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ARCHIVED—Chapter 4: Growth and Acceleration
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Fast Forward 5.0: Making Connectivity Work for Canada
Canadian e-Business Initiative (CeBI)
September 2004
Despite a technologically ready business environment, e-business adoption among Canadian SMEs grew slowly and unevenly across business size and sectors. While more SMEs used customer-focused IBS, e-business adoption of advanced solutions by SMEs, especially smaller firms, has not dramatically increased in 2004; and barriers, including cost and supply issues, continue to be important obstacles in the minds of many small-business owners.
4.1 SME e-Business Adoption
SMEs are the lifeblood of the Canadian economy. SMEs—enterprises of fewer than 500 employees—account for 99 percent of Canadian companies and contribute significantly to job creation and economic growth.24 For instance, between the third quarter of 2002 and the third quarter of 2003, SMEs created 36 percent of net new jobs in Canada.25 E-business enables these firms to substantially reduce costs and streamline operations to produce better and faster service, remaining competitive in today's fast-paced global economy. Net Impact Study: The SME Experience found that a typical firm adopting advanced e-business solutions could increase profits by 150 percent, after increases in revenue and decreases in cost brought about by the transformation of business processes.
Overall, in 2003, Canadian SMEs outperformed their international counterparts, with higher rates of IBS adoption than SMEs in the E.U. across all industry categories, and adoption rates generally similar to U.S. SMEs.26 In fact, more Canadian SMEs claimed financial benefits from IBS adoption—both increase in revenue and decrease in cost of goods sold, and in sales, general and administrative expenses—than did SMEs in the U.S. and the E.U.27 SMEs are increasingly cognizant of this trend, and look for the bottom-line benefits of technology adoption. However, the high overall results for Canada mask the fact that adoption is uneven across firm size and sector. While small firms (fewer than 100 employees) led their international counterparts in adoption rates for customer-focused solutions, and financial, accounting and procurement solutions, mediumsized firms (100 to 500 employees) lagged internationally.28
Nationally, across IBS types, very small firms lead in the use of online marketing, sales, purchasing and supply-side management solutions (see Figure 2). Medium-sized SMEs, meanwhile, are using basic applications, such as e-mail and websites, but continue to lag far behind both larger enterprises and their smaller counterparts in adoption of more advanced technological solutions. Specifically, advanced e-business applications, such as e-procurement, supplychain management, accounting, finance management and human-resource management, are not being used by medium-sized SMEs despite their substantial cost-saving and profitenhancing potential.
Figure 2: Internet Business Solution Adoption by Small and Medium Enterprises (2004)
Source: Net Impact Study IV, Strategies for Increasing SME Engagement in the e-Economy.
In fact, a recent CeBI survey regarding the use of supply-chain transformation applications found that, of a pool of 173 firms in the manufacturing, distribution and retail sectors, 78 percent of independent SMEs are linked to digital networks for business purposes, including 69 percent of small companies and 93 percent of medium-sized companies. 5.3 percent of B2B (business to business) purchasing and 4.6 percent of B2B sales (lower bound, since not all interviewees were knowledgeable about sales) is carried out online by independent Canadian SMEs in the three sectors surveyed. At least some purchasing is done online by 56 percent of medium-sized companies and 37 percent of small companies. At least some B2B sales are done online by 25 percent of medium-sized and 15 percent of small manufacturing and distribution companies.29
This adoption pattern may be partially explained by the SME adoption path. SMEs first adopt simple e-mail and web-based solutions and are often unable or unwilling to attempt the second stage and substantially more difficult applications. Adoption of this second stage of IBS by SMEs, however, usually involves a higher level of risk and cost. In fact, cost continues to be rated as the foremost barrier to adoption by SMEs.30
Box 3: The Benefits of Advanced e-Business Procurement 31
The Canadian e-Business Initiative conducted five case studies to showcase the e-procurement efforts of small, medium-sized and large Canadian organizations (from both the private and public sectors). It was a challenge finding organizations to participate, especially smaller SMEs. Even among organizations using e-procurement, some consider it a low priority and others do not perceive their efforts to be "leading-edge".
