SMB Comes of Age Needs IT on Tap TCS small and medium business web based ERP

White PaperSMB Comes of Age, Needs IT on Tap!Small and Medium Businesses feel the desperate need for adopting IT, yet no single vendor solution seems to serve their plight. Does this call for an entirelydifferent service model?

IT demand from SMB is growing. It is a market that is characteristically different from large enterprises. Till date, IT industry has seen this market attractive for niche solutions in hardware and software. Yet, the business needs of the SMB, demands holistic partnership. With too many options and very little in-house knowledge, the plight of SMBs is far from being met.

This calls for a different service model, which relieves this segment from these challenges. IT on tap, though not literally, is about making IT available as remotely managed and hosted services. TCS, with 35 years of IT solutions experience and expertise in various verticals, is making this happen by bringing IT- as- a- Service catering to the needs of SMB.

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About the Author

Venguswamy Ramaswamy

Venguswamy Ramaswamy, or “Swamy” as he is better known, globally heads the TCS Small and Medium Business (SMB)-iON. iON is a strategic business unit of TCS and provides end- to- end business solutions to the SMB segment.

In his previous role, he was the Director of TCS' Global Consulting Practice (GCP) and was instrumental in the structural formation, development and positioning of TCS’ consulting offerings. Consulting Magazine has named him amongst the top 25 consultants of the year 2007.

During his 16 year tenure at TCS, Swamy has held several strategic positions including managing key customer relationships, building and heading the Process Consulting group, managing the Corporate Resource Management function, leading numerous Centers of Excellence, as well as launching TCS' first steps in geographies such as Hungary and China.

Swamy is a firm believer in the power of IT to create business value and is known for his interest in Innovation & Quality and expertise in Six Sigma. He is also recognized as a champion of many digitization drives within TCS, including deploying digital platforms for Six Sigma, creativity and talent acquisition.

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Table of Contents

1. Constrained working capital and low risk preference 5

2. Empathizing wit issues in evolving businesses 5

3. IT talent – too expensive and volatile for SMBs 6

4. SaaS evolution - when adoptions fail, Technology finds a way out 7

5. Another spike in the Technology evolution curve – The Utility Model 8

6. IT-as-a-Service –bringing managed services to SMBs 9

IT vendors, business financers and telecom service providers, all see a new business opportunity at the frontier. We have been ignoring an impending market that has recently surfaced and it is demanding attention. SMB is no longer confined to niche products and services, which can be delivered with little sophistication. Rather, it demands state-of-art solutions to scale up and adopt matured operating models.

SMB is a burgeoning economic component that is capable of driving economic growth in its own right. In Germany, 46% of the GDP is contributed by SMBs. They have customers like Siemens, BMW and SAP setting standards for them. In India, contribution of SMBs to exports is 46%. Yes, SMBs too demand sophistication in the way they operate; and it is high time IT services see the segment differently.

For IT service companies, to scale up to service SMBs, one may be inclined to think that it would be a natural augmentation of services for them. For instance, we may think it is easier for the SAPs and Oracles of today, to service the growing ERP market. On the contrary, SMB is a different ball game. Products and solutions that have traditionally served large enterprises will find it difficult to unlearn and rebuild solutions to the characteristic needs of this segment.

Firstly, capital constraints for operations and raw materials thwart growth. Interest rates fluctuation and capital investments in production assets continue to defer assets needed for IT adoption. SMBs would like to invest on phased basis in order to allow investments return cash flows.

Secondly, the business uniqueness is high owing to evolving processes. Level of standardization of processes is low. ERP implementation, for example, sees realizations in course of implementation on standard functionalities not matching with user scenario. SMBs have to redefine their processes from time-to-time and bring in efficiency as they scale up.

Thirdly, the main issue plaguing the SMBs today is talent crunch. With a huge demand for IT professionals in IT services industry, SMBs are starving for in-house IT work force. Not just that they are expensive, they are also volatile. High attrition of Network or Database administrators, for example, leads to a loss of internal knowledge.

In the midst of this, SMBs are confused with too many vendors touting their solutions and services. There is little knowledge on what is best suitable. Very few vendors look credible to suggest a solution that fits the overall requirement of the organization. If we think that SMB would rarely need IT consulting, we are grossly wrong. SMBs are clamoring for advisers to help them out of the confusion created by a plethora of options.

