Making Business Sense The adoption of ICT and cloud services by mid-sized businesses in the UK, France and the Netherlands A RESEARCH REPORT COMMISSIONED BY Copyright 2013 Cordys Software B.V. All rights reserved.
Mid Sized Business (MSB) Businesses with employees between 50 and 249 Details The UK France The Netherlands MSBs in 2011 25,200 21,400 8,900 Workforce percentage in MSB 15.2 % 15.8 % 19.0 % Total MSB Turnover 543 billion 1 551 billion 347 billion Revenue per employee in MSB 57,840 60,840 70,530 Average annual productivity growth between 2007 2011 Highest proportion of high-tech and KIA firms in MSB sector -4.8 % 3.3 % 1.1 % 26.6 % 16.6 % 20.9 % Most productive MSB industry segments Mining, Energy and Construction Professional Services and Real Estate Wholesale and Retail Highest mobile internet adoption 2012 80% mobile email 73% mobile browsing 55% mobile document sharing 43% business software apps The Cloud Dividend: Increase the output of an average MSB by 21,528 25,739 30,050 Performance in terms of Employment Turnover and productivity Contribution to country s economy 2
Contents 4 Overview 4 Context - MSBs and the economy 8 ICT adoption 11 Medium and large the difference 11 Channels through which cloud computing can benefit MSBs 13 Increasing ICT adoption 14 Methodology 3
Overview The aim of this whitepaper is to look at the economic performance of MSBs (mid-sized businesses with between 50 and 249 employees), how they compare to larger companies, and how this could be improved by greater adoption of ICT - particularly cloud - solutions and services. Within the report, we ll look at how MSBs in the UK, the Netherlands and France are currently performing in terms of employment, turnover and productivity, and what they contribute to their respective country s economy. Having established this, we ll look in detail at the current level of ICT adoption by these MSBs, how further adoption, of cloud solutions in particular, could help MSBs to keep up with larger enterprises, and what s holding them back from greater ICT adoption. To create the report, we worked with the Centre for Economic and Business Research (Cebr) on a pan-country study looking at the economic position of MSBs in the UK, Netherlands and France, their productivity and their adoption of technology. Context - MSBs and the economy As we are all too well aware, the European economy is still recovering from a dramatic financial recession in 2008/9 and is certainly going through a cooling period at the moment. Figure1: Global economy going through a cool period 4
In Europe, the UK has shown some signs of economic growth over the last two years, albeit minimal, but both France and the Netherlands have seen falls in GDP. However, according to the IMF and analysis by Cebr, growth is predicted across all three countries over the next five years, with the UK set to stabilise and the Netherlands expected to show a particularly robust recovery. If we compare productivity growth between MSBs and large enterprises, we find that MSBs have suffered disproportionately more. Since the financial recession in 2008, data from the EC suggests that productivity by MSBs in France and the Netherlands managed to sustain a healthy level of growth at 3.3% and 1.1% per year Figure2: MSB productivity growth has picked up in recent years but UK has still not recovered respectively, while productivity in the UK declined by a significant 4.8% per year and is only now showing signs of recovery. This could be due to the decline in financial services activity disproportionately affecting mid-sized businesses in the professional services sector which contributes 29.7% of total value generated by mid-sized businesses. We can see that the performance of MSBs in all three countries has taken a knock as a result of the financial recession. However, if we compare productivity growth between MSBs and large enterprises we find that MSBs have suffered disproportionately more. 5
Figure3: Our analysis of productivity growth showed that MSBs are lagging behind large firms (except in Netherlands) This is particularly the case in UK and France where large enterprises have seen productivity rise by an average of 1.1 percentage points more per year than MSBs. Figure4: Dutch MSBs are most productive 6
Overall, large enterprises generate on average 2900 more per worker than their MSB counterparts ( 64,040 per worker at large enterprises vs. 61,140 at MSBs). At 25,200 the UK had the highest number of MSB enterprises in 2011 more than 4 times as many as its 6,132 large enterprises, and almost 3 times as many as the 8,900 MSBs in the Netherlands. Interestingly though, despite its relatively small number of businesses, the Dutch MSB sector employs 19% of the country s workforce, making it proportionally the greatest employer of the three countries, with its employees being the most productive, generating 70,530 per employee compared to the UK s 57,840 and France s 60,840. And, while French MSBs have the biggest annual business turnover at 551bn, it s the Dutch economy that stands to gain the most from improving MSB productivity with annual MSB turnover of 347bn making up 25.8% of its GDP. While the UK has a higher share of professional and support services, France has more MSBs involved in manufacturing and retail, and the Netherlands leads the way in mining, energy and construction industries; each country has at least one MSB sector that is more productive than in the other two. Figure5: Each country has at least one MSB sector that is most productive out of the three 7
The French, for example, see more productivity from MSBs in professional services and real estate, the Dutch in wholesale and retail, and the British from those MSBs in mining, energy and construction. ICT adoption We have demonstrated that productivity growth of mid-sized businesses is lagging behind large enterprises. In part, this is explained by tougher restricted lending conditions, higher supply chain costs and tougher competition for customers and talented workers. However, part of the problem can also be explained by less agile and efficient business processes in MSBs which burden them with additional costs and timeintensive processes. In the next section, we turn to the main purpose of this report; to look at the extent to which MSBs are investing in ICT, particularly in comparison to larger businesses in each respective region. Firstly, MSBs have a structurally lower take-up of a range of different ICTbased activities compared to their larger counterparts. For example, the adoption rates of ICT technologies amongst mid-sized businesses in the UK is approximately 18% lower compared to large enterprises. Figure6: MSBs adoption of ICT-based activities lower than large enterprises 8
