IBM Worldwide Study

July 2009

Inside the Midmarket: A 2009 Perspective

An environment like no other
Inside the Midmarket

The magnitude of change that is affecting industries today is unprecedented.

About the study Difficult economic conditions, a broader set of business imperatives, and
evolving technology requirements are presenting midsize companies with
“Inside the Midmarket: A 2009 as many threats as opportunities. At the same time, fundamental shifts are
Perspective” was commissioned by taking place in the way people everywhere live, work and interact. It’s becoming
IBM and conducted independently by increasingly clear that innovative, forward thinking organizations can do
the Opinion Research Corporation. more than survive in this environment, they can thrive. Midsize companies
The survey of 1,879 business and have been the engines of economic growth fueling a smarter planet for a long
information technology decision time. To continue that path to success, midsize businesses must embrace
makers at midsize businesses (100- new and better ways of doing business. This is a smarter world, one where
1000 employees) was conducted midsize companies can take a fresh look at ways to make far better use of the
across banking, retail, healthcare, information and resources available to them.
consumer products, manufacturing
and other industries and spanned 17
countries including the U.S., U.K.,
Germany, France, China, India, Brazil,
Japan, Canada, Italy, Russia, Malaysia,
Benelux, Australia and Mexico. The
study was conducted between the
dates of April 13, 2009 and May 20,
2009.

Midmarket companies look to IT vendors for more than just a transactional relationship.
They require expertise to become smarter and gain greater insight.

Findings from a recent study show that midsize companies are looking to
do just that. In fact, well over half of the survey respondents say they need a
technology partner who can help them work smarter, build an infrastructure
to support their growing business, and identify ways to use the information
they have to make better business decisions. A significant number are focused
on corporate social responsibility and in need of guidance around energy,
environment and sustainability issues. These are not simple projects. These
Inside the Midmarket

are significant initiatives, ones that can be game-changing for businesses with
the vision to apply new approaches and harness the power of an increasingly
smaller, flatter and smarter planet.

Strategic Focus
The study reveals distinct mindsets that are actively shaping the business
strategy and related IT priorities at midsize companies. Leaders of these
organizations are being counted on to find new growth opportunities and
deliver innovation to support the accelerating rate of change. At the same time,
they must improve efficiency and manage an effective, secure and resilient IT
infrastructure to ensure the organization’s survival and success. As might be
expected, the survey shows these parallel forces are shaping the mindset of
midsize businesses around the world.

Half of midmarket companies are in a cost-cutting mindset; other half are focused on customers,
innovation and growth.

Roughly half (53%) of surveyed companies are concentrating their efforts

on increasing efficiency and lowering costs — strategic imperatives that can
be supported by virtualization, energy efficiency, process optimization, IT
standardization and other initiatives focused on reducing complexity and
expense.

The other half (47%) have an innovation mindset with their primary focus on
finding new sources of growth, transformation for competitive advantage, and
strengthening customer relationships.
Inside the Midmarket

Expanders: Of those Innovators, 25% are looking specifically for

opportunities to be bullish in the marketplace by expanding into new
markets and taking share from competitors. Among these strategic
expanders, 63% are partnering or would like to partner with companies
who provide high quality IT infrastructure solutions for their expansion
projects.

Transformers: Another 11% are using the current environment as a

window of opportunity to innovate their business models and drive
transformation initiatives. This suggests a strategic focus on identifying
breakthrough innovations and developing new sources of competitive
advantage to be fully prepared for the economic recovery.

Advocates: The remaining 11% are focusing on becoming more customer

centric to strengthen relationships, improve service and enhance the
overall customer experience, while leveraging social media and Web 2.0
technologies to boost customer loyalty. Midsize companies typically are
not lacking in information about their customers and their buying trends,
however, they often struggle with yielding meaningful insights from that
plethora of data.

No one mindset is superior to another. Corporate culture, available resources

and business environment each play a major role in influencing which approach
is most appropriate for a company, by industry or country. However, each
presents different challenges requiring careful planning and execution to
ensure a successful outcome.

Common business challenges

With non-stop change as the “new normal,” organizations today are actively
searching for innovative ways to improve efficiency, create value and spur
growth. Globally, improving efficiency and productivity, improving customer
focus and sharpening business agility are called out as the top business
challenges for midsize businesses.

Improving efficiency - Given the majority of companies have a mindset of

improving productivity and driving cost reductions, it’s no surprise that 83%
of midsize companies say improving efficiency is a key priority, while 80% cite
increasing employee productivity as a critical challenge. From a geographic
Inside the Midmarket

perspective, these priorities are particularly high in the United States, where
close to 9 out of 10 surveyed report improving efficiency, reducing costs and
increasing employee productivity as their top business priorities.

Focusing on customers - Enhancing customer service and prospecting

for new customers are also high on the priority list. Midsize companies
can differentiate against larger rivals by creating a highly personalized
and responsive environment to meet the growing expectations of today’s
consumer. In Italy, for example, 79% of companies say that going after new
customers is a critical priority, while 76% of midsize companies in Mexico
say that finding new ways to reach customers more easily tops their list. Web
2.0 and social media are well positioned to help midsize firms expand and
strengthen their customer relationships.

Most critical business challenges

Inside the Midmarket

Top five most critical business challenges

Sharpening business agility and intelligence - A third set of business priorities

centers around improving business agility and decision making. Over 70%
of respondents globally identify improved decision making and improving
collaboration across employees, partners and suppliers as critical areas to
improving their overall business performance. In fact, 73% of Malaysian
companies think better predicting market trends is a critical challenge.
Business intelligence, analytics and predictive capabilities will likely emerge as
a way to capitalize on new and upcoming opportunities.

