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The Internet and the Small Business

University of Birmingham
United Kingdom

IBM (UK) plc
United Kingdom

Florida International University


This paper is taken from a study of the use Information Technology in a range of small and medium sized businesses in the UK and elsewhere during late 1996 and early 1997. It focuses on the impacts brought about in these businesses by the introduction of the Internet. In particular, this paper describes the construction of an impacts model built as a part of this research that enables a structured approach to cross business analysis of impact. It describes two cases of application of the model in real businesses and gives some details of other cases undertaken and of the findings of the wider study that are useful to those considering or assessing the use of the Internet in commercial environments. The paper also gives some details of future research that is being undertaken to extend the understanding of business impact of this technology in the small business sector.

A number of issues arose from this research that will be appropriate for further discussion and research work. These issues include:

  • the nature of the Internet environment most suited to small business operations
  • implementation issues of incorporating the Internet into a working small business
  • the possibilities for integration of the Internet with existing systems in the business
  • the perspective necessary for success in managing Internet impacts in small businesses
  • the measuring and assessment of business impacts of changing systems
  • support and consultancy requirements during and after system change
  • planning for future business impacts of Internet technology.


1. Introduction

The development of commercial use of the Internet and the World Wide Web (Web) has skyrocketed. The number of Web-sites now exceeds 8 million and is expanding rapidly. Though some debate continues as to the real commercial benefits to be gained from trading using the Internet, evidence shows that in other areas the Internet can have positive impact on business competitiveness and profitability. This paper develops and describes a framework of Internet impacts on small and medium sized business enterprises (SMEs) and applies that framework to real SMEs.

1.1 The Web

The Web has attracted media attention since the early 1990s. Thousands of companies have begun experimenting with the Web's commercial potential and the market has evolved into a multi-billion dollar concern. The Web has proven to be the catalyst that permanently launched the Internet into commerce.

1.2 SMEs

Small and medium sized business enterprises (SMEs) play a significant role in most economies. Most of these companies employ less than 250 employees and are a key provider of employment and commercial innovation and a significant contributor to national economies. In the UK, for example, SMEs generate more than 50% of all employment, and comprise more than 2.4 million separate initiatives. Within the European Union, 99.9% of all businesses employ less than 500 employees, and generate more than 70% of all EU jobs (3). Using computers for accounting functions has traditionally been the extent of SME information technology (IT) use (7,4). However, communications-oriented IT is becoming more important to increase productivity, reduce costs and facilitate flexibility in the SME (18,19).

1.3 The Internet and the SME

The successful SME of the future will likely have a number of key characteristics such as generating turnover through exports, operating in niche markets, utilization of advanced information technology, and strong partnerships and strategic alliances (3). IT is pivotal in this list as it may well be the mechanism through which other key characteristics can be created and delivered. Computers are increasingly used by SMEs in a networked capacity to extend their reach (1,8), enabling them to tap into the global information superhighway. The Web facilitates global trading by SMEs. The Web can be used by SMEs for three important tasks: marketing and advertising to attract new customers, service and support of existing customers, and new market and distribution channel creation for existing products (12).

1.4 Assessing the impact of the Internet on the SME

The Internet affects the way an SME talks to its business contacts and partners, the way it manages its data and projects its presence. Its introduction results in changes in fundamental business processes and operations. In order to assess these impacts and to compare with changes in other businesses, a structured approach is useful. As no acceptable prior impact model was available, a new one was developed as part of this project.

2. Business impacts of the Internet

The following sections detail the construction of the model and its use in two real, but very different, businesses, a confectionery retailer and a public relations company. This model draws on general IT impacts models and others from expert systems research, artificial intelligence and systems theory as well as from prior research done on the commercial use of the Internet itself (in particular, 1,8,17). The most methodological, intuitive and comprehensive approach to assessing impacts in this domain was identified as the 2D matrix model (2).

