Net Impact Canada IV: Strategies for Increasing SME Engagement in the e-Economy

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Final Report
September 2004

PDF Version (1.3 MB, 29 pages)

Executive Summary

With the business media's attention being placed on the transformation of large, well-known firms into exemplars of the new e-economy, is the plight of the over 99% of Canadian firms that are small and medium-sized enterprises (SMEs) being over-looked?1 SMEs created 36% of net new jobs in the Canadian economy between 2002 and 2003.2 Unfortunately, they also lagged large firms in the adoption of Internet Business Solutions (IBS).3 A lukewarm SME response to IBS adoption may weaken any national strategy to bolster Canada's international competitiveness. The challenge for industry leaders and policy makers is to bring lagging SMEs online and deepen the capabilities of those already online. The cost of inaction is to have this vital sector of the economy stall at current levels of engagement while other nations catch up or increase their lead. The focus of this report is to summarize what has been learned over the last two years about the adoption and use of IBS by Canadian SMEs.

The Status of IBS Adoption Amongst Canadian SMEs

Four research studies have been conducted since 2002 examining IBS adoption by SMEs in Canada and internationally: 3 large sample surveys (one international) and 1 focus group study involving 56 SMEs. These studies involved multiple industries and organizations ranging in size from 20 to 500 employees. The Net Impact research team has identified strengths, weaknesses, opportunities and threats in the ability of SMEs to conduct business using Internet business solutions.


  • SMEs have been relatively assertive in promoting their products and services online domestically. They have seen the advantages of customer contact and support through the Internet.
  • IBS adoption has increased customer satisfaction.
  • IBS adoption has resulted in better control of supply relationships.
  • SMEs who have adopted IBS have been satisfied with their financial returns, particularly related to increases in revenue.
  • SMEs believe they are achieving sustainable competitive advantages through the use of IBS.
  • External help related to IBS adoption and use is accessible to SMEs at a reasonable cost.


  • IBS adoption by SMEs in Canada is stalling, or has stalled, particularly in the retail, wholesale, and manufacturing sectors.
  • SMEs have widely adopted stand-alone solutions (such as Websites and email), which are relatively easy to implement, but have been slower to adopt integrated solutions (such as online selling or supply chain solutions), that are more difficult to implement.
  • The costs savings from IBS adoption are not uniformly realized by SMEs across all size and industry segments.
  • Many SMEs do not understand the business case for IBS adoption.
  • Lack of internal capability for IBS implementation is problematic for small SMEs.
  • Smaller SMEs (<100 employees) lag larger SMEs (between 100 and 500 employees) across a number of dimensions, including adoption rates, internal capabilities, and cost reduction benefits. Smaller SMEs appear to be the hardest to convince of the benefits of IBS adoption. From the perspective of engagement, smaller SMEs are also the most numerous, fragmented, and hard to reach.
  • SMEs do not have a clear strategy for implementing IBS. Planning is non-existent or ad hoc.
  • Widespread availability of IBS specifically designed for the SME market is lacking.
  • The quality of external consultants is uneven.


  • 50% of SMEs have adopted IBS.
  • The lack of both internal and external skills is a more significant concern for smaller versus larger SMEs. Programs could be more finely targeted to this group of SMEs.
  • There are benchmark industries, such as the financial services industry and the public sector, which can be used as exemplars for less advanced sectors.
  • Basic telecommunications infrastructure is not a barrier to IBS adoption except in remote parts of the country.
  • Solutions and technical solution providers are not in short supply.


  • 50% of SMEs have not adopted an IBS.
  • There are significant differences between industries and firm sizes in their adoption rates and the magnitude of their financial results. Online selling is still low in manufacturing. Cost savings associated with IBS adoption are not evident for smaller SMEs.
  • Canadian SMEs lag behind the U.S. and the E.U. in the adoption of operationally focused IBS.
  • Canadian SMEs have not achieved the same level of revenue improvement as U.S. SMEs.
  • The majority of sales by SMEs over the Internet are domestic. Only 33% of IBS adopters who export use the Internet for that purpose.
  • No centralized, trusted source of information on IBS capabilities and technology solution providers exists.

A Call for Action: Engagement at the Individual SME and Industry Level

The research supports a two-pronged strategy of engagement to increase SME first-time adoption of IBS, encourage subsequent adoptions, and expand the reach and range of business conducted through IBS. The first recommended strategy is to develop a detailed repository of examples of success (and failure) stories to aid SMEs in making low risk decisions about adopting and implementing IBS. This would include impartial and trustworthy information on where to find IBS, how to implement them, and what to expect in terms of results. The second recommended strategy is to create a supportive networked environment for increased trade and integration between SMEs. This focus includes international trade and improved supply chain coordination. There is a prominent role for government, industry and professional associations, as well as educational institutions to act as trusted brokers between technology solution providers and SMEs. These parties can also assist in bringing greater focus to industry sector-specific solutions.

1) Providing Compelling Examples of IBS Success Stories Accessible to SMEs

Our research indicates that SMEs do not have sufficient time or money to make informed decisions about IBS adoption and use. SMEs vary enormously depending on their size, and the industry sector to which they belong. Pro forma business cases for different IBS, both individually and in combination (e.g., an ERP system) need to be developed for different SME segments. One size will not fit all. These segments should not just reflect industry but also organizational lifecycle. Examples should focus on the capabilities of IBS to achieve and sustain operational benefits and support key business relationships.

