SME BUSINESS EFFICIENCY REPORT

2015

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Executive Summary

The cost of doing business in Australia is high. For example, in the recent Relative Costs of Doing

Business in Australia: Retail Trade report, it was found that retailers, as Australia’s largest employer, were

finding it much more expensive to do business here than in places such as the US and UK

(http://www.pc.gov.au/__data/assets/pdf_file/0020/161624/retail-trade.pdf).

Of course, the cost of doing business is a far more broad concern than for retailers, and all local small

businesses need to grapple with the challenge of dealing with high costs of real estate, tax and regulation,

as well as a challenging jobs market for skilled experts and an escalating power bill.

However, for all the talk of Australian SMEs needing to find ways to achieve cost savings, there is not a lot of

research that has gone in to understanding the efficiency pain points of our local businesses. In many cases

the challenges around costs are assumed (high tax and regulation or power = a challenge for SMEs looking

to run a lean business), and so the purpose of the inaugural OKI SME Business Efficiency Survey is to better

understand the depth and breadth of efficiency challenges that small businesses face in the local market, and

further how these businesses are addressing the challenge.

Methodology

For the survey, in July 2015, 500 of OKI’s business customers were anonymously provided with a web link to

a comprehensive survey, taken from a cross-section across all major geographies in Australia, and responses

were gathered over the course of one week. The survey was defined by those businesses that considered

themselves efficiently run, and those that considered themselves inefficiently run. The questions that were

asked of respondents varied depending on their response to that initial question.

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Contents

ExECUTIvE SUMMaRY & METhOdOlOgY 2

dEMOgRaPhICS 4

aRE aUSTRalIaN SMES RUN EFFICIENTlY? 6

WhERE aRE SME’S COSTS aNd INEFFICIENCIES 9

CONCERNS OvER COSTS 12

hOW aUSTRalIaN BUSINESSES aRE INvESTINg IN EFFICIENCIES 15

ThE COSTS OF INEFFICIENT BUSINESSES 19

TEN TIPS FOR aChIEvINg EFFICIENCY 22

SUMMaRY 23

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Demographics

Firstly, the demographics of those surveyed. The OKI SME Business Efficiency Survey was sent to 500

senior IT decision makers at OKI customers throughout Australia (ex. The Northern Territory and Tasmania).

The respondents, when broken down, were 32.14% of businesses from victoria, 23.21% from Queensland,

21.43% from NSW, 8.95% from the aCT, and 7.14% from both South australia and Western australia.

deMographics: coMpany surveyed by location

The survey was focused on OKI’s SME customers, from microbusinesses of 1-5 employees through

to medium-sized businesses in excess of 200 staff. However, the weighting of the survey is towards

smaller customers. Australia is a nation that has a heavy weighting towards small businesses, with the

ABS statistics showing that around 96% of active businesses in its database were small businesses

(http://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2011/Key%20

Statistics%20Australian%20Small%20Business/downloads/PDF/SmallBusinessPublication.ashx). With that

in mind we collected data that told a similar story; 57.14% of those surveyed were micro businesses of 1-5

people, while a further 23.21% were small businesses of 6-20 people. Of the larger organisations surveyed,

12.50% of businesses employed 21-50 people, 5.36% had 51-200 staff, and 1.79% had an organisation in

excess of 200 people.

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Finally, the surveyed collected data by industry. As is the case across Australia generally, Retail was the most

represented industry in the survey, with 16.07% of survey responses coming from retail. This was followed by

Finance (10.71%), health Care (7.14%), and Creative Industries/Entertainment (7.14%). There was also a

sizable “Other” response (39.29%), representing a very broad cross-section of industries, including Printing,

Consulting, agriculture, logistics, Not-For-Profit, and Construction.

deMographics: coMpany surveyed by size

deMographics: coMpany surveyed by industry

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In simple terms, it does seem that Australian businesses believe that they are being run efficiently. In total,

75.47% of the organisations surveyed reported that they felt that their business was an efficient one.

Are Australian SMEs Run Efficiently?

do you believe your business is being run efficiently?

