A new age e-business model for SME

Suttisak Jantavongso, School of Multimedia Systems, Monash University, Melbourne, 3800. Email: suttisak@go.com

Dr. Raymond Koon-Ying Li, School of Multimedia Systems, Monash University, Melbourne, 3800. Email: Raymond.li@infotech.monash.edu.au

Abstract

During the last decade, Internet and multimedia technologies have advanced at an incredible pace. This paper presents a new business model that will keep pace with, and take full advance of, the new developments in emerging technology. The model is designed to target small and medium enterprises, in particular, those in developing countries such as Thailand. The paper highlights some of the issues, threats and opportunities of the proposed new model. Trust, a cultural and social issue identified in the model, is discussed as a central consideration when adopting the proposed model.

Introduction

E-business was the hottest buzzword of the past decade. Newspapers published it, stock markets worshipped it, and TV presenters applauded it. Every business, no matter large or small, was talking about it. However, companies tried to jump onto the e-business bandwagon without fully understanding how e-business could help them. The period is often referred to as the dotcom era. At the start of this century, we witnessed the collapse of the dotcom empire. Universities have started to remove the word “e-business” from course titles (Monash University, 2001) and business executives are now dare to stand against e-business initiatives proposed by once-invincible IT departments.

This paper examines the reasons behind the failure of the dotcom boom and offers a new e-business model. This new age model takes full advantage of the current maturity of the Internet and multimedia technologies and is targeted at small and medium enterprise (SME). Whilst small, collectively SMEs often provide the majority of employment, physical goods and services to a nation. Due to their size and limited resources, however, e-business is often seen to be out of reach of such companies. This is despite the fact that the Internet can provide equal levels of competition and opportunity to companies regardless of their size.

The proposed model takes on the notion of v-business, application service providers, shared enterprising software for SMEs, and an evergreen improvement process for business operations. The strength and weakness of the proposed model will be examined together with the opportunities, threats, traps and tricks that the model encompasses.

The motivation

According to Schleicher (2001), Internet growth will continue despite the slowing down of the global economy and the constant threat of global recession. More and more companies will continue to go online. To ensure these new comers to e-business survive and to prevent the scale of failures witnessed during the end of the Dotcom boom, the authors believe that a new e-business model must be defined. Dotcom failures were characterised by poor technology, high costs and flimsy marketing (Cannon, 2000). An investigation into dotcom failures was conducted to provide the foundation on which the new model will be built.

For the purpose of this research, SMEs are defined as manufacturing enterprises with fewer than 100 employees and non-manufacturing enterprises with fewer than 50 employees (SMEO, 2002). A September 2002 survey in Hong Kong revealed that 98% of companies are SMEs and that they provide about 60% of total employment. (SMEO, 2002) Similar figures were recorded in Australia and the UK. Although individually small, SMEs as a group form the prime mover of a nation’s economy. The future of the world economy depends on small and medium enterprises (SMEs). SMEs will provide more than 60% of new jobs in the US by 2005. In the European Union alone, they employ more than 74 million people (Microsoft, 2003). Small businesses will also continue to be the engines of innovation in the next century (Blond 2001).

The Internet provides an equal opportunity for smaller companies, enabling them to compete on equal terms with large enterprises. This research focuses on the development of a new e-business model which will guide SMEs in launching their Internet initiatives and help to increase their chances of survival. The proposed model will not just benefit the companies themselves, but can also be seen to offer enormous benefits at a national level. This model is particularly suitable for encouraging developing countries to adopt e-business initiatives.

What is "dotcom"?

There are many alternative spellings of “dotcom”. Examples include: “dot.com”, “dot-com”, and “dot com”. There are also many definitions of “dotcom”. One example defines a dotcom as a business conducted or relating to a company whose products or services deal with or are sold on the Internet (The American Heritage, 2000). Another definition of dotcoms are those companies specifically formed to do business almost entirely on the Internet (Lawrence, Newton, Corbitt, Lawrence, Dann and Thanasankit, 2003). This research embraces both definitions.

