It's official: broadband can make your business more
profitable. Research by Cranfield School of Management and
accountancy firm Kingston Smith reveals that smart use of broadband
is one of the 12 good habits shared by "champion" small and
medium-sized enterprises that more than doubled their profit and
turnover in a four-year period.
High-speed, always-on links are enabling small players to behave
like the big guns, and evidence is emerging of applications that
can add to the bottom line.
Colin Barrow, visiting professor at Cranfield, says broadband is
too often seen as a way of doing things faster rather than as a way
of doing them differently or better.
"The majority of SMEs do not use broadband effectively," Barrow
says, referring to the many instances of "internet catalogues" he
saw during the course of the survey.
Highly profitable companies use broadband to add value, he says,
citing Hotel Chocolat's chocolate tasting club as an example.
It is a message that is getting through to other SMEs. "As we
approach five million affordable broadband access lines in the UK,
Institute of Directors' members, especially those running small
companies, are reaping significant and quantifiable business
benefits," says Jim Norton, senior policy adviser at the IoD.
A survey of IoD members found that 17% reported a bigger revenue
stream as one of the benefits of broadband, although it came in
behind other reported benefits such as greater productivity, cost
savings and better customer service. These attributes all help to
beef up revenue streams as it is also a question of being conscious
of what broadband can facilitate, rather than doing things
faster.
The majority of increased revenue opportunities come from
broadband's enablement of web access, according to Stewart
Masterton, business adviser with Business Link London. "Once you
have access to the web it does two things: it lets you find
customers and lets customers find you," he says.
SMEs tend to forget there are two sides of the coin and often
build a website solely with the objective of being found, says
Masterton. "They forget that it is an opportunity to find and
evaluate new markets too."
Masterton cites the example of a graphics production company
that uses the web to do a sophisticated version of cold calling.
The company develops snippets of a storyline and sends these out to
potential programmers and commissioners. "The method is often the
beginning of a conversation or a chain of events," he says.
"There is a huge difference between an e-mail shot and an
e-target. The e-mail shot is a blast into the cyberstratosphere,
whereas the e-target is a customised product sent to a person with
a job title."
And of course, when the communication also works in the other
direction, a web presence can act as a highly profitable retail or
sales channel.
For manufacturing or project-oriented companies, the web can be
used to enhance productivity in a way that drops straight to the
bottom line. "Companies can post URLs on a 'project portal' to demo
work so far for the purposes of approval without having to meet or
talk to a person. That is a huge productivity saving," says
Masterton.
And the nice thing about broadband is that it does not have to
be accompanied by any significant investment in websites to add to
the bottom line. Business Link London has come across several small
professional services companies that have only recently discovered
the benefits of e-mail.
"They have upped their level of customer service simply by
having e-mail always switched on," says Masterton. Having the means
to update investment information and respond to queries quickly has
increased levels of client satisfaction.
The critical mass of broadband and its positive impact on the
nation's economy has also been acknowledged by the Communications
Management Association, a stern critic of the UK's lack of
provision in the past. "The availability of broadband is
yesterday's problem. We now need a provision of services and real
competition," says David Harrington, head of regulatory affairs for
the CMA.
Harrington believes the best aspect of the national availability
of broadband is not its contribution to existing businesses, but
that it helps new businesses starting up.
His view is supported by evidence of booming regional economies
in certain natural beauty spots, such as Robin Hood's Bay in North
Yorkshire, where broadband has attracted professionals fleeing the
City to set up lifestyle businesses.
The uptake of broadband has moved on immensely in the past
couple of years, says Phil Flaxton, chief executive of Interforum,
a promoter of e-commerce. "The issues of 'do we need it?' and 'can
we get it?' are largely resolved. The emphasis now has shifted to
the delivery of content. The business community still does not
fully understand what its capabilities are."
The Department of Trade & Industry is organising a digital
content strategy in response to concerns that the potential of
broadband is not being maximised throughout the land.
Mark Swarbrick, deputy director of e-business, broadband and
digital content for the DTI, says, "We have got a broadband
infrastructure in place and you can get into sterile arguments
about it not being fast or big enough. The key thing is that the
figures show it is not being used effectively."
At present only 52% of available broadband connections in the UK
are being used; the rest are awaiting users presumably still hooked
on narrowband.
