Technology in SMEs: From Cost Centre to Strategic Asset

According to BDC, 96% of Canadian SMEs use at least one digital technology. Yet fewer than one in four reaches a high or very high level of digital maturity (BDC, 2026).

In an established SME, sales, operations and finance are each accountable for a measurable result. Technology is still too often the exception. When nearly every business spends and so few gain an advantage, is this simply a problem of resources, or is it a problem of governance?

IT as a cost centre: a reasonable answer, but an incomplete one

Where should technology report in an SME? The most common answer fits in one sentence: IT is a commodity, an administrative expense that belongs under finance or operations. That is what job postings for IT director and vice-president roles show. It is also the answer most executives give me when I ask the question.

The answer is reasonable. Technology is not tied to the core mission of the business. Its costs show up every month, while its benefits are diffuse. Under those conditions, the reflex to manage it like rent or insurance is understandable.

It has a weakness, however. In a mature business, sales answers for revenue growth, operations answers for gross margin, and each has a seat at the management table with a clear accountability framework. Technology, by contrast, is subordinate. When it reports to finance, it is often subjected to fierce cost control, or outright cost cutting, at the expense of the long-term view. When it reports to operations, it is absorbed by daily emergencies, and medium-term planning takes second place.

Without IT governance represented within senior management, no one at the table has the mandate to arbitrate between budget constraints, operational needs and the business vision. In effect, the business tracks what its technology costs, but it does not have the information it needs to confirm or refute that the technology pays off.

What sets apart the SMEs that gain an advantage from technology

SMEs that gain an advantage from their technology stand out by the way they make decisions. In 2024, two researchers at Corvinus University of Budapest reviewed 106 studies on the digital transformation of SMEs. The success factors that emerge are a strategy aligned with the reality of the business, engaged leadership, an incremental approach and sustained investment in skills. The authors also note that a complex and expensive technology investment is not necessary for an SME (Information Systems and e-Business Management, 2024).

Canadian data point in the same direction. According to BDC, 99% of digitally advanced businesses have a digital plan (BDC, 2022). The gap between SMEs that spend and those that gain an advantage therefore comes down to the rigour of the decision, far more than to the amount invested.

The stakes are measurable. BDC estimates that Canada’s GDP could grow by nearly 14%, or $350 billion, if all SMEs reached the level of the most advanced.

At the level of a single business, that return takes two forms. Well deployed, technology delivers efficiency and quality. Well conceived, it creates differentiation and new sources of revenue. The IT budget, however, adds together expenses that play these different roles. I recommend sorting them into three categories, each with its own objective and treatment.

Category	Examples	Objective	Treatment
Basic operational needs	Infrastructure, email, basic accounting, security, maintenance	Standardize and reduce costs	Predictable operating expense
Efficiency drivers	ERP, CRM, logistics automation	Align the business with proven market practices	Business case based on margin or working capital
Differentiating assets	Intellectual property, customer platforms, business-specific data models	Build a competitive advantage	Strict governance and independent architecture review

Only the first category is a commodity. The other two are investments, and a business that manages all three as a cost centre forgoes the return on the last two.

What a poorly governed IT investment costs

A poorly governed technology investment costs far more than its budget. Of 5,360 technology projects analyzed by Bent Flyvbjerg, Alexander Budzier and their co-authors, the median project stayed on budget. However, 18% exceeded it by more than 50%, and those projects cost on average five and a half times the planned amount (Project Management Journal, 2026).

The finding has held for fifteen years. As early as 2011, the same researchers observed, across 1,471 projects, that one project in six had an average overrun of 200% (Harvard Business Review, 2011). In 2026, they compare IT with 22 other types of projects: it is the only one of the 23 categories exposed to what they describe as infinite and unpredictable risk. They offer two explanations: reliance on custom development rather than modular components, and planning decisions made too quickly.

I see nothing in this mechanism that is specific to large enterprises. An SME simply has less room to absorb it. By way of illustration, a business with $20 million in revenue that commits $1 million to a new system and experiences the average overrun of that group pays about $5.5 million, more than a quarter of its annual revenue.

A project does not grow to five times its cost in a single day. Between the first overrun and the last, management authorized the work to continue several times. The initial estimate explains the starting point, and every subsequent authorization is a governance decision.