Dotcom businesses began in 1994 when the first shopping malls arrived on the Internet. Pizza was one of the first dotcom products (Zakon, 2003). Whilst dotcom companies reached a peak in early 2000 (Valor, 2001), the year is also remembered as the year of “dot.bombs” (Silverstein, Stanger and Abdelmessih, 2001). The failures began in April 2000(Lawrence, Newton, Corbitt, Lawrence, Dann and Thanasankit, 2003) and became so common by 2001 and 2002 that people rapidly lost interest (Richardson, 2003).

Lesson learned from the dotcom era

Literature surveys reveal that the factors contributing to the failure of e-business initiatives are similar for large and small dotcoms. However, the impact of the failure of initiatives on an SME is greater than that experienced by a large enterprise due to its limited resources.

There are many factors that lead to the failure of dotcoms. Seven factors were identified by the authors as relevant to the formulation of a new e-business model for SMEs. The factors are management, IT infrastructure, design, content, marketing, capital, security and trust. They are briefly described as belows.

Management

According to Nwachukwu (2002), management issues were one of the major reasons for the failure of dotcom companies. They include poor business planning, lack of senior management understanding of online business, lack of leadership, lack of vision, and lack of managerial ability to conduct a business over the Internet.

Supporting infrastructure

Dotcom companies failed because of a lack of infrastructure to conduct business over the Internet (Horvath, 2000). Infrastructure is comprised of internal and external network connectivity, telecommunications structure, and the standards, guidelines, components and services required to support e-business activities (Jantavongso and Li, 2003).

Design

O’Brien (2000) suggested that application and web page design was one of the reasons behind dotcom failures. The usability of web pages was poor and there was a lack of consideration for cultural factors. The design of web page interfaces did not provide the environment for visitors to feel comfortable enough to conduct business online and to return at a later date.

Content

Many dotcoms failed due to the lack of content on their web pages (Deans and Starchan, 2002). Their web sites did not contain sufficient content, relevant supporting information and interactive features to enable potential customers to make well-informed decisions, to complete transactions, and to encourage them to re-visit the site (O’Brien, 2000). Most companies were interested in “web presence” rather than developing a means to enhance their business. Web pages were not linked to the corporation’s operational system. (Bhaargava, Burke, Doshi, Keswani and Normann, 2001) Out-of-date web content was often an issue, as web sites were often designed without consideration for maintainability. (Thomasson, 2002). Some of the dotcoms, such as portals, were set up purely for the purpose of capital gain though sale on stock exchanges. These companies often lacked any real substance.

Marketing

Many dotcoms failed due to a lack of marketing strategies and advertising. There were often no clear online and offline marketing strategies in place. (Bazac, 2002)

Capital

The lack of capitalisation was an important failure factor for the failure of dotcoms (Cannon, 2000). Costs were very high, including technology installation, operating costs, maintenance, upgrades, personnel and training costs.

Security & trust

Security and trust are major concerns when dealing with internet technologies (Biscontri, 2001). Failing to ensuring privacy and data security were major reasons for dotcom failure. Most dotcoms failed to convince customers that their privacy would be safeguarded and personal information used only for the purpose of delivering superior value to them. Trust is a very important consideration when building a new age model.

The proposed model

An existing e-business model

Singh (1998) used a three-level model (see Figure 1) to define electronic-business. At the lowest level of his model, Singh defined e-business to include only Internet and Electronic Data Interchange (EDI) enabled commerce. The second level definition encompasses all electronic commerce activities. At the highest level of the model, e-business includes all business activities and processes that use computers and telecommunication networks.

Figure 1: Defining electronic business Source: Singh (1998)

The proposed model adopts Singh’s broadest definition of e-business and applies it to SMEs, whilst taking resource limitations and other constraints faced by SMEs into consideration. The players in the proposed model (see Figure 2) are SMEs, Virtual Businesses (v-business), Application Service Providers (ASPs) and external service providers.

