1 The connected future for SMEs What Europe s small businesses think about technology Vodafone.com Vodafone Power to you
2 The connected future for SMEs Contents Introduction 3 SMEs are ready for business 4 Technology supports business success 6 Mobility leads the way 7 The rise of new technologies 8 The future is connected 10
3 3 Introduction Small and medium enterprises (SMEs) are the lifeblood of the European Union s economy and societies. They account for 98.8% of all businesses, employ more than two-thirds of all workers and contribute more than half of the region s gross value added (GVA). 67% of employees in the European Union work for a SME. These businesses are hugely important as employers, contributors to innovation, and drivers of local and regional growth. Yet research and media coverage, both in studies of economic impact and use of technology, tends to focus on large enterprises. This report sets out to redress that balance, examining how SMEs are emerging from years of austerity and economic uncertainty. What do they think about the future? What does technology mean for them and their operations? How are they making sure that they re ready to seize the opportunities they face? 2.71m businesses were registered in the UK in March 2013, an increase of 18,000 on the previous year. They re big questions, and the answers will be of vital importance for policy-makers, analysts and SMEs themselves. About this research Vodafone s Insights team commissioned Circle Research to undertake quantitative and qualitative research into SMEs across key European markets in Spring We looked at areas such as business confidence, business priorities, and technology adoption. They held more than 1,700 online and a number of in-depth telephone interviews with senior decision-makers involved in the use of technology in their business, representing a spread of: Countries: Germany, the UK, Spain, the Republic of Ireland, Czech Republic and Italy. Vertical sectors: B2B and B2C SMEs, from retail to financial services and manufacturing. Sizes: from sole traders to large SMEs. How do we define SMEs? Where do you draw the line between big business and small? For the EU, and for the purposes of this report, SMEs are categorised as: sole traders and micro SMEs (1 9 workers) small SMEs (10 49 employees) medium/large SMEs ( staff).
4 The connected future for SMEs SMEs are ready for business It s been a tough few years for many EU economies. Sectors have contracted, spending has declined, unemployment increased. SMEs have been hit hard, yet 80% of them are confident about the future. 50% of SMEs say their business is performing slightly better or much better than two years ago. Confidence is on the up We asked our respondents how well their business was performing compared to two years ago, and more importantly how confident they feel about the next 1 2 years (see Figure 1). 20% were not very confident, or not at all confident. For them, success will simply mean staying afloat. Their budgets are tight and they re trying to do more with less. 57% were quite confident. For them, success means growth and profit. They re starting to invest, allocating bigger budgets to new projects. 23% were very confident. Morale is high; they re growing, looking around for new opportunities and new enablers to help them grow even faster. 23% very confident 57% quite confident 20% not very confident Figure 1: SME confidence Variation by business At a more detailed level, there s quite a bit of variety across the spectrum of respondents in terms of how well their businesses are performing and how confident they feel about the future. 91% of medium/large SMEs are confident about the future, compared to just 63% of sole traders. Confidence was unexpectedly high in Spain and Ireland. By business size Medium/large SMEs and small businesses feel they ve performed better in the last two years and are more confident about the future than micro and sole traders. Sole traders lag behind significantly. By country SMEs from Spain and Ireland were particularly bullish about their recent performance and the next 1-2 years. This is unexpected given the ongoing economic challenges facing businesses in these countries with banking crises, high unemployment and Eurozone bailouts but perhaps indicates that economic reforms are having an effect. Czech Republic and Italy lagged far behind Italy s political volatility and uncertain economic forecasts in particular are shaking business confidence, just as they ve deterred investors and ratings agencies. By industry Retailers were one of the least confident low economic optimism and restriction of credit have led to consumers tightening their purse strings. Only 34% of construction firms said their business was performing better than in the last two years. Both business and consumers have held off breaking ground on new building projects. Financial service organisations were ahead on both performance and confidence, reporting 90% confidence in the future. Transport, IT and tourism all did well. Generally, B2B companies outperformed B2C.