2.1 General IT impacts

A review of existing IT impact literature supports the proposition that inferences relating to the likely impacts of Internet technology can be gained from a broad spectrum of IT applications. A number of papers note education as being an area subject to impact (1,2,5,11,20), whilst managerial roles (5,6,10,20), organizational culture (2,5,6,10,11,13,) and decision making streams (11,6 ) are also likely to be affected. These areas are also likely to be impacted by Internet use, particularly organizational culture and education (1,17). Changes may also occur in costs (6,10,11,17), personnel shifts and downsizing, (6), the workforce (6, 10,11,13), the environment (6,10,17,20), decentralization (11), informal networking (13,17), and relative advantage, (8,13,17). Education, efficiency and business environment are repeatedly cited as being of particular importance.

2.2 Developing the framework

The vertical axis of the matrix indicates categories of impact, and is composed of communication, information retrieval, knowledge management, productivity and environment. These categories are grouped to reflect impacts focused on inputs to the business activity of the SME (communication and information retrieval) and outputs of the business activity (knowledge management and productivity/use of knowledge). A description of the context of impact is also included as the environment category. The model can be used to consider each area specifically in isolation from and combined with levels of impact as given on the horizontal axis. These levels consider the company's business contacts, the organization as an entire enterprise, and individual tasks or processes that are undertaken by the enterprise (see Figure 1). This model focuses on the controllable aspects of business impact brought about by the introduction of Internet technology; therefore, issues such as cross industry influence have been ignored at this level.

The model given in this paper is a refinement of previous versions of a model developed for the same purposes. For further information on the model development see Lymer, Johnson and Baldwin (1996a,b).

2.3 Justification of the levels of impacts

The Internet Impact model facilitates the examination of impacts at numerous levels within an organization, as well as considering external factors. These areas of impact move from external areas on the left of the matrix to internal locations on the right of the matrix.

2.3.1 Business contacts

This class of impact describes all of the external individuals and organizations with which a company communicates. These include customers, suppliers, governmental agencies, competitors, banks, etc. The Internet potentially impacts such relationships. For example, if customers have access to the Internet, they may interact with the company via e-mail, view information about the company or their products via the Web, purchase commodities online, pay with their debit/credit cards or some other form of electronic payments card. The Internet therefore enables companies to extend their geographical reach, and enables customers to purchase products from organizations that would otherwise be impractical to trade with (1).

2.3.2 Organization

Organizational impacts are those that affect the organization as a whole. These impacts are those internal to the organization in contrast to the external impacts between the firm and its commercial environment. The organization will be impacted upon in many different ways. Labor changes might arise (11,13), management operations and roles could be altered (5), communication flows might change (11) and the physical work environment may be changed (10). Organizational changes are likely to be significant impacts.

2.3.3 Task

Task refers to individual processes that are carried out within the organization, which has long been a topic of research (2,11,13,16,19). This element involves assessing the day-to- day impacts affecting employees and the way they work. New technology has had a significant effect on many employees and their ability to undertake their job-specific tasks. It has empowered workers to undertake new tasks that previously would have been considered impractical and even, perhaps, impossible. The Web may continue this trend through re-engineering the activities employees undertake (1,8,18).

2.4 Expansion of the categories of impacts

Five categories of impacts are included in the two-dimensional matrix model. These categories are communication, information retrieval, knowledge management, productivity and environment.

2.4.1 Communication

Communication is one business activity that will undoubtedly be impacted by the Internet, which includes a multitude of communication facilities. Many of these facilities are cheaper and more efficient than other forms of communication, and hence companies are likely to notice real impacts in this area of business. Huber (11) draws particular attention to communication, noting when mediated by a computer, it can impact upon organization design, intelligence and decision making.

2.4.2 Information retrieval

The Internet provides technology that enables businesses to retrieve considerable amounts of information on a multitude of subject areas. With corporate information the most vital resource a company owns, any improvements obtaining useful knowledge as an input to the business will add significant value to the company as a whole (1,9,17).

2.4.3 Knowledge management

A company's ability to manage corporate knowledge is increasingly important for commercial success (1,18). In satisfying this need, the Internet can be used as a mechanism to develop expertise, as well as provide an environment in which education can occur. The valuable role IT can play generally in education is well documented. The presence of the Internet will potentially extend the usefulness of IT for this purpose if managed correctly.

