Application 2 – Annotated Bibliography

Knowledge and Process Management Volume 7 Number 3 pp 187-195 (2000)

Research Article

Attitudes towards Process Improvement among SMEs Involved in E-comrrierce

Judith Jeffcoate^*, Caroline Chappell^ and Sylvie

' University of Buckingham, UK ^ Trefoyle Partnership, UK ^Sylvie Feindt Consulting, Germany

As part of the ESPRIT project KITE, the authors carried out a qualitative study of 27 SMEs that were actively engaged in E-commerce and whose activities were judged to represent best practice in this field. As the most successful SMEs grow rapidly, they will become increasingly aware of the need to improve and extend their existing processes. Based on our analysis of the best-practice SMEs, we make 15 recommendations for ways in which SMEs can ensure that they can support high-volume E-commerce activity by adopting best practices for process improvement, partnership and integration. Copyright © 2000 John Wiley & Sons, Ltd.

INTRODUCTION

Electronic commerce is the carrying out of busi- ness activities that lead to an exchange of value across telecommunications networks (EITO, 1999). It has often been promoted as an opportunity for small and medium enterprises (SMEs) to gain access to wider markets. However, despite exten- sive coverage in trade magazines and the popular press, few qualitative studies have heen carried out into the specific ways in which these compa-

Dr Judith Jeffcoate is a Lecturer in Information Systems at the University of Buckingham, where she coordinates the Depart- ment's E-commerce programme. She is also a co-founder of the Trefoyle Partnership.

Caroline Chappell is a co-founder of the Trefoyle Partnership. She researches E-commerce markets, with an emphasis on the development of SME E-commerce and the emergence of new E- commerce value chains.

Sylvie Feindt is managing director of Sylvie Feindt Consulting. Before creating her own company she worked for the European Commission on internal market and Information Society issues as well as for two different German telcommunications companies.

*Correspondence to: Judith Jeffcoate, Department of Informa- tion Systems, University of Buckingham, MK18 lEG, UK. E-mail: [email protected]

nies are adapting their businesses to take advan- tage of the Intemet.

Among the challenges facing SMEs who want to adopt E-commerce are the need to improve their existing processes or to introduce new processes, and to integrate their new web-based systems both with existing internal systems and with external systems belonging to their customers and suppliers.

In this paper we analyse the results from a study of 27 SMEs that are actively involved in E- commerce and who were selected as examples of current best practice in the field. These organiza- tions were asked to describe their approach to E- commerce in terms of the strategies adopted, the objectives sought and the factors that they con- sidered to be critical to their success in achieving these objectives. These critical success factors included: improvements to business processes, integration of underlying IT systems, and the development of business partnerships. The impor- tance attached by a small business towards each of these factors was related to its chosen strategy and in particular to its attitude towards growth.

We begin by reviewing studies of small business attitudes to E-commerce and related areas, with particular reference to the use of technology. Next

Copyright CO 2000 John Wiley & Sons, Ltd.

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we describe the KITE project and the methodology adopted for the best-practice study. We then review the results of that study as they relate to certain factors that are critical in ensuring that SMEs are able to participate fully in E-commerce. This review leads to a set of recommendations on how these critical success factors may be achieved in practice. We close with some observa- tions on the importance of these factors to SMEs in E-commerce and plans for future research.

SMALL BUSINESSES AND E-COMMERCE

E-commerce activities are carried out within three communities (EITO, 1999):

• Business-to-business, where both customer and merchant are businesses

• Business-to-consumer, where the customer is a consumer and the merchant is a business

• Public sector, where the government may be either a customer or a merchant in the broadest sense and the other party may be either a business or a consumer.

Popular attention, as well as academic research, has concentrated on the business-to-consumer market and on customer-facing applications such as marketing, sales and customer support. Most businesses are less advanced in installing supplier- facing applications such as receiving and respond- ing to supplier requests, and payment of suppliers. Consequently these have received less attention in the media and from researchers. They are, how- ever, crucial for the future development of electro- nic business.