Case-study participants generally define e-procurement as the placement of orders over the Internet with or without online payment. For the most part, organizations prefer to develop e-procurement solutions in a stepby- step fashion, rather than developing end-to-end solutions in one complete step. This approach enables organizations to gain incremental wins, manage risks and costs, and gradually bring other parts of the business along with their e-procurement efforts.
Regardless of how e-procurement takes place in these organizations, it is perceived by procurement officers and senior management as another essential "tool in the toolbox" for conducting business operations more efficiently and effectively. Despite some of the technology and change-management challenges that arise, organizations applying e-procurement balk at the idea of operating without it. Benefits they cite include streamlining supply-chain operations, cost reductions, quality enhancements, improved delivery-cycle times, reduced resources and increased volumes. E-procurement also gives them the opportunity to become more strategic in their daily activities, enabling them to improve their competitiveness, branding, market positioning, productivity and growth.
"E-procurement has enhanced the efficiency and speed of our business. And while there are direct and measurable benefits in terms of ROI (return on investment), it also provides the opportunity for organizations to be seen in their market as progressive and at the leading edge of innovation."
"Our business volumes have grown 114 percent. E-procurement has contributed to this growth and helps us to meet this demand."
— Case study participants
IBS adoption, including the type of solution, also varied by industry sector. While 75 percent of firms in the financial services industry were using or adopting some form of IBS, this was true for only 62 percent of the manufacturing industry and 63 percent of the retail industry.20 In addition, different sectors adopted different solutions (see Figure 3), often not adopting solutions that would, at face value, seem highly useful to their sector. For example, firms in the retail sector reported low usage of supply-chain management tools, as did those in manufacturing.
Barriers to Adoption
When asked why they did not adopt a next-stage IBS, SMEs indicated a variety of qualitative perceptions regarding why these solutions would not work for them. SMEs generally responded that these systems were costly and difficult to implement; some believed that old ways of doing business, with strong reliance on personal connections, were superior.33 Net Impact Study IV found that the reasons for not adopting differed by sectors and firm size, with retailers citing lack of time as a major adoption impediment, and smaller firms being more concerned about their ability to recruit and hire proper staff.34
Perception of the value of adoption also differed between industry sectors. Manufacturing firms were more often motivated by a consideration of customer preferences, and believe IBS is necessary to improve international sales. Retailers were much more convinced that suppliers demanded IBS adoption.35
These findings are typical. Firms cite cost, time and uncertainty about return on investment as major barriers to the adoption of these solutions. Yet, they also indicate that the needs of their firm or sub-sector are unique, requiring solutions that are custom designed.36 Moreover, many SMEs seldom have readily available financial resources to invest in new technologies, and lack the internal resources and expertise required to adopt e-business applications. As noted in Net Impact Study III: Overcoming the Barriers, many small firms decide to adopt e-business on a reactive basis, responding to changes in their business environment. In some cases, small firms adopt IBS for fear of losing competitive advantage to competing firms within their sector that have adopted IBS. In other cases, SMEs are driven to adopt e-business technologies by their suppliers or customers. For example, companies such as WalMart, Dell and Cisco will only deal and transact with supplier firms online. As such, large business partners can have a positive impact on SME adoption.
| Manufacturing | Financial Services | Wholesale / Retail Trade | Com/ISP | Public Sector | |
|---|---|---|---|---|---|
| Customer Development & e-Marketing | 38.5 | 63.5 | 68.8 | 63.6 | 55.8 |
| Customer Service & Support | 40.4 | 71 | 62.5 | 54.2 | 68.2 |
| Electronic Commerce (including B2B) | 42.5 | 38.7 | 67.3 | 45.5 | 39.5 |
| Finance & Accounting | 35.8 | 58.1 | 33.3 | 35.7 | 51.2 |
| Human Resources | 13.5 | 25.8 | 16.7 | 43.6 | 37.2 |
| Procurement & MRO | 30.8 | 19.4 | 22.9 | 20 | 23.3 |
| Sales Force Automation | 25 | 30.2 | 34.7 | 25.5 | 9.3 |
| Supply Chain Management | 17.3 | 22.6 | 18.8 | 25.2 | 30.2 |
| Corporate Portal | 11.5 | 50.8 | 32.7 | 67.3 | 44.2 |
Source: Net Impact Study Canada, The SME Experience.