Clearly, the non-availability argument can no longer be used as
the sole reason for lack of broadband adoption, and the regional
development agencies are currently in a drive to promote
broadband.
In the meantime, says Harrington, "The national average of
0.5mbps is not good enough. Until we have got 100mbps, we are just
playing at it."
Case study: telework powers up ihotdesk
Broadband underpins ihotdesk's entire business model. The
company's 40 staff use broadband connections to work from their
homes across the UK to provide IT management services for SMEs.
Co-founder and managing director David Horwood says ihotdesk
expects to post profits of £200,000 this year, up from £130,000
last year, and is on course to make £1m by 2008.
"The premise of our business model is to keep overheads as low
as possible," says Horwood. "We put all our investment into one
datacentre, but all the staff can jump out of bed in the morning
and start checking our clients' networks from where they are."
The proliferation of broadband generates even more income for
the company. "An always-on connection is a big security headache
for anyone and our managed firewall service contributes 10% of
profits," says Horwood.
The company has coped with the patchy roll-out of broadband
across the UK since its inception five years ago. Even now, most
ihotdesk teleworkers have a 0.5mbps connection rather than the
optimum 2mbps. However, it is enough for the Webex tool that
ihotdesk uses for remotely monitoring and managing its clients'
computer resources.
"You do have to trust people to work at home," says Harwood, and
there is also the difficulty of keeping everyone involved as a
team. Broadband lets far-flung staff stay in touch with free voice
over IP calls, and Skype does messaging as well.
Online has proved a valuable sales medium, with sponsored links
on search engines delivering five leads a week, which is 50% of all
lead generation. The company has tried telemarketing, but the
advantage of using Google and Yahoo is that customers are
self-selecting and closer to a procurement decision.
Case study: Hotel Chocolat licks lips at online
club
Hotel Chocolat, one of the companies in Cranfield School of
Management's champion category of SMEs that have doubled profit and
turnover in a four-year period, rates broadband's constant
connectivity and speed as the means for delivering innovation
fast.
Angus Thirwell, managing director of the specialist chocolate
supplier, says, "We are a successful and profitable business
because we stimulate our customers. Broadband is a tool of our
continued success."
Last year the company made £2m profit on a £20m turnover. It has
used broadband to speed up the production of its hard-copy
marketing catalogue and to launch the chocolate tasting club, one
of its most profitable sales models.
Broadband powers the 120,000-strong online club, enabling vital
levels of interaction. Each month, subscription club members
receive a selection of hand-produced chocolates from independent
chocolatiers across Europe. They then score the chocolates online,
providing valuable feedback on what is going to sell well.
Broadband has also enabled Hotel Chocolat to cut the print costs
of its catalogue and publish it a lot faster. Previously, the
company used overnight courier services to move around huge art
files for the design and promotion of its catalogue.
It is not only the speed and efficiency of broadband that has
made the difference. Third-party specialists and remote staff can
also make their virtual presence felt. "If a photographer is on a
shoot, he can send images over the wire for staff to view online,
which helps them give him art direction over the phone while he is
still on the job," explains Thirwell.
Case study: Antonio Pacelli taps new profit
streams
A web presence enabled by broadband has provided many SMEs with
a smart shop window and the means to reach new customers. For
Antonio Pacelli, distributor of Irish dance shoes, the internet
added a high-margin retail channel to bolster its wholesale
business.
When brothers Ally and Adrian Gavigan joined the 15-year-old
family business they quickly realised an internet presence was
essential to capitalise on the craze for Irish dancing in the wake
of the international Riverdance tour.
Selling products over an internet retail channel increased
turnover by 10%, but more importantly, increased overall profit by
a further 20%. Previously the business had relied solely on its
wholesale channel, where margins are much lower. A retailer can
make 100% margin on an item, but the margin on wholesale is likely
to be in the region of 15% to 30%.
The company launched its site in the days of narrowband, but the
subsequent arrival of broadband has fired the brothers' ambitions
further. They are launching a web business that will sell fashion
shoes to women with wider feet. Broadband is essential because the
site has to be "a lot more lush" than the main company site.
"We need high-resolution graphics to market a fashion product,"
says Adrian Gavigan.