Call to Action:

  • The Federal Government could provide annual benchmarks by industry sector of the financial impact of IBS adoption and use for different types of IBS.
  • The Federal Government, in cooperation with industry associations, could provide industry specific roadmaps for SMEs to progress beyond early stage IBS adoption to develop an enterprise wide platform for increased online business.
  • Educational institutions could assist in preparing detailed case studies of successful and unsuccessful IBS implementation. Furthermore, they could conduct studies comparing the efficacy of alternative IBS products and alternative strategies for implementation.
  • Trade associations could disseminate not only benchmarks and case studies but also advice on issues and conditions unique to each industry that may impact the average firm.
  • The Federal Government could initiate a central Website organized by industry for use by interested SMEs. For example, SMEs have problems finding "trusted partners" to assist in IBS adoption. The Website could provide central information portals that could bring together SMEs and firms capable of assisting in industry-specific IBS implementations.
  • Technology providers should be encouraged to supply information about their products and services using common specifications and terminology that can be understood by the SME audience. Technology providers should be given all available public domain research to assist in their product development and marketing.

2) Integrating SMEs into the Greater e-Economy

SMEs must be integrated into a networked economy populated by other SMEs, large companies, and institutions with diverse technologies and procedures for doing business domestically and internationally. More specifically, supply chains of customers and suppliers are developing common standards for exchanging information and creating interorganizational "virtual" processes for managing business operations. SMEs have to be part of these supply networks in order to grow. Canada's trading partners are also bringing their business organizations online. SMEs have to be ready to buy, sell and coordinate across borders in order to export and import effectively.

Call to Action:

  • Industry associations should develop specific strategies for engaging SMEs in industry supply chain integration efforts. Online processing should not be a barrier to entry for new or existing firms.
  • Industry associations and governments represent significant purchasers in supply chains. Advocating the use of e-procurement and online operational coordination pulls adoption of compatible IBS through the supply chain.
  • The Federal Government could present coordinated and consistent guidance to SMEs as to how to conduct business internationally over the Internet.
  • Lending institutions and other financial service providers should be made aware of the issues and conditions of SME business online in order to provide "SME-friendly" advice on risk management for investments in infrastructure and online transactions.
  • Existing technology providers and entrepreneurs should be encouraged to develop and disseminate sustainable business models for IBS adoption and use.


Net Impact Canada IV: Strategies for Increasing SME Engagement in the e-Economy (Net Impact IV) is a publication of the Canadian e-Business Initiative, a private sector-led partnership that aims to further Canada's e-business success by focusing on productivity, leadership and innovation. CeBI's membership includes senior representatives from Government, industry and academia. Much of CeBI's work occurs through product-driven teams that aim to further movement in key areas of impact for accelerated e-business adoption in Canada.

The primary sources of information for Net Impact IV were three rounds of data collection on the adoption and use of Internet Business Solutions (IBS) by Canadian small and mediumsized enterprises (SMEs). Data were collected on behalf of CeBI with support from Industry Canada, Cisco Systems, Telus and York University. For purposes of this study, IBS were defined as initiatives that combine the Internet with networking, software and computing hardware technologies, to enhance or improve existing business processes or to create new business opportunities. Definitions of IBS categories used in the studies can be found in Appendix 1.

The first round of data collection was conducted during the summer of 2002 and consisted of a survey of 398 SMEs. The findings of this survey were reported in two documents. The first document, Net Impact Canada: The SME Experience (Net Impact I), was published in November 2002, and reported on how Canadian SMEs were using IBS to improve their business processes. The second document, Net Impact Canada II: The International Experience (Net Impact II), was published in May 2003, and explored how Canadian SMEs compared with similar firms in the United States (U.S.) and three leading European Union (E.U.) countries: the United Kingdom, France and Germany. The comparative data for the U.S. and E.U. firms were gathered by other studies similar to Net Impact I.4

The second round of data collection was in the form of seven focus group sessions with a total of 56 SME owners and managers. Results from this research were published in September 2003, in the document, Net Impact III: Overcoming the Barriers (Net Impact III). The research explored and extended the findings of earlier Net Impact Canada reports, by fleshing out the quantitative findings with more qualitative information.

The third round of data collection was a survey of 952 Canadian SMEs conducted in March 2004. The survey was modified from earlier Net Impact Canada surveys to take into consideration recent trends and findings. All in all, these studies provide a rich and robust source of information upon which to base this report.

This report synthesizes the data and results from these three phases of data collection (a brief description of the methodology used for these studies is provided in Appendix 2). To augment the Canadian data, the report also draws on additional Net Impact studies conducted in the U.S. and Europe, as well as other relevant information from domestic and international sources.

This report is divided into two main sections. The first section, Where we are now: Signs of progress, outlines the substantial accomplishments achieved by Canadian SMEs to date. The second section, Challenges and Solutions: Barriers to further SME engagement in the e-economy, presents areas of concern, where SMEs have failed to make progress. The section then proposes a set of strategies aimed to address these areas of concern.

1 Statistics Canada, Business Register, June 2003, and Industry Canada, Key Small Business Statistics May 2003.

2 Industry Canada, Small Business Quarterly, Vol. 5 No. 4, February 2004.

3 Statistics Canada, Survey of Electronic Commerce and Technology 2002, April 2003.

4 Varian, H. RE Litan, A. Elder, J. Shutter. The Net Impact Study: The Projected Economic Benefits of the Internet in the United States, United Kingdom, France and Germany. V2.0, January 2002.