Considering these aspects, we find that the SMB market is very different from the enterprise market. Nevertheless, they demand similar sophistication. They are getting technology-savvy and looking at new business models to leverage the same. For example, an increasing trend in SMBs

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SMBs are confused with too many vendors touting their solutions and services. There is little knowledge on what is best suitable. SMBs are clamoring for advisers to help them out of the confusion created by a plethora of options.

No single vendor today looks capable to solving all the issues that lie with IT adoption in the segment. While the market for the SMBs has come of age, the suppliers are yet to!

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is to equip sales-force with mobile devices to update orders taken. Yet, today we have a spectrum of vendors, with enterprise service capabilities, jumping into the bandwagon to tap the now-very-attractive SMB market. In the midst of this, the question that we would like to ask is “does the SMB need a newer service model?” – A model that is different from how we served enterprises. No single vendor today looks capable to solving all the issues that lie with IT adoption in the segment. While the market for the SMBs has come of age, the suppliers are yet to! The conventional service models do not serve the plight of this segment. Or may be, we can not have just one breed of vendors to cater to this unique market. Rather, what we need is an ecosystem. We are strongly inclined to the vision that the service player, who will be able to drive an ecosystem of service providers, and provide a basket of services, will see better acceptance in the SMB. Our discussion in the course of this paper will find the reasons for this and how a new business model evolves for it.

Small business financing broadly, fall into three categories. One is working capital financing through overdraft accounts. Two, large credits to customers of SMB are funded though bill discounting. Three, capital investments are funded by hypothecating the invested asset to the bank; the repayments are done in equated installments. Investments like software licenses and customized software cannot be hypothecated generally, and therefore, there is the need for collaterals like land and shares.

Today with liberal and more professional banking services, the financial sector has shown high keenness in funding IT adoption ventures. However, with high interest rates and demanding collaterals, there is always a difficult trade-off between capital and operational expenditures. The capacity to take risks in large IT projects, for example, ERP implementation, is less in SMBs. Instances of cost over-run or failures in ERP implementation is rife in large enterprise segments; similar experience in an SMB can be costly. Rather, an SMB would like to pilot less complex solutions and scale up as it reaps benefits. This however, leads to a business compromise, where you end up taking lesser solutions not meeting the desired need. Therefore, the service model has to mitigate the risk of adopting expensive feature-rich solutions.

A medium scale fabric manufacturer in India selected an ERP package but wound up after making extensive, unexpected and expensive modifications. The system could not handle the scenario where the company priced the same bolt of cloth in two different ways. Unfortunately, in that ERP, there was no way to assign two prices to the same unit of the item, keeping inventory count accurate. One unit, two prices, said the manufacturer. Two prices, two units, said the ERP Vendor.

Instances of such issues are not rare. In fact, it characterizes the SMB market. It is also common to find such unique processes in large enterprises. Yet, SMBs have made little attempts to standardize these

Constrained working capital and low risk preference

Empathizing with issues in evolving businesses

We can take a cue from automobile industries. Organizations like Toyota and General Motors have their own financing firms that provide car finance to customers at lower rates of interests. This strategy has been instrumental in boosting sales by tapping the latent demand.

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processes from an end-to-end perspective. We will rarely find investment in business process re-engineering in most companies of these segments. This does not mean that such interventions would be overkilled. Rather, process re-engineering is being more pertinent in SMBs who are striving to be participants in the global supply chains. They have to adopt standard interfaces and benchmarks that their enterprise customers demand. On the flipside, a typical SMB is always evolving, scaling in operations, locations and scope. They are often family owned and have traditional practices overriding best practices. Many of the processes are very orthodox and stubborn. For instance, in accounting, we still have book keeping practices that comfort an archaic system of governance, and thereby become impediments to better integrated processes. In manufacturing execution systems, which is what the production process is commonly referred to as, the uniqueness is higher. For example, estimating stocks for work-in-progress, is done on heuristics and it takes radical rationalization for transition to better practices. Does this not warrant a new mindset to run SMBs?

The positive side is that SMBs today feel the imperative to change – to be a part of the global economy, and transgress the boundaries that hold it from being global players. China has shown how SMBs evolve into global players in short time. The same is happening in India and many emerging economies. Hence, aspirations are high. The demand for process solutions in SMBs along with IT adoption is natural and waiting to be tapped.

We are talking about a convergence of two evolutions here. On one side, we have SMBs with unique processes and aspirations to benchmark those with better ones. On the other side, we will have service providers trying to make their solutions flexible and expect users to standardize their processes.