Secondly, the country with the weakest MSB productivity growth is the UK and this sector also tends to have the lowest adoption of a range of ICT activities. The UK has the lowest levels of adoption in intra-company data sharing, ERP and CRM. By contrast, France and Netherlands have seen the stronger rates of productivity growth since the financial recession began and this has been accompanied by higher rates of ICT adoption. Figure7: UK MSBs have lower adoption of enterprise software French and Dutch have higher data-sharing, ERP and CRM usage In 2012, UK MSBs had the highest mobile internet adoption rates. In 2012, UK MSBs had the highest mobile internet adoption rates, with around 80% using mobile e-mail and 73% using mobile internet browsing. The Netherlands, on the other hand, showed a relatively higher adoption of mobile document sharing (55%) and business software apps (43%) compared to the UK and France. However, the adoption of mobile internet activities was markedly lower for MSBs than in larger companies in the UK. 9
Figure8: UK MSBs also have highest adoption of mobile e-mail and browsing but not doc sharing or business apps One of the reasons for this may have been mobile connectivity, which proved to be a problem for British MSBs, with 40% citing it as an obstacle to adoption, while high subscription costs proved to be the main barriers for both French and Dutch MSBs when adopting mobile internet solutions. MSBs lag behind: 18% less ICT adoption than large enterprises in the UK and 15% less in the Netherlands and France. French and Dutch MSBs had higher overall adoption of enterprise software for use in processes such as data-sharing, ERP and analytical CRM. Of all ICT adoption stated, the UK led in ecommerce only (Figure6) Overall, as with the mobile internet, there was, according to Eurostat, a marked 18% difference in the adoption of ICT-based activities for MSBs in the UK when compared with larger firms, and an average 15% difference in the Netherlands and France. Hans de Visser, Chief Strategy Officer at Cordys says, This is reflective of what we are seeing in the market, especially when we talk to Service Providers and ISVs. MSBs want to adopt enterprise applications like their larger counterparts, but find it tough to get the same benefits. It s vital that MSBs have the tools to close the gap so they can reap the benefits of enterprise applications, by advantageously using the cloud so they can be up and running quickly and at a lower cost to stay competitive. 10
Medium and large the difference But does this difference in ICT adoption make a difference? Looking at average annual productivity rates provided by the European Commission (EC) between 2007 and 2011, we see that MSBs are, on the whole, lagging behind large firms. In the UK, MSBs saw productivity decline by 1.7% more than their larger counterparts, with France seeing a difference of 0.5%. Dutch MSBs however, performed 1.4% better than the Netherlands large firms, resulting in an overall productivity gap of 0.2% across the three countries. Both French and Dutch MSBs are significantly closer in performance to their larger counterparts compared to the UK. This is partly explained by higher adoption of a range of ICT activities as demonstrated in the above sections. Channels through which cloud computing can benefit MSBs Cloud solutions enable mid-sized businesses to manage their IT capacity in response to changing market conditions and improve customer experiences through reduced time to market. Furthermore, MSBs can reduce expenditures on IT staff, maintenance and hardware through cloud computing. The ICT activities examined in the previous sections can be efficiently implemented through the cloud, which can in turn make MSBs more competitive by reducing their cost base and increasing opportunities for business development. But the challenge for MSBs is to find a way to implement the cloud to help, not hinder, the adoption of enterprise applications so they can experience the benefits quickly and cost effectively. BUSINESS DEVELOPMENT With the enterprise space becoming ever more competitive, and with more companies chasing the same goal, it s imperative that businesses reduce their time to market and improve their ability to respond to unpredictable short-term peaks in demand. According to analysis presented in Cebr s report The Cloud Dividend, the elastic scalability that cloud computing solutions offer can mean better management of seasonal peaks, increasing output by 0.1%. In other words this would increase the output of an average MSB by 21,528 in the UK, 25,739 in France and 30,050 in the Netherlands. 11
COST SAVINGS In addition to this growth in productivity, the adoption of cloud solutions can also lead to cost savings for MSBs. For example, once all of an MSB s services and processes have been migrated to the cloud, the resulting elimination of server and storage costs would lead to reductions in IT CapEx and asset maintenance. The Cebr report suggests that the implementation of a private cloud environment would lead to a 17.3% reduction in total IT capital expenditure, with a public cloud leading to an impressive 39.9% reduction. Cloud computing can benefit MSBs in business development, cost savings and business creation. At the same time, this implementation could lead to a reduction in IT headcount as work is either outsourced or, more importantly, staff is redeployed to more productive areas of IT such as applications development to increase efficiencies and enhance their customers experiences. The report suggests that in doing so, application development costs could be reduced by 20%, and a further 18% would be saved by the reduction in the need for internal operations, maintenance and IT support. And, as well as the reduction in maintenance