Early studies concentrated on the use of the Internet by small businesses, the benefits they might expect to achieve and the difficulties they faced. Eor example, a study carried out in 1996 tracked fifteen small businesses based in Michigan (McCue, 1999). These SMEs expected to market products and services from their web sites, through a variety of customer-facing applications, ranging from on-line advertising, through quota- tions, sales, answers to customer queries and conducting market research. They were supported by experts, offered in-depth training and assisted by marketing techniques such as analysis of constraints, and changes to web site content. Despite this, during the course of the study the SMEs sold very little on the Internet. It was concluded that these low sales resulted from a combination of constraints related to competency, time, finance ,̂ marketing and technology. In parti- cular, most companies had limited knowledge

about how various computer technologies could contribute to an overall E-commerce strategy.

This limited knowledge of technology among SMEs is a common theme in such studies. A survey of businesses selected from the Chamber of Commerce in a mid-sized metropolitan area in the USA divided respondents into large, mid-sized and small enterprises. Internet usage patterns were remarkably similar among all three groups. How- ever, small and mid-sized comparues were more likely to indicate a greater need for business programs dealing with computers and technology, with small firms expressing the greatest perceived need (Haynes et al., 1998).

Lack of technical expertise is particularly sig- nificant in relation to the successful integration of business processes. Poon and Swatman (1997) studied 23 small businesses in Australia that were active Internet users in order to establish the preconditions for success and the strategic effects from its use. Multiple case studies were created based on interviews and site visits. The authors found little evidence of integration between inter- nal systems, such as accounting, customer and inventory management, and the Internet among this group of early adopters. Possible reasons for this lack of integration include: the low volume of messages received over the Internet, the lack of in- house expertise and the absence of external pressure from larger companies. A three-stage model is proposed, in which Internet integration starts with inter-organizational systems (IOS), that is, those information systems that cross organiza- tional boundaries, followed by selected local integration and finally by full local integration, thus allowing the company to exploit the results from extemal integration in its intemal systems.

SMALL BUSINESSES AND EDI

Electronic data interchange (EDI) is the transfer of structured data by agreed message standards from computer to computer by electronic means. Private EDI networks have facilitated back-office functions such as ordering, invoicing and settlement for some 20 years. The use of EDI is thus particularly relevant to the development of business-to-busi- ness E-commerce. However, this use has largely been driven by large businesses for their own benefit.

The lack of EDI capability in small enterprises is considered to be critical because of the important role that they play in the economy. Nevertheless there are still few studies of the impact of EDI on small businesses. Iacovou et al (1995) carried out

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structured interviews with the managers of seven SMEs that were suppliers to the British Columbia government. They compared the attitudes of current adopters of EDI {two companies) with those of non-adopters (five companies). Recogni- tion of the perceived benefits of EDI varied significantly between the two groups. Non- adopters focused on direct benefits, which are mostly operational savings, related to the intemal efficiency of the organization. Adopters, in con- trast, were aware of the indirect benefits that might result from the impact of EDI on business processes and relationships. The authors note that SMEs tend to have low levels of internal integra- tion because most of their operations are not computerized. They therefore suggest that integra- tion should be perceived as a second stage in the adoption of EDI. They also note that many small businesses lack both an awareness of the full range of benefits available and the high levels of organizational readiness that are needed for the development of integrated high-impact EDI systems.

A more recent study, based on in-depth inter- views with key persormel, reports on first-hand experience of the effect of EDI on a sample of eight small businesses in the UK (Chen and Williams, 1998). None of these companies had integrated EDI directly into their intemal systems, though three had provided links using a dedicated PC. All but one were reactive in their use of EDI, indicating that if the technology had not been requested by large customers they would not use it. These SMEs tended to lack resources and experience. Most seemed to have difficulty in organizing their systems properly, or in imple- menting a complex internal and integrated EDI system, or in planrung their EDI development.

In contrast to EDI, where a major customer can force a small business to use a proprietary EDI environment solely for the customer's benefit, the Intemet is based on open systems and is open to all users. A small business does not have to identify its trading partners first but can use the Intemet itself to find them. In E-commerce an irmovative SME can thus be at the forefront of development, even entering the electronic market- place before other, larger companies (Poon and Swatman, 1997).

