Like concerned parents on the last day of school, the movers and shakers of Canadian e-business are now anxiously scrutinizing a report card recording the performance of small and medium-sized companies in the past year.
And, like many demanding school teachers, the Canadian E-business Initiative (CeBi) delivered a mixed message in its latest assessment of the nation's digital economy, praising Canadian small and medium enterprises for leading the world in some aspects of e-business but urging them to work harder on others.
Pierre Paul Allard, president of Cisco Systems Canada Co. and co-chair of CeBi, a private sector-led initiative that promotes e-business growth in small and medium-sized organizations, says he is "delighted" with many of the findings contained in two comprehensive reports released this month.
Nevertheless, he adds, the findings "clearly illustrate that governments and business in Canada must work to address the weaknesses which are holding us back from creating a dynamic, robust and productive e-business climate."
In two separate documents, compiled by teams of industry insiders, analysts and academic experts, CeBi issued a report card on Canada's e-business and compared its performance to international competitors in the United States and European Union.
Both reports focused on small and medium-sized enterprises (SMEs), which are defined as organizations with 500 employees or fewer. It's a sector that accounts for 60 per cent of Canada's economic output, 80 per cent of overall national employment and 85 per cent of all new jobs.
The CeBi studies found that smaller Canadian SMEs, with 100 employees or fewer, are ahead of their counterparts in the United Stats and Europe in adopting Internet business solutions while larger Canadian SMEs are running neck and neck in this category with competitors south of the border, leaving European businesses lagging behind.
Canadian companies were also at the top of the class in their ability to use e-business solutions to cut costs, reducing the costs of goods sold by 10.7 per cent, compared to reductions of 6.9 per cent down south and 1.3 per cent in Europe.
This is a significant finding because it provides solid evidence of how e-business solutions can benefit the bottom line, according to Ron McClean, assistant professor of management science at York University's Schulich School of Business and deputy leader of CeBI's benchmarking and metrics team.
Yet it is a lesson that many businesses have yet to learn, since 28.4 per cent of Canadian firms have told CeBi researchers that they have no plans to implement Internet business solutions within the next three years.
The studies found that many companies fail to adopt e-business because of a lack of access to skilled talent, a shortage of time and money, and a lack of tools geared to the needs of smaller organizations.
Mr. Allard says he is distressed by these findings as he believes that using e-business should be as obvious a choice for any business today as the decision to instal a telephone.
Nevertheless, he says: "We're very proud of finally having access to relevant data that can position us on a worldwide basis. It will help people we represent and government and academia really understand what the problems are."
CeBi's e-report card assesses the performance of Canada's SME sector in nine different e-business-related subjects, grading each of these in one of four categories: progressing rapidly, progressing, paused or falling behind. A tally of the results shows Canadian SME e-business progressing rapidly in one area, progressing in four others, paused in three and falling behind in one.
Here's a closer look at the results:
Progressing: 'Still room
More than three-quarters of Canadian businesses had access to the Internet in 2002, up from 63 per cent in 2000, but small businesses are still lagging behind in Internet adoption, according to the report, which notes that the Organization for Economic Development ranked Canada only 12th in connectivity of businesses with 10 or more employees.
"Much more needs to be done to encourage SMEs to get connected and, more importantly, to move from basic connection to the use of e-business. Otherwise, Canada risks losing out on the productivity gains created by e-business adoption," the report states.
Progressing rapidly: 'Citizens
embrace the Internet'
With 63 per cent of the population on-line, Canada leads the United States in Internet use but Canadians are not shopping on-line as much, and more than a quarter of their spending is on U.S. sites.
Canadian consumers are reluctant to buy goods on-line because they are concerned about security and privacy. Their concerns about privacy are so strong that three-quarters of Canadian on-line consumers chose not to make any on-line purchases in the past year, the report states.
Paused: 'Efforts must
Concerns about security and privacy are critical barriers to e-business adoption for consumers and businesses alike. Consumers are demanding that their information be kept private, and so are suppliers. Privacy requirements will soon be imposed by legislation.
Yet, the report states, "there is a shocking awareness gap among SMEs about the need for action. As many as 81 per cent of SMEs are unaware of the deadline for privacy compliance [with federal legislation.]"
The report recommends efforts to raise awareness on these issues, combined with action by law enforcement agencies and government legislators against identity theft and other illegal activities on-line.
"We need to attack and solve the issues of privacy and security," says Mr. Allard.
