977RA A Slice of Social Business Data: SMBs’ Customer Focus Could Cost Them

What is Happening? Saugatuck’s survey data analysis indicates that small and mid-sized businesses (SMBs) are focusing a much larger percentage of their Social Business IT investments on customer-focused applications than are larger enterprises. The data indicate, in fact, that the smaller a company is, the greater proportion of its Social Business IT investments will be focused on customer-oriented applications. Figure 1 summarizes the data from Saugatuck’s 2011 Social Business IT survey (for more on our Social Business research program, please see Note 1).

Figure 1: Bigger Firms = Broader Social IT Focus

Source: Saugatuck Technology and Information Management magazine, August 2011, n=224

Saugatuck sees this as both a natural progression of emergent-IT adoption and use, and as an indicator that SMBs will continue to face substantial challenges when competing against larger enterprises.

In essence, Social Business IT, like other IT revolutions/evolutions before it, is not necessarily enabling SMBs to compete directly against large enterprises – despite the hype that it, like most other emergent IT phenomena, will help “level the playing field” for SMBs. Instead, Social Business IT is fitting into very predictable and easily-discernible patterns of IT adoption, wherein the vast majorityof firms adopt and adapt IT into their traditional business operations and structures.

The most likely result is that SMBs will continue to find themselves lagging behind most larger enterprises in their ability to do business using Social Business IT – partly as a result of over-concentration on customer-facing applications.

Why is It Happening?  The Social Business IT investment patterns among SMBs are readily explained by several factors, including the following:

• Customer-focused efforts are the most likely investments in Social Business IT to yield significant, short-term, and bottom-line improvements, including expected ROI/payback from the investments;
• The smaller organizational structures within SMBs are likely to yield proportionately less return or gain on internally-focused investments; and
• SMBs’ limited resources force them to pursue specific applications with relatively short-term benefits. As noted in previous Saugatuck research, customer/externally-facing IT point-solution IT investments tend to be easier, faster, and less expensive to implement than in-house/cross-functional, or external/inter-business collaborative solutions (971MKT, Inward, Outward, and Centrally Strategic: Profiling Enterprise Social Business IT Use, 28Oct2011; 957MKT,  Social Business IT: Look to Business Goals to Develop Governance, 29Sept2011; and 939MKT, Social Business IT: Eat the Low-hanging Fruit, Avoid Pits, 26Aug2011).

These factors help to drive what Saugatuck sees as a real and increasing gap between SMBs and large enterprises when it comes to the benefits realized from most forms of IT, Cloud-based or otherwise (784MKT, A Slice of SaaS Research: Can Small-to-Medium Businesses Really Catch Up to Large Enterprises in SaaS Deployment?, 24Sept2010).

The net result: SMBs will continue to find themselves lagging behind most larger enterprises in their ability to do business using Social Business IT mostly because of the resource limitations inherent in their relative size. Simply providing or using an application or service via Cloud will not by itself enable greater SMB competitive capability against large enterprises.

Beyond this, the relatively low cost of acquiring and initially using such services – in this case, the “low-hanging fruit” of Sales and customer support – can easily lead to over-investment. Time and time again, Cloud (and other forms of relatively low-cost IT) has shown us that if it’s easy to do, it gets done, typically with minimal oversight or governance, and especially within smaller firms (697MKT, A Lack of Formal IT Indicates Higher Costs of SaaS and Cloud IT, 29Jan2010).

Such conditions often lead to over-investment in a specific area or type of application, to the detriment of others that could have equal or greater strategic value. Our data and experience suggest that SMBs are demonstrating the types of behaviors, and are in the type of situation, where this becomes likely.

Market Impact First of all, we must reiterate that we completely understand why SMBs are focusing so much of their Social IT investment on customer-facing applications. It makes sense for all the reasons given above.

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