SMALL BUSINESSES AND BPR

Business process re-engineering (BPR) is the trans- formation of organizational processes through the optimal use of information technology in order to

achieve improvements in quality, performance and productivity. It is an approach usually associated with large enterprises. Eew studies have been carried out on its applicability to smaller compa- nies. A survey of BPR in Canadian enterprises considered the similarities and differences between SMEs and large enterprises relative to the advantages and success factors of BPR (Ray- mond et al., 1998). Out of 134 completed projects in the survey SMEs implemented 28. The results indicated that SMEs provided less organizational support, showed less compliance with BPR princi- ples and allocated less diversified resources to the projects than did the large enterprises.

Chang and Powell (1998) carried out a survey of 63 small businesses and 44 medium-sized busi- nesses in Taiwan. They report a high degree of enthusiasm for BPR among those SMEs that have adopted the practice. Such companies seem to be in a better business condition and are able to operate in more competitive markets. They con- clude that SMEs have as much opportunity as larger companies to benefit from their BPR efforts. However, financial insufficiency restricts re- engineering work to a lower level and narrower scope.

Business processes are at the heart of E- commerce. Such processes can range from the way in which product prices are updated in business-to-consumer E-commerce to the agree- ment of protocols and work processes with dis- tribution and development partners. To ensure success, they should be clearly defined and reviewed as part of the business case. Most failures among organizations that have developed and implemented E-commerce solutions can be ascribed to three issues: the business case was not defined, the business processes were not identified and agreed in advance, the technology or the ap- plication did not prove suitable. Of these, the first two cause the most casualties (Cunningham, 1998).

THE KITE BEST-PRACTICE STUDY

The ESPRIT project KITE set out to collect, illustrate and analyse the diversity of E-commerce that is undertaken specifically by small and medium enterprises (SMEs) in order to inform, encourage and inspire others. The KITE inventory comprises 150 Intemet SMEs, defined as enter- prises that are active in E-commerce and have fewer than 500 employees (KITE, 1998). Each of the entries in the inventory gives information on the type and size of the organizaHon, its motiva- tions, the technology used, the relative importance

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of the benefits and barriers it is experiencing and its future plans.

At the start of the project a questionnaire was developed to capture information considered to be commercially useful to an Intemet SME. It was envisaged that the questionnaire, mainly com- posed of closed questions, would be sent out, by e-mail, to potential respondents. However, it soon became apparent that this method of data collec- tion would not yield the desired results. The information-gathering process therefore had to be changed. As a result, most of the inventory entries were researched by telephone, yielding a high level of qualitative information, which is both interesting and valuable.

Many small companies fail to exploit the Inter- net because there is little information, tailored to their circumstances, to help them do so. The KITE project team set about researching this neglected area by interviewing 'best practice' SMEs, defined as those companies in the inventory which are enjoying the greatest success in carrying out H- commerce. It was considered unlikely that an SME would be a business success on the Internet if it did not employ a significant number of best practices. More than one successful company in the sample had identified and employed the same best practices, suggesting that there is a general set of best practices that boosts success. Erom the responses of these best-practice SMEs some valu- able lessons and recommendations have been distilled for the benefit of other small businesses (Chappell et a!., 1999).

Eor the best-practice study, the team selected a sub-sample of 46 Intemet SMEs from the KITE inventory. These were chosen because they were viable Internet businesses that had reported high growth and/or had been going concems for a minimum of six to nine months. Phone interviews were conducted with this sub-sample to establish their business strategies and objectives. As a result of these interviews the team retained SMEs with a positive attitude towards growth (i.e. who wanted to make money). Those who were 'just doing E- commerce on the side' were rejected even if their sites were attractive or had received awards. Twenty-seven of the 46 SMEs were retained as best practice cases, representing successful E- commerce ventures from a variety of business sectors and geographic locations.

