IT costs are the biggest challenge facing technology leaders in Australia’s mid-sized businesses, according to a survey commissioned by IT management software vendor ManageEngine. This challenge is expected to intensify as these companies adopt more applications and increase their spending on AI.
The Digital Intensity in Australia study, conducted by research firm Ecosystm for ManageEngine 24×7, found that many medium-sized businesses with 200 to 1,500 employees are still in the early stages of transforming to fully digital businesses.
However, these companies are experiencing the “digital intensity” of managing multiple cloud environments and an expanding number of applications. This complexity requires increased interoperability and is likely to put additional pressure on costs as new investments in AI and data are made in the coming years.
Here are the key findings from a survey of 101 SME IT leaders across Australia.
Reducing costs is a top priority for Australian SMEs
More than half of IT leaders (52%) say cost reduction is a top priority in the next 12 months.
With rising costs and higher interest rates in the Australian market, SME leaders were found to be seeking “growth without additional costs”, the report said, seeking to achieve productivity improvements through technology optimization rather than increased spending.
Improving customer experience and satisfaction is also a priority for 49% of respondents.
Modernizing SMBs: Focusing on Infrastructure and the Cloud
A significant portion (54%) of SMB IT executives said their technology modernization activities focus on infrastructure when asked to name three top priorities.
Infrastructure modernization was followed by:
- Cloud strategy and architecture (48%).
- Cyber security (43%).
- IT operation and service management (39%).
- Business continuity and disaster recovery (36%).
Infrastructure modernization has moved from an “operational upgrade” to a “strategic imperative” to meet consumer expectations and accelerate digital transformation, the report says. In addition, modernization efforts are focused on increasing business value, particularly IT applications that have been the primary interface for customers and employees.
Spending on artificial intelligence among small and medium-sized businesses will increase over the next two years
Spending on artificial intelligence is projected to grow from less than 0.25% of IT spending to 2.5% over the next two years.
SMBs are expected to invest in more data management and processing capabilities, the report suggests, as AI gradually causes additional technological complexity and data requirements.
SEE: Australian SMEs at risk of being left behind in AI
“As AI applications evolve, they generate additional data through interactions and outputs, further escalating data requirements,” said the analysis in the ManageEngine report.
“This increase in data requires advanced analytics tools, improved log management and more dependent storage solutions, increasing the complexity of infrastructure management.”
Australian SMEs are managing multiple cloud environments
More than half (51%) of SMBs manage three to five cloud environments, and 14% manage up to 10.
“Five years ago, cloud solutions were primarily used by small and medium-sized businesses for data storage and ancillary applications,” the report said. “They are now central to digital transformation strategies, supporting AI platforms, big data analytics and IoT integration.”
The report found:
- 34% of SMEs managed one to two cloud environments.
- All SMBs use an average of four cloud environments.
- SMB public cloud usage could grow from 46% of workloads to 58% within two years.
SMEs expect to use a higher number of technology applications
SMEs will need to deploy and connect more IT applications over the next two years.
- 40% expect 1 to 5 new apps.
- 31% expect 5 to 10 new apps.
- Just 8% are not expected to introduce any new applications.
Interoperability will be a key challenge, the report says, as SMB applications “must be deeply integrated with each other to create seamless digital processes – not run in silos.”
Technical complexity hinders business agility and innovation
Most businesses (54%) identified increased costs as a major challenge stemming from increasing technological complexity. Others cited the proliferation of security vulnerabilities (47%), poor scalability (38%), and difficulties with troubleshooting and maintenance (37%).
“The rise in digital intensity in organizations presents a challenge for SMB technology leaders,” the report says. “The expanding technology architecture with the proliferation of applications and the diverse use of the cloud increases the demand for IT support.”
SEE: Cyber security and cloud to drive business spending in Australia in 2024
“Complexity results in higher costs, security risks and scalability issues, which hinder agility and innovation. Troubleshooting becomes more difficult, leading to downtime and compliance concerns. Complexity can hinder employee productivity and compromise the customer experience.”
Most SMEs are still in the early stages of digital transformation
Despite the focus on infrastructure and cloud, as well as growing investment in AI, a large proportion (60%) of Australian SMEs say they are still early in their digital transformation journey.
- 20% identified themselves as “traditional” businesses when asked to self-assess their digital maturity; traditional was defined as having only a basic online business presence, operating primarily through traditional physical and face-to-face channels.
- Forty percent of businesses rated themselves as “evolving,” defined as having a web presence, using social media for marketing and digital tools for internal processes.
Only 4% claimed to be “digital first”. Another 5% said they are “transformative,” or that they use technologies like AI and IoT, have an ecosystem of digital partners, and a digital first strategy.
SMEs urged to embrace digital while reducing digital intensity
A report by ManageEngine found that as the market becomes more competitive, SMEs in Australia are being forced to innovate, use AI-based insights and use digital tools.
However, the resulting increase in digital intensity is creating challenges for SMB technology leaders.
“The expanding technology architecture with the proliferation of applications and the diverse use of the cloud is increasing the demand for IT support,” the report said. “This complexity results in higher costs, increased security risks and scalability issues, which hinder agility and innovation. Troubleshooting becomes more difficult, leading to longer downtime and compliance concerns. The complexity of technology can also hinder employee productivity and compromise the customer experience.”
IT observability systems could help businesses gain more visibility and combat digital intensity, according to Ecosystm.
“By combining logs, metrics, monitoring and events with advanced analytics, engineering teams can proactively determine root causes, detect anomalies before they disrupt service, and keep systems resilient,” said Tim Sheedy, vice president of research at Ecosystm. “Ultimately, observability enables IT organizations to deliver consistent digital experiences to customers while empowering teams to confidently explore new technologies.”