2.4.4 Productivity

To sustain productivity gains and remain competitive in a global marketplace, companies are increasingly reliant on information technology. The major impact of IT on these gains relates to improvements in the use of business knowledge and expertise. Therefore, the Internet impact model incorporates productivity-impacts as an output variable. Productivity includes efficiency and effectiveness impacts. Companies might find the Internet enables them to undertake some activities more quickly, easily, and less expensively (6,8,10).

2.4.5 Environment

Both the external environment and the office environment have shown IT impacts (5,6,10,17,19). Factors such as the physical office and the office culture, business strategy, technical orientation, and human relationships are susceptible to change. Environmental issues are often difficult to quantify, but they will be present when changing business processes using Internet technology.

2.5 Building specific areas of impact into the Internet impact model

The matrix structure combines levels and categories of impact. The following diagram illustrates some of these specific impacts that may be present in a business using this technology (figure 1).

The model as given concentrates on controllable impacts. In order to understand these impacts on a case-by-case basis, it will be necessary to consider the context in which each business is operating. One of the contextual factors that will affect business impact of the Internet, for example, will be the industry within which the business operates. Regulatory bodies and professional institutes will be able to communicate, disseminate and retrieve information from members of the industry that are online. Closer electronic links between business partners will be developed, and indeed, Internet technology may even be used as a mechanism to facilitate an industry wide set of objectives. More incentives may be created to encourage joint ventures with competitors, developing mutual strategies as opposed to engaging in competition.

As well as these more explicit impacts, the Internet may also impact on the industry through a series of more subtle effects. Industries that use the Internet may be perceived as more forward looking and innovative. Segregating industry level impacts from other external and internal impacts allows a much more accurate impression of how each element of the business environment is impacted.

These contextual factors are important to bear in mind when assessing the decisions of individual businesses.

3. Validation and use of the Internet impact model

This section details the application of the matrix model to two real companies. For further details of other cases that formed part of the research undertaken see Lymer, Johnson and Nayak (1996).

3.1 Sweet Seductions

Sweet Seductions (figure 2) is a high quality confectionery shop based in Leamington Spa in the West Midlands of the UK. It is managed by the shop owner and employs between 3 and 15 staff seasonally. The shop has been retailing chocolate and other confectionery directly to the public and via mail order since 1993.

3.1.1 IT and impacts

Sweet Seductions Web pages, which enabled trade over the Internet through secure payments technology and electronic mail, were released live on the Internet in December 1995. The Web-based trade runs parallel to its mail order activities. Figure 3 illustrates the Internet impacts on Sweet Seductions.

3.1.2 Communication

The Web allows users to view pictures of products available via the business and to read descriptions of the products. It also allows them to fill a "virtual shopping basket" with goods as they browse which they can order, using credit card for payment. The orders are communicated to Sweet Seductions via secure e-mail link. Once a customer has placed an e-mail order with Sweet Seductions, the company goes through a standard set of procedures. The company finds that e-mail is efficient, timely and convenient to communicate with Web-based customers and the Web site provider. The owner/manager of the shop is able to use e-mail to communicate directly with his customers to enhance the quality of the service provided and to encourage repeat orders.

3.1.3 Information retrieval

Sweet Seductions' customers retrieve company history and product information through the Web. The company has its own mailing list and participates in chocolate related newsgroups. These distribution channels help create repeat visits.

3.1.4 Knowledge management

Sweet Seductions provides a series of documents for customer business contacts through the Web and mail lists. The industry is likely to be impacted upon through improved communication with competitors, suppliers and customers, enabling the company to keep in touch with what is going on both within the UK, as well as around the rest of the world.

3.1.5 Productivity/use of knowledge

The company believes it offers customers a better quality service by providing them with another purchasing option. However, many of the Web sales are to new clients. Sweet Seductions has seen its market grow during 1996, both in monetary terms as well as in geographic terms. An increased amount of time is being spent by the shop staff in front of a computer terminal for some tasks. However, once electronic orders have been collected they are printed out and join the mail order system for processing and delivery. Therefore, no additional task impacts are created through Web-based orders.

3.1.6 Environment

The initial costs of creating the Web site were relatively low as the shop already had much of the hardware to enable online transactions to be processed.

