IT costs are the biggest challenge facing tech leaders in Australian medium-sized enterprises, according to a survey commissioned by IT management software vendor ManageEngine. This challenge is expected to intensify as these enterprises adopt more applications and grow their AI spending.

The Digital Intensity in Australia Study, conducted by research house Ecosystm for ManageEngine 24×7, found that many medium-sized enterprises, ranging from 200 to 1,500 employees, are still in the early stages of transforming into fully digital businesses.

However, these enterprises are feeling the “digital intensity” of managing multiple cloud environments and an expanding number of applications. This complexity requires enhanced interoperability and is likely to put additional pressure on costs as new investments in AI and data are made in the coming years.

Here are seven key findings from the survey of 101 SME IT leaders across Australia.

Reducing costs is the biggest priority for Australian SMEs

Over half of IT leaders (52%) said cost reduction is a main priority in the next 12 months.

Due to increasing costs and higher interest rates in the Australian market, SME leaders were found to be seeking “growth without additional cost,” the report said, in an effort to drive productivity enhancements through technology optimisation rather than through more spending.

Improving customer experience and satisfaction is also a priority for 49% of respondents.

SME modernisation: focusing on infrastructure and cloud

A significant slice (54%) of SME IT leaders said infrastructure is a focus of their technology modernisation activities, when they were asked to name three top priorities.

Infrastructure modernisation was followed by:

• Cloud strategy and architecture (48%).
• Cyber security (43%).
• IT operations and service management (39%).
• Business continuity and disaster recovery (36%).

Modernising infrastructure has moved from an “operational upgrade” to a “strategic necessity” to meet consumer expectations and accelerate digital transformation, the report said. Additionally, modernisation efforts are being geared toward driving business value, particularly IT applications that were the primary interface for customers and employees.

AI spending to grow among SMEs over the next two years

AI spending is projected to rise from less than 0.25% of IT spending to 2.5% within the next two years.

SMEs are expected to invest in more data management and processing capabilities, the report suggested, as AI gradually causes additional technological complexity and data demands.

SEE: Australian SMEs are at risk of being left behind on AI

“As AI applications evolve, they generate additional data through interactions and outputs, further escalating data requirements,” analysis in the ManageEngine report stated.

“This surge in data needs advanced analytics tools, enhanced log management, and more dependable storage solutions, adding to the complexity of infrastructure management.”

Australian SMEs manage multiple cloud environments

Over half (51%) of SMEs manage three to five cloud environments and 14% manage up to 10.

“Five years ago, cloud solutions were primarily used by SMEs for data storage and non-core applications,” the report elaborated. “Now, they’re central to digital transformation strategies, supporting AI platforms, big data analytics, and IoT integration.”

The report found:

•  34% of SMEs managed one to two cloud environments.
•  An average of four cloud environments are used across all SMEs.
• SME public cloud usage could grow from 46% of workloads to 58% within two years.

SMEs expect to use a higher number of technology applications

SMEs will need to deploy and connect more IT applications over the next two years.

• 40% expect between 1 and 5 new applications.
• 31% expect between 5 and 10 new applications.
• Just 8% are not expected to introduce any new applications.

Interoperability will be a key challenge, the report said, because SME “applications need to be deeply integrated with each other to create seamless digital processes – not operate in silos”.

Tech complexity inhibiting business agility and innovation

A majority of businesses (54%) named increased cost as a big challenge, stemming from increasing technology complexity. Others mentioned the expansion of security vulnerabilities (47%), poor scalability (38%), and difficulties in troubleshooting and maintenance (37%).

“The surge in digital intensity within organisations poses challenges for SME technology leaders,” the report stated. “The expanding tech architecture, with a proliferation of applications and diverse cloud usage, heightens the demand for IT support.”

SEE: Cyber security and cloud are driving enterprise spending in Australia in 2024

“Complexity results in higher costs, security risks, and scalability challenges, hampering agility and innovation. Troubleshooting becomes more difficult, leading to downtime and compliance concerns. Complexity can hinder employee productivity and jeopardise customer experiences.”

Most SMEs are still in the early stages of digital transformation

Despite a focus on infrastructure and cloud, as well as rising AI investment, a large proportion (60%) of Australian SMEs say they are still early in their digital transformation journey.

• 20% described themselves as “traditional” businesses when asked to self-assess their digital maturity; traditional was defined as having only a rudimentary online business presence, operating primarily through traditional physical and in-person channels.
• Forty per cent of businesses rated themselves as “emerging,” defined as having a web presence, using social media for marketing and digital tools for internal processes.

Only 4% claimed to be ‘digital first’. Another 5% said they were ‘transformative’, or used technologies like AI and IoT, had a digital partner ecosystem and a digital first strategy.

SMEs urged to embrace digital while reducing digital intensity

The ManageEngine report found that, as the market grows more competitive, SMEs in Australia are being compelled to innovate, leveraging AI-powered insights and embrace digital tools.

However, the resultant surge in digital intensity is causing challenges for SME tech leaders.

“The expanding tech architecture, with a proliferation of applications and diverse cloud usage, heightens the demand for IT support,” the report reads. “This complexity results in higher costs, increased security risks, and scalability challenges, hampering agility and innovation. Troubleshooting becomes more difficult, leading to extended downtime and compliance concerns. Tech complexity can also hinder employee productivity and jeopardise customer experiences.”

IT observability systems could help businesses to gain more visibility and combat digital intensity, according to Ecosystm.

“By bringing together logs, metrics, traces and events with advanced analytics, tech teams can proactively pinpoint root causes, spot anomalies before they disrupt service and keep systems resilient,” Tim Sheedy, Ecosystm’s VP Research, said. “Ultimately, IT observability allows organisations to deliver consistent digital experiences for customers, while also empowering teams to confidently explore new technologies.”