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The age of austerity

by Stuart Wilson, Monday 13 September 2010

Stanimira Koleva is European commercial and small-business director for Cisco. Koleva discusses how IT resellers focused on small and medium sized businesses can stay on top despite Europe’s fragile economic situation.

The age of austerity

Europe – a shaky economic foundation: Even though most of Europe officially emerged from recession at the end of 2009, grave concerns remain over the stability of our economies. The situation in Greece sent a stern warning to debt-ridden governments across Europe to control their spending, and large funding gaps in Europe’s banks have opened up new worries in the region. Stimulus packages have been largely replaced with cost cutting measures. A new era of austerity seems to be unfolding. Germany is planning cuts worth 0.4% of GDP in 2011, Spain will go as far as 1% for the same period, and the new UK coalition government is expected to tighten its belts by as much as 2%.

Volatility – the new normal for SMBs

Many experts fear that cuts in the public sector will have a negative spillover effect into the private sector, especially as the prospect of a double-dip recession continues to dog much of Europe. With no silver bullet in sight, these challenges are likely to linger for some time, and businesses stand hesitant as they plan their future strategy. The sector accountable for the largest proportion of the workforce – small to medium businesses (SMBs) – is likely to be the hardest hit. Unlike big businesses, they do not have a large global network to fall back on, no cash reserves, and worst of all, access to credit is still very limited.

According to a McKinsey paper, European CIO Imperatives in the ‘New Normal’ – A Call to Action, which investigates the tools and strategies European businesses will require preparing for a post-recession economy, organisations will have to adapt to more extreme economic conditions. The report argues that the world has changed. The ‘new normal’ economy will feature a constant state of volatility. Bold business moves are needed as organisations adjust to this new state of play. This is certainly the case for SMBs, the industry segment with the least shelter from the storm.

More difficult times for the reseller?

For many IT companies this age of austerity means a lack of upfront capital to invest in IT. To reflect this, Gartner has revised its previous forecast for spending growth in 2010 from 5.3% to just 3.9%, which will mean big holes in revenues for the entire IT channel. Resellers targeting the small business market are likely to be hardest hit, as cash-strapped smaller organisations will shy-away from major capital investments.

However, there are still opportunities for those SMB resellers with a flexible enough business model to succeed in this difficult climate. An ICT partner would benefit from refocusing its business development strategy to deepen its customer knowledge and identify ways to add the right value.

For many SMBs, this might not be the best time to make large investments in IT. In fact, going in for the hard-sell could actually be regarded as insensitive and out-of-touch. And yet the requirement to improve business efficiency has never been greater. There is still money to be made for partners with discernment of the pressures bearing down on their clients’ businesses and an ability to pitch their expertise in accordance with these pressures.

A trusted advisor

Resellers have already successfully made the transition from ‘supplier’ to ‘trusted advisor’. There is now a new demand upon them to elevate their status further, from ‘trusted advisor in IT’ to ‘trusted advisor on business improvements through IT’. The differentiation here is actively translating IT into business improvements.

To do so, they should demonstrate an understanding of the business motivators for investing in technology and the pressures on the business in terms of finances and client satisfaction. They should also look at business affordability and investigate whether they can arrange a financing deal that enables their customers to benefit now and pay later.

If an IT reseller can build a relationship which makes them integral to the organisation and an extension of their customer’s business, their future relationship is secure. The key is to let the client focus on the actual job of running a business, while they take care of helping manage the operational aspects of the technology. It’s worth emphasising the mission-critical nature of the reseller’s role, which extends well beyond keeping the back-office in good order.

Getting this right could also lead to many more referrals. Small business owners generally have to make do without the advice of a CIO, and find other ways of receiving trusted, unbiased recommendations on technology investments. This is why small businesses tend to operate in networks and share best practice. Small business networking clubs have become very popular throughout Europe, especially with the rise of social networking technology. Word of mouth recommendations are a very powerful force, and if a reseller builds a good reputation, they could end up with a great deal of new business.

Reseller turned service provider

Becoming a managed service provider is another way of adding value and making the transition from supplier to advisor. Investing and managing physical servers, hardware and software often exceeds the capabilities of cash- and resource-strapped small businesses. A reseller can add real value by offering IT services on a managed basis – this is where the reseller is the one investing in the physical infrastructure and the small business is ‘renting’ resources off the reseller each month.


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