3.2 CPR Works

CPR Works (figure 3) is an owner managed public relations company based in Birmingham, U.K. It was formed as a limited company in December 1994 and currently has a turnover of just under £200,000 per annum. CPR Works provides a public relations service to the heating and energy industries and currently employs three full-time staff members, subcontracting out to freelancers any additional work that it is unable to act on.

3.2.1 IT and impacts

The company uses two PCs in its office premises, and Colin Carr (the managing director) uses a third PC at his home. The company has used PCs since incorporation for word processing, spreadsheet work and other basic office based activities. In May 1995 they were given the opportunity to have a leased line connecting them to the Internet.

CPR Works has e-mail, FTP, Web and Usenet Facilities. The IT Company providing them with Internet access charges a management fee which involves preparing and maintaining their Web pages (, while also dealing with any queries or technical problems. They have recently provided a dedicated one-to-one dial-up facility so that the managing director and other staff can connect to the Internet and work from home.

3.2.2 Communication

The benefits of networking communications with and on behalf of clients have been significant. Working in an industry when timing is critical, and its management vital to commercial success, any improvements in ability to communicate is a significant benefit. This has however, resulted in a change to the nature of communication management requiring faster responses than were normal before the use of the Internet.

3.2.3 Information retrieval

As a PR agency concerned with the activities of the rivals and partners of their clients, CPR Works is better able to monitor their activities through the Web than was previously the case. This results in more timely responses to rivals' campaigns and better co-ordination with partner activities. Time in front of the computer carrying out this discovery task is, however, difficult to find on a regular basis.

3.2.4 Knowledge management

It has been possible to develop the digitizing of key business information to enhance access to and management of data. This will include better tracking of client PR materials.

3.2.5 Productivity

The availability of client information in digital form makes it possible to manipulate and circulate information more efficiently than was previously the case, improving the response time of campaigns.

3.2.6 Environment

CPR Works had already made the technology purchases necessary to create the entry-level environment for this technology. They did, however, report that the increased use of the Internet has made them more reliant on this technology, which creates new business risks for their operation. They are also beginning to make use of the teleworking potential of the new tools they now have for mobile working.

4. Discussion

In the study from which this paper is taken a total of seven detailed cases are presented. These cases are all small businesses currently operating in the UK. They include a law firm, an graphic design company, a manufacturer of business forms, a photographic promotion company and a doctor's surgery operating in the primary health care market in addition to the two cases detailed in section 4.

In each case study the Internet has had significant impact on the organization's business contacts. The fieldwork supports the suppositions that clients, suppliers, and customers all experience at least some favorable impacts from Internet technology. The Internet provides a new medium for interacting with business contacts, and supplies an added value mechanism for conducting trade. It enables companies to reach a wide market area, and hence is capable of empowering an organization with enhanced market reach. At the time of the research the dominant business impact of the Internet was on communication with business contacts of all types.

The organization level of impact is very susceptible to Internet related impacts. In almost all of these instances, the impacts experienced have been favorable. Within the organizational level of impact, it was the company's environment that faced the lowest level of change, since these organizations had used IT previously. However, a number of the cases had undergone major organization changes driven by the introduction of the Internet into their operations.

The evidence of the case studies undertaken suggests that the Internet does not yet generate or eliminate many task activities. Instead, it is merely an alternative mechanism for performing existing specific tasks. The Internet does however, requires more of these tasks to be undertaken in front of a computer, and hence will compound itself to make organizations increasingly reliant on their IT infrastructures.

5. Conclusion

This paper presents the case for the value and limitations of the Internet to small and medium sized enterprises. It uses as its evidence two primary cases drawn from research performed in the UK during the end of 1996 and early 1997. In order to provide for some comparison possibilities between businesses of a diverse nature, an impacts model was developed that supported focused analysis. This tool has been used in a number of real business situations to help users understand the implications of the use of the Internet for their businesses.

This model is a starting point for assessing the impacts of the Internet on small and medium-sized businesses. Further refinement of the model will assist in identifying the most important and most likely impacts, both positive and negative. As this research progresses, a move from the descriptive to the predictive will provide a most useful addition to the literature and a practical tool for those involved in business support in this area.


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