5TRA TEGF CONNECTIVITY & COMMUNICATION: A STUDY OF HOW SMALL WINE BUSINESSES USE THE INTERNET Armand Gilinsky, Jr. Sonoma State University Armand. Gilinskysonoma.edu Elizabeth C. Thach Sonoma State University Li z. Thach@sonoma. edir Karen J. Thompson Sonoma State University Karen. Thompson@sonoma.edu ABSTRACT This paper addresses the development and effects of internet use by small wine businesses. It includes usefiil insights that can be applied to other sinall businesses, and also proviiles helpful information for consultants and entrepreneurship educaiors. An erploratory fiainework is presented thar includes a four-stage sequence through which small businesses rypically progress in relation to the use of Internet-related tools. The stages include awnreness, desrgn, implemeruarion, and practice. propositions are also developed ro guide analysis of the framework, aml an empirical test of various parts of the framework is performed using a sample of 382 wineries. Results slrowed that, beyond rhe use of e-mail for conmiunication and connectivity, awareness of the Imernet's uses is moderate, wlrile implementation is moderore to low. Thirty-nine percent of the respondents believe tire Internet will make a strong contribution to sales and profitability in the future, though only 9% report they are currenrly achieving this with Interne( utilization. INTRODUCTION Increasing Internet utilization and the further development of infrastructure for e-commerce have induced small businesses to seek expanded market development opportunities (Evans & Wurster, 1999) and cost savings benefits (Garciano & Kaplan, 2000). It has been suggested that, "the emergence of virtual markets opens new sources of innovation (e.g., business model innovation) that may require a parallel shift in strategic thinking towards more integrative, dynamic, adaptive, and entrepreneurial strategies," (Amit & Zon, 2001, p. 516). Rates and types of utilization of the Internet by businesses have been varied due to many factors (Timmers, 1998). While the Internet offers broad access and nchness of information, different industries have different informational needs (Evans & Wurster, 1999). For example, legal professionals may require extensive research capabilities whereas wholesale distributors may not. Insufficient human, technical, and financial resources may prevent a company from deploying desirable Internet applications. Lack of commitment to or 37 Journal of Sinai/ Business Strategy Vol. /4, iyo. 2 Fall/Winter 2003 familiarity with rapidly changing technology on the part of management may also affect Internet adoption and utilization (Henderson, 1993). Further, security concerns may deter adoption of Internet transaction applications and the support systems needed to make them work (Venkatraman, 2000). Small businesses represent the majority of American businesses & serve as important engines for economic growth, yet recent research on Internet adoption has focused almost exclusively on large businesses (Amit & Zott, 2001; Dutta & Segev, 1999; Smith, Bailey, & Bymjofsson, 1999). The purposes of this exploratory investigation are to provide a frame of reference for small business owners and consultants as to how small manufacturers perceive and utilize the Internet for e-commerce implementation, to provide educators with a new framework for Internet utilization, and to serve as a foundation for future research. An important issue for both small business research and practice is, "Why do some small firms choose to utilize the Internet whereas others do not?" Previous research has tried to explain this phenomenon by citing industry and organizational characteristics as possible causal factors (Lohrke & Franklin, 2002; Poon & Swatman, 1999; Premkumar & Ramamurthy. 1995). Due to the multiplicity of organizational issues surrounding Internet adoption and utilization, and the particular relevance of industry classification, it is important to focus the research on a single industry to minimize environmental noise. With this m mind, the wine industry was selected, because it is composed of many small businesses. According to the American Viticulture Association (A VA, 2002), there are approximately 2,000 wineries in the US, and more than 50% of them have fewer than 5 employees. There are approximately only 10 US wineries with more than 1.000 employees (Perdue, 1999), thus making the US wme industry an excellent resource for small business research. In addition, the researchers are located in a part of the country with access to many winery associations. INTERNET UTILIZATION Afuah & Tucci (2001) describe the five major business activities that occur via the Internet: communication, content, community, coordination, and commerce. The first and most obvious Internet business activity is conununicntion. Companies primarily use e-mail as a means to give and receive information, coordinate activities and tasks, and build and maintain relationships. Communication, both internal and external (i.e., with customers and suppliers), is generally acknowledged as the most quickly adopted busmess activity on the Internet. A second business activity is content, or the information that is delivered over the Internet. For a small business this may include industry news, stock quotations, weather forecasts, and travel int'ormation. Content can be produced and dehvered via e-mail, or accessed via websites. Chat rooms, bulletin boards, and other online group conversation mechanisms comprise the third business activity, communiry. Community provides interactive formats for interest groups, industry networks, or internal design groups to meet and share information in real time. It can save time and money by reducing the need for travel and meetings, and by increasing the speed of design and marketing. Customers can even be invited to join online communities to provide feedback about products and services. Similar to community, but with a different intent, coordination is generally focused on accomplishing work tasks online between groups within the business as well as with external suppliers. The mediating property