Local SMEs Underestimate the Total Cost of their IT Systems

Many small and medium-sized enterprises (SMEs) failed to consider all tangible and intangible costs when choosing their server systems, according to a recent study conducted by the Hong Kong Productivity Council (HKPC).

The "2007 Study on IT Purchasing Behaviours in Hong Kong SMEs" was conducted with the aim of helping local SMEs to make better IT decisions. A total of 500 local SMEs from 10 industry sectors with in-house server systems were interviewed by telephone from March to April 2007.

Five types of tangible costs (Hardware Costs, Software Costs) and intangible costs (Training Costs, Operation & Maintenance Costs, Downtime Costs) were identified by the Study. However, most respondents said they would not consider intangible costs when choosing their server systems. Operation & Maintenance Costs was only chosen by 28.6% of all respondents, followed by Downtime Costs (22.8%).

According to Mr K T Yung, General Manager (IT Industry Development) of HKPC, the findings showed that many SMEs did not have a thorough understanding of the total cost a server system could incur. "In general, 23.4% of the total cost of the existing server system is incurred by intangible costs. However, these costs were not considered by most of the respondents. For example, training made up of 5.8% of the total cost but only 0.8% of the respondents considered this cost."

Among the reasons for choosing their existing server system, the Study found that "reliable/stable performance of the server system" (22.8%), "easy to use/maintain the server system" (19.2%) and "more popular of the components of the server system" (15.8%) were among the top three.

In the Study, 66.6% of the respondents said that the key IT decisions within their companies were made by their business owners.

According to Mr Yung, many business owners did not have enough IT knowledge to make the decision and did not fully understand the IT needs of their employees. "This explains why they often underestimate the total cost of ownership on their IT system and make inappropriate IT decisions," he said.

Moreover, the Study found "lack of internal technical expertises" (63.8%) and "budget constraint" (33.6%) as the two most significant barriers that discouraged SMEs from adopting an in-house server system.

"HKPC strongly urges SMEs to consider a broader range of cost factors, risks and business flexibility when choosing their IT systems. Specifically, they should take into account the total cost of an IT system and should not simply look at the system's initial acquisition costs. Overlooking other cost factors such as the running costs of the system may result in a more expensive solution in the long term. Hence, SMEs should learn more relevant IT knowledge for better IT decision making," he said.

A summary of the "2007 Study on IT Purchasing Behaviour in Hong Kong SMEs" can be downloaded from the website of the Software Industry Information Centre of HKPC (www.siic.org.hk). For further information, please contact Ms Amanda Chu at tel. (852) 2788 5842 or email: amandac@hkpc.org.

For media enquiries, please contact:
Betty Lee
General Manager
Corporate Communications Division
Tel: (852) 2788 5036
Fax: (852) 2788 5056
E-mail: felixchan@hkpc.org
Website: www.hkpc.org

4 July 2007