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Helping Small UK Firms into the Digital World

Jenny SEARLE
Director, Information Society Initiative, Department of Trade & Industry

Abstract

The Information Society Initiative is a DTI-led initiative to promote the use of information and communications technology within specific segments of UK society; in particular small and medium-sized enterprises. This presentation will describe the experiences of this programme since its inception in 1996. It will include barriers to uptake of e-commerce; the challenges of communicating with and delivering service to such a diverse market sector; ways of partnering with the commercial sector; and progress towards the target of getting one million UK small firms trading online by 2002.

 

1. Introduction

The Information Society Initiative was established by the UK government in 1996 with a broad remit to promote the uptake of information and communications technologies across the UK. With the publication, in December 1998 of the Competitiveness White Paper, this work was given renewed focus.

The Competitiveness White Paper recognised that as we move into a knowledge-driven economy, the competitiveness of companies and of nations will increasingly depend on how well they harness the new digital technologies. It set a goal 'to triple the number of UK small businesses which are wired up to the digital marketplace, from around 350,000 at the end of 1997 to one million by 2002'.

This paper describes how, over the last four years, the Information Society Initiative has addressed this challenge; the progress that UK small firms have made in meeting and exceeding this goal; the lessons we have learnt in the process; and our plans for the future.

 

2. The Barriers to Information and Communications Technology Uptake

The Competitiveness White Paper recognised two principal factors that have held back uptake of digital technologies in the UK:

  • A lack of understanding: the International Benchmarking Study 1998 found that approximately 30 per cent of smaller businesses are indifferent or uncertain about digital technologies compared to just 16 per cent of larger businesses. IT is generally not a strategic function represented at board level: eight per cent of UK businesses had an IT Director compared with 67 per cent in the US.
  • Insufficient skills: A survey of 75 multinationals operating in the UK, US, France, Germany, Japan and Singapore found that businesses rated the UK well on the IT skills of people leaving the education system, but rated the IT skills of the workforce as the weakest.

Since 1998, awareness of the importance of harnessing information and communications technologies in business has increased dramatically. The number of smaller businesses in the UK that are connected to the Internet has grown significantly, to more than 600,000 in 1999. However evidence, from the annual benchmarking study suggests that penetration of digital technologies into business functions within UK firms is far lower and very small firms, those with less than 100 employees, are falling behind compared with similar companies in the US and Canada.

In response to these findings, the Information Society Initiative has put more focus on the applications of digital technology rather than merely increasing awareness of what technologies are available and how to use them. A broader raft of UK government activities aimed at making the UK an excellent place to trade electronically (e-commerce) has reinforced this approach. In September 1999, the Performance and Innovation Unit published its report. This identified four main barriers to achieving an excellent environment to trade electronically:

  • The lack of a clear, internationally agreed, regulatory framework and of clarity in some area of tax policy.
  • Low understanding of the potential benefits and challenges to adopting e-commerce.
  • Problems with access not just to communications and computing technology but access at an affordable price and together with the relevant skills to enable effective use.
  • Lack of trust that the electronic trading environment can be used without fear of fraud and with the same levels of confidence associated with physical transactions. There are also barriers related to the privacy of personal and business data and the maintenance of intellectual property rights. Finally, there are concerns about the inability to avoid exposure to unpleasant or offensive content and to limit the potentially expensive nuisance of unsolicited commercial e-mail.

3. A National Strategy for E-commerce

In order to address these barriers and to galvanise action from both business and government, the UK has put in place a national strategy for e-commerce. Elements of this strategy are being implemented through the Information Society Initiative.

A starting point for the strategy is the development of a common understanding of what e-commerce is and how organisations and individuals can benefit from using the approaches it offers. The following is the definition of e-commerce that the UK government has adopted:

E-commerce is the exchange of information (value) across electronic networks, at any stage in the supply chain, whether paid or unpaid. It can take place:

  • within an organisation,
  • between businesses,
  • between businesses and consumers; or
  • between the public and private sectors.

The key aspects of this very broad definition are the exchange of value electronically between many different types of organisation and individual and that payment need not be involved.

The strategy is based upon the foundation of a market-led approach which provides a light-touch regulatory framework within which competitive forces can enable the overall goals to be achieved. These goals:

  • to move the business world into the digital age;
  • to ensure everyone can access the benefits of these technologies;
  • to deliver all government services electronically so that government too is playing its part;

are intended to focus resources and efforts across the public, private and voluntary sectors to a common end.

 

4. Progress Towards the Targets

Since the 1997 international benchmarking study there has been rapid uptake of digital technologies across the business world.

The figures the 1999 benchmarking survey show that the UK is up with the leaders in its business use of digital technologies. In addition, early results from the 2000 study indicate that we have already exceeded the target for the number of small and medium sized firms connected to the Internet by 2002.

However, other countries like Germany and France are showing rapid growth too and these figures mask the fact that our small firms are lagging behind.

That is why the original target to get one million smaller firms online by 2002 was adjusted to 1.5 million; and why we have set an additional target that, by 2002, one million smaller firms will be trading online with the smallest companies up with their peers in the G7 nations in their use of these technologies.

 

5. Delivering Help to Small Firms

There are four main strands to the Information Society Initiative; aimed at helping smaller firms achieve these targets. These are:

  • Raising awareness;
  • Channels of advice;
  • Implementation support; and
  • Benchmarking

5.1 Raising Awareness

The first strand is an awareness raising programme aimed not just at small and medium sized companies but also at large organisations who trade and partner with smaller organisations; and at individuals and organisations who influence the decisions which
smaller companies make: such as trade associations, banks and accountancy firms. This
programme aims to raise awareness of the importance of digital technologies, as well as how small firms are gaining business benefits from harnessing these technologies and where independent, cost-effective advice is available and tailored to the needs of smaller firms. During the past year we have been able to raise awareness of the programme from 6% to 19% and to generate over 50 case studies of small firms.