of the Internet reduces the need for paper transactions and rapidly accelerates business processes that may have taken days to complete in the past. 38 Journal ofStnall Business Strategy Voh /4, No. 2 Falll)Vtnter 2003 The final Internet business activity, and the one that receives the most anention in the press, is commerce. According to Kalakota and Whinston (1996), commerce via the Internet involves activities that lead to an exchange of value. These activities can be divided into two major areas: ( I) Business to Consumer (B2C), in which a business provides products and services to a customer, and (2) Business to Business (B2B), in which one business provides products and services to another business. A third category, Consumer to Consumer (C2C), as exemplified by Internet trading firms such as eBay and on-line auction houses, has emerged since 1996, but does not apply to the firms in this investigation. Depending on the industry, B2B activities may be more prevalent than B2C, but either one of these activities can lead to competitive advantage if adopted as part of an overall Internet strategy focused on the particular strength and needs of the small business. SMALL BUSINESS INTERNET USE The research stream on small business use of the Internet is sparse. One recent survey notes increasing small business Internet use (DiBernardo, 2000). Small businesses use the Internet to expand their geographic reach, increase efficiencies of executing transactions, and reduce printing costs (Alba et. al., 1997); to establish direct communication with customers (Shaw, Gardner & Thomas, 1997); to improve customer support (Strauss & Hill, 2001); and to create a permanent information resource for customers via websites (Griffith & Krampf, 1998). Most recently, researchers into small business practices have examined the awareness and usage of the Internet in terms of the perceived benefits of this communication medium for competitiveness. As shown in Table I, various researchers have examined the impacts of firm size (Van Beveren & Thomson, 2002), perceived utility and ease of use (Levenburg, Schwarz, & Dandridge, 2002), degree of information specificity (Lohrke & Franklin, 2002), and the degree of business innovation and business criticality on the propensity of small businesses to employ Internet technology. The studies listed in Table I focus on various stages of Internet adoption and use by small businesses, ranging from awareness to design, implementation, and practice. Table I: Typology of Recent Research Pertaining to Small Business Internet Use Adoption Independent DependentStudyStage Variable(s) Variable(s) Kickul, Sandercock, v Degree of business. Finkl, & Selden (2002) innovation 'nternet readinessAwareness [n = 24 small 'egree of business v E-Commerce strategy manufacturers] criticality Levenburg et. al, (2002) v Firm performance[n = 300 small 'erceived utilityDesign (i.e., sales, costs,busmesses in 75 SIC 'erceived ease of use codes] profits) v Degree of information Lohrkc & Franklin specificity (i.e., follow- (2002) up service, knowledge v E-mail and websiteImplementation [n = 41 small spewalization, use manufacturers] customization branding, product technology) Van Beveren & Thomson (2002) * 8 f f * E-mail and websitePractice ( 11 * ize 0 Ifnl manufacturers] 39 Journal of Sniall Business Siraregy Vol. /4, No. 2 Fall/IV(nrer 2003 SMALL BUSINESS INTERNET UTILIZATION FRAMEWORK To structure our analysis of small business Internet use, a Small Business Internet Utilization Framework is developed to categorize issues considered critical to small business Internet utilization into a four-step process. This exploratory framework consists of four stages that characterize the cyclical adoption and utilization process, beginning with an initial Awareness stage and progressing through the Design, Implementation, and Practice stages. A Feedback loop is also included. A business can be in multiple stages of the framework with respect to different Internet activities (e.g., e-mail might be in the Practice stage, while e-commerce is in the Design stage). The stages are described below. Following the discussion of each stage of the framework measures are proposed. ~DI:A: I h g, b I b «h I dh some initial experience with the technology. As a result of exposure to Internet technology and related information (via the media, word of mouth, or direct experience), the business comes to realize an internal need for Internet technology adoption. Factors influencing awareness include management's realization of the rapid Internet adoption rate and the corresponding use of technology by customers and business partners. At the time of this writing, the external pressures imposed by an increasingly sophisticated marketplace (e.g., high customer expectations including accelerated transaction rates, volumes, scope and accuracy) are driving the use of Internet technology. Also, having professional Internet services (i.e., domain name, web page, e-mail addresses, etc.) contributes to stakeholders'erception of the legitimacy of a small business as a going concern (Aldrich 8f. Fiol, 1994). Another facet of the awareness stage is the busmess's realization of the possible benefits of Internet technology. These benefits can include operating efficiencies resulting from the connectivity of business stakeholders, internal productivity gains, cost savings from streamlined business processes, and increased customer service levels. Also in this stage, a business realizes that one or more benefits are possible at a cost that makes the effort worthwhile. To measure awareness, researchers can ask how small businesses perceive the importance of the Internet for communication, content, community, coordination, and commerce. g~fbg Ig: Th d Ib g I h I*dby ff technology-based business application (Amit & Zott, 2001). In this planning stage, the business decides what services it will offer online and how those services will be implemented and managed over time.. Before developing the Internet application questions of who will design, develop, and maintain the Internet applications must be