CLASSIFICATION OF INTERNET SMEs

The first task was to find some means of classify- ing SMEs so that sets of recommendations could

be matched to the needs of different types of business. Typically, SMEs are lumped together as a class, or categorized by the number of people that they employ. However, neither grouping is satisfactory when it comes to E-commerce. Instead, KITE adapted a classification system originally developed by David Birch at MIT, which looks at the motivation and growth potential of companies. Birch's work has concentrated on 'gazelles', growth-orientated companies that have achieved a minimum of 20% compound sales growth each year over the previous five years, starting from a base of at least $100,000. Gazelles are primarily mediiun-sized enterprises (i.e. with 100-499 employees). They form only 3̂ 0 of the small business sector but create the most jobs (Birch, 1979).

When this classification was applied to the KITE sample, it became apparent that SMEs that suc- cessfully use E-commerce fall into one of two categories: they are either 'baby gazelles' or 'gophers'. The baby gazelle is a micro or small enterprise (i.e. with 5-i9 employees) that has the greatest potential to become a gazelle. The gopher is a new category, introduced by KITE for those SMEs that have a positive attitude to growth but whose owners value a certain quality of life, a lifestyle or a mission over wealth. Such SMEs can be very innovative and highly profitable but are less likely than the gazelles to create jobs.

COMPETITIVE STRATEGIES

The next step was to look at the competitive strategies of the best-practice group of SMEs. Many small businesses do not formally define or understand their competitive strategy, a factor that serves to weaken their position in their chosen market. Classic strategy models were applied to the group of SMEs, based on the three generic strategies for achieving competitive advantage proposed by Porter (1984):

• Become the overall low-cost producer within a broad market

• Seek to differentiate products in some way within a broad market

• Eocus on narrow market niches as either low- cost producer or through differentiation.

Unlike much larger companies, SMEs taking up E-commerce have very little choice of strategy. All must start out in a niche market, with some means of differentiating themselves from their competi- tion (differentiation focus). From this competitive position, they may move into a broad market

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based on differentiation, or, in a few cases, into a niche market where they can offer a cost advan- tage (cost focus). Three categories of best-practice SME were identified, based on their attitude to growth and their competitive strategy:

• Gophers with a differentiation focus (niche market)

• Baby gazelles with a differentiation strategy (broad market)

• Baby gazelles with a cost focus (niche market).

Gophers want to maximize their income while maintaining their quality of life so they are likely to remain in niche markets where they will differentiate themselves through the limited/spe- cialist set of products and services they offer. They cannot achieve the economies of scale that are required to become cost leaders. Baby gazelles, on the other hand, are highly growth-oriented. Many of those in the KITE best-practice sample are seeking broad markets for their differentiated products and services, replicating their success in other geographic areas and market sectors. Others are seeking to become price leaders in very focused markets. As SMEs, they cannot hope to become cost leaders in a broad market, however.

CRITICAL SUCCESS FACTORS FOR SME E-COMMERCE

In order to implement competitive strategies, SMEs need specific business objectives that help them achieve at least part of their strategy within a given timeframe. Each objective should be sup- ported by critical success factors, defined as the 'areas in which results, if they are satisfactory, will ensure competitive performance for the orgariiza- tion' (Rockart, 1979). As a result of its research with 27 best-pracHce SMEs, KITE has identified 11 critical success factors relevant to the competitive performance of small businesses entering the E-commerce market. These factors are (in order in which they should be adopted by the SME):

• Commitment: a strong motivation for using the Internet and the will to innovate

• Price sensitivity: the sensitivity of a product or service to price competition on the Internet

• Content: the effective presentation of a product or service offered over the Internet

• Convenience: the usability of the web site for the purpose for which it was designed

• Control: the extent to which organizations have defined processes that they can manage

• Interaction: the means of relationship-building with individual customers

• Brand image: the ability to build up a brand name for the E-commerce business, and its products and services

• Community: the means of relationship-building with groups of like-minded individuals or organizations

• Partnership: the extent to which an E- commerce venture uses partnerships (value chain relationships) to leverage Internet pres- ence and expand its business

• Process improvement: the extent to which companies can change and automate business processes

• Integration: the provision of links between underlying IT systems in support of partner- ship and process improvement.

A small business starting out on the road to E- commerce need not apply all the critical success factors from day one. Broadly speaking, a wealth- creating SME (baby gazelle) will need to take into account more critical success factors—commit- ment, content, price sensitivity, convenience, con- trol, interaction and brand image—from its start- up phase.

