Cloud is driving productivity and profitability of SMBs in India. Source: Shutterstock

Cloud drives productivity and profitability of India’s SMBs

THE adoption of cloud computing is driving the productivity and profitability of small and medium enterprises (SMEs) in India, according to a recent study by tech giant Microsoft Corporation and the Thought Arbitrage Research Institute.

India is a hotbed for SMEs, with over 50 million companies which are contributing over 30 percent to the country’s gross domestic product (GDP) and employing over 117 million people.

But while the SME market in India is prolific, they are faced with many challenges. This includes limited access to resources and technology, which in turn, greatly hinders productivity and profitability.

Today’s SMEs operate in an extremely fast-moving environment adept with fantastic opportunities. But this very environment can be harmful to those who are unable to appreciate and harness the power of digital technologies.

Advancements in technology have already had a massive effect on SMEs in varying ways. For instance, automation and data analytics is significantly reducing operation costs, and social media is allowing businesses to market and advertise to potential customers without vast expenditure on broadcast media.

Advancements in technology is allowing businesses to become much more efficient. Source: Shutterstock

With the obvious benefits of technology on business efficiency, helping SMEs address the challenge of limit technology will contribute significantly to their growth, which will thus contribute significantly to India’s socio-economic growth.

According to the study ‘Socio-Economic Impact of Cloud Adoption by SMBs’ in India, the reduction in the investment cost (capital expenditure) on technology can lower entry barriers for SMEs for accessing technology. This then creates a positive multiplier effect.

The impact that cloud adoption has on productivity are strongly reflected in business metrics, including a reduction in operating expenses and a better cash flow from business operations.

The study outlines that SMEs showed a multiplier effect of 1.5 times in improvement of productivity metrics, while profitability indicators (a reduction in operating expenses) show a multiplier effect of three times after SMBs moved from low to medium cloud usage.

SMBs using medium cloud services garnered much better results than those using basic services. Source: Shutterstock

The findings from the study also highlight how the positive impacts of the cloud are sustainable, with 96 percent of SMEs reporting a positive impact on their operating expense within two years of high cloud usage which remains stable over time.

Furthermore, the SME’s ability to improve products and reduce the time it takes to launch products improved 100 percent when they moved to high cloud usage.

It is also important to note how the different levels of cloud usage (basic, medium, or high) were shown to effect gains. This is significant as most SMEs feel that mere adoption of basic services is sufficient to make an impact.

The survey reported improvements in productivity and profitability including:

  • Asset utilization increases only 17 percent on low cloud adoption compared to 52 percent on moderate and 66 percent on high.
  • Employee productivity increases only 21 percent on low cloud adoption as compared to 51 percent on moderate and 81 percent on high.
  • Operating expenses reduce only by 13 percent on low cloud adoption, but 47 percent on moderate and 68 percent on high.
  • Cash flow increases only 13 percent on low cloud adoption, and 33 percent on moderate and 53 percent on high.

The study also compared the findings with SMEs who are not using the cloud at all (SMEs on the database of the government of India were used as a reference). It was found:

  • Profit improvement and cost reduction metrics improve 30 percent for SMEs using medium cloud, whereas this metric improves 10 percent for SMEs who do not use the cloud.
  •  Employee productivity metrics improve 50 percent for SMEs using medium cloud compared to 20 percent for SMEs not using the cloud.
  • Asset utilization metrics improve 50 percent for SMEs using medium cloud whereas it improves just marginally for SMEs not on the cloud.

The benefits of adopting cloud computing technologies for SMEs are clear. The good thing is, not only is cloud technology advanced but it is also affordable and easy to deploy and use.

Through cloud adoption, SMEs can improve their operations and productivity significantly, which will, in turn, increase their profitability while setting them ahead of competitors.