These findings suggest that coordinated sectoral approaches can play an important role in driving e-business adoption among small firms. Industry associations and sector councils can play a key role in sponsoring creation of e-business solutions that are easily adaptable and scalable among SMEs within their sector. The work of the Electronic Commerce Council of Canada, for example, successfully brought large and small grocery retailers and distributors together to create a national produce registry (see Box 4).
4.2 e-Talent
Success in adopting advanced e-business technologies also depends on availability of skilled professionals. The past five years have seen an unprecedented demand for highly skilled and versatile IT professionals. As the technology sector recovers in 2004, the need for skilled IT professionals to plan, design, build, implement and service e-business applications is likely to increase.
Although Canada has a highly educated workforce, many SMEs continue to report problems in easily identifying, and then attracting and appropriately compensating, the IT professionals that match their needs. Research from the U.S. Department of Commerce suggests that the adoption of information technologies needs to be developed together with worker training and revised workplace practices to yield productivity gains.37 In other words, firms must not only adopt, but they must also plan to retrain employees on how to use new technologies most efficiently to realize higher productivity gains.
Box 4: Industry Leadership and Partnership: ECCNET
(ECCC Network Services)
Use and promotion of standards is critical to global e-business. Standards such as the Universal Product Code (UPC), the barcode used to identify products in the grocery industry, and its potential replacement, the new Electronic Product Code, form an important part of the e-business environment by facilitating global recognition of products and services.
The Electronic Commerce Council of Canada (ECCC) is a not-for-profit, industry-led organization that promotes and maintains global standards for the identification of goods, locations and related e-commerce communication such as barcode issuance and maintenance. In addition to supporting and implementing global standards in Canada, ECCC represents Canada on global standards-setting bodies to ensure that standards for e-commerce and product identification meet the needs of Canadian businesses. ECCNet, Canada's National Product Registry, aims to increase the efficiency of the supply chain by creating a national database of products, harmonised with the U.S. and internationally, for the grocery, food services and pharmacy sectors.
- Aiming for a January 1, 2004 deadline, ECCNet had all grocery retailers and distributors participating in the program.
- ECCNet is industry led and developed—a factor crucial to its success. In addition, it is industry endorsed, with product listing through the ECCNet a standard requirement for trade by major grocery distributors.
- To increase accessibility for SMEs, ECCNet uses subsidized fees to facilitate participation.
Source: www.ecc.org and www.eccnet.org
IT professionals must now be versatile; they must be able to develop, operate, repair and maintain e-business solutions in addition to having a clear understanding of the business needs and expectations of these applications. Typically, SMEs cannot afford the time or money to train these employees in-house. It then falls to private-sector training and post-secondary institutions, such as colleges and universities, to offer training to these workers.
In the U.S., 2000-2001 saw employment in IT-based industries fall more than six times faster than all other private industries.38 This decrease would suggest an increase in the availability of highly skilled e-talent into non-ITbased industries. However, SMEs continue to report problems in finding the e-talent to meet their specific needs, and cite this factor as a barrier to adopting e-business. Of Canada's one million SMEs, more than 20 percent or 200,000 reported that they could not find employees with the skills necessary to implement e-business solutions.39 How can these findings be reconciled? Anecdotal evidence suggests that young graduates do not look for employment in the SME sector. This situation may be due to the fact that academic institutions focus on the value of working in large businesses or due to concerns of young graduates regarding compensation and mobility.
SMEs, however, must also become engaged and more proactive in retraining existing staff to meet business needs. While this may represent costs the SME is reticent to undertake, the productivity benefits for the business can be substantial. Employers should see retraining as part of their business investment and allow it to, where possible be part of employers daily activities. Canadian post-secondary institutions offer various community-based information technology and e-business learning on their campuses, resources are often flexible and be arranged to meet the needs and time demands of SMEs and their staff.
Universities and colleges also need to review their capabilities in developing graduates who are able to integrate information technologies, such as e-business into their careers, regardless of domain or field of study. Too many students graduate into the work force without the basic IT and e-business skills that so many firms require.