As their E-commerce business grows, SMEs will need to add critical success factors to maintain competitive advantage. Such critical success fac- tors are added incrementally: they are not replace- ments for those in earlier phases of growth. Commitment and content remain just as important in a high volume business phase as at start-up, for example. On the other hand, integration is neces- sary to support a competitive high volume busi- ness; however, it may add unnecessary cost at the start of an E-commerce venture, when the volume of orders is low.

The critical success factors were therefore seg- mented into three phases:

• Those that deliver competitive advantage from the beginning, in a start-up phase

• Those that become important when growing and establishing the business

• Those that are important to ensure the business can support high volume E-commerce activity or, in the case of a baby gazelle, to ensure it can undergo transition to full 'gazelleship'.

Figure 1 summarizes the critical success factors appropriate for each category and the phases of growth at which they start to deliver competitive advantage. The remainder of this paper concen- trates on three factors that are particularly impor- tant in the high volume phase. The first of these is

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Critical success factor

Commitment Content Price Sensitivity Convenience Control Interaction Brand image Community Partnership Process improvement Integration

Start-up phase Growth/transition phase High volume business/maturity Not recommended

Figure 1 Critical success factor appropriate for SME category and phase of growth

process improvement, which is enabled by two other factors: partnership and integration.

PROCESS IMPROVEMENT

This critical success factor was selected by 10 of the best-practice sample, of which six were baby gazelles and four gophers. The common link between all these companies is that they are extranet-oriented: that is, they work with business partners as part of a value chain. Because of this, their internal processes extend to, and become interwoven with, those of customers and/or suppliers. To make these business relationships work, such SMEs are being forced to look at their intemal processes, define and control them, and change them to extend into partner organizations. This change usually involves improvement to gain efficiencies, and automation through systems inte- gration.

Two of the gophers are networks of individuals that collaborate on specific projects. One creates products, the requirements for which are defined by a community of users, and the fourth is also an intermediary between very small suppliers and large retailers, as well as consumers. This latter SME is on the cusp of becoming a baby gazelle: process improvement and the integration to sup- port it in the area of order processing would enable it to increase its volume of sales dramatically.

Half of the baby gazelles are business-to-busi- ness intermediaries, leveraging business relation-

ships between numerous very small suppliers and larger purchasers. Two of the companies are suppliers of 'virtual' products—software and information, one of which has a cost focus and therefore needs cost-effective and efficient pro- cesses in the areas of software acquisition, order processing and fulfilment. The other offers a differentiated, time-critical service, which depends for its success on efficient interaction with its subscriber base, and flexible processes for acquir- ing, managing and presenting content. The sixth company has improved its processes to support closer partnership with its main customer. The processes concerned relate to collaborative work- ing—electronic exchange of design information, as well as purchase order and invoicing data. As a result of its process improvements, the SME has positioned itself as a favoured supplier and has moved itself further up the value chain in its relationship with the large customer.

The majority of SMEs in this category are new market entrants—cybertraders with no legacy processes to re-engineer. Nevertheless, both new entrants and existing companies that are moving into E-commerce will need process flexibility to enable them to adapt quickly to new market conditions. Process improvement embraces both BPR, appropriate to existing companies, and the ability to adapt and change processes as circum- stances require, which is a feature of the best- practice cybertraders in this group.

The recommendations for process improvement may well be beyond the need, financial and/or

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implementation ability of most gopher companies, particularly in a start-up phase. They should, however, be built into the business plans of baby gazelles, since these companies start with the intention of growing rapidly and creating wealth—that is, moving quickly into a high- volume phase. As we have seen, processes will need continuous improvement as an SME moves from start-up, through a rapid growth phase, to becoming a high-volume company or at the point of transformation into a gazelle. In early phases of growth, the company itself and the volume of business rî ay be small enough for processes to be carried out manually. In later phases, some pro- cesses may need to be automated. As a precondi- tion for automation, companies should analyse their processes to see how they can be carried out more efficiently and effectively and to evaluate where automation will bring the most cost-benefit.