How technical debt moves from the code to the balance sheet and the income statement

A poor technology investment keeps costing long after go-live. One analogy is enough to understand what is at play. A building acquired without an inspection sits on the balance sheet at its purchase price, hidden defects included. The same is true of software.

Those hidden defects have a name. Technical debt refers to all the design shortcuts taken to deliver faster, whose cost is deferred to every future change. Each new feature has to work around the earlier compromises. Dependencies between components multiply, and they are how researchers explain extreme overruns: a problem in a single component can set off a chain reaction in those that depend on it.

Technical debt extends beyond the code. Weak governance and immature IT processes add hidden costs and risks of their own: undocumented architecture decisions, dependence on a single person or a single vendor, known security vulnerabilities left unpatched, and disaster recovery plans that have never been tested.

According to McKinsey, technical debt accounts for about 40% of companies’ technology balance sheets, and they pay 10% to 20% more on every project to address it (McKinsey, 2023).

On the balance sheet: an asset valued at what it cost

To limit a project’s effect on the current year’s margin, a finance team may choose to capitalize development costs. Section 3064 of the Accounting Standards for Private Enterprises (ASPE) allows it when certain criteria are met, including technical feasibility and the probability of future economic benefits. The asset is then measured at cost, that is, the sum of the expenditures incurred.

The asset on the balance sheet therefore reflects what the software cost, not what it is worth. As long as no impairment is recognized, a project that runs over weighs more on the balance sheet than a successful one. When the system has to be replaced before the end of its useful life, the unamortized balance is written off. The charge reduces net income for the year and, with it, shareholders’ equity.

The problem worsens when capitalization is used primarily to ease the current year’s budget. The amortization deferred in this way reduces net income and shareholders’ equity in later years, and limits the company’s ability to invest, when the time comes, at the level a major transformation project requires.

On the income statement and in cash flow: constant friction

A poor technology fit most often takes the form of daily friction, far more than that of a major outage. A misconfigured ERP or a CRM disconnected from billing delays invoicing, and therefore collection, and inflates working capital requirements. In addition, integration gaps between systems are bridged by hand, by administrative payroll that appears in no IT budget.

Technical debt and company valuation: a governance issue

What looked like an IT budget problem changes in nature the day the business is put up for sale or prepares its succession. During due diligence, the buyer examines the systems the way it examines the financial statements. A system that is aging, poorly documented or dependent on a single vendor forces the buyer to plan for investments after the transaction, and the offer reflects it. The buyer also assesses the maturity of IT processes and the quality of governance, and treats any gaps as a risk. For many owners, the deadline is close: according to CFIB, 76% of Canadian small business owners plan to exit their business within ten years, and only 9% have a formal succession plan (CFIB, 2023).

From that point on, the question goes beyond technology. Most vendors sell their technology or their delivery teams. Their commercial incentives are entirely legitimate, but their recommendation cannot be neutral. Someone at the management table has to defend the interests of the business exclusively, and act as a trusted third party between the business and its vendors.

Some will object that an SME with $10 million to $50 million in revenue is not large enough to hire a full-time CTO, and the objection is valid. Governance, however, depends on having a competent and independent voice present when trade-offs are made, and a part-time mandate is enough to provide it. That is the role of a fractional CTO.

Five checks before any major IT investment

Before any major commitment, five checks are required:

• The business case. Quantify the expected margin gain, cost reduction or risk mitigation.
• The commercial product. Demonstrate why a commercial off-the-shelf product falls short before funding custom development.
• Reversibility. Assess what it would cost to extract the data and the code if the vendor had to be changed.
• Total cost of ownership. Build the budget over three to five years, including maintenance, security and change management.
• Independence of IT leadership. Designate the person who defends the interests of the business in dealings with vendors.

Where to start: measure before investing

These five checks apply to your next project, with no outside help. A simple measurement can even come first: list the company’s systems and record, next to each one, what it costs per year, which category it belongs to and who answers for it at the management table. An empty column is already information.

Which system to address first, and how much technical debt there is, then depends on your systems, your contracts, your financial statements and the projects already under way. An IT maturity assessment is how that picture is established.

If the opening question applies to your business, I would be glad to discuss it with you.

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Transparency note:
This text was conceived and structured by Alex Turcotte, then written with the assistance of artificial intelligence, in a voice calibrated on his own writing. AI was also used for background research and translation. The core ideas and the real-world business experience are his own.