Are SMEs scared of tech innovation?

Fear and a lack of technical skill has seen the small to medium enterprise sector shy away from innovation. But with new advancements being made every day, SMEs better find a backbone or be left behind.

The Conversation

The September 2012 Sensis Business Index survey of Australia’s small to medium enterprises (SMEs) has some interesting findings. This regular survey of around 1,800 SMEs takes the pulse of the 99 per cent of all Australian businesses that have fewer than 200 employees.

The study’s findings show a decline in confidence amongst small business owners. This is the third successive quarter of declining confidence among SMEs. Driving this gloomy outlook is the lack of spending by customers. The top three concerns of small business operators were a lack of work or sales, concern over the economic climate and problems with cash flow, bad debts and profitability.

When asked about their plans for the next financial year the most commonly mentioned issue was to increase their firm’s digital presence. As shown in the figure below, almost half of all small business operators who were surveyed indicated that they planned to do more online.

The online behaviour of Australia’s SMEs

To understand what Australia’s SMEs are, or are not, doing online we can refer to theSensis e-Business Report for 2012. This annual survey examines the online experiences of SMEs and draws from the same database that the Sensis Business Index does, but also includes a consumer survey of around 1,000 people.

This study suggests that 95 per cent of SMEs have a computer of some form, with around 92 per cent of these firms connected to the internet. Most of these internet connections were via broadband, but around 20 per cent of these businesses were seeking faster connections.

Not surprisingly computer ownership increases as the size of the business grows. For example, 100 per cent of firms with over 10 employees have computers. However, what is interesting is the pattern of e-commerce behaviour by SMEs. The study found that 62 per cent of SMEs have websites with 62 per cent of these firms receiving payments online, but only 51 per cent are using the internet to take orders.

Most of these online sales (87 per cent) were with customers in their own city or town. Only 51 per cent were using the internet to sell at a national level and only 27 per cent were using it to sell overseas. When asked about their interest in e-commerce 39 per cent said they had no intention or interest in engaging in e-commerce.

This resistance to engaging with e-commerce appears to be driven by fear and a lack of technical skill. For example, 78 per cent of the SMEs expressed concern over the risk of being hacked. Another 67 per cent said that they lacked the expertise and knowledge of computing to allow them to undertake e-commerce.

As shown in the graph below, the proportion of Australian SMEs trading over the internet has grown steadily since 2001. However, the relatively low number of firms using it for national and international commerce remains a concern.

The Sensis Business Index reports that only 11 per cent of the SMEs surveyed were actively engaged in exporting. This is a fairly low proportion of firms and much less than is common in the United States and Europe. Recent concerns by SMEs, particularly in retailing, of competition from online overseas competitors highlight the need for our small firms to embrace the internet as a tool that can widen their market reach.

The internet is a positive force for helping SMEs internationalise. This was the conclusion of a paper published in the International Journal of Internet Marketing and Advertising in 2008. It was authored by Shane Mathews and Marilyn Healy from Queensland University of Technology. They noted that the internet enhances a small firm’s access to overseas markets and the ability of the firm to access information and knowledge while also expanding its networks.

Developing an ‘e-Vision’

Geoff Simmons, Gillian Armstrong and Mark Durkin, from the University of Ulster, identified several factors likely to influence the adoption of websites and their optimisation by SMEs. They undertook 20 case studies of small firms within the Irish food industry. Their paper was published in the International Small Business Journal in 2011.

They identified four key findings that are illustrated in the following diagram. This shows their theoretical framework of a small business website optimisation process. The first key element is the owner-manager’s characteristics. They need to be entrepreneurial and strongly market oriented. Willing to embrace technology and the opportunities it offers.

Secondly, these SME owners also need to have what they refer to as an “e-Vision”. This is a situation in which the owners are positive about the benefits that can be derived from online business. The owner must be prepared to overcome obstacles, and make the necessary investment to build web-based systems that develop customer trust and exploit online business opportunities.

Third, the website adoption and optimisation process is only made possible by understanding the customer. In particular their needs and how they might want to engage with the business online. Formal market research may be required to fully understand how best to design and configure the website to enhance customer usage.

Finally, the fourth element is for the optimised website to be enabled through the use of an online value proposition. This can take the form of information on products and services but with customer feedback mechanisms allow them to rate products and engage with the company. In essence the website must be informative, engaging, interactive and useful

Online promotion and use of social media

According to the Sensis e-Business report Australian SMEs are also not making much use of the internet for advertising with only 38 per cent reporting any online promotion. Only 22 per cent were advertising on social media and as few as 5 per cent of firms were engaged in advertising on mobile platforms.

