Broadband: life in the fast lane

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.

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.

Read more on IT for small and medium-sized enterprises (SME)

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