New Zealand businesses preparing for tough times but remain positive: SAP/EMA Innovation for Growth Survey

November 4, 2008 by SAP News 0

Operational excellence and customer retention are priority strategies
Disinterest in sustainability
Unimpressed with R&D incentives
Planning major asset investments despite economic slowdown

Auckland, New ZealandInnovation takes a back seat to operational excellence and customer retention as priority strategies for New Zealand businesses over the next one to three years. This is one of the key findings of the inaugural SAP/EMA Innovation for Growth Survey which was conducted online in late September.

The survey, commissioned by SAP and undertaken by the Employers and Manufacturers Association Northern (EMA), gives a picture of the initiatives New Zealand businesses are planning to ensure they remain viable and focused on growth in the face of the increasingly uncertain business environment. Innovation was ranked third in a list of eight factors respondents ranked in order of importance for business growth.

“Businesses are responding to their margins becoming compressed as costs rise,” says EMA’s chief executive Alasdair Thompson.

“They’re trying to ensuring their own performance is as good as it can be to see them through, and looking to their investment in IT and plant and equipment to help build their productivity.”

Business Challenges

The survey was conducted as the global financial meltdown got further underway in late September, New Zealand business owners and managers were very wary of economic volatility and unpredictably – citing these as the biggest hindrances to achieving their business’ goals. The challenges of attracting and retaining quality skilled staff were also cited. The biggest energy concerns for respondents were around stability of supply and increased costs.

Disinterest in Sustainability

Interestingly respondents have a marked disinterest in sustainability issues relating to their business. Over 55 percent have not yet begun to define what sustainability means for their organisations and just 29 percent have plans underway to assess and address their carbon emissions. And three quarters have no plans to become carbon neutral any time in the future.

Ian Black, Managing Director SAP New Zealand, says the findings support his experience with New Zealand businesses.

“Interest in solutions to help businesses manage their carbon emissions is coming predominantly from the local arms of Australian companies where the regulations are closer to implementation than on this side of the Tasman,” says Ian. “Companies that take proactive steps to get ahead of the pack when it comes to addressing their carbon emissions will have a competitive advantage – particularly when looking to develop the export side of their business.”

The good news is that 74 percent of those surveyed are active in the area of corporate social responsibility.

Unimpressed with Government’s R&D incentives

For most of the respondents, R&D spend is less than 10 percent of revenue. The most common activity classified as R&D is making ongoing developments to products and processes. This was a sore point with some of the 79 percent of those surveyed who were aware of the new 15 percent tax credit available for R&D since April this year. As one respondent put it: “The tax credits are not available for what most companies consider R&D to be. Upgrading models is R&D but not considered to be so by this regime.”

Commented Alasdair Thompson: “Not a lot of our companies are involved in research; but most are heavily into development, which is all about improving their products and services.”

Investment Intentions

Nearly a third of respondents (29 percent) are planning major asset purchases such as plant and equipment over the next two to three years. A further 25 percent are planning to relocate or invest in new premises. A quarter (26 percent) are looking to invest in major website development and there is a strong interest in new customer relationship management (CRM) systems (19 percent).

Ian Black says the interest in CRM makes sense in uncertain times. “A slowdown creates strategic opportunities. The organisations that come out on top are those that ease into a downturn by managing costs, ensure they have the best possible people, tools and processes through the curve and then accelerate when the economy starts to improve. Currently, it’s important for organisations to get the most value from their employees by making processes more efficient and taking the best possible care of those most important for the ongoing survival of their business – their customers.”

IT Investment to Support Business

Investing in IT in general was strongly endorsed with 65 percent of respondents stating that they see IT as actively supporting their business. Upgrading ERP systems was the clear leader: ranked as the highest priority by 25 percent of respondents and second most important by a further 10 percent.

When asked about the software and IT services important for meeting their organisation’s objectives over the next one to three years, the clear leader was core financial management capability: 61 percent of respondents identified this as important. Other IT services and software rated highly included sales management software (45 percent), business intelligence/business performance management (44 percent) and web services (44 percent).

“Information systems investments drive value to a company’s top and bottom lines by creating new efficiencies and increasing revenues,” says Ian Black. “While IT spend forecasts for the next year have decreased over the last few weeks as a result of the economic downturn, there is still growth expected in IT spending. This suggests that those organisations that don’t invest in IT will be left behind.”

Alasdair Thompson agrees. “Most businesses are aware of the important role of IT in achieving operational excellence,” he said. “It’s reassuring to note the strong plans for new investment in IT and plant and equipment. We hope they are keeping those plans firm since the survey was taken, by jettisoning if necessary the interest in moving to new premises which was surprisingly high.”

These views are reflected in business attitudes to how IT supports the business:

  • 53 percent described IT as essential for the smooth functioning of their business;
  • 29 percent see it as essential to gaining and maintaining competitive advantage;
  • 22 percent regarded it as a primary plank in their growth strategy.

SAP/EMA Innovation for Growth Survey

The SAP/EMA Innovation for Growth Survey was conducted during late September 2008. A total of 365 business owners/managers responded. The largest proportion (30 percent) were from small businesses with fewer than 10 full time staff. Sixty four percent had revenues less than $10m in 2007 and 63 percent had no export component to their business. The full report of the survey findings can be found at http://www.ema.co.nz/surveys/SAP_EMA_Innovation_survey_report_Nov08.pdf

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