UK Mid-sized firms must get cloudy

There are those that would suggest cloud services cannot add much to the revenue of many businesses, especially those classed and midium-sized, but a survey recently produced by the Centre for Economics and Business Research (Cebr), and sponsored by Dutch cloud platform specialist, Cordys, not only suggests this is not the case, but also that not exploiting the cloud puts those businesses at a definable disadvantage.

The results of the survey state that productivity levels of UK mid-sized businesses (MSBs) are lagging behind large enterprises. And it goes on to suggest that this situation could be improved if the MSB community got into the adoption of cloud services with a deal more vigour.

Cebr defines the shortfall shown by MSBs, compared to large enterprises, in terms of the productivity gap. The survey shows they collectively generate £1,518 less per worker. The study attributes this to 18% lower ICT adoption by MSBs in the UK compared to their larger counterparts.

The reason, the study suggests, is because UK MSBs have a structurally lower take-up of a range of different ICT-based activities compared to their larger counterparts.

For example, 84 percent of large enterprises in the UK have adopted intra-company data sharing solutions, compared with only 66 percent of MSBs, pointing to a lack of technology integration. It also seems to point to this as an overall reluctance to adopt sharing policies amongst the MSB community, as the trend showed up in other areas such as in supplier related processes, where it was 54 vs. 34 percent in favour of large enterprises, selling online, where it was 42 vs. 28 percent, operational and analytical CRM, which clocked a rather surprising 44 against 29 percent, and ERP, where the gap was an even larger but perhaps more understandable 48 to 24 percent split.

Such figures do have to be set in wider context of course, and for all businesses that has to include the financial recession since2008. Data from the European Commission suggests that UK MSB productivity has declined by 4.8 percent per year and is only now starting to show signs of recovery.

One reason for this suggested by Cebr is that it is a result of the decline in financial services activity, which contributes near 30 percent of total value add generated by mid-sized businesses in the UK, creating a disproportionate impact by hitting mid-sized businesses in the professional services sector particularly hard.

It is also possible, of course, that much of the problem for mid-sized companies is that they have been the ones hardest hit by restrictions on the availability of credit, so the least able to access funding for the necessary investment. This has been the case even though the economic arguments in favour of MSBs investing in the cloud – even if only on the basis of savings in Capex and Opex out into the future – have been excessively and favourably expounded.  By comparison large enterprises have, over the years of recession and austerity, developed the knack of conducting investment banking between themselves.  

The survey shows that the UK MSBs have been harder hit than other European countries.  Productivity declined 1.7 percent more than counterpart enterprises between 2007 and 2011, while France saw a difference of 0.5 percent and Dutch MSBs actually performed 1.4 percent better.

The survey put this down to increased use of a range of ICT activities: French and Dutch MSBs had higher overall adoption of enterprise software for use in processes such as data-sharing, ERP and CRM. Of the three countries, the UK comes out worst in all three of those categories. 

The Cebr report goes on to suggest three main areas where the cloud can be exploited to make some positive changes to the current situation. In the area of business development, it suggests that the elastic scalability provided by cloud solutions can lead to better management of seasonal peaks, which alone could increase output by 0.1percent per year.

Though cost savings, of themselves, have failed to be a significant lever in moving businesses to the cloud, they are still an important part of the argument. Cebre suggests that, 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. Up to a point, this is true, though in practice, businesses are finding that maintaining some on-premise applications is still a sensible option.

Cebr suggests that the implementation of a private cloud environment could lead to Capex reductions of up to 17.3 percent, while a public cloud implementation leading to an impressive 39.9 percent reduction. In practice however, it is still a very brave company that goes for a fully public cloud solution, even if that is through using the likes of Google Apps.

Migrating to the cloud means that there’s also a reduced need for power and cooling, with Cebr suggesting a 44 percent reduction in costs in a private cloud, rising to a 79 percent saving in the public cloud.

Finally, Cebr, suggests that the way the costs associated with cloud, coupled to its flexibility and greater business agility, can lower the financial and psychological barriers to entry, which could then see the creation 258,000 new MSBs in Europe by 2015, including 35,000 in the UK and 48,000 in France.