Small firms bridle at e-business risks

Many small companies are approaching e-commerce with trepidation.Computer Weekly visited two such firms to discuss their fears with a panel of experts. Julia Vowler reports.

Many small companies are approaching e-commerce with trepidation. Computer Weekly visited two such firms to discuss their fears with a panel of experts. Julia Vowler reports

Managing directors of the three million or so small to medium-sized enterprises (SMEs) in the UK don't have the time or the resources to do extensive research and experimentation on what e-commerce can do for them. What are the issues they face? What's tempting about e-commerce, what's holding them back, and why?

What's tempting them is clear. The anecdotal accumulation of stories testifying to the amazing commercial opportunities the Web presents - from Amazon.com to a family-run butcher in Yorkshire who's 20-something daughter built a Web site that has tripled sales - are a potent invitation to think "I could do that!"

But do what, exactly, and how, and when? How much will e-commerce cost, and where will the costs fall? What revenues will it bring in, or divert from other sources, or lose by incurring the wrath of more powerful customers? All these questions and more have to be answered before an SME can make a successful investment in e-commerce. The Computer Weekly round table thrashed out all these questions and exposed the key concerns and inhibitors.

First, many SMEs already have some experience of electronic business, but not using the Internet. Many, like Minicraft, already have established electronic data interchange (EDI) links to their key suppliers or customers, usually mandated on them by a more powerful customer.

"B&Q is our biggest retailer," says Minicraft's managing director Neil Stentiford. "To do business with them you must do EDI. They won't order from you otherwise."

The problem for Minicraft and other SMEs, however, is that each giant retailer usually has its own version of EDI."B&Q, HomeBase and Do It All all have different version of EDI," points out Stentiford.

But, it isn't just a question of variety. "The cost of EDI is very high," points out David Grimshaw from the Cranfield School of Management. "The Internet should reduce the cost so it's easier for SMEs [than EDI]."

Technically, too, EDI is more limiting, as it is a hub and spoke topology, rather than the far more democratic any-to-any topology the Internet allows, whether it's e-mail or e-commerce. "If I could do EDI as easily as I can do e-mail I'd love it," enthuses Stentiford.

EDI is not the only experience of e-business that SMEs already have. Not only is e-government on the way, but most already have some kind of telebanking relationship with their banks. "We do a lot of our banking by telebanking, such as payroll and daily positions," agrees Stentiford. "It's much easier."

Risk and security

However, SMEs' experiences with e-business so far is highlighting one of the main barriers to mass take-up and migration into e-commerce - the issue of risk and security. There are two causes for the unease. One is the risk of high costs, thanks to the connect time incurred via telecommunications providers. Stentiford is not alone in preferring the PC he does his telebanking on to be a separate machine. "It's typical," agrees IBM's Steve Passam, whose findings show that 60% of companies do e-business on standalone PCs, unintegrated to their internal networks.

What SMEs require, the group agreed, is clear, transparent, unambiguous and preferably lower pricing tariffs from the telecoms companies. No one wants to log on to the outside world without a very good understanding of what it will cost. "You never know what your phone bill will be," complains Michael Bagg of Elizabeth King Deli. "The costs can rack up," warns Sage's David Errington.

But the risk is in more than a whopping phone bill you cannot pre-calculate. Like the world at large, the SME community has its suspicions about the overall security of doing business over the net, and worries that its customers will as well. Fouling up e-commerce is worse than not doing it at all. "In our survey of SMEs security came out as the biggest issue, with 20% putting it at the top of the list," warns Passam.

However, the consensus of the group was that the issue of Internet security is being overplayed - mostly by the media, who drum up scare stories about lost orders and misappropriated credit card numbers. The bottom line is one of public confidence. "The issue is not whether the Net is secure, but whether it's secure enough," says Errington.

Theoretically, of course, there should be no reason why giving a credit card number to a Web site should be any riskier to the public than giving it over the phone or to a waiter in a restaurant. Especially, adds Errington, when the credit card issuers have shown that they will be prepared to take the liability for such loss. "The issuers are starting to see that as a differentiating feature [for their customers]," he points out.

The bottom line, therefore, is that once the financial intermediaries shoulder the risk - largely perceived rather than actual - of commercial transactions over the Web, public confidence will reach levels necessary for mass consumer take-up of e-commerce.

But the fundamental underlying reason for the reticence SMEs have for e-commerce is that they do not yet possess a clear idea of how it will either make or save money for them, and what trade-offs they may need to make to achieve those benefits.

Some are feeling their way in the dark, starting to build a Web site but not quite sure what they will do with it. "Ours says: Web site under development," admits Stentiford.

