HP Studies How Small Businesses Do IT

by Patricia Fusco

As part of HP's continual support for its 'Smart Office' initiative, the equipment maker recently completed a study of how small businesses go about buying IT systems. We take an exclusive look at the study that will be released next week.

How do small businesses view the impact of technology? Where do they shop to acquire hardware and software? How do they finance those acquisitions? Hewlett Packard wanted to know, so it teamed up the Small Business Development Centers (ASBDC) to co-sponsor the "Small Business Technology Poll." The survey was developed and supervised by COMsciences, an independent research firm. What follows is an exclusive first look at the results.

The study illustrates some very interesting findings on small- to medium-sized businesses' buying strategies and general opinions about the current economy. HP is committed to developing a deep understanding of the challenges that SMBs continue to face, particularly in regard to IT spending.

Good, But Could Be Better
More than one-third (34 percent) of the small businesses that took part in the survey have been operating for more than 10 years. Another third are relatively new companies that have been operating for 3-5 years. The majority of participants in the pool — 78 percent — consist of small businesses with fewer than 10 employees.

The results demonstrate that SMBs are generally optimistic about the future, though not as buoyant as some organizations might purport. At the end 2003, 48 percent of small companies reported that business is at least somewhat better than last year. This includes 19 percent that reported substantially better business conditions.

Even so, the smallest businesses, those with 1-5 employees, did not fare as well as larger companies. One-third indicated 2003 sales were somewhat better than 2002, but 30 percent said comparable sales were flat and 12 percent said sales were down. The most positive economic outlook is reserved primarily to larger companies — those with more than 50 employees — 43 percent of which said business was considerably better. Only 17 percent of companies with 1-5 employees said the business climate has substantially improved.

Jack Torobin, COMsciences researcher, said he was most surprised by the number of very small companies that are not seeing any improvement in the economy.

"Most SMBs said that business was up slightly relative to last year, however it appears that the total business climate is not so good as we would believe it is," Torobin said. "At least not as good as the government would make it out to be. It is the larger SMBs who are seeing most of the growth."

Small Biz Technologically On Par with Big BusinessSmall, But Not Weak
According to the survey, small companies do not feel that larger competitors have a huge technological advantage. Twenty-four percent of small businesses believe that to survive in today's economic conditions, they must be technologically on a par with, if not superior to, larger corporations.

Clearly, small businesses today feel information technology levels the playing field. To small businesses, advanced IT systems can provide a distinct edge over bigger competitors. This particular finding contradicts the age-old stereotype that small business are technologically shy, when in fact, small businesses are increasingly technologically sly.

Though many small businesses agree that up-to-date technology gives them an edge over larger rivals, current market conditions may make many reluctant to invest too heavily in office technologies in the near-term. Beyond some minor upgrades, 53 percent of small businesses reported they do not expect to make major investments in IT systems or software in 2004. Add to this figure approximately 27 percent that said they have no intention of investing in system upgrades and it's clear — the majority of SMBs will not be spending much on IT systems this year. Equipment vendors like HP will have to fight to protect its share of the SMB market.

Medium or Small? IT DependsFamiliar Territory
Those small businesses that will order new equipment this year are likely to rely on hardware and service suppliers with which they already have a working relationship. This is good news for HP, a worldwide leader in SMB space. Thirty-seven percent of those polled said they would stick with the vendors they know, rather than venture into unchartered business relations.

However, small businesses like to buy locally — 71 percent of companies with 50 or more employees depend on local suppliers. In contrast, smaller companies with 6-10 employees are far more likely to order direct from manufacturers. Nearly 45 percent of these businesses prefer online shopping to local hardware and software resellers.

In today's economy, 51 percent of small businesses believe the trick to buying IT gear is to buy a system that can be expanded or scaled back to meet their changing needs. Many (33 percent) are also trying to get by with less people, so they feel quite strongly that up-to-date information technology is even more important than in the past. Torobin said the fact is that SMBs now see the need to be more flexible.

"They need to expand or contract rapidly and are not necessarily going to see steady growth," Torobin said. "SMBs need to be able to adjust their business operations to meet the changing conditions."

Go to Page 2: Single Source Simplicity >

Single Source Simplicity
While many small businesses are inclined to go it alone when selecting and purchasing new computers and related communications services, these same businesses generally tend to leave configuration and servicing to local professionals. Thirty-nine percent feel strongly about the need for reliable local service and support in order to minimize downtime and ensure productivity.

It's not just information systems — small- and medium-sized companies want whole package solutions from their technology providers. The vendors that support integrated information, communications and servicing packages using local talent, will be the provider of choice for many small businesses.

Though most companies, especially the larger ones, will turn to a local service provider to tackle thorny IT problems, the overwhelming majority — 94 percent — decide what to buy on their own. In addition, 65 percent of small businesses prefer to install their own computer equipment and 63 percent perform their own routine maintenance of the equipment.

However, significantly fewer companies (52 percent) are up to the task of configuring new purchases on their own — this task is more likely left to third-party service providers. The tendency to buy and install their own office equipment is significantly greater for small companies with 6-10 employees — 80 percent purchase their own equipment without assistance and 70 percent install and even configure their own gear.

Maintaining a technological edge is not easy for small businesses when there are so many options. The complexities of bundling the right communications packages along with right information processing packages can be a mind-boggling experience. Consequently, 63 percent of small businesses surveyed are inclined to purchase complete hardware, software and communications solutions from a single vendor — 22 percent of these companies strongly support single source solutions. Ergo the smaller the company, the more attractive a single vendor solution is.

Charge IT!
Finally, while the survey respondents are most inclined to pay for their technology improvements using credit, very few are aware that they can use a special technology tax credit (Section 179) to offset the cost. It's alarming, but true — over half of the business that took part in the survey had never heard of the Sec.179 tax credit.

Interestingly, the study was not strictly focused on U.S. businesses. However, one might assume that businesses with more experience would be more knowledgeable. This does not turn out always to be the case. The least knowledgeable are businesses that have been in operation for at least 5 years — 74 percent of which reported they never heard of the Sec.179 tax credit.

Charge ITFar more disturbing than missing out on short-term tax credits, is that fact that small businesses prefer credit cards are the primary means of payment for office technology purchases (46 percent). Even the largest companies surveyed are apt to pay by credit card. Far fewer respondents pay by cash (29 percent), vendor financing (13 percent) or by using a small business credit line (9 percent).

While the need to make a quick purchase, such as the replacement of a laser copier, may be more pressing for smaller businesses than the interest rate on their charge cards, it's troubling to see that credit cards could dictate IT equipment buying strategies. Such buying patterns almost guarantee that a small business will forego finding the greatest return on their investments. The need for the office equipment seemingly overrides the need to develop a long-term buying strategy.

The Fine Print
The HP-COMsciences poll represents a snapshot and as such, the results are only indicative of sentiments at the time the survey was conducted. Moreover, the poll was not intended to be representative of all U.S. businesses — rather it was a sampling of opinion of a range of small and medium sized companies varying in business experience.

The study illustrates that HP is well-positioned to continue to rake in its market-leading share of IT sales to small businesses. HP's product offerings range from IT infrastructure and equipment to basic computing devices and digital imaging products. Of course, HP's printers aren't too bad, either. More than anything else, HP can provide small businesses with the flexible office systems they demand, and it can do so in a price-conscious manner that allows small businesses to compete with larger entities. HP is also a direct sales powerhouse and maintains relationships with local resellers and developers in more than 200 counties worldwide. Now if HP just offered a charge card, it would be perfectly aligned with small business IT buying strategies.

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This article was originally published on Friday Feb 20th 2004
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