Executive Summary

Small and Medium Businesses (SMBs) have unique IT needs, stemming from low IT budgets and small project sizes in Application Development and Maintenance (ADM) outsourcing, lack of scale in operations, and reliance on business power users of IT in Infrastructure Outsourcing (IO).

These characteristics have profound implications for outsourcing suppliers that decide to focus on serving SMBs. Suppliers increasingly realize that:

• ADM processes that worked well for them with large companies often do not work with SMBs
• Sufficient scale in IO operations is difficult to achieve
• Smaller revenues per client make it difficult to offset the high cost of sales to SMBs

As a result, few outsourcing companies have made SMBs their target segment.

Nonetheless, the SMB market is a fundamentally healthy market in terms of growth and size. SMBs spend more on IT as a share of revenue than large enterprises; hence, they have an even higher incentive to cut IT costs.

Several factors will likely increase penetration of outsourcing in the SMB market. Among others, examples include advances in remote-management tools and increased interest from offshore suppliers.

Successful ADM and IO suppliers employ similar approaches in serving the SMB segment. The key components are standardization of offerings, personalization of service, and low sales overhead.