We see the need for SMBs to maintain a miniature internal IT organization that would maintain and administer the solutions that are running. For instance, you would need a network administrator for your network. You would also need database administrators for applications running to recover from corruptions. Above all, you would need someone who would understand your business process and who would be a functional expert in helping your organization use the software applications. Also, you would like the people to stay in organization for a long period so that the knowledge is retained.

With I.T. off-shoring boom in many countries, IT talent is hugely attracted to the large enterprise segments and IT Service organizations. With talent resource exhausting, and increase in demand is leading to rising salaries and high attrition. In midst of this, SMBs are finding it difficult to attract and retain IT talent.

It is common to see salaries for IT staff higher in SMBs than in enterprise segment. This is simply to

IT talent – too expensive and volatile for SMBs

The positive side is that SMBs today feel the imperative to change – to be a part of the global economy, and transgress the boundaries that hold it from being global players.

SMBs have made little attempt to standardize these processes from an end-to-end perspective. We will rarely find investment in business process reengineering in most companies of these segment. This does not mean that such interventions would be overkill.

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compensate lower job security and social recognition that an SMB can provide. The fear of hiring costly IT talent and the vitality of it, which can leave your systems stranded, is deferring IT adoption in SMBs. Effective cost of IT is higher and the risk of business stoppage increases as you adopt more sophisticated and integrated IT solutions. While the imperative to adopt IT for efficiency and innovation is there, the fear of scarce and volatile IT talent is no less deterring.

Software investments are expensive. It curtails your capacity to fund operation by taking a slice of your working capital. Again, capital investments, like software and the infrastructure involved, are needed for business change – to adopt new processes and bring efficiency. This dilemma continues to dog small industries.

Amidst this, an interesting evolution has happened in software industry. Few years back, the software community had been talking about software applications being rendered on the Internet, instead of being installed on the desktops and Local Area Network (LAN). This concept was touted as the “Applications Service Provider (ASP) paradigm”. Ironically, this didn’t turn out to be a paradigm literally. The problems were many. Internet was still evolving, though very rapidly. Its ability to provide logically intensive content was limited then. Bandwidth explosion that we see today was then a pipedream. Software makers deferred their agenda to provide software in an Internet-hosted model, looking at low immediate realization. The industry became more cautious and realistic after the dot com bubble burst. While Internet became popular for emails, collaboration and portals, rich software remained in the domain of local networks hosted within the organization.

As it often happens, a disruption starts with an innocuous beginning. Such a beginning is done by people As it often happens, a disruption starts with an innocuous beginning. Such a beginning is done by people who pursue vision against all odds. After the dot com bubble bursts, we saw new-age star-ups working out new business models around hosted software. In 1999, Mark Beinoff, from Oracle saw CRM and Sales Force Automation (often a part of CRM) to be a solution that can be offered over the net. In those days, CRM was a just a buzzword and the industry was weary about its returns. Moreover, CRM practices varied from enterprise to enterprise with very little standardisation. Therefore, adoption of CRM was buffeted by instances of failed implementations. Beinoff decided to make the adoption capital friendly by rendering it as a service hosted on net. Salesforce.com was formed. Beinoff’s concept underwent many striking realisations and it became an eye opener to the IT industry. One was that, more than large enterprises, the model turned out to be a boon for small industries who could experiment with new software with little investment. The paradigm got re-christened as SaaS – Software as a Service. This time around, it is a paradigm, because SaaS products are mushrooming. Conducively, Internet bandwidth is increasing three times year-on-year. Google, with office suites on the net, and ERP vendors, with re-engineered SaaS solutions, have jumped into the bandwagon. SaaS is here to stay.

It seems that some of the perennial problems that lie on the way of IT adoption in SMBs are solved by the

SaaS evolution - when adoptions fail, Technology finds a way out

SaaS is just a part of the service model that can truly tap the IT potential that lies in the SMB segment. Impersonal services like standard CRM can be a successful model in SMB, but for ERP and Manufacturing Execution Systems, the software needs to be flexible and customized within an extent.

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SaaS model. Capital investments are low. Software and infrastructure are remotely managed, and therefore there is lesser in-house talent dependency. Upgrading software with changing business is managed by the service providers. All this sounds to be a winning model. The question that remains is whether the panacea can aid the plight of evolving SMBs?