Recommended practices lo support process improvement

• Develop flexible processes that help the busi- ness adapt quickly. It should be possible to make changes to processes easily in response to new market conditions, changes in technology, or increased sales volumes.

• Re-engineer legacy processes to take into account Internet processes. For example, the existing process for taking orders should be integrated with the process for taking orders over the Internet so that the SME has a seamless view of all customers, regardless of the channel they have used to approach the company.

• Automate processes within the company using Intranet technology. Internet and web technol- ogies can be used intemally to publish corpo- rate information, share work, implement workflow, update extemal web site content.

• Automate processes to deliver value-added services. Intelligence should be built into sup- port systems so that they 'know' about custo- mers and car\ automatically offer them new services, special offers, product updates.

• Automate the online ordering process. All totals should be calculated in real-time, and reflect any special discounts, local currencies, delivery charges, local taxes.

PARTNERSHIP

This critical success factor was not obvious at the beginning of the research: instead it emerged from

many SMEs' comments on their practices regard- ing other success factors that have a bearing on value chain relationships—including integration, interaction, community, brand image, price sensi- tivity and process improvement. We identified these comments as having a common theme—how best to support business partnerships—and col- lated them within a separate success factor.

The best-practice sample demonstrated different kinds of partnership:

(1) Partnerships to generate traffic/sales. Such partners retain a percentage of sales in return for promoting the SME's products

(2) Logistics and after-sales support partnerships. These are particularly important to the best- practice SMEs since there is no incentive for cybertraders to invest in their own logistics infrastructure, and existing companies do not have a logistics/support capability in the new markets to which they want to gain access, even if they have the ability to deliver to a local market

(3) Partnerships with suppliers: of key importance to intermediaries

(4) Peer partnerships in networked organizations, where 'micro' SMEs collaborate on specific projects won by the consortium.

A gopher is more likely to have partnerships in the areas (1) and (4). If it grows into a sufficiently high-volume business, however, it faces a choice: it either turns itself into a baby gazelle, or it works with partners/suppliers to handle the increased volume. Gophers are most likely to take the latter path given their income-generating motivation, so all types of partnership will become important to them as they grow. At present, few gophers have grown to such an extent, so their recommenda- tions on partnerships are limited.

As baby gazelles grow, they will need a range of partnerships to help them run their business in a streamlined and cost-effective way. They will also need partners to help them take advantage of new market opporturuties, through which they can expand their business. Eor example, baby gazelles may wish to outsource business processes such as fulfilment for cost and efficiency reasons; they may wish to partner with manufacturers to bring customized products to market; or with other service providers to increase the scope and content of their service offerings. They may need to form technical partnerships to develop new infrastruc- ture in support of their products/services, or marketing alliances to leverage brand awareness. At the point at which they are ready to become gazelles, they may turn themselves into portals for

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a wider range of products and services, which will involve multiple partnerships with suppliers.

Recommended practices to support partnership

• Forge partnerships to expand the product range/service capabilities. This increases the attractiveness of a business, for example, by broadening the range of products that it can supply.

• Integrate additional content through partner- ships with third parties. This makes a site more attractive because it is content-rich: an SME can also benefit from its association with the third party provider, if it has a better-known brand,

• Outsource fulfilment to partners/suppliers of appropriate goods. Fulfilment can be a costly and complex activity for an online retailer. By outsourcing it appropriately, an SME can reduce delivery costs and broaden the product range it offers to customers.

• Test the capabilities of each new partner before accepting them. An SME's brand image can suffer from association with its partner if it falls to provide a quality service/product comparable with that of the SME.

• Explore the potential of partnering with professional associations and other business communities with similar needs. Becoming involved as a member of a community can bring an SME further business, as well as providing it with a source of potential partners which will give it the critical mass to take on larger orders/projects.

INTEGRATION

Since E-commerce is a technology-led change, it is not surprising that 60% of the SME best-practice sample had, or planned to, integrate IT systems in support of E-commerce processes. The majority— 12 SMEs—were baby gazelles, a significant pro- portion of which went live on day one with an integrated infrastructure on which to run their business, in anticipation of volume trading as the business became well known. It was important to these companies that they were perceived from the start to be reliable and highly available (24 hours a day, 7 days a week), particularly those serving international markets. Other baby gazelles with a cost focus need integration to deliver cost efficien- cies, for example by cutting out the need to pay people to re-key customer orders: this also improves accuracy and customer relationships.