Furthermore, it would seem that in many cases the efficient businesses are efficient because of a recent drive

towards that goal. In the survey, respondents were asked about whether they had recently undertaken an

initiative to improve their cost efficiencies. In response to that question, 45.28% of organisations claimed they

had, while a further 22.64% said that they were planning to soon. It is likely that those businesses that are

not currently running efficiently would be the ones looking to undertake a cost efficiency initiative soon, which

means that a significant percentage of the remaining 32.08% of respondents that claimed that they had no

plans on undertaking an cost efficiency initiative would have responded so under the assumption that they are

already happy with how efficient their operation is.

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However, while the data shows an overall confidence among Australian businesses in the efficiency of their

operations, it is not a confidence universal across the market. It would seem that smaller businesses tend to be

happier about the efficiency of their business than the large organisations.

For the micro businesses of 1-5 people, the data shows that a massive 90.32% of respondents felt that their

businesses were being run efficiently. By contrast, the next two size categories – organisations of 6-20 people,

and organisations of 21-50 people, are roughly equal, and both significantly below the overall market in terms

of efficiency confidence. Only 54.14% of organisations of 6-20 people believe their business is being run

efficiently, while 57.14% of organisations of 21-50 people believe their businesses are efficient.

are you planning on undertaking a cost efficiency caMpaign soon?

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What this data shows us is that organisations struggle to maintain efficiencies in their operations as they scale.

For micro businesses, it is relatively easy to maintain control over costs, and with less activity running through

the business it is easier to maintain visibility over all the costs that tend to accumulate within the business.

However, as an organisation scales in size, it becomes more difficult to maintain control over spending. There

will likely be a requirement for more office space and technology purchases, staffing expenses are higher with

larger teams of employees, and so control over spending becomes a greater concern.

And so, while on the surface level it does indeed look like Australian small businesses are running efficiently,

the underlying story is more complex than that. Australian organisations that are growing, or are looking to

grow, continue to experience difficulties in maintaining an efficient operation from when they were a start-up,

and as we’ll see below, this is driving them to look for savings across their entire business.

coMparing efficiency by coMpany size

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An SME’s business expenses can be spread across a wide range of different costs. Of course, these costs

are not simply wasted money; the expectation is that by paying those expenses there will be revenue returned

back into the business, either directly or indirectly.

So to establish where the greatest cost/ return ratios are for small businesses, the survey asked them where

the greatest costs are in their business, relative to the value that those costs put back into the business.

Among the least expensive business outlays were supply chain and marketing/advertising. Because the supply

chain is directly responsible for the transactional part of many businesses’ operations, this is a cost many of

them are happy to invest heavily in, in order to develop and refine the logistics process as far as possible. You

only need to look at the success that Apple has had over recent years to understand why getting the supply

chain “right” is so important. Marketing and advertising, meanwhile, are directly responsible for generating new

business, and it’s easy to see the value that spending on marketing and advertising returns into the business

on that basis.

Where Are SME’s Costs And Inefficiencies?

the cost of doing business, relative to the benefit to the business

However, at the other end of the spectrum are IT and staffing costs. That small business might grumble so

much over the costs of HR and staff expenses might seem like an oddity – after all, employees are the ones

that do the work within an organisation, but for small business they are a substantial cost. As controversial

as the debate has been, the push by some sectors, such as Retail and Hospitality, to end penalty rates for

weekend work and the like has been driven by the business challenges of maintaining staff in Australia,

and a more efficient workforce would help organisations in these verticals towards greater financial health

(http://www.profitablehospitality.com/public/Effect-of-Weekend-Penalty-Wage-Rates-in-Australia.cfm).

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Less surprising, however, is that technology continues to be a great challenge for small businesses. IT

procurement was seen as slightly less expensive when compared to maintenance, support, and repair, but

both categories are quite clearly weighted towards the expensive end of the spectrum among Australian

small businesses.

