The millions of small businesses worldwide with 20 to 100 employees represent a large opportunity for providers who offer managed services, but small businesses generally have a low awareness and understanding of managed network services and their business benefits. Those companies that rely on third parties for IT support do so on an as-needed basis. And in these uncertain economic times, when every strategic decision made by a small business is subject to intense scrutiny, service providers must work hard to convince small-business prospects that managed services can help them cut costs, utilize employees more effectively, serve customers better, become more competitive, and improve profitability.
Approaching the small business as a smaller version of a large enterprise company is a mistake because small companies have different requirements, resources, and understanding of technology as compared to large companies. Although segmenting small companies based on the number of employees or revenues is important, it is not sufficient as a way of effectively tailoring services to close a sale. Some small companies have a sophisticated understanding of technology and highly specific requirements whereas others must first grasp how network services can add value.
A more effective marketing approach is to develop a detailed understanding of the small-business customer, including the buyer behavior, decision-making process, relative awareness of available technology and services, pain points, and scalability requirements, so that you can propose solutions and service delivery models that meet the business's budget and needs. With a better understanding of these elements, service providers can more successfully tailor messaging and offerings to meet the needs of small-business prospects.
Market Drivers and Opportunity
Small businesses are looking for vendors who understand their business and who provide clear and competitive pricing, as well as easy-to-understand contracts and guarantees mapped to realistic performance expectations. Contracts should be flexible enough to upgrade services for different classes of service or service-level agreements (SLAs) as needed. Services should span a range of national or international connectivity options. And products and technologies should be scalable, allowing easy, low-cost upgrades to support evolving application needs.
While these vendor criteria hold true across the small to medium-sized business (SMB) market, the way small businesses approach technology vendors is even more dependent upon the extent of their IT resources. Small businesses typically have either few or no IT staff. As Figure 1 suggests, the IT staffs in small businesses are usually comprised of generalists recruited from various departments in the company who are struggling to keep up with technology needs.
Figure 1. Technology Services Profile of Sub-100 Small Business
Source: Forrester Research, 7/20/08
According to a Forrester Research 2008 study, when small business IT resources were asked to look back at their 2007 performance, they gave themselves high marks for meeting primary IT performance indicators. However, when asked about their performance against corporate goals (such as improving customer service, cutting expenses, generating additional sales, improving productivity, and providing competitive differentiation), they found themselves often coming up short. Small businesses are therefore more interested in outsourcing complex IT duties to free up internal resources to work on IT projects that are directly related to core business initiatives. This interest in looking outside the business for innovation, resources, and experience presents an attractive opportunity for managed services.
One of the major challenges to be overcome by service providers is the lack of awareness by small businesses of the different types of technologies and network services available to them. AMI Partners' research reveals that small businesses adopt technologies in three waves. The study points to the need to understand each individual small business and to understand where it is in the technology adoption cycle. Even in countries with low technology penetration on average, there are certain technologies that exhibit high penetration. This may indicate a potential opportunity to leverage a technology that is used and well-understood and that will only increase in complexity as the technology infrastructure of the country matures.
To provide more relevance to the segmentation process beyond business size, both AMI Partners and IDC have used a more detailed segmentation approach to better categorize small businesses and understand their propensity to buy managed network services. The additional segmentation step placed businesses into tiers or clusters based upon their propensity to adopt or absorb IT solutions as a means to grow and manage their business and defined a common profile for each grouping. These profiles provide an additional level of analysis that will help address the sheer number of small businesses in the market by more effectively and efficiently identifying likely customers for managed services. These approaches can assist service providers in customizing offerings specific to a particular sub-segment's profile, based on IT goals and objectives, IT decision making, views of technology, familiarity of technology, understanding of managed services, and so on.
The Managed Services Opportunity: Addressing Small Business IT
A 2008 Ovum study of worldwide managed services (Figure 2) found growth in nearly all service categories. The services with the highest projected compound annual growth rates (CAGRs) between 2008 and 2012 are Identity/Access management (29 percent), Managed IP PBX (27 percent), and managed IP Centrex (35 percent). The study also found that small businesses with fewer than 100 employees will account for 18 percent of total SMB managed services revenue by 2012.
Figure 2. Forecast Growth of Individual Managed Services for Small Businesses
Business Benefits
For growing businesses with 20 to 99 employees seeking the latest business solutions to achieve greater efficiencies, cost savings, and higher revenues while letting employees focus on their core competencies, managed network services for the small business, based on Cisco® solutions, deliver an array of new capabilities once only available to large enterprises and at prices small businesses can afford. By offering managed service bundles enabled by Cisco technology, service providers can gain new revenue from offering services to an underserved market. These services, in turn, allow customers to boost their business performance with enterprise-grade business features and a high degree of service quality while reducing IT-related administrative time and responsibilities. Unlike "do-it-yourself" implementations of service solutions or services in separate silos from multiple providers or vendors, managed network services based on Cisco solutions for the small business allow customers to enjoy minimal business disruption, reduced in-house IT responsibilities, and consolidated technical support. processes due to integrated and scalable service solution bundles managed by an experienced service provider.
