According to a survey commissioned by IT management software provider ManageEngine, IT costs are the biggest challenge facing technology leaders in Australian mid-sized businesses. This challenge is expected to intensify as these companies adopt more applications and increase their spending on artificial intelligence.
The Digital Intensity Study in Australia, conducted by research house Ecosystm for ManageEngine 24×7, found that many mid-sized businesses, with 200 to 1,500 employees, are still in the early stages of transforming into fully digital enterprises.
However, these companies are feeling the “digital intensity” of managing multiple cloud environments and an increasing number of applications. This complexity requires greater interoperability and is likely to put additional pressure on costs as new investments in AI and data are made in the coming years.
Below are seven key takeaways from the survey of 101 SME IT leaders across Australia.
Cutting costs is the top priority for Australian SMEs
More than half of IT leaders (52%) said cost reduction is a top priority in the next 12 months.
Due to rising costs and higher interest rates in the Australian market, SME leaders were found to be seeking “growth without additional costs,” the report said, in an effort to drive productivity improvements through technology optimization rather than through increased spending.
Improving customer experience and satisfaction is also a priority for 49% of respondents.
SME modernization: focus on infrastructure and cloud
A significant percentage (54%) of SME IT leaders said infrastructure is the focus of their technology modernization activities, when asked to name three top priorities.
The modernization of the infrastructure was followed by:
- Cloud strategy and architecture (48%).
- Cybersecurity (43%).
- IT operations and services management (39%).
- Business continuity and disaster recovery (36%).
According to the report, infrastructure modernization has moved from being an “operational upgrade” to a “strategic necessity” to meet consumer expectations and accelerate digital transformation. In addition, modernization efforts are shifting to driving business value, particularly IT applications that were the primary interface to customers and employees.
AI spending will grow among SMEs in the next two years
AI spending is projected to increase from less than 0.25% of IT spending to 2.5% over the next two years.
SMEs are expected to invest in more data management and processing capabilities, the report suggests, as AI gradually creates additional technological complexity and data demands.
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“As AI applications evolve, they generate additional data through interactions and outcomes, further increasing data requirements,” says the ManageEngine report analysis.
“This increase in data requires advanced analytics tools, better log management, and more reliable storage solutions, increasing the complexity of infrastructure management.”
Australian SMEs manage multiple cloud environments
More than half (51%) of SMEs manage three to five cloud environments and 14% manage up to ten.
“Five years ago, cloud solutions were primarily used by SMEs for data storage and non-core applications,” the report explains. “Now, they are central to digital transformation strategies, supporting artificial intelligence platforms, big data analytics and IoT integration.”
The report concluded that:
- 34% of SMEs managed one or two cloud environments.
- On average, four cloud environments are used across all SMEs.
- Public cloud usage by SMEs could grow from 46% of workloads to 58% in two years.
SMEs expect to use a greater number of technological applications
SMEs will need to deploy and connect more IT applications over the next two years.
- 40% expect between 1 and 5 new applications.
- 31% expect between 5 and 10 new applications.
- Only 8% are expected to introduce no new applications.
Interoperability will be a key challenge, the report notes, because “SME applications need to be deeply integrated with each other to create seamless digital processes, not operate in silos.”
Technological complexity inhibits business agility and innovation
Most companies (54%) cited rising costs as a major challenge, stemming from increasing technological complexity. Others cited expanding security vulnerabilities (47%), poor scalability (38%) and difficulties in troubleshooting and maintenance (37%).
“The rise in digital intensity in organizations poses challenges for SMB technology leaders,” the report states. “The growing technology architecture, with a proliferation of applications and diverse cloud usage, increases the demand for IT support.”
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“Complexity leads to higher costs, security risks, and scalability challenges, hampering agility and innovation. Troubleshooting becomes more difficult, leading to downtime and compliance issues. Complexity can hamper employee productivity and jeopardize customer experience.”
Most SMEs are still in the early stages of digital transformation
Despite the focus on infrastructure and cloud, as well as increasing investment in AI, a large proportion (60%) of Australian SMEs say they are still in the early stages of their digital transformation journey.
- 20% described themselves as “traditional” businesses when asked to self-assess their digital maturity; traditional was defined as having only a rudimentary online business presence, operating primarily through traditional physical and in-person channels.
- Forty percent of companies were classified as “emerging,” defined as those that have a web presence and use social media for marketing and digital tools for internal processes.
Only 4% said their strategy was “digital first.” Another 5% said they were “transformative,” or used technologies like AI and IoT, had a digital partner ecosystem, and a digital-first strategy.
SMEs urged to embrace digital and reduce their intensity
ManageEngine’s report found that as the market becomes more competitive, Australian SMEs are forced to innovate, leverage AI-driven insights, and adopt digital tools.
However, the resulting increase in digital intensity is causing challenges for SME technology leaders.
“The expansion of technology architecture, with application proliferation and diverse cloud usage, increases the demand for IT support,” the report reads. “This complexity leads to higher costs, increased security risks, and scalability challenges, hampering agility and innovation. Troubleshooting becomes more difficult, leading to extended downtime and compliance issues. Technology complexity can also hamper employee productivity and jeopardize customer experiences.”
IT observability systems could help businesses gain more visibility and combat digital intensities, according to Ecosystm.
“By combining logs, metrics, traces, and events with advanced analytics, IT teams can proactively identify root causes, detect anomalies before they disrupt service, and maintain system resilience,” said Tim Sheedy, Research Vice President, Ecosystm. “Ultimately, IT observability enables organizations to deliver consistent digital experiences to customers, while empowering teams to explore new technologies with confidence.”