This in turn suggests that many small businesses in Australia are looking towards more efficient use of

their technology. For those organisations that believe that they are being run efficiently, a full 61.76%

claimed that they make the acquisition of reliable technology and extended warranties a priority when

buying new technology, recognising the long-term efficiency and value that reliable technology returns to

their businesses:

the value of reliable technology and extended warranties to organisations that believe they are being run efficiently

Interestingly, for organisations that do not believe they are being run efficiently, the data points in a different

direction: the same requirement to reliable technology and extended warranties is not there. Instead, for these

organisations, reliable technology and extended warranties are a “nice to have”, but not seen as being worth

spending additional money to obtain.

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For most organisations, however, whether being run efficiently or not, it is rare to make a purchasing decision

without factoring the reliability of the technology and whether there is a warranty attached to it.

the value of reliable technology and extended warranties to organisations that believe they are being run inefficiently

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Australia’s SMEs are deeply concerned with the notion of cost efficiency, overall. Following on from the

data that shows that many organisations see a poor cost-benefit ratio across a number of areas within their

business (especially technology), there is a pervading desire among businesses to acquire efficient goods and

services by priority.

For example, when efficient businesses were asked how important cost efficiency is in acquiring goods and

services across a range of different categories, the majority of Australian SMEs, for the majority of categories,

said that it was important to at least some degree.

Concerns Over Costs

efficient businesses on the iMportance of efficiency across five key categories

The two technology-based categories; IT procurement, and IT maintenance, share the weighted average score

of 4.03/5. In other words, to SMEs, it is on average above an “Important” rating that they find opportunities for

efficiencies in those categories.

The closest result from the other categories was marketing/ advertising, with a weighted average result

of 3.59/5. As previously noted, however, organisations see greater level of immediate cost/benefit to their

business from their marketing investments, where IT is seen as a necessary expenditure.

The results were similar in theme for businesses that identified themselves as being run inefficiently.

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For these businesses, there was less of a concern with the efficiency of IT procurement, with a weighted

average score of 3.62/5. This is still ahead of every other category bar IT maintenance, but IT maintenance’s

weighted average score was very high at 4.31/5.

In identifying a root cause for why some of Australia’s businesses might be run inefficiently, it would seem

that technology is a significant contributor to the challenge. Without necessarily realising the impact that

unreliable technology has on their business (after all, it is the inefficient SMEs that are less likely to consider

the cost of warranties and unreliable technology when they procure new devices and/ or software), SMEs are

finding it difficult to keep their technology costs under control. The perception that extended warranties and

top-tier technology is prohibitively expensive is certainly part of the frustration that might drive SMEs to inferior

technology, however, the longer-term costs for making use of inferior technology are a clear pain point for

many local businesses.

It is also worth noting that the efficiently run organisations also tend to find technology the prickliest of pears

to maintain control over spending. When organisations that identified themselves as efficiently run were asked

where they found it most difficult to maintain efficient control over spending, both IT procurement and IT

maintenance came out as the top result, with 23.53% of respondents in both cases saying it was the greatest

cost control challenge.

inefficient businesses on the iMportance of efficiency across five key categories

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where have efficient organisations Most struggled to Maintain control over spending?

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According to the survey, those organisations that have undertaken cost optimisation projects have found

it easiest to tackle operational matters and easing spending on things such as rent and office supplies. A

move to a less expensive office (or reducing required floor space by adopting a hot desking approach and/

or allowing people to work remotely and from home offices), and paying closer attention to expenditure on

stationary are relatively simple things that most organisations can understand to reduce spending.

How Australian Businesses Are Investing In Efficiency

how organisations have been able to find efficiencies and cut spending

In total, 32.35% of organisations have been able to find savings by controlling expenditure on operational

matters. Most organisations have undertaken a multi-layered approach to driving efficiencies within their

businesses, however. A significant number of organisations have also been able to realise efficiencies through

their spending on marketing/ advertising (29.41%), IT procurement (26.47%), and IT maintenance (23.53%).

The initiatives that Australian SMEs have taken to date to realise better efficiencies has led to some significant

success in cost cutting to date. Almost 75% of businesses that have been undertaking efficiency strategies

have been able to save at least 6% of previous expenditure. Over a quarter (25%) have saved in excess of

15% of previous expenditure.

