Tech investment in SMEs’ AI readiness could bring billions into the economy

Written by Tom Montague – Sales Director. 

Steve Jobs famously said, “Innovation is the ability to see change as an opportunity, not a threat”. But what happens when the opportunities of AI seem to outrun the pace and development of a smaller business?

After two decades in which their smaller size and hardy agility enabled them to compete successfully against larger rivals, the UK’s 5.5 million SMEs are finding themselves digitally challenged.

Just as they were getting beyond the recovery stage from the financial travails of the COVID crisis, along comes generative AI – and what could turn out to be the most impactful tech-led shake-up in business processes since the invention of the internet. 

Pivotal innovation in business computing always equates to IT re-investment. Upgrading computing resources every few years should enable a business to make the most of latest-generation hardware and software capabilities, leading to enhanced performance and productivity.

But anything ‘AI’ is likely to mean major upgrades in enterprise IT computing, memory, and storage resources if it’s going to deliver best ROI (return on investment). Here’s where the challenges for our SMEs begin.

Small businesses, big thinking

Smaller businesses tend not to rush when it comes to technology refresh cycles. They’re inclined to sweat their existing IT assets long after they should’ve been swapped out for newer kit.

The result is that while SMEs (and the national GDPs their revenues feed into) are well placed to win competitive advantage from generative AI adoption, they’re held back by  dated tech and lower levels of digitalisation. And when SMEs are held back… so is Britain’s national economy.

As AI-enabled products and services become mainstream, low adoption rates for UK SMEs are already becoming a risk, as predicted by TechUK in a recent report. AI will start to be deployed through updates to in-use software, the industry body points out, and if smaller companies lack in their ability to run that software optimally, they’ll also lag on AI adoption – and their true value generation potential may stay locked up.

TechUK has called on the government to introduce a tax incentive to encourage new investment in digital technology. A ‘UK Small Business Digital Growth Fund’ (as it calls it) could allow SMEs to claim a 140 per cent deduction (worth ten per cent of the purchase cost) against their tax bill for net new digital products, services, software or advice (capped at £50k).

TechUK points to a 2022 report by business software vendor Sage that reckons untapped tech adoption by SMEs could bring a yearly boost to the UK economy of some £232 billion.

A more recent survey by YouGov of 2,015 SME chiefs commissioned by Three Business goes along with the core argument, but with lower returns on investment. It suggests that were SMEs to be put in a position to prioritise new technology investments derived from capital allowances and other incentives, the locked-up value could be turned into a £79 billion boost within a year. 

The survey further found that 40 per cent of respondents expected their productivity ‘would increase with investments in AI and other digital technologies’. A further 43 per cent felt it would allow them to become more efficient. 

Flawed connectivity remains an investment issue

AI-grade connectivity has to be factored into the equation for unlocking SMEs’ pent-up profitability. Almost all respondents to the Three Business survey said a ‘reliable, high speed internet connection was important for their business’, and this is another critical aspect of investing in ‘AI-ready’ technology that should not be skimped on.

As a cost control measure, smaller businesses  tend to channel all their connectivity needs – voice and data – through a single budget broadband connection, causing the entry-level bandwidth speeds to become strained at times of peak usage. This causes delays to critical business processes such as online transactions and order processing. Result: flawed customer experiences.

Inhouse expertise deficit

In addition, the research found that despite awareness of the benefits of tech investment, 42 per cent of SMEs polled are concerned that difficulties from onboarding new technologies will impact their business’s ability to grow.

In other words, even where they’re able to buy the latest digital tech, SMEs lacked the expertise necessary for implementing it. A 2023 FSB survey of small business owners also found that 17 per cent feel their lack of knowledge in implementing innovation was an added barrier to adoption.

This is an aspect of digitalisation and AI-readiness that can easily be missed by analyses of technology investment strategies. Small businesses do not always employ a full-time IT manager to assess and maintain the business’s technology requirements, and to oversee the acquisition and deployment of hardware and software solutions. Non-technical leadership roles may sign off on tech procurement but have limited understanding of IT strategy – if there is one –, and usually do not pretend otherwise.

Third-party expert help is widely available from both specialist consultants and vendors offering value-added support. But IT consultancy for AI implementation projects is often costly. Furthermore, well-established providers of tech support are not always amenable to partnering with an SME with limited spending power at their disposal.

An alliance by which SMEs – perhaps via a local federation model – could receive guidance from enterprise-savvy AI specialists thanks to a government-funded allowance or voucher scheme, could be another way to help SMEs to address the AI know-how challenge and widen the focus of their technology investments going forward.

Finishing on a similar theme to how we started, by heeding the trends and insight talked about here, there’s no reason why an SME tech enterprise cannot embrace change and continue to grow through smart investment and thinking.

“Great things in business are never done by one person, they’re done by a team of people.” Steve Jobs

If you’d like to find out more about how Howden can support your tech business, request a call back today.