In fact, SaaS is just a part of the service model that can truly tap the IT potential that lies in the SMB segment. Impersonal services like standard CRM can be a successful model in SMB, but for ERP and Manufacturing Execution Systems, the software needs to be flexible and customised within an extent. The necessity for in-house talent for functional knowledge of the systems will remain. Moreover, a good part of the infrastructure would have to be in-house, such as network routers, client PCs. Above all, how would the SaaS provider provide the consulting and system integration service needed at the last mile? The confusion with the user about identifying the system that would help the best way to improve their processes would still exist.

SaaS is a foundation to a larger service model in the making - the model that will mitigate the hassles on last mile integration, provide the much-needed advisory service, and bring multiple solutions to the basket. How can an ecosystem of software service provider, hardware vendor, Internet and network service providers and professional process and quality consultants be brought together? Tapping the promising SMB market needs a service provider, who will drive such an ecosystem.

Not all systems can work on a SaaS model. For instance, a point of sales system (typically the billing software used in retail outlets) would ideally be a locally hosted system so that it can be compatible with complex local devices like bar code scanners. Vendors and advocates of SaaS may argue that a SaaS can integrate with local devices. While this argument is valid, with technology maturing, such scenarios are currently more conveniently sufficed by having local systems.

Therefore, a holistic IT solutions model for the SMB would have a few applications residing within the enterprise. This would include the legacy applications. Investment in servers to host mission-critical applications locally is an expensive capital investment. With applications being resource intensive, especially in the peak transaction time, enterprises are compelled to have separate servers for separate applications. This leads to redundancy of resources, since average consumption of server resources range between 30- 45%. The idea that comes to our mind is that we can cross-utilise server resources to support each other’s peak periods and thereby do with lesser number of servers. While this idea is quite old, only recently, has this taken a practical shape with a technology called virtualization. This helps to host multiple virtual servers in one physical server, and have “many-to-many” relationships with those. Virtualization dynamically allocates resources to applications depending on the resource consumption.

With server costs being very high, virtualization is an attractive infrastructure option in SMBs. However, virtualization is a foundation to a larger service model in store – one that would be more relevant and attractive to SMBs. Utility Computing is a paradigm where applications are rendered on demand through

Another spike in the Technology evolution curve– The Utility Model

In the utility model, all the software applications are centrally hosted and managed, and rendered on demand. By doing this, your maintenance of ITservices and infrastructure can be administered as a separate organization and can also be outsourced.

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centralised hosting. The applications service is metered on usage and the cost is a function of it. The name is drawn from utility services like electricity and water, where billing is done on usage. This computing paradigm sounds similar to SaaS, yet it is a more matured model. In the utility model, all the software applications are centrally hosted and managed, and rendered on demand. By doing this, your maintenance of IT services and infrastructure can be administered as a separate organization and can also be outsourced. We are yet to see a 100% utility computing enterprise (may be it is too theoretical to expect one in following years) but partial adoption of utility computing within companies is growing very rapidly.

What if this centrally administered IT is managed by a vendor who provides end-to-end IT capability? Is it not that the impending evolution of utility computing model and SaaS indicate a new service model for the SMBs?

If we have to connect the dots, the need of the hour is managed services: a vendor who would provide all these components and would relieve the business by taking the ownership of IT management. The vendor has to drive an ecosystem of support partner, niche software vendors, financers, network service providers, datacenters and hardware vendors. This in turn, would complement its software solutions and consulting capabilities. We call this IT-as-a-Service.

We find six layers of IT Services needed for this model, with each layer towards the top getting more niche and specialized.

Access devices like client PC, laptops and Point-of-Sales accessories would require an efficient vendor management to bring about best prices against the requirement. It would also include considerations like logistical convenience, support availability and management of support contracts. Financing the investment would need partnership arrangements with the financing institution.

IT–as-a-Service – bringing managed services to SMBs

How can an ecosystem of software service provider, hardware vendor, Internet and network service providers and professional process and quality consultants be brought together? Tapping the promising SMB market needs a service provider, who will drive such an ecosystem.

Niche Vertical Applications

Vertical Core Applications

Common Business Applications

Common Office Applications

Network

Access Devices

Space Mgmt, Loyality Mgmt, Business Analytics

POS, Inventory Mgmt

Payroll, CRM, Accounting HR Mgmt

email, Document Mgmt, Collaboration Suite

LAN, WAN, Routers

Desktop, Laptop, POS devices

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A similar set of operations would be needed for the Network solutions. Network solution would also include system integration services and security setups, which will have to be provided at the last mile mostly.

