Cloud computing is driving productivity and profitability of SMBs

Cloud computing is driving productivity and profitability of SMBs

India has over 50 million small and medium businesses (SMBs). They contribute over 30% 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 7 to 8 times. Helping SMBs address these challenges can contribute significantly to their growth, which in turn will contribute significantly to India’s socio-economic growth. 

According to 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, 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. 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% of SMBs find 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% 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% on low cloud adoption, but 52% on moderate and 66% on high

·         Employee productivity increases only 21% on low cloud adoption as compared to 51% on moderate and 81% on high

·         Operating expenses reduce only by 13% on low cloud adoption, but a considerable 47% on moderate and 68% on high

·         Cash flow increases only 13% on low cloud adoption, and 33% on moderate and 53% 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 has also been calculated.

Benefit	Impact on survey respondents at low vs. high cloud usage	Predicted probability of impact of cloud usage on larger population of SMBs
Improvements in productivity and profitability
Asset utilization	288%	3.0x
Employee productivity	286%	2.6x
Operating expenses	423%	3.1x
Cash flow	308%	4.5x
Increasingly efficient operations
Improvement in communication and collaboration	114%	1.5x
Ease of conducting business	300%	1.9x
Improvement in operational efficiency	300%	4.8x
Improvement in business review and oversight	233%	2.8x

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 have been used as reference for SMBs not using cloud. On comparison, it has been found that profit improvement and cost reduction metrics improve 30% for SMBs using medium cloud, whereas this metric improves 10% for SMEs on the government database; employee productivity metrics improve 50% for SMBs using medium cloud whereas it improves 20% for SMEs on government database; asset utilization metrics improve 50% for SMBs using medium cloud whereas it improves marginally for SMEs on government database. The asset base of SMBs is more effectively utilized 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.

*The survey was conducted among 275 MDs/CEOs of SMBs, across manufacturing, retail, IT/ITeS, ecommerce, education, health and hospitality sectors, across 11 cities (Bangalore, Chennai, Chandigarh, Coimbatore, Hyderabad, Kolkata, Lucknow, Mumbai, Mysore, NCR, Pune).

**For the purpose of the survey, the extent of cloud usage has been defined as low cloud usage when there is use of basic email services, file storage/sharing and basic antivirus software; medium cloud usage when there is use of productivity/collaboration tools like Microsoft Office 365, web conferencing tools like Skype, financial accounting software, document management tools like Microsoft SharePoint, etc; high cloud usage when there is use of CRM and ERP software like Microsoft Dynamics 365, payroll, apps development, HRMS, project management tools, e-commerce, etc.