"That can be counterproductive," warns Roger Till of E-centre UK. If it's under development for too long, visitors become disenchanted, sceptical and eventually hostile. And what will a Web site achieve for the company once it's finally built?

The worries are very real. These range from predicting the number of hits accurately in order to size the server (and make it resilient to downtime) to predicting the reaction of critical business partners.

As Stentiford explains, if Minicraft should start selling its product direct to its dedicated customer base of hobbyists, what reaction to that move will it get from its powerful retailers who currently sell its products? He cites one major retailer in the US that has informed its suppliers that if they open a Web site to sell direct, they will be regarded as competitors.

Likewise, as Bagg points out, will selling his produce direct reduce his shop sales, or complement them?

Game plans wanted

What every company needs whether an SME or a giant corporation, is a robust, well-defined, well-explored business model for e-commerce, analysing strengths, weaknesses, opportunities and threats, just as would be done for any other business venture. But where are the established game plans, the reliable sources of advice in the brave new world of e-commerce? Referrals and anecdotes are one thing, but are they reliable - or adaptable to different companies?

Finding a good source of advice and information proved to be the number one problem facing SMEs anxious to know what e-commerce could do for them - or to them. Depressingly, despite the Government's suggestion that SMEs mentor each other, this notion was dispatched swiftly. SMEs do not have time to advise each other. And although some trade organisations and lobbying bodies, as Till points out, have started to collect information and advice, many do not feel it appropriate or adequate to impart it.

"It's very difficult to get honest, impartial advice," concedes Paul Hannan of the Federation of Small Businesses. "Just providing a checklist is not adequate. A business needs a period of understanding, trial and error, without too much risk. Businesses are not stupid about the e-commerce hype, but some will make massive mistakes."

Nor is individual consultantcy considered practical for the three million-plus SMEs in the country, warns Hannan. "SMEs principally don't trust big business or government - so where do they go for advice?" he asks.

Nor do they seem to be getting any help or advice from their own financial investors, such as banks or venture capitalists, who should, surely, have the most vested interest in the future revenue streams of their clients. "Outsourcing e-business should help - it's the Holy Grail to outsource what you don't want to do, to free up your time," points out Hannan. But SMEs can be wary of outsourcing anything to do with IT. "I outsourced my accounts and they messed up - it took me a huge effort to sort it out," recalls Bagg. Small wonder that the prospect of outsourcing e-commerce draws a deafening silence.

The key to outsourcing e-commerce service provision - almost by default - is the IT supplier. This can range from, in Minicraft's case, Sage, which provides the company's accounting package, to the entrepreneurial Web design company Scoot, which approached Bagg and convinced him that a few thousand pounds would get him an exclusive Web page in a electronic shopping mall. For Bagg, this is an acceptable degree of risk, and the route he is taking into trying out e-commerce, albeit very cautiously.

Scoot was an unknown quantity for Bagg. Stentiford, trusts Sage "because I have a five-year relationship with them," he says. But, for the UK economy as a whole and predictions of a move towards e-commerce, answers like these are not encouraging.

The e-SME round table: who's who?

Experts

David Grimshaw
Cranfield School of Management, who chaired the meeting

David Errington
Chief technology officer, Sage

Steve Passam
SME marketing manager, IBM

Paul Hannan
IT committee, Federation of Small Businesses

Roger Till
Director, E-centre UK

Julia Vowler
Enterprise editor, Computer Weekly

David Bicknell
E-business editor, Computer Weekly

Users

Neil Stentiford
Managing director, Minicraft

Minicraft is a £2.5m producer of miniature tools for hobby crafts. It was bought from Black & Decker five years ago. It employs 25 staff in the UK, and does half its business in the UK and half abroad

Michael Bagg
Owner, Elizabeth King Deli

The London-based delicatessen in Parsons Green employs 15 people, turning over just under £1m a year via one shop and mail order sales.

What are the issues?

• SMEs still ask why they should do e-commerce, what their business model should be, and what the risk is
• Security is a problem only because it is a perceived risk, although there are some remaining gaps, such as digital signatures
• SMEs want to use e-commerce to get a closer relationship with their customers, while at the same time e-commerce allows small companies to globalise swiftly and at low cost, and provide more finely tuned products and services
• Impartial advice is crucial but lacking. Technology is not the main barrier to take up - deciding what the e-commerce business model is. Should a company spin off a new e-commerce-only venture to make it easier to avoid cannibalisation and retribution by powerful customers and supplier, as well as containing risk and isolating spend?