Of the five gophers, one planned integration in order to support its transformation into a baby gazelle: the others see integration as a means of leveraging more value from the same amount of work, enhancing their quality of life in line with a gopher rationale. Integration can, however, be a barrier to gophers that do not have the necessary technical skills, or the funds available to buy them in. It is also often perceived as an unnecessary cost when volumes are low.

The ability to integrate IT-based support sys- tems is key to automating processes and maintain- ing efficient partner relationships. The best- practice group of SMEs prioritized the integration of front-office, customer-facing systems, that is, those systems that interact with customers over the Internet, with the back-office functions of payment, invoicing and inventory. Best-practice companies also put in place links from the Web site to fulfilment partners, and some are develop- ing dynamic pricing systems. Only a handful of the best-practice SMEs had achieved integration with partner systems; a major barrier here was the need to overcome system incompatibilities. SMEs had to write or commission multiple interfaces to support multiple data formats used by partner companies, a costly exercise. The lack of integra- tion across extranets limited the benefits that could be gained in this area.

Recommended paractices to support integration

• Integrate the online ordering system with the existing back-office systems. Examples of back- office systems that need to be integrated with the online purchase order system include: existing purchase order system, payment sys- tems, inventory and logistics systems.

• Use third parties to carry out integration between internal software and ERP systems in partner companies. It will be difficult for SMEs to carry out such integration themselves. IT consultancies and outsourcing suppliers have the right expertise and tools to link such systems, and will be able to do so much more cost-effectively.

• Enable co-workers to gain access to shared infonnation via a web-based process manage- ment system. Co-workers may include internal employees and partner employees. Appropriate information should be brought together and shared with all those who need to know, ideally under the control of a process management system.

• Integrate systems for training and quality

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control with those of extemal partners. When working with partners, an SME should ensure that it has the same understanding of issues such as quality and training, so that despite being two separate corporate entities, they will appear to the customers as one. Enable key suppliers to carry out extranet processes, such as the transfer of invoices electronically, without significant change to their existing computer software or internal processes- Any integration with partners' sys- tems should involve as little disruption to their business as possible. This will encourage them to agree to the integration and process automa- tion that will bring benefits to the SME.

CONCLUSIONS

The KITE team set out to establish a set of general recommendations for E-commerce that would apply to all SMEs. However, these recommenda- tions are not exhaustive. It is probable that there are sector- or country-specific success factors that might form the subject of further research. Eurthermore the team concentrated on practices associated with economic success in E-commerce. Two of the baby gazelles in the best-practice sample have now raised money on the stock n^arket. Five SMEs have received venture capital funding, while others have formed strategic part- nerships with major companies.

The SME E-commerce market is at a very early stage of evolution. There are few SMEs that have reached a high-volume phase of development. Within the KITE best-practice sample, a minority of SMEs selected the factors, process improvement, partnership and integration. Nevertheless, there are important pointers to these factors in critical success factors applied at earlier phases of devel- opment. Eor example, without control over pro- cesses, SMEs are unlikely to be able to improve them. Control is therefore the first step towards process improvement. Partnership and integration are closely linked to the price-sensitivity goals of an SME—particularly if it has a cost focus strategy, since both the former factors can help drive down costs—and to interaction, the building of a custo- mer relationship. Best-practice SMEs that did not have explicit plans for process improvement, partnership and integration were often implicitly anticipating them in their control and interaction activities, and pricing strategy. We expect, over

time, that these factors will grow in importance to SMEs, and to be able to extend our list of recommendations in the light of new findings. We intend to research the area of SMEs and the evolution of their relationships with customers and suppliers in electronic value chains in a further project, which will examine the importance and impact of these factors in more detail.

ACKNOWLEDGEMENTS

KITE was supported by the European Commission, DG XllI through the ESPRIT programme. We also acknowl- edge the help and cooperation of the best-practice SMEs in this study.

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