answered. Many small businesses do not possess the IT skills or the manpower necessary to completely develop the application and turn to outside Internet consultants, ISP's, and other business consultants. Other issues pertinent to the design stage include where the applications will reside (in-house vs. ISP); the choice of where the application is hosted plays a role in access speed, initial and ongoing maintenance costs, security, and ease of administration. Management issues include determining who will manage the applications, where on the technology curve the business will target applications, how distribution channel issues will be addressed, and what feedback mechanisms will be used to monitor the applications. Infrastructure issues must also be considered with special attention to emerging new technologies, the standards that are (or will be) in common use, and the flt with the business itself. These issues merit consideration early in the design process and throughout its subsequent iterations over the Internet application's life cycle. To analyze this stage, researchers can ask small businesses how they designed an infrastructure for use, as well as to what extent the design function was outsourced. 40 Journal ofSmall Business Strategy Vo/. 14, /k/o. 2 Fall/H'inter 2003 Sta e 3: Im lementation: The implementation stage occurs when the business begins to implement a designed Internet application. The end result of this stage is the achievement of the design specifications and a functioning Internet application (developed internally or with help from outside practitioners). Considerations in this stage generally fall into two categories: technical issues and management issues. Technical issues relating to implementation include the selection of required hardware, software, development tools, and providers of services. Management issues include managing consulting professionals in their efforts to meet the goals specified in the design stage and both defining and monitoring the interface between staff and consultants. During the implementation stage management must also be prepared for a transition period of chaos or confusion as new business applications come online. To measure implementation, researchers can measure the degree to which small businesses have or have not implemented Internet tools for communication, content, community, coordination, and commerce. Researchers could also analyze the perceived barriers to adoption. g~p:P 0: Tk p i g fk f k* p k I g fk* developed Internet services. During this stage, businesses examine the benefits, costs, and disadvantages actually realized from the use of new services. The potential benefits realized during the practice stage of the framework might be: cost savings, productivity gains from improved business processes, expansion of business to new customers or markets, improved customer service, and/or efficiencies gained from the benefits of collaborative computing. Additionally, benefits may result from aggregation of users, products, quality, and resources. Costs examined in the practice stage include both dollar costs of implementation, maintenance and access, and opportunity costs that may relate to losses incurred at the expense of pursuing Internet services. Disadvantages might include any area where the traditional business functions demonstrate an advantage over the Internet implementation (e.g., having personal contact with customers). For researchers, potential measurements for this stage can include the level of perceived value small businesses place on the Internet regarding its current impact on revenues and profits, as well as i ts funtre impact on revenues and profits. Sta e 5: Feedback Loo: A feedback loop enables small businesses to measure the effectiveness of Internet business models by analyzing their strengths or shortcomings. Businesses have specific goals for each Internet application developed. The feedback loop allows small businesses to examine the mechanisms used to gather information about service utilization, costs, and benefits. Further, the gathered information must be analyzed in some way to determine if the business is meeting its specified goals. The results of this analysis lead to another iteration of the process beginning with a new awareness stage followed by a re-design stage. Small businesses can incorporate any new "lessons learned" from the previous iteration. RESEARCH PROPOSITIONS Based on the proposed Small Business Internet Utilization Framework, several research propositions were identified as the bases for an exploratory study on how small manufacturers utilize the Internet. Since design issues were considered by respondents in a pilot sample to be proprietary and dampened response rates in the test of the original survey instrument, the design stage of the framework was not measured in the final survey. Thus, the awareness, implementation, and practice stages of Internet adoption became the focus of inquiry. 41 Journal of Small Business Strategy Vol. 14, No. 2 Fall/Winter 2003 This study focused on differences in business size as the key determinant of Internet use. Consistent with the size of small businesses in the focal wine industry, sample respondents firms ranged in size from one to 50 employees. Our expectation was that awareness of the Internet's uses would be lower for the smallest companies in our sample than for the larger ones. As demonstrated in earlier studies of Internet adoption and use, small businesses might not perceive the Internet to be important to their current small-scale operations (Ruth, 2000; Van Beveren & Thomson, 2002; Weiss, 2000). As company size increases, though, Internet technology could become increasingly necessary due to heightened internal and external pressures to gather and disseminate information to important stakeholders such as suppliers and customers (Lohrke & Franklin, 2002). Thus, the following is proposed: Proposition I: Smaller businesses will have a lower awareness of the Internet for commimication, content, coordination, commumty, and commerce purposes than will larger businesses. A natural