Australian SMEs seek to reduce IT costs amid growing technological complexity

IT costs are the biggest challenge facing technology leaders at mid-sized Australian businesses, according to a survey commissioned by IT management software provider ManageEngine. This challenge is expected to intensify as these businesses adopt more applications and increase spending on AI.

this Australian Digital Intensity StudyA survey conducted by research firm Ecosystm for ManageEngine 24×7 found that many mid-sized companies with 200 to 1,500 employees are still in the early stages of transforming into fully digital enterprises.

However, these enterprises are feeling the “digital intensity” that comes with managing multiple cloud environments and an ever-increasing number of applications. This complexity requires increased interoperability, and with new investments in AI and data in the coming years, this is likely to put additional pressure on costs.

Here are seven key findings from a survey of 101 IT leaders in small and medium-sized businesses across Australia.

Reducing costs is a top priority for Australian SMEs

More than half of IT leaders (52%) say reducing costs is their top priority over the next 12 months.

The report said that due to increasing costs and rising interest rates in the Australian market, SME leaders are seeking “growth without increasing costs”, striving to improve productivity through technology optimization rather than increasing expenditure.

49% of respondents also ranked improving customer experience and satisfaction as a top priority.

Modernizing small and medium-sized businesses: Focus on infrastructure and cloud computing

When asked to name their top three priorities, a significant majority (54%) of SMB IT leaders said infrastructure was the focus of their technology modernization activities.

Infrastructure modernization is followed by:

• Cloud strategy and architecture (48%).
• Cybersecurity (43%).
• IT operations and service management (39%).
• Business continuity and disaster recovery (36%).

Infrastructure modernization has shifted from an “operational upgrade” to a “strategic imperative” to meet consumer expectations and accelerate digital transformation, the report said. In addition, modernization efforts are moving toward driving business value, especially for IT applications that serve as the primary interface for customers and employees.

AI spending by SMEs to grow in the next two years

AI spending is expected to rise from less than 0.25% of IT spending to 2.5% over the next two years.

The report noted that as artificial intelligence gradually brings additional technical complexity and data requirements, SMEs are expected to invest in more data management and processing capabilities.

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“As AI applications evolve, they generate additional data through their interactions and outputs, further increasing data requirements,” the analysis in the ManageEngine report states.

“The surge in data requires advanced analytics tools, enhanced log management, and more reliable storage solutions, which increases the complexity of infrastructure management.”

Managing multiple cloud environments for Australian SMEs

More than half (51%) of SMBs manage three to five cloud environments, and 14% manage as many as 10 cloud environments.

“Five years ago, SMEs primarily used cloud solutions to store data and non-core applications. Now, cloud solutions are at the core of digital transformation strategies, supporting artificial intelligence platforms, big data analytics, and IoT integration,” the report states.

The report found:

• 34% of SMBs manage one to two cloud environments.
• On average, all SMBs use four cloud environments.
• SMB public cloud usage could grow from 46% to 58% of workloads in two years.

SMEs expect to use more technology applications

In the next two years, small and medium-sized enterprises will need to deploy and connect more IT applications.

• 40% expect between 1 and 5 new applications.
• 31% expect to receive between five and 10 new applications.
• Only 8% of companies are not expected to launch any new applications.

Interoperability will be a key challenge, the report noted, as SMEs’ ​​“applications will need to be deeply integrated with each other to create seamless digital processes, rather than operating in silos”.

Technology complexity hinders business agility and innovation

Most organizations (54%) cited increased costs as a challenge, due to increased technology complexity, while others cited increased security breaches (47%), poor scalability (38%), and difficulty troubleshooting and maintaining (37%).

“The surge in digitalization within organizations is challenging SMB technology leaders,” the report states. “The expanding technology landscape, proliferation of applications, and diversification of cloud usage are increasing the need for IT support.”

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“Complexity leads to higher costs, security risks, and scalability challenges that hinder agility and innovation. Troubleshooting becomes more difficult, leading to downtime and compliance issues. Complexity hinders employee productivity and jeopardizes the customer experience.”

Most SMEs are still in the early stages of digital transformation

Despite a focus on infrastructure and cloud computing, as well as increasing investment in artificial intelligence, a large proportion (60%) of Australian SMEs say they are still in the early stages of digital transformation.

• When asked to self-assess their digital maturity, 20% of businesses described themselves as “traditional” businesses; traditional being defined as having only a basic online presence, operating primarily through traditional physical and face-to-face channels.
• 40% of businesses rate themselves as “emerging businesses,” meaning businesses that have an online presence, use social media for marketing, and use digital tools for internal processes.

Only 4% of businesses described themselves as “digital-first.” Another 5% said they were “transformative,” or using technologies such as artificial intelligence and the Internet of Things, having a digital partner ecosystem and a digital-first strategy.

Urge SMEs to embrace digitalization while reducing digital intensity

The ManageEngine report found that as competition in the market grows, Australian SMEs are being forced to innovate, harness AI insights and adopt digital tools.

However, the surge in digital intensity presents challenges for SME technology leaders.

“Expanding technology architectures, proliferating applications, and diversifying cloud usage are increasing the need for IT support,” the report states. “This complexity leads to increased costs, heightened security risks, and scalability challenges, hindering agility and innovation. Troubleshooting becomes more difficult, leading to increased downtime and compliance issues. Technology complexity can also hinder employee productivity and jeopardize the customer experience.”

IT observability systems can help businesses gain more visibility and combat digital intensity, Ecosystm said.

“By combining logs, metrics, traces, and events with advanced analytics, technology teams can proactively pinpoint root causes, detect disruptions before they disrupt service, and maintain system resiliency,” said Tim Sheedy, vice president of research at Ecosystm. “Ultimately, IT observability enables organizations to deliver a consistent digital experience to their customers while also empowering teams to explore new technologies with confidence.”