A good fit for SMBs?

With this government seemingly making good on its pledge to use more SMBs, we ask if teaming up with big SIs is really the best way for smaller firms to prosper

The coalition government is hardly the first, and will surely not be the last, to express its commitment to opening up its procurement mechanisms to SMBs and driving a greater proportion of spending through smaller firms. Of course we may be jaded, cynical old hacks here on CRN, but however good the intentions in Westminster are, given the history of impressive rhetoric with little in the way of demonstrable change, it seems hard to take the government's claims with anything other than a rather large pinch of salt.

But SMBs on the frontline of the procurement process report that, this time, Whitehall might actually be putting a little more of its money where its mouth is. What's more, a range of top systems integrators (SIs) with decades of lucrative big-ticket business behind them are suddenly clamouring to demonstrate their SMB-friendly credentials, while pronouncing that they wholeheartedly support the drive to level the playing field and diversify the public sector supply chain. Do smaller players finally have the opportunity to break the perceived oligopoly, and could their best route into the market be collaborating with much larger rivals?

One of the UK government's biggest ICT suppliers, Fujitsu, recently undertook a survey of 500 UK SMBs. The findings of its Collaboration Nation report reveal that only six per cent of respondents feel it has become easier to win government business independently in the past two years.

6%percentage of SMBs that believe it has become easier to win government business independently in the past two years

794number of UK SMBs in Fujitsu's supply chain Source: Fujitsu

Some 58 per cent believe that smaller and larger players should collaborate to win more business, while 70 per cent of SMBs that have worked alongside a bigger competitor claim they would not have won the business otherwise.

Fujitsu UK and Ireland chief executive Duncan Tait claimed that his company has 794 SMBs in its UK supply chain who cumulatively account for 25 per cent of external spend. He added that there are some major benefits to smaller firms in working with bigger players.

"There are occasions when SMEs can engage directly with government, but I think large private sector organisations such as Fujitsu have the scale and the balance sheet to cope with those larger agreements where the cost of bidding and the risk associated with bidding [may be big obstacles]."

SMB reaction
Perhaps unsurprisingly, some SMB providers are less convinced by the claims that working together is the best way for both smaller players and multinational giants to prosper.

Paul Boam, operations director at Auriga Consulting, said: "The very flexibility, innovation and drive that the government hopes to tap into using vehicles such as G-Cloud is diminished when the SMBs get swallowed by an incumbent-led consortium," he explained.

Mark Taylor, chief executive of open source specialist reseller Sirius, claims his firm has had positive and negative experiences working alongside the big market incumbents.

"It's a great idea, but we have invariably found it painful," he added. "The problems need to be addressed, and it needs to be transparent."

But Databarracks is one SMB to offer a more upbeat report on its dealings with large SIs on big government contracts. Managing director Peter Groucutt revealed that his firm recently won a chunk of business on a contract previously held in its entirety by one of the market giants. The process has been "a very steep learning curve" for both parties, said the Databarracks boss, but each has ultimately found the arrangement to its benefit.

"The reason why the time [for SMBs to win central government business] is right, and why it has not been before, is that the managed services market has not been mature enough," he added. "Contracts have been five to seven years, now they are 24 to 36 months."

Atos is one SI to express its support for the government's drive to involve more SMBs in the supply chain and senior vice president of public sector Wayne Gibson claimed that the company aims to follow the coalition's lead in driving a quarter of its supply chain through smaller firms.

"The government is looking to build contracts and frameworks so that they can engage with SMBs directly," he said. "But there are also instances where there is a high risk or high cash profile, and they are working with us to restructure our delivery system; we have pooled together a family of SMBs and we use them time and again. The key thing we have to do is insulate them from the cost of bidding."

Gibson also advocated the government clarifying and broadening its definition of SMB so that it applied exclusively to UK firms with a turnover of up to €200m (£169m).

