November 11, 2004 - 07:00
Racing to catch up
By Peter Wolchak

E-business in Canada has been extensively researched and previous work has highlighted both strengths and weaknesses, but the most recent study paints an especially dire picture of the near future.

Any hope Canadian companies have of leading the world in strategic innovation and economic performance rests on the ability to deploy Internet business solutions (IBS), such as e-mail and corporate Web sites, according to the 2004 Net Impact study, conducted by the Canadian e-Business Initiative (CeBI). Yet the implementation of IBS among small and medium enterprises has slowed, and may indeed have stalled.

The SME segment is critical, as companies of less than 500 employees comprise 99 per cent of Canadian businesses. “A lukewarm SME response to IBS adoption may weaken any national strategy to bolster Canada’s international competitiveness,” according to the report.

“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.”

Indeed, numbers from Microsoft Canada president Frank Clegg show us losing the race in relation to our biggest trading partner. “Canada is about 10 percent of the population of the U.S., but our spending on IT is about 6.3 per cent of the U.S., and on software we’re at about five per cent.”

Clegg was speaking in Ottawa at the e-Commerce to e-Economy conference, a large gathering of sector leaders organized by Industry Canada in September.

Overall IBS adoption by SMEs showed no improvement between 2002 and 2004, according to various CeBI studies. In fact, data from both 2002 and 2004 indicate at least 50 per cent of SMEs have not employed even a single IBS. In 2004, only 10 per cent of SMEs said they had plans to adopt an IBS for the first time, and only 11 per cent of adopters indicated they would implement additional business technology projects in the next 12 months.

The central point, say industry watchers, is two-fold: not only have half of Canadian SMEs not adopted an IBS, but the other half, who have typically implemented only a Web site and e-mail system, have stopped there, even though they have seen economic benefit from early technology forays.

BOTTOM-LINE DOLLARS
The financial gains generated by IBS can be significant, Terry Walsh, CeBI co-chair and president and CEO of Cisco Systems Canada, told the symposium.

“Half of SMEs have adopted Internet business solutions and are realizing an average of 9.5 per cent gain in revenue and a 30 per cent reduction in cost,” Walsh said. “Some are seeing as much as a 40 per cent increase in revenue and a 150 per cent increase in profit.

“So the 50 per cent who are not participating are in real danger of falling behind not only their local competitors, but their global competitors as well.”

Of those companies which experienced increased revenue, the most often-cited reason was the use of IBS to attract new customers, concluded a 2004 CeBI study.

The survey also found IBS use resulted in reduced costs for SMEs, although the effect was less pronounced than was seen with revenue generation.

Also, asked if IBS gave them a competitive advantage, 56.7 per cent of SMEs answered yes, and many cited an improvement in customer and supplier relationships.

WHAT’S THE HOLDUP
With all that, Walsh asked, why are half of all SMBs not rushing to implement their own IBS projects?

“They don’t have time, they don’t have the skills onboard and in many cases the way forward is unclear,” he said.

This is echoed by the Net Impact study, which concluded that owners and managers in the SME space do not have the time to explore the benefits of IBS adoption and are struggling with the fact technology vendors offer only a limited range of tools that target smaller companies.

David Johnston, a Schulich School of Business associate professor at Toronto’s York University and one of the report’s authors, said most e-business tools are made for large companies. “Technology providers need to downsize their product offerings a lot more intelligently. And they haven’t done that very well.”

Johnston also said business owners are often simply too busy to engage in even those activities that are ultimately advantageous.

“People sometimes don’t adopt this technology because, even when there are positive benefits, they are not positive enough to deflect them from the other parts of the business, like running after customers. That means some people are too busy fighting alligators to drain the swamp. In some cases, this technology would allow them to drain the swamp: find new customers, reduce costs, etc.

“A lot of people, if you ask them ‘Is this a good idea?’ will reply ‘Yes, it’s a good idea.’

But will they get to it tomorrow? Maybe.”

Ed Kilroy, president of IBM Canada and also a conference speaker, said lack of knowledge among senior management is often the biggest impediment
to the adoption of Internet business solutions.