4.3 e-Supply
There is a clear challenge to vendors offering e-business applications to Canadian SMEs. SMEs are searching for offerings that are affordable, scalable and sectorally specific. However, many e-business solutions on the market today are too costly, time consuming and complex for smaller firms to implement. Moreover, SMEs with small numbers of untrained staff often require much more communication and support than larger firms with in-house expertise. The level of interaction needed to aid SMEs with e-business implementation is too high relative to expected profit. For this reason, SME e-business applications remain somewhat limited.
While larger, well-known firms offer IBS, SMEs seek software designed for specific sectors—software that is easy to implement and use; software that is scalable and adaptable to changes in businesses and surrounding environments. There is a real need for cooperation among IBS providers, industry associations and large businesses within sectors to help develop sector-wide solutions and platforms with SMEs in mind. This cooperation will develop a level of trust and confidence in IBS offerings among SMEs and will lead to higher levels of adoption. Such shared solutions will also help SMEs avoid the high cost of developing their own IBS, a major barrier to e-business adoption.
Figure 4: Impediments to e-Business Shared by SMEs – Percent of Firms Indicating Staffing Resources and Employee Skills as Barriers to e-Business
Source: EKOS, Rethinking the Information Highway, December 2003.
In addition, SMEs tend to be very skeptical about vendors and consultants that try to sell them business-related software. In an attempt to help validate the credentials of some e-business vendors, the Society of Internet Professionals (SIP) is in the process of developing three certification streams: privacy, security and e-businessoriented expertise and consulting. SIP Certified Professional status is granted to IT professionals that pass one core examination and an additional special examination for selected areas of specialization.40
It is also important that SMEs become involved in the process, helping these coalitions of technology companies and consultants develop tools that are easily implemented. Often, SMEs fear partnering with other firms within their sector because of competitive interest or an inability to commit the time and manpower required to engage in the strategic planning process needed develop the right tools to fit their firms.
Despite a high level of Internet literacy and use among consumers, and growing basic technology use in the business community, e-business adoption among SMEs continues to be slow. Firms continue to experience the same barriers, such as the high cost of e-business solutions, lack of skilled personal, and lack of accessible, impartial advice. While some of these barriers are clearly part of the nature and operations of small firms, which are forced to operate reactively and have little time to develop long-term IT strategies, other barriers point to greater need for collaborative approaches between large firms and their small suppliers and distributors, and with industry associations that can help increase awareness of the benefits of e-business among their memberships.
24 Statistics Canada, Business Register, June 2003, and Industry Canada, Key Small Business Statistics, May 2003. Of the approximately 2.2 million businesses in Canada as of June 2003, just over one million were "employer businesses", meaning they listed at least one employee on their payroll. Of these businesses, 2,780 had more than 500 employees. These enterprises are referred to as "large businesses".
25 Industry Canada, Small Business Quarterly, Vol. 5, No. 4, February 2004.
26 CeBI, Net Impact: The International Experience, May 2003.
27 Ibid.
28 Ibid.
29 Norm Archer, Shane Wang and Claire Kang, Barriers to Canadian SME Adoption of Internet Solutions for Procurement and Supply Chain Interactions, Industry Canada, and McMaster eBusiness Research Centre, July 30, 2003.
30 See CeBI, Net Impact Study Canada: The SME Experience, November 2002 and Net Impact: The International Experience.
31 Conference Board of Canada and Purchasing Management Associaton of Canada (PMAC) E-Procurement Case Studies, 2004.
32 CeBI, Net Impact: The SME Experience, November 2002.
33 CeBI, Net Impact Study III, Overcoming the Barriers, October 2003.
34 CeBI, Net Impact Study IV, Strategies for Increasing SME Engagement in the e-Economy, September 2004.
35 Ibid.
36 CeBI, Net Impact Study III, October 2003.
37 U.S. Department of Commerce, Digital Economy 2003, December 2003.
38 Ibid.
39 CeBI, Net Impact: The International Experience, May 2003.
40 ITbusiness.ca, Canada’s IT associations give certifications an upgrade, April 22, 2004.
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