According to a survey commissioned by IT management software vendor ManageEngine, the biggest challenge facing technology leaders at mid-sized Australian businesses is IT costs, a challenge that is expected to become more acute as these companies adopt more applications and increase AI spending.
The Australian Digital Degree Survey, conducted by research firm Ecosystm for ManageEngine 24×7, found that many mid-sized businesses with between 200 and 1,500 employees are in the early stages of transforming into fully digital businesses.
However, these companies are feeling the “digital blitz” of managing multiple cloud environments and an ever-growing number of applications. This complexity demands greater interoperability and is likely to put further pressure on costs as new investments in AI and data are made in the coming years.
Here are seven key findings from a survey of 101 IT leaders from small and medium-sized businesses across Australia.
Cost reduction is top priority for Australian small businesses
More than half (52%) of IT leaders say reducing costs is their main priority over the next 12 months.
The report found that rising costs and interest rates in the Australian market have led small business leaders to seek “growth without extra cost” as part of efforts to drive productivity gains through technology optimisation rather than increased spending.
Improving customer experience and satisfaction is also a priority for 49% of respondents.
Small Business Modernization: Focus on Infrastructure and Cloud
A significant proportion of SMB IT leaders (54%) said infrastructure is the focus of their company’s technology modernization efforts when asked to name their top three priorities.
Following the modernization of infrastructure, the following happened:
Cloud Strategy and Architecture (48%), Cybersecurity (43%), IT Operations and Service Management (39%), Business Continuity and Disaster Recovery (36%).
According to the report, infrastructure modernization has shifted from an “operational upgrade” to a “strategic necessity” to meet consumer expectations and accelerate digital transformation. Moreover, modernization efforts are being directed toward improving business value, especially in IT applications that have been the primary interface between customers and employees.
AI spending among small and medium-sized businesses expected to increase over the next two years
AI spending is projected to grow from less than 0.25% to 2.5% of IT spending within the next two years.
The report suggests that as AI gradually increases technological complexity and data demands, SMEs are expected to invest in more data management and processing capabilities.
Read also: Australian small businesses at risk of being left behind by AI
“As AI applications evolve, additional data will be generated through interactions and outputs, further increasing data requirements,” the ManageEngine report analysis said.
“This data explosion requires advanced analytics tools, enhanced log management and more reliable storage solutions, increasing the complexity of managing infrastructure.”
Australian SMEs manage multiple cloud environments
More than half (51%) of SMBs manage three to five cloud environments, and 14% manage up to 10 cloud environments.
“Five years ago, cloud solutions were primarily used by small and medium-sized businesses for data storage and non-core applications,” the report details. “Today, cloud solutions are at the heart of digital transformation strategies, supporting AI platforms, big data analytics, and IoT integration.”
The report found that:
34% of SMBs manage one to two cloud environments. SMBs overall use an average of four cloud environments. SMB public cloud usage could increase from 46% to 58% of workloads within two years.
More Australian Coverage
Small businesses expect to use more technology applications
Small businesses will need to deploy and connect more IT applications over the next two years.
40% expect 1-5 new applications. 31% expect 5-10 new applications. Only 8% say they have no new applications planned. Australian SMEs expand technology applications. Image: ManageEngine
Interoperability will be a key challenge, the report said, as SMEs’ “applications will need to be deeply integrated with each other to create seamless digital processes, rather than siloed operations.”
Technology Complexity Stifles Business Agility and Innovation
The majority of companies (54%) cite increasing costs due to technology complexity as a major challenge, with others citing increased security vulnerabilities (47%), poor scalability (38%) and difficulties with troubleshooting and maintenance (37%).
“The surge in digitalization within organizations is creating challenges for SME technology leaders,” the report states. “Expanding technology architectures with a proliferation of applications and diversifying cloud usage are driving demand for IT support.”
See also: Cybersecurity and cloud to drive Australian business spending in 2024
“Complexity leads to increased costs, security risks, and scalability challenges, hindering agility and innovation. It makes troubleshooting difficult, leading to downtime and compliance concerns. Complexity can hinder employee productivity and put customer experience at risk.”
Many small and medium-sized businesses are still in the early stages of digital transformation
Despite the focus on infrastructure and cloud, and increased AI investment, the majority of Australian SMEs (60%) say their digital transformation efforts are still in the early stages.
When asked to self-assess their company’s digital maturity, 20% of companies described themselves as “traditional” businesses, defined as those that operate primarily through traditional physical and in-person channels and have only a rudimentary online business presence. 40% of companies rated themselves as “emerging” businesses, defined as those that have a web presence, use social media for marketing, and use digital tools for internal processes.
Only 4% claimed to be “digital first.” The other 5% said they were “transformative,” using technologies such as AI and IoT, and having a digital partner ecosystem and a digital-first strategy.
Small and medium-sized enterprises are being urged to increase digitalisation while reducing their degree of digitalisation
A report by ManageEngine found that as the market becomes more competitive, Australian SMEs are being forced to leverage AI-powered insights and adopt digital tools to innovate.
However, the resulting rapid digitalization is creating challenges for technology leaders in SMEs.
“Expanding technology architectures driven by application proliferation and diversified cloud usage are driving demands for IT support,” the report states. “This complexity creates increased costs, greater security risks, and scalability challenges, hindering agility and innovation. It also makes troubleshooting more difficult, leading to extended downtime and compliance concerns. Technology complexity can also hinder employee productivity and jeopardize customer experience.”
According to Ecosystm, IT observation systems could help companies increase visibility and combat the intensification of digitalization.
“By integrating logs, metrics, traces and events with advanced analytics, technical teams can proactively identify root causes, detect anomalies before they disrupt service, and keep systems resilient,” said Tim Sheedy, vice president of research at Ecosystm. “Ultimately, IT observability enables organizations to deliver consistent digital experiences to their customers while empowering teams to explore new technologies with confidence.”