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Furthermore, for many of these organisations, they’re just getting started. Driving efficiencies through the

business is not a process that happens through a single initiative. Most organisations tackle efficiencies across

a number of stages, where they will pick the low hanging fruit at first, and then systematically work through the

business targeting greater efficiencies through strategic investments and longer term projects.

According to the survey, more than 75% of organisations believe that there is room to drive further efficiencies

through their businesses.

savings achieved through efficiency caMpaigns

are there opportunities to drive further efficiencies within your business?

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Furthermore, it is likely that these businesses will be looking to undertake further efficiency initiatives in the

near future. According to the majority of Australian SMEs, the cost savings that come with running an efficient

business result in more than just raw dollar savings. Rather, an efficient business is seen as a business with

competitive advantage, running at a lower cost than its rivals, and having some additional liquidity in the

organisation that it can then use in a strategic manner to provide additional benefits to the business.

is business efficiency a coMpetitive advantage?

With around 25% of Australian businesses saving 15% of more in expenditure after undertaking an efficiency

campaign, there is a lot of additional liquidity available to Australian SMEs at the moment. The survey

responses show that at least some of that money is currently being saved. For 35.29% of Australian SME

organisations the additional savings from finding efficiencies within the business has allowed the business to

build a greater rainy day fund.

Other organisations are re-investing the money back into the business, however. Almost as many organisations

(32.35%) are using the efficiency savings to invest into innovation and finding further competitive advantages,

while 26.47% have found themselves in a position to be able to expand into new product and services

categories using the savings. There are also a number of organisations using the savings to boost marketing

initiatives (20.59%), and almost 15% are dedicating some money back into the business to realise greater

efficiencies.

Interestingly, only 5.88% of organisations have earmarked this savings money to recruitment. This suggests

that regardless of the savings provided by finding efficiencies within the organisation, small businesses in

Australia are simply not interested in investing in growing the size of the business through headcount in the

current market environment.

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how sMes are re-investing their efficiency savings

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Furthermore, these organisations understand the risks involved in remaining inefficient, and therefore

uncompetitive. When asked what risk (or risks) the business would be facing were it not to be able to improve

the efficiency of its operation, almost 50% (46.15%) responded that they would need to downsize. For small

businesses, a reduction in operation and headcount can have a significant long-term impact on the operation’s

long-term financial health.

There were also a large number of organisations that reported that an inefficient business would impact

on them by making them lose opportunities to their competitors. A total of 38.46% of businesses recognised

that an inefficient business would impact on their ability to invest into and grow it, while 30.77% of respondents

said that they would need to charge more for their goods and services than their competitors, which

would surely result in a percentage decline in business as some customers take their business to a lower-

priced alternative.

The Costs Of Inefficient Businesses

is finding efficiencies critical to the future coMpetitive advantage of your business (for inefficient businesses)?

For Australian businesses that are currently running inefficiently, there is an awareness that they are sacrificing

competitive advantage as a consequence. According to the survey, almost 70% (69.23%) of Australian SMEs

that have identified themselves as inefficient consider finding greater efficiencies as a key opportunity into the

future in realising competitive advantage.

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Only 15.38% of organisations felt that the inefficiencies in their business would not create any additional risk

in their business. Perhaps most worrying for the SME environment in Australia, more businesses consider

inefficiency a potential business-ending event, with 23.08% of respondents reporting that they risk closing if

they can’t find a way to improve the efficiency of their operation.

the risks that inefficient businesses face

There is a wide spread of reasons for why some Australian SMEs are struggling to realise efficiencies within

their organisations. However, the most common complaint that many respondents made was that there

simply wasn’t the capital to make up-front investments necessary to realise efficiencies. Small businesses run

on fumes at times, and, just as it is difficult for some to justify paying a premium for extended warranty and

A-grade technology, it can be difficult to find the capital to make investments in other efficiency measures

as well.