5 5 What does the future hold? We asked what each business s main priorities were in the year ahead (see Figure 2). Unsurprisingly, given the high level of confidence we found, the top priority was business growth, for 24% of respondents 29% in large SMEs. This was followed by attracting new customers, with 16% of the vote 21% in micro SMEs. This trend held true across countries. 24% 24% Business growth of SMEs say their top priority is business growth. 16% Attracting new customers 9% Developing new products 9% Staying afloat 9% Increasing profitablilty 8% Reducing costs Figure 2: SME priorities for the year ahead
6 The connected future for SMEs Technology supports business success Europe s policy-makers have long recognised the importance of technology to economic growth and have fostered its adoption in all kinds of ways, from national broadband rollouts to technology startup incubators in thriving towns and cities. Without technology, we are dead Legal Services, Spain 165 employees (large) Given we ve ridden the various storms that have taken place over the past few years I feel pretty confident that we will carry on growing... The ability that IT gives us as an enabler will ensure that the business does flourish Construction, UK 225 employees (large) IT is at the heart of business But what does technology mean for the business owner on the ground? Is it a tool like any other, or the difference between success and failure? SMEs told us, unequivocally, that technology is vital to the work they do and a major supporter of their growth and efficiency objectives. In fact, 80% agreed that communications and IT technology is a fundamental part of how they operate today. 60% said that they like to be among the first to adopt new technology. While SMEs may lack the dedicated resources and IT budgets of large enterprises, they re also unencumbered by legacy infrastructure and complex organisational structures, meaning they can incorporate new technology into their business processes more quickly and easily. And that s only going to grow. 68% of respondents said that communications and IT will become more important to their business over the next 1 2 years. Only 1% said it would be less important. More technology = more success But does technology use actually translate into better business results? Our research suggests that it does in fact, there s a strong correlation between greater technology use and both performance and confidence. Those who described themselves as technology leaders pioneers were most likely of all our respondents to make the bold statements shown in Figure 3. This correlation between extensive technology use and business success appeared across countries and vertical sectors. Have performed well despite poor economy 61 % Link technology investment to ROI 78 % Be confident about the future 88 % Feel that technology is likely to increase in importance 84 % Figure 3: SME pioneers attitudes
7 7 Mobility leads the way There s a strong chance that, as you read this, you have a smartphone within arm s reach, and maybe a tablet too. Our lives are now mobile lives and our research shows that, for SMEs, business is now mobile, too. In our survey, 83% of European SMEs said that mobility solutions are helping to transform the way they work. 81% said that smart devices are increasing productivity levels. 68% went so far as to say that the cost of not having mobility solutions is greater than the cost of having them. And this trend is not going away: 82% said that mobility is becoming more important to their business. As some of the quotations around this page show, many of our respondents couldn t even imagine working without mobility now. Benefits of mobility Why is this? We asked what benefits SMEs were seeing from mobility (see Figure 4). The top five benefits cited were: Better customer service 88 % Ability to work as effectively out of office 82 % Faster decision making/agility 78 % Increased efficiency/productivity 78 % Improved employee communication/collaboration 70 % I ve been in love with mobile right from the start The main benefit is that it allows me to do several things at once The mobile handset is much more than just mobile telephony, I couldn t imagine living without it. I once had to spend five days without a mobile and it was like going cold turkey PR Agency, Spain 14 employees (small) I just know it s a necessity put it this way if I have a user who has lost a mobile or its not working I know about it. They can t function without it. It s like losing a right hand I guess! Financial Services, UK 40 employees (small) Figure 4: What SMEs see as the benefits of mobility We can see that it s about supporting employees, doing better work, more flexibly, and more efficiently but it all comes back to the customer. And this is logical, when we remember the top strategies were to grow the business and acquire new customers. Service is everything. Who s driving? There s a lot of talk in enterprise IT about bring your own device (BYOD) both as an opportunity, and as a threat to security and established business processes. BYOD and similar employee-centric or employee-driven behaviours are affecting SMEs, too and naturally, as smaller businesses are driven more by people and their personalities than by process. When asked if they think that their employees will become more influential in shaping the communications and IT products, services and tools they use, 67% said yes 81% in Spain and 76% in Italy. There s no wasted time if you ve got on the phone Music Publishing, UK 3 employees (micro) These days it s just a thing you have to have [mobile/ smartphones] It s kind of a feeling, we just know it adds value. We just know you have to have the right tools to do the job Retail, UK 249 employees (large)
8 The connected future for SMEs The rise of new technologies Technology moves quickly what s cutting edge today can soon become commonplace. What some would call advanced others will think of as table stakes. So we looked more closely at which technologies SMEs are using today, and where they re focusing their investments. 18% Those SMEs that use tablets have on average given them to 18% of employees. By comparison, SMEs that use smartphones have given them to more than half of their employees. What technologies are SMEs using today? Five technologies company website, fixed-line broadband, smartphones, mobile voice and mobile data ranked as mature, with adoption between 80% and 90%. Nearly every SME uses them, regardless of their attitude toward technology. Beyond these mature technologies, adoption falls off quickly. Less than 60% of SMEs use technologies such as cloud, tablets and unified communications. Why? Perhaps because many SMEs think these technologies are unsuitable for them, or that they re not priced and packaged appropriately by vendors. And the smaller the SME, the lower the rate of adoption (see Figure 5). We re smarter about what we use technology wise. [We re] using a lot of virtualisation and also dealing with our clients to make sure we re more on demand, more mobile, able to respond quicker to keep them happy, make sure we re responsive and proactive Financial Services, UK 40 employees (small) Unified communications Cloud Tablets Micro SMEs Medium/large SMEs Slow movers Pioneers 23% 46% 22% 54% 36% 54% 35% 65% 43% 63% 48% 74% Security services 41% 75% 34% 76% Social networking 50% 58% 48% 71% Figure 5: SMEs adoption of technology