Paused: 'Many grads lack
appropriate IT skills'
Close to one-quarter of SMEs interviewed in an earlier CeBi study said they could not find people with technical skills to help them implement Internet business solutions, and more than 40 per cent cited employee training as a barrier to e-business.
The situation is only likely to get worse, according to this month's report, as technology firms cut costs by reducing the funding support they give to university and college programs.
"Canada's future economic growth could be critically impaired unless we act decisively to reverse this situation," states the report.
It recommends more government and private sector support in developing courses and expanding programs.
Progressing: 'But not moving
Just over half of Canadian SMEs have adopted at least one Internet business solution, but 28 per cent have no intention of doing so, according to the report, which also identifies some complicated trends in the kind of solutions that businesses are adopting.
While Canadian firms lead the world in adopting financial and customer service solutions, they lag in the use of supply-chain management and sales force automation tools. This is a concern because the Canadian SMEs are falling behind in deploying more sophisticated technology that could bring big long-term benefits, according to the CeBi benchmarking and metrics team.
"Canadian SMEs run the risk of being marginalized as suppliers in increasingly competitive and integrated global markets," the report card states.
'A major barrier'
E-business in Canada is being held back by a lack of affordable tools and services that meet the needs of small and medium-sized business, the report card found.
A key reason for this is that technology vendors do not find that SMEs are as lucrative a market as larger corporations, especially because the SMEs have been slow to adopt Internet solutions and need more support in deploying new tools, the report states.
"Most of the vendors are saying that they have a toolkit but it tends to be large and expensive."
"They're really directed at world markets, which tend to be larger firms. That's where the payoff is," says Mr. McClean.
"Small and medium-sized businesses are asking for a toolkit that is less intrusive, easier to implement and perhaps more integrated than a large firm might want to look at. And they're not finding it."
But large technology vendors say this situation is changing, as they are now setting their sights on the SME market.
"We are working with smaller companies to turn this around," says Tom Turchet, vice-president of mid-market at Markham, Ont.-based IBM Canada Ltd.
Mr. Turchet says small and medium-sized businesses do not necessarily have the resources to adapt technology to their own needs and are therefore looking for ready-made solutions that will help them.
"They say, 'The technology is too expensive and I don't have the skill to implement.' But the conversation needs to revolve around, 'What are you trying to do with your business and is there efficiency that can be gathered through solutions and technology?' "
Jeffrey Green, regional vice-president of Oracle Consulting at Mississauga-based Oracle Corp. Canada Inc., says a growing number of affordable solutions are now becoming available to small and mid-market companies.
He says smaller companies are beginning to reap the benefits of big investments that vendors have made in developing technology for large companies.
At the same time, vendors are recognizing that SMEs represent their best opportunities for growth in the sale of new technology, now that some of the major requirements of large corporations have been fulfilled, Mr. Green adds.
"These represent green-field opportunities," he says.
"Obviously we're not turning away from and will continue to support our existing installed base. . . But the mid-market represents an untapped opportunity area. And one in desperate need, as the report suggests, of solutions," Mr. Green says.
Progressing: 'Showed signs
Even though venture capital investment fell in response to last year's declining technology markets, the decline was much less in Canada than in the United States.
While Canadian venture investments dropped 35 per cent to $2.5-billon in 2002 from $3.8-billion in 2001, the U.S. market disbursements plunged 51 per cent to $21.2-billion last year from $41.3-billion in 2001, according to the report.
It notes that the Canadian venture capital market "showed signs of vigour" as spending increased toward the end of the year.
However, the report also notes that most of the investments were follow-ups to previous transactions and "new businesses faced a very weak market for new venture capital investment."
The report stresses that Canada needs to keep up its efforts to attract venture capital by improving the tax system, building the skills of SMEs and "spreading the word about Canada as an environment for e-business."
Canada needs lower tax rates to compete with the larger U.S. market in attracting investments, according to the report, which praises recent federal tax measures and supports further proposed changes.
The report notes that Canadian regulations currently discourage pension funds and other large institutions from investing in the venture capital sector, but some of these limitations will be removed under this year's federal budget proposals.
As a result, the report states, "the Canadian venture capital community will have an unprecedented ability to attract new capital from major institutional investors in Canada and the United States."
Paused: 'Need to
While Canada is one of the most technologically advanced economies in the world, the report card notes that this country's image in the world is still more associated with "Mounties and moose" than with e-business innovation.
"Image and perception, rather than performance, are the major hindrances to attracting more investment and skills to the Canadian market," states the report.
It recommends a systematic effort to "rebrand Canada as a dynamic, innovative digital economy."
© The Globe and Mail
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