5.2 Channels of Advice

The second strand is the development of channels of independent advice to help smaller companies make the right decisions about the use of information and communications technologies within their own businesses. At the heart of this part of the programme is the establishment of 100 local advise centres across the UK where smaller companies can go for help. This network of centres is currently advising 120,000 small firms each year to various ways.

More recently, this programme has been enhanced with the launch of a private sector-led initiative to train and accredit ICT advisors to small firms. Almost 100 advisors have achieved accreditation during the pilot phase that is now being rolled out across the UK.

The Supply Chain programme recognises that the majority of small firms operate within one or more supply chains. It should be possible to harness these supply chains and the larger organisations within them to help smaller firms gain benefit from digital technologies. This part of the programme is in an early phase and research and pilot projects are underway.

5.3 Implementation Support

Support during the implementation of information systems forms the third strand of activity. A range of best practice guides, again informed by the use of case studies, is a well-established part of this programme. At the beginning of this year these guides were augmented by an online resource, the E-commerce Resource Centre, which seeks to become a single, web-based point of contact for independent advice relating to e-commerce. The E-commerce Resource Centre will continue to be developed with the addition of new information over the coming months. The final element of this programme is a local partnership fund which provides a modest amount of funding to support locally-based partnerships which exist to support small firms during their implementation activities.

5.4 Benchmarking

Finally, the fourth strand - benchmarking is carried out on an annual basis to regularly checkpoint and inform the rest of the ISI; so that we continually adjust to the changing dynamics of this volatile marketplace and focus our scarce resources to best effect. The 1999 benchmarking caused us to revisit the overall targets of the initiative and to focus far more on e-commerce and the smaller firms. The 2000 study will, I am sure, have equally significant impacts on our focus.

 

6. How are Small Firms Taking this Forward?

The three companies that follow were all winners in the ISI/InterForum E-Commerce Awards during its first year in 1999. They illustrate quite graphically the different ways in which small firms are taking this agenda forward.

6.1 Civil Defence Supply

The overall national winner: Civil Defence Supply designs and produces specialised security, military and police products. Its products reflect the company's philosophy of promoting officer safety without causing permanent harm. In the late 1980's a dramatic decrease in home revenues forced the company to restructure its business and as recently as 1996 they did not have a computer.

Now they have a substantial business built using email and web technology and profitability has been enhanced through the computerisation of accounting, stock control and sales order processing activities.

Eran Bauer, Director of Civil Defence Supply, said, "Do not have preconceived ideas and keep an open mind about what e-commerce solution will be right for you."

6.2 The Teddington Cheese

The Teddington Cheese is a small specialist food and drink retailer established in London in 1995. It sells cheeses, pickles, biscuits, wine, cider and port and hampers.

The company has used e-commerce to reach new customers and enhance the levels of service provided to existing, local customers. Turnover has increased by about 10% per annum as a result of e-mail orders within the UK.

Doug Thring, Director of The Teddington Cheese, said, "We were surprised how much existing customers such as local restaurants and retail customers used the site once it was set up. Our website helps them order their selection in advance so that it is ready for collection when they pop by. Overall it is noticeable how our website has generated more local business through the number of people walking through our shop door."

6.3 Plade

Plade, a Glasgow-based engineering company, designs and manufactures specialist equipment from plastics for use in heavy engineering and hi-tech processing equipment in the microelectronics and healthcare industries. The company have used digital technologies to expand exports to new international customers from £230,000 in 1997/98 to £906,000 in the following year and they continue to provide excellent customer service remotely, once a contract had been won.

Gregor Egan, MD of Plade, said, "E-mail gives us a great competitive advantage in speed. We can send complex information, often in colour, to agents and customers overseas at the touch of a button. Any small company with interests overseas can benefit in the same way."

 

7. Lessons Learnt

The primary lesson we have learnt is that while small firms may be attempting to use common technologies, such as email and the web, they apply these facilities to achieve very different business objectives. Also, the order in which these new technologies are applied is very specific to each organisation.

The most precious asset that small firms have is their time, therefore, they are unwilling to spend a long time away from their business activities. So, our advice has to be made available locally and tailored to the specific needs of each company. Because of this, and because we do not wish to duplicate services provided by the private sector, each ISI centre determines its own operating model and the services available.

The smaller firms we advise are interested in how they can gain business benefits from technology rather than the technology itself. Case studies and showcasing real examples of similar small firms who are gaining benefits is the most effective way of getting the message across.

To be credible advocates of information and communications technology, we have to demonstrate that we harness these technologies ourselves. So, increasingly our focus is on delivering services through the digital media.

Even when a small firm understands how they can embed digital technologies within their business strategy, they have problems accessing the resources required to implement that strategy. This applies to financial resources, expertise and management time. However, we are starting to see private sector offerings which address these issues and make it much simpler to, for example, create a website. Consequently, our focus will be even more on helping these companies get their strategy right.

 

8. Conclusions

We have been able to demonstrate the effectiveness of government intervention in helping smaller companies improve their competitiveness through the use of digital technologies. But this is a fast changing situation and, we have not yet reached sufficient numbers of companies to ensure that the UK can keep up with the leading nations.

Therefore, over the coming year, we will be putting increasing emphasis into engaging with other, locally-based organisations so that, together we can make our messages even more relevant and reach even greater numbers of small firms.

Also, new technologies are always being introduced: Digital TV and mobile Internet access are already penetrating the UK market. Our advice must be constantly updated to reflect these changes.

Finally, the market dynamics and perceptions are also changing continually. It is essential that we continue with the benchmarking activities and adapt the programme to respond to the changes that this reveals.