The pseudo SI
Stone and Azzurri are two firms that would fit Gibson's definition of the kind of mid-market players he would like to see more of in the public sector IT landscape. But representatives of both seem sceptical about the benefits of working alongside the SI titans.

Simon Petitt, commercial director at Stone, said jumping into bed with multinational giants is "not the right way at all" for SMBs with niche expertise to prosper. But he also argues that while he does not advocate "creating bureaucracy where it is not needed", he believes firms should have to put in the months and years of work to prove their credentials in the public sector market.

"People talk about the barriers to entry, but if you look at the conditions of trading with a global tier-one [enterprise], their conditions are equally as onerous as they are in government," he said. "SMBs move from doing a deal over a drink with somebody and then want to go after government business as there is money there. But [the process] is not the same, and nor should it be - it should be auditable and there should be a good process."

Chris Allen, head of mobility at Azzurri, claimed that his firm is in the process of creating a "pseudo SI" with about four other comparable players. He conceded that structuring financial and delivery models will present challenges and that "for some companies it would never work". But the ethos must be that it is better to have 20 per cent of a multimillion-pound contract than 100 per cent of nothing, said Allen.

"That is the exact mantra I use to people - ‘there is a million pounds here for you; it is a contract none of us could win on our own'," he explained. "I do not see why you could not get four or five companies coming together and being able to deliver the same one-stop shop as the SIs. We have sat down as a group and modelled and divided."

Is it working?
No one could blame the average SMB for remaining a touch cynical about the government's pledges and the newly cosy and inclusive outlook of the big SIs. But most seem to agree that genuine, tangible progress is being made in opening up the supply chain doors.

25%percentage of spending the government wants to go through SMBs

Phil Dawson, chief executive of Skyscape, claims that a recent Cabinet Office report shows that collaboration between large SIs and SMBs has helped the government get much closer to its stated targets on SMB usage than some perceive.

"The paper shows that at present, not only is 10 per cent of all government spend directly with SMEs, but a further 10 per cent is spent indirectly with SMEs through supply-chain partnerships," he explained. "This suggests that we are a lot closer to the 25 per cent target than some are giving the government credit for."

Meanwhile, Taylor from Sirius claimed that the present administration has already gone further than its predecessors in terms of backing up its ideals and promises with demonstrable results.

"There are still lots of problems but it is worthwhile stating that there are real improvements for SMBs under this government," he said. "There is a qualitative difference and there are tangible results. It has gone beyond lip service into real policies and initiatives.

"We have won contracts and are now doing work in both central and local government that we would not have had a sniff of under previous regimes."

Is G-Cloud the answer?

Many people we spoke to for this piece pointed to the G-Cloud framework as the flagship example of the government making moves to open up its ICT procurement landscape to a wider and more diverse range of providers.

The volumes of business going through the framework may still represent a drop in the ocean, but the numbers are growing fast. In its first 13 months in existence - up to the end of March 2013 - some £18.2m was spent across 909 contracts at an average of just over £20,000 apiece. But in March monthly revenue through the framework shot up from about £2m to £6.5m.

Wayne Gratton, SolutionsPath lead for Avnet Technology Solutions EMEA, was one of many to single out the framework as a major component in driving the government's SMB agenda.

"G-Cloud will be a key component in opening up government business to SMBs with about 80 per cent of the companies currently involved being in that category," he said. "The ‘Cloud First' policy is also an important start in spreading the word."

Azzurri's Allen believes the government and its flagship SMB-friendly IT framework could do more to take advantage of the innovation that smaller players could bring to its set-up.909
contracts handed out through G-Cloud in its first 13 months

£6.5mamount spent through the G-Cloud framework in March 2013

909contracts handed out through G-Cloud in its first 13 months

"The big question I would ask is how many things that have been purchased using G-Cloud would have been bought anyway?," he said. "If they are saving money, that is never a bad thing. But how much is it providing that innovation and all the weird and wonderful things that [it could]? How many of the [investments] have been revolutionary, and how much has it just been used to buy Office 365 licences?"