Almost as common are issues around regulation. Regulation affects a lot of Australian businesses, large

and small, and that makes investment in some efficiency measures, such as Cloud or Managed Services,

problematic. For industries that do need to deal with regulation, there are often solutions to work through the

red tape and realise the efficiencies anyway, but these processes can be long and expensive, and out of reach

for many SMEs.

There were also sizable numbers of respondents that highlighted technology challenges (legacy systems,

unreliable technology, slow Internet), staff skilling challenges, and a lack of awareness about what

opportunities there were to deliver efficiencies to the business as inhibitors to realising efficiency. These

responses show that there is still an education journey that Australia’s SMEs still need to be brought along

about what they can do to improve the running of their business, and while in many corporate environments

solutions to efficiency challenges are almost taken for granted as assumed knowledge, this is not necessarily

the case for SMEs at all.

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why sMes struggle to eMbark on efficiency caMpaigns

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As part of the survey, respondents were also asked to provide short quotes of advice for how Australian

businesses might be able to realise greater efficiencies within the organisation (or how the respondent was

able to improve efficiency within the organisation him/herself). Below are the top ten pieces of advice that

came from the survey:

1) Technology is one of many critical operations tasks that can take a business to a competitive

advantage. Replacing many systems (even software based) with cloud computing is paramount to

achieving this efficiency.

2) Ensure that technology update and improvement to existing technology is at the forefront of any

business plan.

3) Turn computers and other equipment off at the wall, not just at the appliance.

4) In our situation wages represent our highest cost, so using staff efficiently is critical to the success of

our organisation.

5) Keep budgets that are maintained to actual expenditure but are reviewed regularly in view of

changing circumstances.

6) In terms of keeping costs low, record the use of all equipment (e.g. printer toner) to keep track of what

works (e.g. brand) and what should be changed in the future.

7) SMEs should buy reliable equipment and technology.

8) Look for innovative products or services that will improve efficiency.

9) Embrace technology. Embrace the cloud. Go mobile/ virtual. Gamify processes.

10) Speak to suppliers and to customers about the desired outcome. Many will understand and help out.

Ten Tips For Achieving Efficiency

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It would seem that while Australia’s SMEs do understand the need to drive efficiencies within their business,

the market, as a whole, has a fair way to go on that particular journey.

Most Australian SMEs – especially the smallest of businesses – believe that they are currently running lean,

efficient businesses. Many have recently undertaken efficiency initiatives, and the impact that these initiatives

have had has been mixed, but generally quite positive, with over a quarter of organisations that have

undertaken an efficiency initiative having reported savings of at least 15% on previous expenditure.

That money that has been saved has been largely filtered back into the organisation’s savings, improving their

liquidity and bank balances. However, others are seeing it as an opportunity to reinvest into the business. Most

significantly, there is a drive to push revenue back into innovation, so that the businesses can achieve greater

competitive differentiation within their industries.

However, despite the gains that some businesses have enjoyed in driving efficiency through their operation,

many Australian SMEs remain inefficient. For some organisations there are regulatory hurdles and limited

capital to invest that is inhibiting the opportunity to undertake an efficiency initiative, but in other cases there is

a lack of awareness with what opportunities there are to drive efficiencies through the business.

Many organisations have just started their efficiency journey. Around three quarters of organisations

who believe that they are already efficiently run see opportunities to drive greater efficiencies through the

business yet.

Technology remains the greatest opportunity to find savings within the business. Both in terms of IT

procurement and management, many of Australia’s small businesses continue to struggle to keep costs

down with their expenditure into technology. Unlike other areas of their business, such as the supply chain

or marketing, technology is a pure cost to the organisation, with no direct value returned to it. This means

organisations want the lowest cost of ownership of technology they can find, and for those organisations that

can afford it, this means they are willing to invest in extended warranties and top-tier technology, especially

when also supported by industry-leading maintenance support. For Australia’s technology industry in the

SME space, that is going to be the key discussion point and opportunity in the years ahead, as the broader

economy continues to pile financial pressure on our small businesses.

Summary