Service Provider Benefits
With managed service bundles based on Cisco solutions for the small business, service providers can:
• Increase revenue with services to the small business market
• Lower customer turnover with broad offerings and bundles
• Up-sell new services using the same infrastructure
• Create well-defined offers that can be easily replicated with new customers
• Reduce operational costs by using network infrastructure to support more customers
Small Business Customer Benefits
Small business customers can:
• Boost business performance and enhance customer service with cutting-edge services and applications
• Enable employees to focus core business and value-added tasks by outsourcing IP communications infrastructure and management to a qualified service provider that is a member of the Cisco Powered Program
• Boost employee performance by letting employees focus on core competencies related to the business instead of general operational support duties
• Save money and work smarter by capitalizing on a comprehensive voice and data communications service that provides feature-rich call processing, integrated voice mail, and basic auto attendant services
• Reduce administration costs by taking advantage of a single bill and a single point of contact
• Compete more effectively by accomplishing more with available resources and assets
• Stay technologically up-to-date by shifting responsibility for delivery of services to a qualified service provider
The Power of Bundling
The sheer size of the small business market, paired with the smaller deal sizes in this market, poses a challenging dilemma for service providers seeking to enter this market. Even more than in other markets, success in selling managed services to the small business market depends on effective market segmentation and on targeting the right customers with the appropriate service offers.
Research into the purchasing behaviors of small businesses reveals inclinations that work in favor of service providers and their unique advantages, such as diverse and expansive service portfolios, cost efficiencies derived from the benefits of scalability, operational expertise, and integration testing capabilities. Research by various firms shows that small businesses are buying network services primarily in bundles from their telecom providers. Small businesses also prefer buying services from recognizable brands and from a single carrier because of the convenience, price benefits, and accountability inherent in dealing with one vendor.
Price benefits are only one factor that small businesses find attractive in bundled managed services. A 2008 study by Ovum showed that in the Asia Pacific region, the interest in bundled services is even more strongly driven by the expectation on the part of the small business that they will receive better integrated services. In other words, delivering a strong and clear price benefit to the small business gets the service provider's foot in the door, but to close the deal, the service provider must be prepared with their supporting stories (to support the themes of better integrated services, single- vendor support, and so on). Those are also the drivers that will enable service providers to differentiate themselves from competitors or make their case to companies contemplating doing it themselves.
Service bundles have the additional benefits of enabling service providers to drive up the average deal size, create customized and differentiable bundled offerings, and control sales, delivery, and support costs through well-defined and replicable offers.
To expand the market perspective beyond just company size, segmentation approaches should incorporate the concept of business behavior. Cisco has incorporated these insights to identify six small-business customer "personas" to help service providers more successfully package and sell their managed service bundles (Figure 3).
Figure 3. The Cisco Persona Framework for Identifying Small Business Prospects
Cisco bundles of integrated services have been tested for service interoperability, simplified support, operational efficiency, investment protection, and deployment flexibility:
• Service interoperability: Services bundles are developed and tested for service compatibility on the Cisco integrated services router, which also synchronizes security, encryption, quality of service (QoS), WAN optimization, voice, and other features.
• Simplified support: Customers have a single focal point for all support requests and receive system-level support instead of per-device support.
• Operational efficiency: Service bundles require fewer devices, reducing interoperability gaps and operational issues, and simplifying troubleshooting, configuration, setup. For example, the Cisco integrated services router can provide a 70 percent reduction in operational expenses (OpEx) per small office, per year as part of an integrated bundle as compared to competitive bundled solutions with five or six separate appliances)
• Investment protection: Many new Cisco service modules enable next-generation services to be delivered to the customer's existing platform.
• Deployment flexibility: Managed services can be deployed on-premises, on-demand, or as hybrid services depending on the end customer's needs.
To help determine the appropriate services for a particular bundle, service providers can map a customer's persona to service-bundle categories, consisting of basic, enhanced, and premium offerings, to accommodate the prospective customer's technology adoption. Figure 4 is an example of bundles that could be proposed to a "communications driven" small business based on three different phases of adoption. The service provider can attract a service contract from this type of business with a unified communications and collaboration-ready business service.
Figure 4. Sample Service Bundles for a "Communications Driven Small Business
Small businesses classified as "communications driven" can benefit from these managed services:
• An IP PBX managed by a local VAR
• Managed SIP trunking services
• VPN and security services
• High-bandwidth access services
Up-sell opportunities include:
• Advanced security services
• IP PBX interconnects
• Metro Ethernet services
Relevant products include:
• Cisco Smart Business Communications System
• Cisco Unified CallConnector products
• Cisco integrated access devices and integrated services routers for access and security services
• Cisco Metro Ethernet service solutions
Other factors to consider when creating bundles include:
• End-customer business benefits. Is the small business looking for a service provider to:
– Achieve cost reduction
– Enjoy better network service availability
– Have a single point of contact for network service issues
– Reduce administrative time
– Refresh technology that already exists
• Unique differentiators. Are the following decision criteria important to the business?
– Enhancing customer service
– Getting good technical support
– Having a guaranteed SLA
– Getting competitive pricing
– Working with a service provider and network equipment vendor with a good reputation and track record
Why Cisco?
Managed services built on Cisco products and technologies accelerate time to market and revenue for service providers and support the full breadth of customer segments with diverse integrated service bundles. Cisco bundles have been tested for service interoperability, high availability, simplified support, operational efficiency from fewer devices, simplified setup, and investment protection. No other company offers the depth of features and applications available with Cisco solutions. Additionally, Cisco products accommodate multiple deployment options, such as partnering with VARs and system integrators, to reach customers more efficiently and effectively.
For More Information
For more information on Cisco managed services for small businesses, contact your Cisco representative or visit these sites:
