University of Cihan

Department of Business Administration

The benefits of e-business adoption: An empirical study of

Swedish SMEs

Prepared by
Fahima Sabr
Ivan Pirdawd
Rezan Ismail
Swaila Abdulkareem

Supervised by
Ms. Bushra
The benefits of e-business adoption: An empirical study of
Swedish SMEs

Hooshang Beheshti

Radford University

Abstract

The global nature of business today and the advances in informa- tion and
communications technologies have compelled corporations to em- ploy emerging
technologies in order to remain competitive. In recent years electronic business
has been adopted by many corporations to improve operational efficiency,
profitability, and to strengthen their competitive posi- tion. This study examines
the impact of web-based e-business on the small and medium-size enterprises
(SMEs) in Sweden. The analyses of data collected for this study provide valuable
information to the executives of manufacturing and service SMEs. The findings
show that the SMEs in the sample have benefited from e-business implementation
in both operational and perfor- mance areas of their organization.

Keywords E-business Æ E-strategy Æ Barriers to entry Æ Customer relations Æ

Performance improvement

1 Introduction

The proliferation of the Internet has provided a unique opportunity for small and
medium-size enterprises (SMEs) to conduct business electronically, to be more
competitive, and to do business in a global environment. Implementing e-business
and having an online presence can be beneficial for many compa- nies with
adequate preparation prior to implementation. The Internet usage in the European
Union and Sweden grew by 147 and 68%, respectively between 2000 and 2005.
About half the populations in the European Union member states and 75% of the
Swedes use the Internet (Internet Usage in Europe 2006).
Internet-based electronic business can be defined as a system that provides
businesses with a platform to connect with customers, business partners,
employees, and suppliers via the Internet, extranets, and intranets. The internal
and external connectivity of electronic business enables companies to become
more efficient by lowering costs, increasing productivity, and accomplishing
business goals faster. In addition, responsiveness to customer needs,
communications with businesses, and supplier relations and selection can be
improved.
The benefits of joining the e-business arena outweigh the costs for most
organizations (Barau et al. 2001; Lefebvre et al. 2005; Straub and Klein 2001).
However, the review of the literature shows that SMEs are using the Internet in
most part for electronic mail and advertising and are not taking full advantage of
e-business technologies when compared to large organizations (Fillis et al. 2004;
Peet et al. 2002; Quayle 2002; Grandon and Pearson 2004). Understanding how a
company can benefit from e-business is the key to e- business implementation.
Small and medium-size organizations must ensure that e-business will align with
their organizational goals and in turn create positive outcomes for the
organization. Having a well-developed strategy that includes flexibility and
adaptability for launching, maintaining, and updating an e-business is crucial. E-
business strategy can be defined as the development and the execution of a plan
for a company to do business electronically. When developing an e-business
strategy, companies must identify the areas of the business that will be affected by
e-business implementation. The business owner/manager and key employees
should participate in the development of a plan for e-business implementation and
identify benefits derived and changes required by such a system. Managers should
encourage customers and sup- pliers participation in this phase since the readiness
of both for e-business are essential in the success of an e-business plan. The plan
should include the type of information and communications technologies and
security measures nee- ded as well as provide methods for earning the trust of the
customers, business partners, and suppliers. In addition, an entrance strategy must
be developed. Entering into e-business at the wrong time can prove detrimental to
an SME (Evans 1999; Wright 2000; Sanderson 2004; Cote et al. 2005).
Customers’ expectations and needs change over time; therefore, a company
must be ready to update its system in a timely fashion in order to meet the
changing demand of the marketplace. Satisfying customer needs requires an
effective marketing strategy that includes a customer relationship database which
contains information about the customers’ buying behavior and pref- erences.
This database allows marketing efforts to be directed toward cus- tomer needs. An
integrated program makes it possible for sales staff to view how current and
prospective customers are reacting to new programs, what each customer is
buying, and how they feel about pricing and customer ser- vice. The ability to
better serve each customer leads to customer loyalty as well as improvement in
the products and services offered by the firm.
The integration of e-business into business processes involves the incor-
poration of information and communication technologies into business activities
so that business transactions can be performed online with data driven by
corporate databases. For example, e-business integration with back- office
operations can improve inventory management, sales processing, order entry, and
catalog development. In general, the development and imple- mentation of
marketing strategies for e-business necessitate substantial restructuring and
rethinking of the existing processes. Managers must com- municate the importance
of e-business applications to their employees and provide training for them.
Employees should understand what they are sup- posed to do and how they can
make the venture successful for the company. An e-business model is the
electronic methods and structures used by a company to remain competitive and to
generate revenue. There are several e- business models that can be used by an
organization but the five common models include: business-to-business (B2B),
business-to-consumer (B2C), portals, websites as goodwill or promotional
vehicles, and mobile commerce. Companies should carefully analyze their
business and evaluate the benefits and costs of each model to ensure that they
utilize the best system for their business. The selection of a suitable model can
lower intermediary costs, re- duce purchasing costs, improve buyer and supplier
relationships, and improve market share or development (Barau et al. 2001).

2 E-business in manufacturing and service sectors

The organizational structure of manufacturing and service organizations differ

greatly in comparison and these sectors have different motives for imple- menting
e-business. While a service organization is concerned with advertising their
competence and abilities, a manufacturing organization is more con- cerned with
getting their product out in the market for consumers. The service sector lacks the
tangible products that a manufacturing firm possesses; therefore, they must create
their name through exceptional customer service. Manufacturing companies need
to research, develop, and promote a quality product that has premium after
purchase warranties along with good customer service. Collaborative planning
between the manufacturer and the supplier, distributor, and retailer is an essential
part of the manufacturing strategy. For this reason, the use of collaborative tools
in manufacturing organizations has increased with the introduction of the Internet
and e-business applications. Implementing e-business can be expensive and if it
fails, a company loses the time and money invested in the project and to an SME
the failure could result in financial ruins.

In general, e-business integration and applications for service organizations are

less complex than manufacturing firms. Manufacturing firms have used various
technologies such as material requirements planning (MRP), manu- facturing
resource planning (MRP II), flexible manufacturing systems (FMS), and computer
integrated manufacturing (CIM) over the years in their oper- ations and have more
experience in new technology adoption and integration than service firms.
However, manufacturing and service SMEs must exercise caution before deciding
on e-business integration into their daily operations. The integration of e-business
applications can be done in small steps to cap- italize on the benefits of process
improvement required by e-business imple- mentation and to minimize the
negative aspects of change and interruptions of daily business activities. Both
sectors must realize that the success of an In- ternet-based e-business depends on
a user-friendly website that is maintained and updated regularly.
3 Research methodology and objectives

The primary objective of this research is to examine the impact of the Internet-
based e-business on the Swedish SMEs. The major research objectives are:

1. To decide the extent of electronic business integration and applications in

Swedish SMEs.
2. To determine the length of implementation time and the degree of sat- isfaction
with e-business.
3. To identify similarities and/or differences that exists between manufac- turing
and service SMEs with regard to the implementation and appli- cations of
electronic business.
4. To determine the common concerns of SMEs in the implementation and
applications of electronic business.
5. To decide the benefits of electronic business implementation in SMEs.

In this study, we adopted the European Commission’s definition of SME; that is,
any firm that employs less than 250 employees. However, firms with employees
of less than ten, very small, were excluded and considered not suitable for this
research. Data was solicited from 500 randomly selected, Swedish companies
having between 10 and 249 employees without regard to their location or industry
for analysis. A four-page survey questionnaire with a cover letter explaining the
objectives of the study, and a return envelope was mailed to these SMEs. The total
number of usable responses after two mail- ings was 132 (26.4%). However, 58
(11.6%) of the surveyed firms indicated they do not have an Internet-based e-
business and 74 (14.8%) do.

3.1 Demographics of the survey group

The analysis of the responding firms with Internet-based electronic business
revealed that 60% of the respondents were manufacturing and 40% service.

The significant majority of the manufacturing companies (92%) and service firms
(89%) were privately owned. More manufacturing companies (77%) than service
organizations (52%) conduct business both nationally and internationally; 77% of
manufacturing and 52% of service corporations buy and sell globally. All
manufacturing and 69% of service companies use the B2B model. The B2C
model is used by 97 and 43% of service and manufac- turing firms, respectively.
The majority of service firms (85%) and manufac- turing companies (60%) had
their latest e-business implementation in the last 5 years.

4 Development and implementation of e-business

Three questions in the study solicited data with regard to the development and
implementation, maintenance, and technical support for e-business models in use.
Table 1 shows that the majority of the respondents developed their e- business
models and most of these systems are maintained and supported by in-house
technical staff.
Study participants were asked if the implementation of e-business was based on
an e-business strategy. More manufacturing organizations (67%) than service
firms (53%) had developed an e-business strategy before implementing e-
business. Full integration of e-business into business processes was reported by
72% of manufacturing and 83% of service companies. An- other question in the
survey dealt with online purchasing and procurement. Almost the same
percentages were reported for online procurement by manufacturing firms (70%)
and service organizations (69%). It appears that Swedish SMEs are taking
advantage of this aspect of electronic business.
 5 Cost reduction and increase in sales

The majority of the firms in the study group, 87% of manufacturing and 76% of
service organizations reported that the use of electronic business has re- sulted in
reducing the costs of doing business. Table 2 presents the percentage of cost
reduction for the participants.

Table 1 E-business development and support

E-business Manufacturing Service

In- Outsou In- Outsou
hous rced hous rced
e (%) (%) e (%) (%)
Development and 59 41 57 43
implementation
Managed and 95 05 87 13
maintained
Technical support 74 26 69 31

Table 2 Cost reduction due to e-business

use Cost (%) Manufacturing (%) Service
(%)
<10 77 06
10–20 23 41
20–30 – 53

Although both groups have experienced savings in their business from the
implementation of e-business, a higher percentage of service organizations (94%)
than manufacturing (23%) have saved 10% or more. Considering that various
technologies have been used by manufacturing firms over the last few decades to
streamline their processes and to reduce the cost of production, it is not surprising
 to see that cost savings is less for this group.
One of the advantages of conducting business online is that it is convenient for
the customer to order and in return, this feature of business could increase sales
volume. More service (46%) than manufacturing (42%) firms reported an increase
in their sales volume because of e-business implementation.

6 E-business champion

The survey respondents identified the most influential person or department in

their move toward e-business implementation. Table 3 depicts the results. A
comparison of the two groups shows that in service firms the CEO/owner
championed the e-business implementation followed by marketing and sales.
However, in manufacturing firms the marketing and sales department was
instrumental in persuading the organization to implement e-business.

7 Length of implementation

One of the areas of consideration in the implementation of any new tech- nology
is the time that it takes to acquire the hardware and software needed for the
project as well as integration and user training. The questionnaire sought
information about the time that it took to implement an e-business system. The
majority of the respondents (46% of manufacturing and 52% of

Table 3 The most influential in e-business

implementation

Most influential Manufacturing Service

(%) (%)

CEO/owner 10 37
Production/manufacturing 03 –
Information technology department 13 22
Marketing and sales 59 26
Purchasing/procurement 10 11
Finance/accounting 02 –
Employees 03 04
service firms) reported that it took them between 6 and 12 months to have the e-
business system ready for use.
More manufacturing than service firms experienced implementation time of
over 18 months as shown in Table 4. The data seem to provide evidence that most
SMEs can implement an e-business system within a year. This infor- mation is
useful to those SMEs that are planning to integrate electronic business in their
organizations.

8 E-business security and privacy

When conducting business electronically and over the Internet, the security of
data transmission of buyers, business partners, and suppliers is a critical issue for
businesses. The integrity and the privacy of information exchanged among
customers and sellers must be protected at all times. To gain customers’ trust and
assure them that their site is safe, many organizations display security seals on
their website (Hu et al. 2003). Privacy and security issues should be addressed in
the e-business strategy and a policy statement should be devel- oped governing
privacy and security matters (Patton and Josang 2004; Thu- raisingham 2005;
Shih and Wen 2005).
Small and medium enterprises may be more at risk since they might not have the
expertise and financial means to guard against unauthorized access to the confidential
information by employees and from outsiders and hackers. Business owners and
managers must take steps to assure the business partners and the customers of the
security of their network when business transactions are performed online. In the
December 2004 issue of Risk Management Magazine, it was reported that e-business
was the most hit area of the com- puter technology attacks. The survey participants
were asked if their computer network security has been breached over the last 2 years.
The majority of service (87%) and manufacturing (89%) had no security problems
with their system either internally or externally. However, those manufacturing
 (11%) and the service (13%) firms who had experienced unauthorized access to their
system reported one incident (33% manufacturing and 20% service) and two
occurrences by 67% of manufacturing firms and 80% of service organizations. No
company had experienced more than two incidents.

Table 4 Time to implement e-business

Months Manufacturing (%) Service

(%)
1–6 28 37
7–12 46 52
13–18 14 07
Over 18 12 04

9 Completion time and budget

Information technology projects such as the implementation of electronic business

and web technologies are both time and cost sensitive. An important step toward a
successful e-business implementation is the selection of a project manager who
has a good understanding of the business and the technologies involved in the
project. Project management tools such as a Gantt chart, critical path method
(CPM), program evaluation review technique (PERT), or Microsoft Project are
useful to estimate project completion time and budget, evaluate progress, and
signal delays.
Managers/business owners of SMEs should consider e-business acquisition and
implementation as a capital investment decision and allocate adequate resources
to the project. In order to ensure satisfactory implementation, top management
must be involved in the development of an implementation plan, be the driving
force behind every phase of the implementation, and resolve any problems
encountered to secure the desired outcome.
A budget to cover the costs of implementation and a detailed schedule of
activities associated with e-business functions from the start of implementa- tion
to the end should be developed. Table 5 provides the data for e-business
completion time and budget. It is worth noting that, on the one hand, the majority
of the manufacturing firms (72%) and service companies (67%) who reported
satisfactory implementation of e-business models finished the project either ahead
of schedule or on time and within budget (63% of manufacturing and 61% of
service firms). On the other hand, the majority of dissatisfied manufacturing
(86%) and service (68%) organizations were behind schedule on e-business
implementation and experienced cost overruns. When devel- oping an e-business
strategy, provisions for delay of completion time and extra project costs due to
unforeseeable events should be made.

10 Online business

By integrating e-business activities with the corporate website, companies can sell
products online, have online billing and payments, provide customer service, and
inform the customer about new sales and promotions among

Table 5 E-business completion

Time and Satisfactory Unsatisfactor

budget y
Manufacturi Servic Manufacturi Servic
ng (%) e (%) ng (%) e (%)
Ahead of 16 0 0 0
schedule
On-time 56 67 14 32
Behind 28 33 86 68
schedule
Under 6 0 0 0
budget
Within 63 61 23 37
budget
Over budget 31 39 77 63
others. The survey results showed that more service companies (70%) than
manufacturing firms (56%) sell products online. Customer support is provided
online by 45% of manufacturing and 63% of service organizations. More
manufacturing participants (60%) engaged in online billing and payments than
service (52%). Online product customizations were allowed by 18% of
manufacturing and 7% of service firms. The majority of services (64%) indicated
they send e-mail to customers for new sales and promotions as opposed to 43% of
manufacturing.
When designing a website, the designers must incorporate key words for search
queries to get the customer to the site. Companies can pay an Internet placement
firm to ensure a top spot for the company’s website on the search engine. The
majority of respondents (79% of manufacturing and 85% of service firms) did not
invest in an Internet placement service. However, the majority of those who did
(67% of manufacturing and 59% of service com- panies) expressed that the
investment generated positive results.

11 Barriers to entry

Before venturing into e-business, many factors such as cost, change of cor- porate
culture, security, availability of resources, resistance to change by employees, and
integration of e-business into business activities should be considered by
managers. It has been argued that these factors collectively and independently
could inhibit SMEs from implementing e-business (Kosan 2001; Fillis et al. 2004;
Taylor and Murphy 2004; Mendo and Fitzgerald 2005). The survey respondents
rated the degree of importance given to barriers to e-business entry before
implementation on a scale ranging from 1 (no importance) to 5 (maximum
importance). The results are given in Table 6. As expected, the cost of having and
maintaining an e-business system in both sectors were the highest pre-
implementation concern to SME managers with a score of 4.12 and 3.86 for
manufacturing and service, respectively, out of a maximum of five.
The second highest scores in both sectors were given to shortage of resources.
 The results show clearly that the lack of adequate financial and personnel
resources could be major impediments to SMEs in implementing

Table 6 Barriers to e- business

investment: average rating (1–5)
Barrier Manufacturing Service
(mean) (mean)

Security concerns 3.46 3.36

Shortage of resources 3.94 3.72
Corporate culture 2.35 2.21
Resistance to change by employees 1.96 1.98
Integration disruption 3.59 3.53
Cost of e-business implementation 4.12 3.86
and maintenance

e-business. Resistance to change by employees received the lowest rating by both

manufacturing and service firms. This is not unexpected since preparing
employees for change is easier in SMEs than large corporations because the
communications channels between management and employees are less
bureaucratic and formal in SMEs.

12 The impact of e-business implementation

Integration of e-business technology into business processes can reduce unit cost
of goods and services provided by lowering personnel requirements and reducing
both transactions and agency costs of the business. E-business is a way for
companies to become more efficient and to promote operational flexibility.
Responsiveness to consumer needs and supplier relations can be improved. In
addition, these companies are able to collect data about their customers to
improve marketing strategies, sales, and customer service.
The survey also asked respondents to score the degree of improvement they
experienced after e-business implementation with regard to several key per-
formance areas. The results are shown in Table 7. Scores ranged from 1 (no
improvement) to 5 (most improvement). Improvement in the area of customer
service scored the highest degree (3.84 in manufacturing and 3.91 in service) of
all the performance areas in both sectors. The data indicate that e-business can be
used by SMEs to improve communications between the customer and the
organization which in turn can translate into customer satisfaction and retention.
The scores for customer service and retention are similar for the two sectors.
The service organizations have benefited more in the areas of product
promotion, advertising, and marketing than manufacturing firms. The costs of
product handling and distribution of goods to wholesalers, retailers, and customers
are generally higher in manufacturing than service firms. The data show that
manufacturing firms (3.32) using e-business benefited more in these areas than
service corporations (2.74).
In order for organizations to realize the maximum benefits of the e-business
technology, managers must create a compatible organizational structure with e-
business applications. Matching employees’ activities with e-business

Table 7 Areas improved by e-business

implementation: average rating (1–5)

Performance Manufacturing Service

(mean) (mean)

Product promotion 3.10 3.60

Distribution costs 3.32 2.74
Customer service 3.84 3.91
Customer retention 3.62 3.69
Acquisition of new customers 3.19 3.24
Advertising 2.75 3.24
Marketing 3.01 3.80

applications requires change in the corporate culture which is the softer side of the
corporate structure and is the set of values that employees share in the enterprise.
Proper management of cultural change can be a critical factor in the successful
implementation and the use of e-business technology. E-busi- ness technology
affords the company to move from a traditional business model to a model that
 promotes shared activities, decision making, and problem solving as well as
strengthening the management of inter- and intra- organizational processes.
Change of organizational structure and the business model allow the firm to be
flexible and to improve internal and external information flow, reduce inventory
costs, and to better manage its supply chains and customer relationships.
The survey respondents identified the extent of the impact of e-business on their
organizations in ten different areas on a scale ranging from 1 (no impact) to 5 (highest
impact). Table 8 depicts the results. The highest impact in the manufacturing group was
given to inventory management (4.02) and in the service to customer relationship
management (3.88). Given that the manu- facturing firm’s responsiveness to customer
demands depend on an effective management of inventory and the efficiency of the
supply chain performance, it is not surprising to see that the manufacturing sector gave
the highest rating to inventory management. Both groups rated the improvement in
their supply chains as the second highest.
As mentioned earlier, e-business integration requires that organizations change
their business model as well as the corporate culture. Both sectors reported that e-
business implementation changed their business model (3.37 rating by
manufacturing and 3.28 by service) and corporate culture with rat- ings of 3.86
and 3.64 for manufacturing and service, respectively.
E-business can provide organizations with the ability to increase sales and
profitability by using electronic networks to reach customers without regard to
their geographic locations and be more flexible in the production and delivery of
goods and services to the marketplace. The scores for improved profitability
ranked the fifth highest and are very similar between the manufacturing and
service firms. Both groups improved corporate agility by implementing e-business
technology (3.64 reported by service and 3.59 by manufacturing).

Table 8 The overall impact of e-business

on the organization: average rating (1–5)
Area Manufacturing Service
(mean) (mean)

Changed corporate culture 3.86 3.64

Changed our business model 3.37 3.28
Improved supply chain 3.92 3.81
Accounting and finance 3.07 3.12
Organizational communications 3.23 3.48
Inventory management 4.02 2.85
Increased market share 2.81 3.14
Improved corporate agility 3.59 3.64
Customer relationship management 3.79 3.88
Improved business profitability 3.60 3.56
Composite index 3.53 3.44
The least amount of impact was felt by manufacturing (2.81) in gaining market
share and by service (2.85) in the area of inventory management. While inventory
management is an important factor in manufacturing and retailing companies, it is
not a major issue for most service businesses.
Finally, the composite score for SMEs, a simple average of the ten areas,
showed a slightly higher score for the manufacturing than service sector. Clearly,
the results demonstrate that the overall impact of the e-business on these
companies has been positive and both manufacturing and service firms benefited
from investing in e-business technology.

13 Conclusions

Information and communications technologies have become part of the daily

activities of consumers and businesses alike. Small and medium-size enter- prises
as a whole are a major contributor to the national wealth of modern economies.
More than 99% of businesses in the member states of the Euro- pean Union are
SMEs. These enterprises are using information and commu- nications
technologies more than ever before to improve their business processes and to link
with customers and business partners. In Sweden, 96% of SMEs employ these
technologies for administrative, business communica- tions, and operational
activities (Taylor and Murphy 2004).
The main objective of this research was to examine the impact of electronic
business on both manufacturing and service SMEs in Sweden. The study fo-
cused on the data collected from SMEs that use e-business in their day-to-day
business activities. The findings provide valuable information to the SME
owner/manager who is interested in implementing e-business.
 The best approach to implement a successful e-business is the development of
an e-business strategy. This method provides an opportunity for the owner/
manager of an SME to focus on the changes that adoption of e-business will
require on the business model and processes for the long-term success of the
enterprise. The majority of the service and manufacturing firms in the study had
developed an e-strategy for e-business integration and were able to complete the
project within a year and within budget.
Marketing and sales were the most influential in the adoption of e-business in
the manufacturing group whereas in the service group the CEO/owner was most
influential followed by marketing and sales. Clearly, the marketing and sales
functional area plays an important role in e-business adoption in both sectors. The
cost of e-business implementation was considered to be a major barrier for
adoption followed by shortage of resources, integration disruption, and security
concerns by both groups.
The findings of this research suggest that although e-business implemen- tation
may be considered an expensive and disruptive technology by managers of SMEs,
in the long run the benefits derived from the diffusion of e-business will outweigh
the costs. Future studies can focus on industry type and the competitive nature of
SMEs that use e-business and those that do not.

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