“When you ask business leaders what they think some of the biggest issues are in terms of making these changes, the first thing they cite is the ability of their management to take them through this transformation.

Many of them, even once introduced to the concept of IBS, will stand back and say, ‘Do I have the ability to do this in my company?’”

Too often, the answer is no.

“So this is not really a technical issue, although we can identify some technical challenges; it’s actually a leadership issue around business transformation.”

Kilroy said this fact effectively dooms some companies.

“You’re going to have leaders, you’re going to have followers and you’re going to have people who just aren’t going to participate. So we need to highlight the leaders, push the followers, and the people who aren’t going to participate will suffer those consequences,” he said.

Consequences which, according to report co-author Ron McClean, also of the Schulich School of Business, loom in the very near future. “The pace of change is so quick that within two or three years, any company that is not doing something with Internet business solutions will be in serious trouble.”

DO THIS NOW
So there is a significant dichotomy among SMEs. When asked, many say IBS grants competitive advantage and has proved important in the ongoing health of their companies, yet the rest are staying away from the technology in droves.

However, for those companies who have seen the light and want to pursue a forward-looking strategy, there is some positive advice out there. The most important step is education.

“If I ran a small or medium business,” said IBM’s Kilroy, “first I would pick up the phone and call the major associations that I belong to, and ask ‘What are we doing to educate ourselves on the capabilities that are already out there in the marketplace, to improve the productivity of our firms? What do we need to understand to make the biggest changes in our business?’”

In general, Kilroy advocates tracking down trusted advisors, people and organizations with knowledge that is relevant to an individual’s business segment.

McClean from Schulich points to community colleges with the same advice.

“Go to your local community college.

They have small-business advisory groups and that’s a good starting point.”

POSITIVE OUTLOOK
Although the current adoption numbers are gloomy, the outlook going forward shows promise.

The first bright light, according to a worldwide CEO survey conducted by IBM, is that growth is back on the corporate radar. “The most encouraging thing
that came back from the survey was that the number one priority for 80 per cent of them was growth,” said IBM’s Kilroy.

“Growth is back on the agenda. “Cost cutting and productivity are still important, but they said we have to get growth back.”

Two-thirds of those surveyed expected growth would come from new products developed over the next three to five years.

The second upbeat note came from the recognition that Canada has a bright past, and from a commitment to the future.

Conference keynoter Michael Sabia, BCE president and CEO, said the tech industry has recently been a victim of its own success; because it had been healthy for a period it garnered scant strategic attention from government or even from industry.

“[Information and communications technologies] are so integral to the economy of this country that they need to be high on the list of public issues.

And let’s be honest, they haven’t been.”

However, he said the industry has been a worldwide leader and with some attention it will be again.

And attention to the industry was pledged by federal Industry Minister David Emerson. Although details were hard to come by, Emerson said his ministry
is engaging in a “rethink” on the role of ICTs (information and communication technologies) in Canada’s economy.

“We should aim to make Canada a fully ICT-enabled economy, a worldleading e-economy that will foster growth and wealth creation across and throughout the country,” he told the symposium crowd.

Canada will do this, he said, by creating an “environment in which Canada gains advantage, in which we can attract and retain even more graduate students, researchers, engineers, financial experts and marketing managers. We can create the climate in which highly qualified people make considered decisions to build businesses here...”

And in a statement that many observers saw as a commitment from his government, Emerson observed that the numbers showcased by CeBI amount to a set of action items.

“While some Canadian firms are global leaders in the generation and production of ICT, too many Canadian firms, mostly in the small and mediumsized enterprise sector, have been slow to adopt powerful new technologies,” he said. “This has negative implications for Canadian competitiveness.

We need to assess how we can accelerate technological adaptation by the growing number of firms in the SME category. Tax incentives and/or lower
taxes may have a role to play here, as the report noted.

“That is why we are engaged at Industry Canada in a strategic rethink.

We are asking ourselves where we want to see the Canadian economy 10 years from now, and what policy levers can be best applied to get us there.”