and support requirements, migrating to the cloud means that there s also a reduced need for power and cooling, with Cebr s report suggesting a 44% reduction in costs in a private cloud, rising to a 79% saving in the public cloud. BUSINESS CREATION Finally, the pay as you go model of cloud computing means MSBs can avoid the large up-front costs usually associated with purchasing ICT hardware and software. By lowering the fixed costs of IT investments, and removing a significant barrier in starting a new enterprise, the adoption of cloud computing raises incentives for new business creation. According to Cebr, the adoption of cloud computing and the subsequent lowering of the barrier to entry will see the creation 258,000 new MSBs in Europe by 2015, including 35,000 in the UK and 48,000 in France. Of course, we can t draw a definite correlation between the level of ICT adoption and the difference in productivity between MSBs and larger firms but we can use these to reasonably - and convincingly - argue that ICT adoption, and the adoption of cloud computing solutions in particular, can increase MSB productivity and go some way to closing that gap. We have seen this in France and Netherlands, where MSB productivity growth has outstripped that in the UK which has a lower level of ICT adoption in intracompany data sharing, ERP and CRM. 12
Increasing ICT adoption Additionally, the cloud can help MSBs to close the productivity gap by making the traditional ICT solutions already outlined (ERP, CRM, etc) more accessible to MSBs. Solutions which previously would have come with off-putting upfront costs and slow deployment times are now available in the cloud, underpinned by a Business-Process-Platform-as-a Service, enabling MSBs to take advantage of the benefits of a customised enterprise solution at a much lower cost. This approach enables MSBs to bridge and combine cloud an on-premise systems in the same way that enterprises can. Wibo Pollmann, CEO of NCCW commented on the partnership, Cordys is one of the frontrunners in the field of BPM software combined with cloud computing, and therefore the right partner for NCCW. The largest service partner for housing associations in the Netherlands, NCCW, chose Cordys Business Operations Platform as the foundation for its corporate cloud. The organisation was facing increasing pressure on margins in the midst of changing rules and regulations, and wanted a new cloud infrastructure to better serve customers and replace its aging system riddled with interoperability and integration issues. The solution, called The Corporation Cloud, was a combined Softwareas-a-Service and Platform-as-a-Service offering that offered cloud-based business process management services. With built-in provisioning, customer on-boarding, cloud enabling integration and the ability to compose smart applications, the solution gave NCCW an enterprise class cloud platform. Seventeen housing associations with close to one million users now use The Corporation Cloud which allows them to access housing and property applications and services such as scheduling repairs or maintenance online with real-time visibility into insurance claims. With Cordys as the engine, NCCW can now build applications in the cloud that are easily customisable and integrate with existing systems. The Cordys enterprise cloud platform enabled NCCW to compete like an enterprise and fully reap the benefits of cloud computing in a number of ways. It was then able to offer new cloud service offerings to its customers to increase revenues, optimise collaboration functionality with key stakeholders in the housing supply chain, and save on IT costs. By going the route of a cloud platform, NCCW also benefited from a faster deployment, simplifying its processes which also enabled it to improve its compliance with industry and regulatory requirements. NCCW was recently awarded Partner of the Year by Computable Magazine for the platform, given to the most innovative cloud solution, a testament to the success of the project. 13
Methodology For the purpose of this report, we have defined an MSB as a business with between 50 and 249 employees. In the creation of its study, Cebr has used official statistics from the European Commission to retain comparability amongst MSBs in each country. The data provided by the EC captures the business economy in each country, excluding financial services and government for which data is sparse. The Centre for Economics and Business Research (Cebr) is an independent consultancy which advises some of the world s largest companies. Cebr s reputation for insightful economic analysis, award-winning forecasting and decisive business advice is based on innovative research by a renowned team of macro- and micro- economists. Since its foundation in 1993 by former CBI and IBM Chief Economist, Professor Douglas McWilliams, Cebr has been making business sense by applying theoretical economics backed by quantitative evidence to real world decisions for private sector firms and public sector organisations. Cebr provides analysis, forecasts and strategic advice to major multinationals, financial institutions, government departments, charities and trade bodies. Cebr is a leading independent commercial economics consultancy with particular strengths in macroeconomic and market forecasting and economic impact assessments. Cordys is a global cloud platform software provider that helps businesses move to the cloud quickly and with minimal risk. The Cordys platform combines Platform as a Service, enterprise application development, a complete Business Process Management Suite (BPMS) and the next generation of high productivity middleware. Global 2000 enterprises choose this analyst-recognised platform to improve their business operations, deliver better customer service and release additional value from existing IT. Service providers implement the platform to leverage cloud business opportunities, create new high value products and services in the cloud and reduce cost while driving innovation. Headquartered in the Netherlands, Cordys has offices in the Americas, EMEA and Asia-Pacific. For more information on Cordys please visit http://. Copyright 2013 Cordys Software B.V. All rights reserved. 14 A whitepaper by Cordys_WP_20130712