Electronic Business Models: A Study on the Adoption of Electronic Business by Small and Medium-sized Canadian Enterprises

Publication Date: June 2004

• Foreword
• Executive Summary
• Published in Partnership

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Foreword

Since the spectacular drop in the NASDAQ Index in February 2000, the concept of the e-business model (EBM) has gained popularity.

To develop an original, balanced EBM that satisfies the company's and its business partners' needs is an essential step in the development of e-business (EB) among Canadian small and medium-sized enterprises (SMEs). To go into EB without an EBM is like going into business without a business plan. What is an EBM? An EBM corresponds to Web-, or EDI-based technological solutions implemented to underpin the EB strategy and the company's value chain activities, including relations with its business partners, in order to create value for the company and its clients.

How should a company go about elaborating its EBM? What are the key questions that should be asked and how should such questions be answered? More specifically, what factors should a company consider before it relies on EB? What choices must it make? How should the company implement these choices? This study is intended to answer these questions through an analysis of 18 businesses or organizations that have successfully adopted EB and that operate in key sectors of the Canadian economy.

Consequently, this study is intended for all Canadian SMEs interested in ensuring their growth and competitiveness through EB.

Executive Summary

This report presents the findings of a study of 18 businesses and organizations that have successfully adopted EB. It seeks to shed light on the implementation of EB in SMEs while identifying an array of factors that govern the selection of the technological solutions that the businesses and organizations have adopted.

The study's findings are presented using an EBM classification (Vézina et al., 2003), and three "decision-making prisms", regrouping 12 questions.

Each EBM is defined by a combination of the strategic scope of a company's (i.e. its potential and that of its market), and the level of innovation of the technological solutions.

The 12 questions facilitate the selection and implementation of a specific EBM.

To facilitate its reading, this report is organized around the three decision-making prisms. Hence it presents the responses to the 12 related questions while referring to the four quadrants of the analytical framework developed to classify businesses and organizations according to their EBM. Examples, drawn from the business cases analysed, are presented.

What are the decision-making prisms? What questions are grouped under each one?

The first decision-making prism addresses questions pertaining to the strategic analysis of EB. It covers four key questions:

1. Which conditions favour the adoption of EB?
2. How can businesses position themselves in a given industry sector?
3. What are the barriers to the adoption of EB? And
4. What are the factors of success in EB?

The second prism, called the EBM selection decision-making prism, also examines four questions:

1. How can businesses determine the scope of EB operations?
2. How is EB modifying the value chain of the business?
3. How can economic value be created through EB? And
4. Which technological solutions should be favoured?

Finally, the third prism focuses on questions pertaining to the adoption of technological solutions. It encompasses questions related to the development phases, the effective planning of change, the development of performance indicators and the challenges and future prospects of EB.

Generally speaking, all Canadian SMEs, in the six industry sectors covered by this research, share common characteristics. They have at their disposal limited financial and human resources to develop technological solutions that reduce operating costs and bolster capacity while enabling them to diversify their range of products and services. To do so, they must often collaborate with other businesses, associations, suppliers and customers, and governments in order to take advantage of significant economies of scale, to pool resources, to increase market coverage and to broaden product lines.

However, any initiative in this regard can only succeed if SMEs are able to preserve their identity, independence and autonomy by resorting to parameterable, flexible, and customizable applications.

According to our classification of EBMs (Vézina et al., 2003), businesses can be balanced, diversified, bold or ambitious (see appendix 1 or visit www.cefrio.qc.ca/english/pdf/Strategis%20_Eng.pdf).

Until now, media attention and major efforts to develop EB have focused, above all, on ambitious businesses and, occasionally, on diversified businesses. The objective of most stakeholders has been to control the market through virtual marketplaces and shopping centres. However, the development of the tools found in this quadrant went against SMEs need for identity, independence and autonomy, which explains the failure of several portals.

In this perspective, the applications developed by bold businesses seem promising for Canadian SMEs insofar as the applications developed by businesses in this quadrant are usually parameterable and customizable, thus respecting the obvious need for autonomy among SMEs, while facilitating partnerships by reducing risks and taking into account limited resources through applications in Application Service Provider (ASP) mode.

Associations, interest groups and parapublic agencies, in partnership with the private sector, sometimes take the initiative to develop innovative (bold) or generic applications (diversified) that suit the needs of SMEs in their industry sector. Although, from a technological standpoint, the business model of balanced businesses is less attractive, it should be noted that this quadrant encompasses most Canadian SMEs, which are gradually taking upon themselves the in-house development of EB.

However, our research reveals that a number of businesses in this quadrant still do not have a clear idea of the potential of EB. Moreover, many of them have still not automated their business processes, a key obstacle to their adoption and integration of EB.

Whether businesses are balanced, diversified, bold or ambitious, they have specific needs and several solutions can be contemplated in each quadrant.

Balanced businesses must be able to develop original, economical, technological solutions that ensure them the broadest possible visibility.

Through business combinations and sectoral associations, for example, diversified businesses can help Canadian SMEs by developing applications that satisfy the needs of all SMEs in an industry sector and thus enable the participating SMEs to take advantage of the economies of scale stemming from such initiatives.

Bold businesses are also well placed to respond to the needs of Canadian SMEs. However, they must be given an opportunity to develop their expertise, by means of major contracts awarded to them that will fund the development of the relevant applications instead of relying on big, long-established consulting firms.

Finally, when ambitious businesses succeed in ensuring their socio-political legitimacy, they can help their industry structure itself, thus enhancing competitiveness in the industrial sector overall.

In addition, the needs of Canadian SMEs vary depending on their industry sector. For example, SMEs in the printing sector need to optimize their internal processes and procurement before engaging in e-business. Networking and marketplaces are essential to ensure that tourism businesses achieve maximum visibility. In the publishing sector, SMEs need, above all, affordable parameterable, and customizable applications.

Published in Partnership

This study was prepared by CEFRIO as part of the project
"New E-business Models and SME Development", a project undertaken in cooperation with Industry Canada, the National Bank of Canada, TELUS, CANARIE and Canadian Heritage.

The research team included Mrs. Louise Côté, Professor from HEC Montréal, Mr. Vincent Sabourin, Professor from the Université du Québec à Montréal, and Mr. Michel Vézina, Professor from HEC Montréal. This case study was produced by the research team. The opinions expressed in this study do not necessarily reflect those of Industry Canada and/or Canadian Heritage.

For more information, please go to the CEFRIO Web site — the authority on information technology appropriation — at:  www.cefrio.qc.ca/english/indexAccueil.cfm.