How Ya Doing Out There?
September 23, 2024 Timothy Prickett Morgan
We keep track of a lot of things on your behalf here at IT Jungle.
We cover all of the major product announcements from Big Blue, giving you the feeds and speeds, competitive analysis, pricing and performance analysis, and other issues that you need to consider as you keep your Power Systems platforms current and supporting your business.
We watch all of the changes in the IBM i stack, Technology Refresh and PTF updates, and we do the best that we can – and we think better than anyone else in the market – to keep track of what the myriad independent software vendors in the IBM i space are doing.
We have our fingers on the pulse of the broader IT industry, including traditional back office applications that the AS/400 and its progeny were designed to support but also including more advanced front office applications driven by data analytics and artificial intelligence. And now generative AI has come along and is weaving itself into back office applications and helping to improve the efficiency of application programming and modernization as well as of security and operations of the systems and their databases and applications.
We don’t spend enough time with you, but rest assured, we are always thinking about you. This publication is, after all, meant to serve you.
Not to project too much, but we are worried about you – all of you. It has been a troublesome couple of years starting with the coronavirus pandemic. The world’s economies have been teetering on a recession for so long – and either maddeningly or thankfully depending on how you want to think about it – that worrying about the economy taking a downturn has become normal. But, as most IBM i shops are small and medium businesses – which used to mean that they had revenues of between $10 million and $100 million, but you have to inflation adjust that data over three decades. The AS/400 and its progeny have deep history in the discrete manufacturing, process manufacturing, distribution, retail, and financial services industries. There are some big users of IBM i platforms, to be sure, but the small and mid-sized IBM i companies that dominate the base of users tend to buy smaller Power Systems machines.
In a way, the IBM i customer base, which weighs in at 120,000 unique customers as far as we know, reflects the US economy at larger and the global economy at even larger. According to the US Chamber of Commerce, in 2023 there were 33.2 million small businesses in America, and they accounted for 99.9 percent of all the businesses in the United States. These small businesses – by definition, it means having 500 employees or fewer – created 63 percent of the new jobs between 1995 and 2021, which was a total of 17.3 million new employees. These small businesses employ 46 percent of the private sector workforce in America last year (62 million workers) and drove 43.4 percent of gross domestic product.
What your company does, and what all SMEs do, matters as much as the Global 2,000.
Everything is harder for SMEs, which is something that no one talks about much but is what all but a few thousand of us experience. It is harder to get and retain talent. It is harder to raise your prices, even in an inflationary environment where all of the big companies seem to be doing it – and perhaps over and above any inflation that was justified by supply chain woes in the wake of the pandemic. And the cost of capital is higher, which is not as bad as having one arm tied behind your back, but it is a bit like having sciatica.
We saw a report on SME banking from IBM recently, which showed the spread, by country and over time, that SMEs spend to borrow money compared to large enterprises. Take a look:
With interest rates dropping for the first time in several years, the cost of capital is coming down, which should make things easier for SMEs at the same time that they have been concerned, as many of us are, with a recession. We happen to think that the Federal Reserve has done a reasonable job trying to engineer a soft landing for the economy here in the United States, but it is hard to fight inflation when the US government pumped $5 trillion in stimulus spending into the pockets of people, companies, and state and local governments to try to keep the US economy from collapsing during the shutdown for the pandemic. We think a lot of inflation has been opportunistic, and in many cases shameless. People raised prices simply because they can get away with it, and they kept doing it even after the stimulus money was all spent, causing inflation to rise much faster than many expected. Everything will settle out in the long run, but we know one thing for sure: Prices are not going to come down, no matter how much any politician says otherwise. People will have to get by with economic substitution and waiting for pay raises, and don’t hold your breath for those. You might suffocate.
With inflation easing and interest rates coming down, it looks like SMEs are starting to feel better about their prospects, at least according to a poll of small and medium businesses done by PNC Financial Services Group.
In the PNC survey, an SME is a company with anywhere from $100,000 and $250 million in revenues. This particular poll was done in January and February, and we think the optimism level, which was at a 22-year high at the time of the poll, is probably even higher now. The level of optimism had doubled to more than half of those surveyed and 80 percent of business owners “expressed confidence” in the financial prospects for their firms this year.
With possible tectonic shifts in the IT infrastructure and the economy from the advent of GenAI, we wonder what you all think about how this will all shake out. There is reason for optimism as well as concern – which seems to ever be the way for SMEs. We are optimistic on your behalf, but we want to know what you think. So go to our Contacts page and let us know. We are all ears, and we want to hear it directly from you.
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I think your last paragraph should have been your first paragraph. All through your article I kept wondering ‘where is this heading?’
Paul T
The backbone of many countries are indeed SMEs. They provide value, expertise in many even artisanal fields. The risk is the predatory attacks by “big founds” to buy them and reduce them to poultice and just do basic financial engineering. Good finance enables the sane environment for technical expertise to express. The moment that is become the final objective and not the product or a service is a red flag. Getting this tradeoff right paramount, even in big companies… Boeing? IBM?