Overview of the proposed model

The central core of proposed model is an “SME enterprise software” module. This software module will be owned, hosted and operated by an Application Service Provider (ASP) to assist a group of SMEs to conduct their day-to-day business operations (operation centric e-business – see later section). It also provides the SMEs with web services linked to the operation of each company in real time. Figure 2 presents the interrelationships between the SME Enterprise Software, the ASP and SMEs. Some of these SMEs can be virtual businesses (v-business). The SMEs may also share a common team of professional services.

Figure 2: Relationships between SME Enterprise Software, v-business, ASP, and SMEs

Application Service Provider (ASP)

An ASP is a company that offers individuals or enterprises access over the Internet to applications and related services that would otherwise have to be located in an individual’s own personal or enterprise computers (The Department of Industry and Technology, 2001). According to Yeah (2001), ASP services are expected to become an important alternative to the traditional in-house IT services. They will also be an important element in supporting virtual business (v-business) activity.

ASP enables resources and expertise to be shared amongst companies using the same ASP. The use of ASP should be attractive due to its minimal set-up costs and comparatively low running costs. It will be most attractive to SMEs in developing countries such as Thailand. It releases a company's IT resources and allows the company to concentrate on its main focus, that is, the running of the business.

Virtual Business (v-business)

In recent years, the concept of virtual business has gained much popularity (Introna, 2001). The set up costs of a Virtual business are often low and are therefore ideal for SMEs, including small home-based operations such as tradesmen.

The definition

Introna (2001) defined a virtual business as "a temporary network of independent companies, suppliers, customers, even erstwhile rivals, linked by information technology to share skills, costs, and access to one another's markets". It has neither a central office, nor an organization chart. It has no hierarchy and no vertical integration. Barnes and Hunt (2001) defined v-business as the relationship in which partners share complementary resources and technologies to achieve a common gaol, such as creating a product or service.

For this research, v-business is defined as a business conducted over the Internet and has no physical office. A v-business can be supported by one or more application service providers (ASPs). A number of v-businesses can share a single ASP.

Operational centric E-Business (B@B)

E-businesses are often classified as Business to Consumer (B2C), Business to Business (B2B) and Consumer to Consumer (C2C). Recently, many large enterprises have begun to conduct their internal business operation systems over the web. (See figure 3)

Figure 3: e-business for a large enterprise

Their legacy enterprising systems are now provided with web access and new operation-centric e-business initiatives such as workflow (e-form), web-based multi-criteria decision making systems (Vihakapirom, 2002) and WAP based logistics systems. The authors refer to them as B@B. The proposed model was designed based on this B@B concept. B@B implementations are expensive and only larger enterprises will have the privilege of owning them. The concept of “SME enterprise software” was designed to allow a number of SMEs to share the costs and expert knowledge in the implementation of B@B within their companies. One of the lessons learned from the dotcom saga related to the lack of integration between the e-business and the operational data of the company. The “SME enterprise module” is designed to provide seamless integration of web services to customers and to the company’s back office. In fact, the same database will be used to drive the web site and the operations of the company. The customers can be allowed to interact with the operational data of the company in real time. A single repository of company information and data will be used to support the operation of the company and its customers. This avoids inconsistency and redundancy of data that occurs when the company’s operational system and web system are kept separate.

The “SME Enterprise Software” module and the proposed model

In the proposed model, the “SME Enterprise Software” module is provided, owned and maintained by an ASP. The module is shared by a group of small and medium size companies. Figure 4 presents an overview of the “SME Enterprise Software” module. The SMEs not only pool their resources together, but are given access to higher quality shared professional services, such as management consultants, lawyers, accountants, bench-marking specialists, IT and training experts.

With pooled financial resources from its users, the ASP will be able to continuously improve the “SME Enterprise Software”. The best practices from amongst its users and leading suggestions for improvement could be incorporated into the system. The improved software would then benefit all of its users. This evergreen process ensures that all users will have the best system to assist the running of their business and to support their customers. This will allow the SME owners to focus on building their business and searching for new opportunities.

Critical Analysis of the proposed model

In this section we will discuss the strengths and weaknesses of our proposed model, together with the opportunities, threats, tricks and traps of the model. Figure 4 outlines the benefits of the model and Figure 5 examines its challenges and issues.