REDUCTION in the investment cost (capital expenditure) on technology can lower entry barriers for SMBs for accessing technology, which then creates a positive multiplier effect. Productivity gains afforded by the cloud are strongly reflected in business metrics, such as improvement in operating expenses and better cash flow from business operations. Reveals a study on the ‘Socio-Economic Impact of Cloud Adoption by SMBs in India’ conducted by the Thought Arbitrage Research Institute (TARI) in association with Microsoft.
India has over 50 million small and medium businesses (SMBs). They contribute over 30 per cent to India’s GDP and employ over 117 million people. However, SMBs face many challenges, including limited access to resources and technology, which greatly limits their productivity and profitability. Indeed, asymmetry between SMBs and large enterprises can be as much as seven to eight times. Helping SMBs address these challenges can contribute significantly to their growth, which in turn will contribute significantly to India’s socio-economic growth.
The gains have been quantified using statistical analysis, some of which are as follows:
- SMBs show a multiplier effect of 1.5 times in improvement of productivity metrics when they move from low to medium cloud usage.
- Profitability indicators (reduction in operating expenses) show a multiplier effect of 3x once SMBs move from low to medium cloud usage.
- 96 per cent of SMBs find a positive impact on their operating expense within two years of high cloud usage (and this remains stable with time, demonstrating that the gains are sustainable).
- SMBs’ ability to improve products and reduce launch time improves 100 per cent when they move to high cloud usage from medium cloud usage.
It is important to note the steep upward differential in gains when there is medium or high cloud adoption vis-à-vis merely using basic cloud services such as email, file storage, etc. This is significant as most SMBs feel that mere adoption of basic services is sufficient to make an impact.
Some of the improvements in productivity and profitability, as brought out in the survey, are as follows:
- Asset utilization increases only 17 per cent on low cloud adoption, but 52 per cent on moderate and 66 per cent on high
- Employee productivity increases only 21 per cent on low cloud adoption as compared to 51 per cent on moderate and 81 per cent on high
- Operating expenses reduce only by 13 per cent on low cloud adoption, but a considerable 47 per cent on moderate and 68 per cent on high
- Cash flow increases only 13 per cent on low cloud adoption, and 33 per cent on moderate and 53 per cent on high
The business benefits to SMBs, at low versus high cloud usage, as brought out in the survey are summarized below. Through statistical analysis, the benefits to the larger population of SMBs have also been calculated.
In addition, the survey results have been compared with SMBs that do not use the cloud at all. SMEs on the database of the government of India has been used as reference for SMBs not using the cloud. On comparison, it has been found that profit improvement and cost reduction metrics improve 30 per cent for SMBs using medium cloud, whereas this metric improves 10 per cent for SMEs on the government database; employee productivity metrics improve 50 per cent for SMBs using medium cloud whereas it improves 20 per cent for SMEs on government database; asset utilisation metrics improve 50 per cent for SMBs using medium cloud whereas it improves marginally for SMEs on government database. The asset base of SMBs is more effectively utilised by employees through cloud computing as it allows multiple users to access software related business applications, from any location, at any time.
Cloud computing technologies are not only advanced but also affordable and easy to deploy and use. This is opening up an opportunity for SMBs to bring about a paradigm shift in use of technology to improve their operations and productivity, in-turn improving their competitiveness and profitability. With Internet Service Providers having built connectivity infrastructure across India and a mature channel partner ecosystem offering tailor-made cloud services to SMBs, this is an opportune time for SMBs to leverage cloud technologies to drive their growth.