Among midsize companies that are focused on spending reductions, 86%

identify improving efficiency as a critical business issue. Alternatively, 78%
of companies focused on business growth and entering new markets cite
customer prospecting as a critical priority. Interestingly, 90% of companies
that are focusing on selling more to existing customers identify cutting cost as
a critical business issue, followed closely by improving service and pursuing
new customers. This suggests that midsize companies are working to strike
the right balance between enhanced operational efficiency and the need for
growth and differentiation.
Inside the Midmarket

Using technology to gain insights and grow business

If there’s one area where there is no shortage in today’s environment, it’s
data. Data is exploding, everywhere. The problem for many businesses is that
their data is in varying formats and locations. It’s nearly to impossible to draw

Top ten technology solution priorities for improved business performance and efficiency

meaningful conclusions when information is so scattered. Transforming data

into insightful and actionable intelligence can help companies make better,
sharper, timelier business decisions. Information is a strategic asset – if it can
be harnessed and analyzed. Given that growing dependence on reliable and
useful information, it’s no surprise that information management is cited as
both a critical IT and business priority for the majority of companies surveyed.

Security management also continues to be a fundamental IT priority. The

increasing pace of global connectivity improves access to information and
collaboration, but also brings additional IT security risks and exposure to data
loss and theft. Despite pressure to reduce cost, midmarket companies continue
to invest in information security to better understand, monitor, assess and
respond to external and internal threats in near-real time. Another key driver
Inside the Midmarket

Top three most critical IT areas for midsize companies to improve business performance and efficiency

of security spending is the growing need for companies to meet compliance

requirements.

The research revealed similar IT priorities for both growth and mature
markets. Close to 90% of Chinese midsize companies indicate that information
management is vital to improving business performance, while close to 85% of
companies in Brazil and the U.S. call out IT infrastructure improvements and
reliability and availability as critical areas.

The economic effect

The study shows that the current economic environment is influencing
organizations and their IT budgets in different ways. Nearly 40% of midsize
Inside the Midmarket

Changes in the economy are affecting IT investment priorities across industries.

companies report that although their IT budgets have not changed, their
priorities have shifted; 37% indicate their IT budget has decreased as a result
of the recent economic changes, while 14% stated their IT budget actually
increased. The study also reveals that companies in growth market
countries are twice as likely as those in mature market countries to expect
an increase in IT budget for the upcoming year. In fact, 62% of those
interviewed in China say they expect their IT budget to increase in 2009
versus last year.

The current economic situation is impacting industries in different ways.

For example, 49% of healthcare companies report that their IT budgets will
stay the same but be re-prioritized as a result of the economy. In the banking
industry, 23% of those interviewed expect their IT budget will actually
increase over last year.

Barriers to implementation
Though midsize companies clearly want to adopt new, innovative business
Inside the Midmarket

strategies and make the changes required to improve their performance,

they still face substantial challenges to executing against those goals. Not
surprising, the number one barrier identified across all industries surveyed is
cost and limited budget.

The other most frequently cited barriers are concerns regarding

implementation, such as possible business disruption, inability to implement
and lack of required in-house skills to support initiatives. Another critical
obstacle to implementation is the challenge or inability to demonstrate a short-
term ROI on projects, which has become a requisite for proceeding with IT and
business process improvements.

Biggest barriers to addressing critical IT areas

During these tough economic times, midsize companies are looking to IT

providers and consultants to deliver value, competitive advantage and ROI.
In fact, 70% of those surveyed indicate that they prefer to partner with an IT
company who has expertise in their business to help them work smarter, while
67% of the companies look for partners that can provide the highest quality IT
infrastructure solutions.
Inside the Midmarket

Growing and innovating in today’s environment is dependent on successfully

managing, improving or, in many cases, transforming core business operations.
Most midsize companies recognize that a go-it-alone strategy may hinder
their chances for success, particularly in today’s increasingly interconnected,
intelligent and instrumented world. That’s why so many of them are looking for
strategic IT partners who can help them realize their vision.

Despite the current economy and myriad of barriers facing midsize

companies, the majority still are proceeding with critical IT plans to improve
their infrastructures, work smarter and make better use of information. For

Top IT project implementation worldwide

example, 75% of those surveyed have either started or are currently planning
upgrades to their IT infrastructures for improved reliability. More than
half report that they “intend to implement or have established goals” for
Knowledge management solutions to better mine and share organizational
intelligence as a source of competitive advantage.

As expected, the importance of these projects is closely related to the

strength of respective IT budgets. Countries and industries with stable IT
budgets are placing stronger emphasis on strategic projects than those who
are seeing their budgets reduced. Midsize companies that have developed
a clear vision, and begun to act against it, may very well be positioning
themselves more favorably for the economic rebound.
Inside the Midmarket

Top Business and IT priorities across industries; $$$ symbols indicates the degree to which IT budgets have been cut.

The challenge of a smarter planet

Even in today’s unsettled global economy, midsize companies continue to
innovate and grow through technology investments. This is especially true
in growth markets where IT budgets have been left largely intact. While the
greatest numbers of businesses want to maximize their infrastructure, they are
demanding more than just an increase in efficiency. They want solutions that
can help their organizations work smarter.

By using information, relationships and technology in new ways to create

greater value and efficiencies, organizations can improve the way they manage
and run their own business. These organizations can gain a competitive
advantage, even in a challenging environment. Smart midsize companies are
thinking about new ways to use their resources to create sustainable business
value. They are investing in their future – making the changes and taking the
risks to survive – and thrive.
© Copyright IBM Corporation 2009

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Produced in the United States of America

June 2009
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