This is something of a missed opportunity as the cost of online promotion is generally much lower than for mainstream mass media advertising. Online communication channels also enable the business to be more selective in its targeting of customers.

The use of social media for business purposes was reported by only 27 per cent of SMEs. These firms were primarily doing so by having a Facebook page. As shown in the following graph this comprised 86 per cent of social media users. The next largest social media used was Twitter (32 per cent) followed by LinkedIn (25 per cent) with 12 per cent using blogs.

When asked about the merits of using social media opinion was evenly divided with 49 per cent positive, 2 per cent negative and 49 per cent saying that it was having no impact. However, only 21 per cent reported monitoring and updating their social media presence on a daily basis. A further 39 per cent updated their social media at least weekly and 11 per cent did so a few times each year.

Not surprisingly social media use was found mostly amongst the personal services, cultural and recreation sectors. Much lower use was found within building and construction firms.

Avoid wasting time and have a strategy

The use of social media by SMEs is still in its early stages. As with any new technology there is a question mark over how it might be best used and whether it is useful at all. For some advocates of social media the opportunities are significant. However, to use social media properly requires a commitment of time and a well-considered strategy. Facebook and Twitter need daily monitoring, while blogs should be refreshed with new content weekly or at least monthly.

According to Ken Lacho and Craig Marinello from the University of New Orleans, any small business owner who decides to use social media for their business must first know why they are doing so. Writing in The Entrepreneurial Executive in 2010, they noted that it is common for small business owners to set up Facebook, LinkedIn and Twitter accounts hoping to grow their business, but instead spend most of their time connecting with old friends.

They suggest setting limits on how much time that is spent on social media sites. This time should be allocated to the periods when more important work is to be done. However, if social media is to be used, the owner-manager should seek to add value to any conversations. People within the network will be engaged if they find what is being communicated has value, but will quickly turn off if it is not.

According to the Sensis report 81 per cent of SMEs surveyed had not developed a strategic plan for their online business activities. A further 4 per cent did not even know what such a strategy was. This suggests that Australia’s SMEs need help in developing an online strategy. Ideally this should be integrated with their broader business planning and configured appropriately to their needs.

While SMEs do not have the resources of larger firms for e-commerce the cost of online engagement has fallen dramatically in recent years. Websites can now be built for relatively small costs. Open source software and low-cost hosting services enable even the smallest business to have websites with a high degree of functionality. Social media sites and blogs are already available for small business owners to access for modest costs and these can be integrated into their online strategy.

Embracing the online challenge

The penetration of the internet into Australian households has now reached about 90 per cent and there is an increasing use of mobile smart phones and tablets. According to the Sensis e-Business Report the two most common uses of the internet by people are searching for information on products and services (91 per cent) and looking for suppliers of products and services (85 per cent). For SMEs seeking to find new customers and make more sales it is therefore surprising that more owner-managers are not making greater use of website marketing and e-commerce.

The components of a digital business strategy include a general approach to the use of the internet as a tool for customer and possibly supplier engagement. Website design should be carefully thought through with attention given to the purpose for which the site is to be used. Is it to be just a static page or two with names, contact details and few photos of products, or will it seek to engage the customer? Websites are increasingly becoming the centre of a firm’s marketing and customer service activity. Other advertising and promotion should serve to drive customers to the website.

Social media is still a new frontier for businesses, although its use is growing rapidly. It can offer an excellent medium for customer engagement and a source of valuable feedback. However, social media can be challenging for many businesses. By its nature it is not able to be controlled and it can be unsettling for businesses to see customers commenting both positively and negatively about their products and services. However, the key to social media is to avoid trying to control what takes place there and focus on engaging and facilitating. It is more about information and the sharing of ideas and knowledge than advertising and promotion.

As the National Broadband Network (NBN) rolls out – regardless of its final form – the opportunities for online commerce by SMEs will increase. This will need strategies and well-considered action to take advantage of these opportunities and avoid becoming a digital dinosaur. The future of the market space is increasingly digital, online and mobile. How well our SMEs to embrace this online challenge will have significant consequences for the future of our economy.

Tim Mazzarol is a Winthrop Professor in Entrepreneurship, Innovation, Marketing and Strategy at the University of Western Australia. This article was originally published on The Conversation on September 30. Republished with permission.

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