9 9 What are SMEs investing in? Looking ahead, we found that tablets are set to become the next mature technology, with adoption by SMEs expected to rise from 54% now to 73% in the next two years (16% CAGR). Cloud technologies start from a lower base, but are actually set to grow slightly more quickly from 44% to 60% (17% CAGR). Commitment to investing in cloud and tablets was evident across SMEs, regardless of how confident they were about the future. This probably reflects the fact that these technologies offer opportunities for innovation, cutting costs and improving productivity. So whether they re worried about their prospects and trying to minimise risk, or buoyant and looking for ways to differentiate and scale their business, these technologies offer great appeal. But it s not just emerging technologies that will see investment. SMEs most likely technology investments over the next two years also include the company website, smartphones and 4G they re evolving and extending core technologies. Drivers and barriers Few obstacles stand in the way of SMEs adopting or increasing their use of technology, and mobility technology in particular when we asked, around a third of respondents cited no barrier at all. In fact, 4% said that they couldn t see how they could use technology any more extensively. For those considering adopting a technology for the first time, lack of awareness and knowledge was the top barrier, followed by lack of demand (associated with awareness of technology s possibilities) and only then cost. For those already using a technology, cost stood out as the main inhibitor of further investment, cited by around 40% of respondents. For mobility, better network coverage was also commonly cited as a prerequisite for increased investment. Better network/more reliable coverage 70 % Financial incentives, including hardware 69 % Right now tablets don t offer much of an advantage over smartphones, but as our project to adapt more PC-based applications to devices advances, we will be able to access a lot more data from tablets than from smartphones, especially when you have something to present or share onscreen with a client Legal Services, Spain 165 employees (large) Our business is now cloud based, everything we do is stored and saved in the cloud. I don t need to carry a laptop or paper files anymore, I can access anything, anywhere, through my tablet it s always updating and synching Recruitment, UK 5 employees (micro) Government tax breaks 68 % Government grants 65 % Figure 6: What would drive SMEs to invest more in technology Clear education and financial incentives will be key to encouraging technology adoption across the SME market. Governments will have a role to play in structuring tax incentives and grants to support technology growth, and supporting suppliers as they roll out the underlying infrastructure (such as national networks). Suppliers must also take some of the burden of educating SMEs about what technology can do for them, demonstrating clear ROI and putting technology in the context of business goals such as customer service.
10 The connected future for SMEs The future is connected 64% of SMEs use technology to differentiate themselves from the competition. While still faced with economic uncertainty, the SMEs we surveyed gave us some heartening news. They re optimistic about putting the survival mentality of the last few years behind them, winning new business and creating new jobs. As they get ready for tomorrow s new opportunities, they recognise the value of technology, mobility in particular, and its potential to support customer service, workforce productivity and operational agility. Most see it as fundamental to their businesses and future success. When it comes to today s emerging technologies, such as cloud and tablets, some SMEs are more enthusiastic and pioneering in their adoption of technology than others that is only to be expected. But almost all expect their adoption of these technologies to increase significantly in the next 1 2 years. Technology is also reducing the barriers to creating a new small business, reducing the capital investment required and allowing SMEs to compete with larger, more established, companies. Many entrepreneurs are seeing the economic situation as an opportunity to start a new business. SMEs are confident that, with the improved customer service and internal efficiency that technology brings, they will grow in the coming years, and maintain their position as the economic engine of the EU. SMEs will invest in new technology anyway, but governments and technology suppliers have a role to play in accelerating the pace of adoption and the benefits it brings. Get in touch To discuss the findings of our research in more detail, and its implications for your own country or industry, get in touch. Visit vodafone.co.uk, or call us on
11 11 About Vodafone Vodafone is one of the world s largest mobile communications companies by revenue with approximately 404 million customers in its controlled and jointly controlled markets as of 31 March Vodafone currently has equity interests in 30 countries across five continents and around 50 partner networks worldwide. Our solutions span mobile, fixed line, machine-to-machine and more. Find out more at vodafone.com About Circle Circle is the business-to-business market research agency. We create Eureka! moments deep insights into our clients brand, customers and market. Insights which will transform their view of the situation and provide a powerful competitive advantage. What s the secret? Clients say we get it. Our unique blend of experience and understanding allows us to see things that other agencies miss. We understand their market because we re the businessto-business research experts. We re methodology neutral skilled in qualitative and quantitative techniques so that we can recommend the very best solution. And we re international: we ve conducted studies in over 100 countries, all to the exacting ISO20252 standard. Find out more at circle-research.com
12 Vodafone M2M solutions for consumer goods enterprise.vodafone.com Vodafone Group This document is issued by Vodafone in confidence and is not to be reproduced in whole or in part without the prior written permission of Vodafone. Vodafone and the Vodafone logos are trademarks of the Vodafone Group. Other product and company names mentioned herein may be the trademarks of their respective owners. The information contained in this publication is correct at time of going to print. Such information may be subject to change, and services may be modified supplemented or withdrawn by Vodafone without prior notice. All services are subject to terms and conditions, copies of which may be obtained on request.