Despite the positive adoption trends, the HP research reveals concerning gaps in how small businesses approach AI deployment
What’s happening: Research shows 58% of small and medium businesses are using AI tools, with strong productivity gains reported, but many rely on risky free versions for confidential tasks.
Why this matters: With government data showing AI adoption among SMEs growing to 40% and rising, poor implementation strategies could expose businesses to data breaches, legal risks, and missed productivity opportunities worth billions.
Small and medium businesses are embracing artificial intelligence at an accelerating pace, with research showing clear productivity dividends for those making the leap.
Recent HP Australia research of 500 IT and business decision makers at SMBs found 58% are already using AI tools, with impressive results. Among adopters, 82% report AI has “saved time for us”, 74% say it has “made our workplace more productive”, and 72% credit it with giving them “more time to focus on meaningful, high-value work”.
The timing appears crucial for addressing Australia’s productivity challenges. The Productivity Commission predicts AI will fuel overall productivity gains above 2.3%, adding roughly $116 billion of GDP to the economy over the next decade.
“AI adoption might be crucial for addressing Australia’s sluggish productivity growth,” said Brad Pulford, Managing Director of HP Australia and New Zealand. “The Reserve Bank cites ‘slower technological diffusion, with firms now taking longer to catch up to the global technological frontier’ as a key factor in Australia’s mediocre results.”
Government data supports the momentum, showing AI adoption among Australian SMEs has grown to 40% as of late 2024, representing a 5% quarterly increase. Separate research by BizCover found 80% of small businesses are either using or planning to adopt AI in 2025.
Free tools risk trap
Despite the positive adoption trends, the HP research reveals concerning gaps in how small businesses approach AI deployment that could undermine benefits and create serious risks.
A third of AI adopters are using the free version of at least one AI model, while roughly a quarter rely exclusively on free versions of AI software. This creates significant exposure, with 81% of SMBs using only free AI tools reporting they use these platforms for tasks involving confidential data.
“There are a few real-world examples of confidential information being leaked after it was pasted into the free version of a large language model,” Pulford noted. “The legal and reputational implications of such an incident could be catastrophic for a small business.”
The research suggests this isn’t just about security, but performance outcomes. Among SMBs using only free versions, 54% report facing challenges with complexity and integration. In contrast, businesses using enterprise AI versions show stronger results across key metrics.
SMBs with enterprise AI tools are more likely to agree that “AI has helped improve the team’s work-life balance” (69% versus 50% for free-only users) and that “AI has reduced stress and burnout for leaders and employees” (68% versus 47%).
Strategy over speed
The findings indicate the quality of AI deployment matters more than speed of adoption, particularly as the technology becomes standard rather than differentiating.
“Australia isn’t exceptional when it comes to AI. Uptake is exploding the world over,” Pulford explained. “And if everyone is using it, then mere adoption becomes table stakes rather than a strategic advantage.”
Interestingly, budget constraints aren’t the primary barrier to better AI implementation. Only 15% of businesses say they lack the budget to invest in AI tools right now. Most cite concerns about capability gaps, complexity, and security as their main obstacles.
This suggests significant untapped potential for businesses willing to approach AI strategically. Government data shows 23% of SMEs remain unaware of how to use AI technology, while 42% have no adoption plans, creating opportunities for early strategic implementers.
“SMBs must approach AI deployment with a clear and deliberate strategy about how to use it,” Pulford advised. “They should start by figuring out which problems LLMs can help solve most effectively, deciding on which tools to use and then putting appropriate guardrails in place.”
Hardware knowledge gap
The research also uncovered a significant blind spot among small businesses regarding the infrastructure supporting AI deployment.
Four out of five SMBs do not fully understand AI PCs or are unaware of them entirely, pointing to knowledge gaps that could limit their ability to maximise AI investments.
“As a rule, SMBs lag behind bigger organisations in terms of productivity,” Pulford observed. “AI is a powerful tool that could help them level the playing field, but only if they plan well.”
The recommended approach involves three key steps: identifying specific business problems that AI can address most effectively, selecting appropriate tools for those challenges, and implementing proper security and privacy safeguards.
For small businesses considering their AI strategy, the research suggests focusing on understanding both the software and hardware components needed for effective implementation, rather than rushing to adopt free tools that may create more risks than benefits.
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