An SMB would need office collaboration suites and messaging. Many of these can be provided as a SaaS model, for instance email messaging and office suites. To lower the license cost, open source options are attractive.

In case of business solutions, transition to SaaS mode, will depend on a few factors. Engagement with customer to understand the business requirement and IT roadmap is important. There is also a need to understand the degree to which the customisation would be needed in the application. However, the service model will have to focus on standardising the functionalities of these solutions so that most of the critical process requirements are met. At the same time, consulting service and implementation support will need to help the business find opportunities to rationalise their process to standard and best practices.

An SMB would have concerns about the security of their data, particularly when it resides in remote datacenters owned by the service provider. Therefore, the service provider has to ensure that it complies with and implements adequate security policy that protects data privacy. Fortunately, technology has evolved to provide high data privacy and security in managed services models. Moreover, sophisticated intrusion detection systems can be deployed to alert any unforeseen event of intrusion or leakage. There are also security process standards, compliance of which indicates the vendor’s maturity is protecting customer data.

When data is located remotely, one would also be concerned about business continuity and disaster recovery. While technology today is capable of ensuring real time replication of data to backup and continuity, partnerships with well-established data centers who have adopted such technology is important.

TCS brings IT solutions in each of these spaces, in a concerted way. We call it “IT on Tap” because we provide one shop IT solutions that is rendered on demand. The demand may be in terms of scalability with business expanding, or in terms of new solutions as business adopt new operating models to evolve and compete.

Our managed services, most of the time, remotely hosted and administered, relieve users from complexities of IT management. Therefore, our users get maximum benefit of the solutions they adopt, with our people innovating on it and managing it on their behalf. By centralising and standardising solutions to multiple customers, we are able to achieve cost advantage for the customer. We are able to relieve the customer from enduring capital investments and therefore allow them to fund operations.

TCS has been serving large enterprises for 35 years now. Our rich expertise, diverse pool of talent and technology capabilities has brought us to a threshold where we can redefine the way SMBs leverage IT.

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Why iON

iON provides comprehensive solutions that address varied IT requirements. From network to ERP, iON is offered as a single service, in a pay-per-use model, allowing you to leverage the solution’s true potential. iON ensures integration of all processes along with ease of use.

iON promises:

n High performance in normal broadband;

n Stringent security and data privacy;

n Guaranteed availability (99 per cent uptime);

n Disaster recovery;

n Reduced need for IT staff.

iON, therefore, manages your processes while you use the software. You gain from

Integrated solutions

We ensure that all your solutions are connected. For example, if you are using a CRM along with an ERP, and have a document management system to organise your files, we ensure that these solutions are connected and work as one. So for you, it is simply IT and not applications.

Increased agility

We bring in the agility to keep pace with changing processes or a new line of business. We help you configure the processes to work differently or simply choose new practices recommended by the software. Our activation system flags on best practices while the system is running. As you pick and choose, we give you more options to choose from.

A pay-as-you-use model

This model eliminates capital investment as we provide the IT infrastructure and software on rent. You pay as you use and only for the number of users who actually use the software. The rent is charged monthly. Typically, the cumulative rental for three years is equal to the capital cost of acquiring similar or lesser software with one-time payment. Usually, the ROI exceeds rental within three months, when best practices are well followed. The rental includes maintenance and training, with no hidden costs.

Personalised solutions

Although this is a cloud service, the software is configurable to each business. You will always get the flavour of your own business by picking and choosing what processes you would need.

Automatic upgrades

We continuously invest in our solutions to ensure best practices. We enrich the software based on user feedback and business and statutory changes. We ensure the upgrade without disrupting the user.

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other applicable laws, and could result in criminal or civil penalties. Copyright © 2011 Tata Consultancy Services Limited TCS

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IAbout Tata Consultancy Services (TCS)Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering

TMand assurance services. This is delivered through its unique Global Network Delivery Model , recognized as the benchmark of excellence in software development. A part of the Tata Group, India’s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India.

For more information, visit us at www.tcs.com

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ContactTo know more about iON Toll Free Number 1800 209 6030Email [email protected]

About iON iON is Tata Consultancy Services’ strategic unit for Small and Medium Business. iON provides end - to - end business solutions to the SMB segment, the growth engine of the economy. iON caters to the needs of multiple industry segments with best practices gained through TCS’ global experience, domestic market reach, skills, know-how and delivery capabilities.

For more information, visit us at www.tcsion.com

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