The extreme price sensitivity of the Indian MSME segment is often cited as a major reason for the reluctance of leading IT firms to look at the MSME segment as a viable market…
I want to use IT but find it very difficult to get good IT firms to show interest in my small firm.
“Managing IT is very challenging as I need to deal with many suppliers and each supplier blames the other suppliers when things do not work.” “Am I running an IT firm or a manufacturing firm?” “We have invested considerably in IT but are not sure whether we derive any value from these investments.”
These statements have been culled out from my conversations with IT users belonging to the micro, small and medium enterprises (MSME) segment across the country. But they truly believed that IT could help their firms become more competitive.
Eager to learn the supply side perception, I also spoke to some IT firms who are active in the domestic market and got very different reactions. “Indian SME users are only interested in paying low prices and not interested in good quality and advanced functionality.” “They expect IT services to be provided free.” “The users can never decide on their requirements and do not believe in paying for changes.”
Intellectual argument
These conversations clearly indicate an adversarial relationship between MSME IT users and their suppliers. Irrespective of who wins the intellectual argument, the fact remains that IT adoption in the Indian MSME segment significantly trails behind their counterparts in comparator economies like Brazil and China which is rather unfortunate given the transformational tailwind IT can provide to the MSME firms and the presence of a strong IT industry in India.
The extreme price sensitivity of the Indian MSME segment is often cited as a major reason for the reluctance of leading IT firms to look at the MSME segment as a viable market. However in most of my conversations with MSME IT users, while affordability of IT products certainly got raised as an issue, appropriateness of technology and complexity of IT management came across as more significant IT adoption barriers.
A majority of branded IT products available at national level have been created in a context which is quite different to the context of the Indian MSME segment resulting in these products being quite alien to the MSME user’s requirements. A good illustration of this contextual dichotomy is that one of the most ubiquitous office productivity products available in India uses English(US) as a default language setting and does not allow numbers to be expressed in lakhs, crores etc.
Core complexity
While trivial, these shortcomings often become a source of major irritation for users. Many product vendors release ‘lite’ version of their products for the MSME segment by removing some of the more advanced features from the base product.
These lite versions are rarely successful as they do not address the core complexity of the product. During a recent interaction with MSME IT users in Jamshedpur recently, I was surprised to learn that while most of the users were dissatisfied with the better known branded ERP products, a locally created ERP product seemed to be widely popular.
Even a bare minimum IT infrastructure in a MSME firm will include a few PC’s, printers, LAN, disparate applications etc typically sourced from multiple vendors. Managing multiple vendors, technology obsolescence, software licensing and upgrades, application changes require IT capabilities most MSME firms lack leading them to rely heavily on their local vendors. With most local vendors themselves lacking capabilities to offer good quality solutions, MSME users never seem to get a bang for their IT buck and consequently develop a sense of uncertainty vis-a-vis IT resulting in a cycle of IT under-investment. Typically IT adoption only focuses on automating routine tasks and the IT sourcing philosophy is predicated on the cheapest which is often low quality.
Cloud computing
For IT adoption to increase in the MSME segment IT needs to become integral to the firm’s business operations and treated at par with any other business infrastructure e.g. plant machinery. This transformation can only happen if both MSME users and IT suppliers are prepared to move away from conventional IT usage and delivery approaches and boldly experiment with new models.
While it is still early days, Software as a Service (SaaS) aka ‘cloud computing’ is a technology which perhaps has the disruptive potential to overcome conventional paradigms.
The ubiquitous Indian cable TV model is a good illustration of what SaaS can achieve. Indian cable TV users access a localised bouquet of channels paying a monthly fee without worrying about how and where the content is created, what technology is used for broadcasting etc. The cable viewer’s only capital investment is the TV with the local cable TV operator resolving all issues. Similarly SaaS can help create an IT model analogous to cable TV where remotely hosted IT applications are made available to a MSME cluster over a reliable telecommunication network with the user paying a subscription fee.
Each user only has to invest in an internet connected PC(s) which can also avoided if the service provider ‘bundles’ the hardware and connectivity as part of the package.
Adhoc changes
Detractors cite the lack of personalised support and user specific customisation as two key weaknesses in SaaS. Most of the production and back-office processes of firms in a local cluster possess a high degree of uniformity with the differences often being due to adhoc changes in the firm over a period of time rather than due to any fundamental differences in the processes itself.
After all how different can processes like inventory management, payroll, accounting, supply chain management be? Most good SaaS based applications will anyway easily lend themselves to customisation in usability features including screen layouts, reports etc. Personalised support can be optionally offered to the users by creating differential support levels e.g. silver, gold, platinum, priced accordingly. While success in the SaaS approach will be predicated on scalability, information security, service reliability and solution flexibility, getting the right commercial model in place is perhaps the single most important factor for success. The commercial model needs to be scalable and volume based with an attractive base price for the core applications and include a basic support level with additional applications and higher support levels being priced differentially.
Cost effectiveness
The benefits of SaaS are tremendous for the user. Firstly, it allows the user to focus on using IT to run his business instead of investing efforts towards managing his IT infrastructure. Secondly the user gets access to best practices and technologies which are incorporated in the general solution at no significant cost to the user. Most importantly SaaS allows users to move their IT expenses from CAPEX to OPEX thereby allowing them to adopt IT without getting locked into expensive hardware and software.
In the current scenario MSME users invest substantially in implementing ERP before being able to use it and mostly end up procuring more than they require. SaaS based ERP solutions can allow users to ‘cherry-pick’ applications as per their business requirements and comfort levels at an incremental increase in costs. While the above may sound a little far-fetched, the success of firms like salesforce.com has established the viability of the SaaS paradigm. In India itself, entrepreneurs are already launching SaaS based applications aimed at specific industrial clusters.
The IT adoption challenges of the millions of firms in the Indian MSME segment represent a tremendous business and innovation opportunity for the IT industry. Harnessing it will require IT firms to relinquish their existing dogmas about the ‘difficult’ MSME user and go the extra mile to develop deep understanding of the fundamental IT adoption pain-points of MSME users in order to create innovative solutions and commercial models which can increase the current dismal IT adoption levels in the Indian MSME segment. As Peter Drucker aptly said, there are no unreasonable customers, only lazy suppliers.
