meet challenges with shrewdness and pragmatism (not to mention long-term optimism) may spot a silver lining around every looming thunderhead.
Nevertheless, midsize companies need to prepare for the ill winds of the global economy. Judy Hodges, IDC’s research manager for the small and medium business sector, talked to Profit about new research conducted by the firm; here she describes how enterprise software can help companies seize and sustain a competitive edge.
Profit: What are your growth forecasts for the midsize market?
Hodges: Our research shows that the midsize market continues to anticipate a strong growth path in spite of the economic downturn, and we expect midsize companies to continue their IT purchases during the next 12 months. In a recent survey of midsize companies, only 14 percent indicated they were highly likely to hold off on making enterprise software purchases, while 18 percent responded that they were highly unlikely to postpone purchases. A large percentage—41 percent—responded that they were only moderately likely to stall their purchases. So it appears that despite the shaky economy, midsize companies are still inclined to invest in new software applications.
Profit: How does enterprise software help midsize companies differentiate themselves?
Hodges: More than ever, midsize businesses need to be more effective in their operations. They compete not only with companies of their size but also with larger organizations that have more resources. To have a chance, they need software that reflects best practices for their industry. For example, Oracle ERP [enterprise resource planning] applications are designed for specific industries and sectors. This technology helps companies gain a competitive edge because it is optimally targeted at how each type of organization operates.
Profit: According to your growth forecasts, which types of companies expect to invest most and which expect to invest least in enterprise software?
Hodges: We conducted our survey across all major industries, including financial services, healthcare, communications, utilities, transportation, government, education, and distribution. The most-positive indicators came from the services industry, where 46 percent were moderately positive in their purchasing outlook. Not surprisingly, financial services firms were the least likely to make IT investments, with 22 percent indicating they were highly likely to postpone purchases.
Profit: Which sectors of the enterprise software market will see the greatest growth during the next several years?
Hodges: Actually, across all sectors our indicators expect growth patterns to remain the same for enterprise applications such as financials, portfolio management, investment management, HR, procurement, logistics, warehouse management, supply chain, sales force automation [SFA], and customer relationship management [CRM]. Organizations need innovative business operations. I see strong investments in enterprise solutions, because they provide speed to market and better knowledge about a company’s processes. For example, CRM and SFA applications foster greater communication and information-sharing among all parties of a sale, offer a deeper understanding of the interactions with customers, and permit companies to develop new customers. This type of environment offers greater satisfaction among employees and higher productivity. In a highly competitive environment, companies that understand their specific customer environment have a huge advantage. Vendors need highly tailored solutions such as Oracle’s industry-specific solutions to attract and retain customers.
Profit: Midsize businesses are adopting more-complex IT environments to keep up with demands. Yet most of these companies can’t afford a large IT staff. How are enterprise software vendors responding?
Hodges: Midsize businesses want applications that they can implement rapidly. They don’t have the time or the IT resources to manage lengthy implementation cycles. During a down economy, software vendors must also offer flexibility in terms of delivery models. In response, we’ve seen the introduction of software-as-a-service [SaaS] solutions and hosted solutions. SaaS solutions in particular provide a full set of capabilities without encumbering a limited IT staff. The company gets the flexibility to invest in a solution that fits its needs.
Profit: When revenues are dropping, midsize businesses typically devote fewer resources to administrative overhead and more to sales, product development, and other core business functions. Can an enterprise software system help them with this transition?
Hodges: Yes. In a highly charged competitive market, midsize companies need to seize the right market opportunities, approach the right prospects, and be able to recognize and address their weaknesses. This is especially true when they’re feeling pressures from a slow economy where they are also competing with larger companies that have more resources. Adopting a well-integrated ERP or CRM solution can help a midsize company become more innovative and efficient. Enterprise software helps companies cut costs and reduce overhead by streamlining transactional processes. On top of that, performance management software helps them standardize processes across applications so they can align their processes with their business goals, identify new market opportunities, eliminate waste in the supply chain, and quickly identify and respond to business developments. I expect midsize companies to invest heavily in performance management applications going forward.
Profit: What are the primary drivers for midsize businesses seeking packaged software solutions?
Hodges: Most of these firms have reached a stage where it’s critical to automate business processes in a sustainable way. They are also pressured to meet regulatory requirements, where compliance is key. Increased globalization requires companies to address internationalization and localization issues as well. All this functionality must be accessible to a mobile workforce so remote workers can access business information at their fingertips. These are complex requirements that require sophisticated software systems.
The bottom line is staying ahead of the competition, and in a slow economy, state-of-the-art systems can give you an edge. Applications from vendors such as Oracle enable companies to fulfill these business requirements and optimize their efficiencies. Today’s midsize companies can’t afford to do otherwise.