Small firms close the E-Business gap

In July 2003, the European Commission published its latest 'European e-Business report', an investigation into the uptake of information and communications technologies (ICT), internet and e-business software in seven different industry sectors across the European Union.

The study is an update to a similar piece of research undertaken nine months previously in March 2002, and serves to show how the adoption of new business technologies progressed over the intervening nine months.

In addition to measuring uptake in different industry sectors, the report also examines relative rates of uptake among differing sizes of company. The companies investigated are segmented into three size groups: 0-49 employees (small), 50-249 employees (medium) and 250+ employees (large).

The report shows that, despite the economic downturn, the uptake of e-business technologies and activities is increasing steadily among small and mid-size firms. Of particular importance is the proliferation of broadband connections, which are at last filtering down into even the smallest companies. Indeed, 42 percent of companies with 0-49 employees are now connected to the internet at DSL speeds or greater, thanks to the efforts on the part of national governments and telecoms operators to promote nationwide coverage.

The advance of broadband is in turn permitting smaller companies to adopt the e-business technologies that until recently were the preserve of larger firms with high-speed leased-line internet access. For the first time, we are seeing smaller companies adopting the kinds of internet-based software and systems that foster less expansive and more efficient working practices, better access to company data and improved collaboration with other parties in the value chain.

Not only are smaller companies using the internet to take advantage of the cost efficiencies involved in, for example, online purchasing, but they are also beginning to explore the benefits of comprehensive business-management software, commonly known as Enterprise Resource Planning (ERP) software. These integrated software suites allow companies to integrate core processes such as sourcing supplies, manufacturing goods, managing orders and inventory and sales and customer service.

These sorts of system have long been in use at larger companies, where they have been employed to minimize administrative work, create a collaborative online environment with customers and suppliers, and give employees a better insight into key data such as customer spending patterns, inventory levels and cash flow.

The EU's study found that use of ERP (e-business) systems by companies of 0-49 employees doubled between March 2002 and June 2003. Although this figure should be treated with some caution, as only 11 percent of companies in this segment were using an e-business package in June 2003, up from six percent nine months previously, it nevertheless demonstrates that companies of this size are unmistakably beginning to invest in e-business. Among companies of 50-249 employees, the use of e-business systems is advancing steadily, with 28 percent of organizations having an ERP system in place.

Small companies exploring the benefits of e-business appear to be starting with e-procurement, with fully 60 percent claiming to purchase goods online. This is a sensible entry point, as the short-term cost benefits of online procurement are well proven.

Companies implementing an online procurement strategy can typically save 7-8 percent on their overall procurement costs, according to research undertaken by the Bristol Business School in the United Kingdom, and corollary benefits include a reduction in the number of suppliers, shorter procurement timescales and the ability to negotiate better deals.

Small firms encouraged by a positive experience with e-procurement are the most likely to investigate the further advantages brought by a more comprehensive, integrated system for e-business. Their comfort level with broader ERP systems is increasing with the growing number of solutions created specifically for smaller organizations.

Oracle's E-Business Suite Special Edition, for example, is a bundle of integrated software modules tailored to the needs of companies of 50-500 employees. It is sold exclusively by local IT consultancy firms who are able to work closely with the customer to implement the system, a particular bonus for very firms that have limited in-house IT skills.

A case in point is Paperhat Consulting, a 15-person print procurement firm based in London, UK, which purchased the Oracle E-Business Suite Special Edition from local IT consultancy Sysao. Paperhat is now using the software to collaborate with clients, manage orders and streamline financial accounting.

Tim Peppiatt, Paperhat's chief executive, was surprised to find that Oracle's e-business software could benefit a company of Paperhat's size.

'When we first started to look at these enterprise systems, we believed that Oracle would only be able to supply the likes of a Sainsburys or a British Airways,' he says. 'We were pleasantly surprised at the Oracle E-Business Suite Special Edition and how affordable it was, so much so that we added the portal technology to it as well and were able to deliver a much bigger system to our clients.'

'Our process relies on having enough time to get the best market rate on behalf of our clients. We run projects for people like Sony, Vodafone and Adidas and they expect not only world class thinking, but world-class practices as well,' he continued. 'We now have repeatable world-class processes, we are far more competitive than any of our rivals, and we are attracting a higher caliber of client. I believe Oracle and Sysao have delivered to us a truly world class system and more importantly to a small business like Paperhat, at a price we didn't believe was achievable.

Paperhat's situation echoes a common goal among smaller organizations: the ability to interface with larger companies in the value chain. The adoption of industry-standard e-business systems is ideal for this purpose, as the systems can be securely externalized to integrate directly with those of other companies in the chain. Indeed, 23% of small and 17% of mid-size companies in the EU's survey said they already had some form of IT integration with suppliers, and these figures are expected to increase as more companies realize the cost and time savings incurred by enabling data (such as invoices, payments, orders and receipts) to flow automatically between value chain participants.

'With the arrival on the market of e-business packages designed specifically for smaller companies, the barriers to achieving e-business are coming down, even for the smallest companies,' said Anthony Peake, director of mid-market marketing, Oracle Corporation. 'Slowly but surely, a state of e-business equity is being reached, in which companies large and small are equally well equipped, technologically speaking. This is a positive economic indicator, as companies with similar levels of e-business sophistication are better able both to collaborate and to compete.'

'As the European economy continues to recover, the advance of e-business into ever smaller companies will provide a solid basis for future economic growth,' he concluded.