corollary issue focuses on the implementation stage. Small businesses could be expected to use Internet tools to a lesser degree than larger companies. Here again, it was anticipated that larger companies would devote the necessary resources and capabilities to use the Internet and, therefore, would assign a higher level of importance to various Internet uses (Davis, 1989; Vassos, 1996). This gives rise to the following proposition: Proposition 2. Smaller businesses will have a lesser degree of Internet use for communication, content, coordination, community, and commerce purposes than will larger businesses. Related to Proposition ¹2 is the expectation that smaller businesses would perceive greater barriers to using Internet technologies than would larger businesses. Smaller businesses would tend to expenence more constraints resulting from such factors as reduced ease of use, fewer employees on hand to create and implement new information technologies, smaller budgets, and weaker market pressures to use to Internet (Levenburg et al., 2002). Proposition 3: Smaller businesses will perceive more barriers to Internet use than will larger businesses. A need to raise transaction volume and lower attendant transaction costs via the Internet suggests that larger companies would perceive greater value currently and in the future than would smaller companies (Lohrke & Franklin, 2002). The final proposition tests the assumption that larger businesses are further along the Internet development and deployment curves than smaller businesses and, therefore, would have higher expectations for the Internet's sales and profit-generating potential in the short- and long-term (Hartman, Sifonis, & Kador, 2000). Proposuion 4 Larger businesses will perceive greater current and future value related to Internet use than will smaller businesses. METHOD Sample By the beginning of 2001, over 900 small California wineries produced 149 million cases of wine, accounting for 85% of the total U.S. wine market (Wine Business Monthly, 2001). Offsetting declining per capita consumption in the I.S, and flat export sales, Northern California premium wine sales and production were growing over 20% per year, leading to 42 Journal of Small Business Strategy Vol. /4, No. 2 Fall/Its(uter 2003 the entry of new wineries into the market and to the expansion of existing wineries. Predominantly family-owned, wine businesses provide job creation and growth in Northern California's agricultural economy, yet relatively little rigorous research has been done on this important industry. Prior empirical research into the behavior of firms in this industry has focused on documenting the frequency of organizational entry and exit (Delacroix & Swaminathan, 1991; Stoeberl, Parker, & Joo, 1998), the creation of inter-organizational networks (Brown & Butler, 1995), the evolution of specialist organizations (Swaminathan, 1995), and competitive strategies (Gilinsky, Stanny, McCline & Eyler, 2001). Studies specifically addressing wine industry Internet usage are needed to expand our understanding of these small businesses. Focusing on the wine industry also provides a means of minimizing environmental "noise" because of the concentration of firms in one industry and one geographic location. Access to a sample of small manufacturers in the U.S. wine industry was provided by a wine industry trade service via the service's regular client mailing list. Questionnaires were mailed and/or emailed in both paper and online format to the chief executives of the 1500 small wine businesses as part of a joint survey between the industry trade service and the researchers in January 2001. After the set of returned questionnaires was cleaned to eliminate duplicate responses from companies and responses from firms that identified themselves only as grape growers or service providers (e.g., accountants and financial firms that supported the wine industry), a total of 382 usable questionnaires were compiled (response rate = 25.5%). Questionnaire Development The first section of the questionnaire asked participants to identify basic demographic information about their businesses, including size of business. The latter sections focused on Internet strategy and usage issues highlighted m the four propositions above (see Appendix I). To measure awareness, five questions were asked on the survey. First, respondents were asked if they had a business email address (yes vs. no). This capability provides evidence of the company's awareness of Internet uses and shows the company is using the Internet for communication purposes. Second, respondents were asked about the extent to which they would prefer to use company websites when researching wine supplies and equipment (on a scale of I to 5, with 5 being most preferred and I being least preferred). The question was designed to tap into the respondents'egree of experience with the Internet and their awareness of its utility. The implication is that the more that respondents prefer to use other companies'ebsites for research purposes, the more they see it as an important tool for delivering content. The third awareness-related question asked if the company's current strategy included the use of the Internet and e-commerce (yes vs. no). Affirmative answers to this question indicate that the company has an awareness of the Internet's capacity for building community both within the organization and between the organization and its external constituents (e.g., customers and suppliers). The fourth question asked respondents how interested they would be in using the Internet for order processing purposes, in order to measure awareness of the Internet's usefulness for coordination of a critical work task. The fifth question asked respondents about their level of interest in utilizing website marketing, as a way of measuring the degree of awareness that companies have related to commerce-based Internet capabilities. Respondents were also asked to indicate their interest level in using a variety of other Internet services. To measure implementation-related aspects, respondents rated various Internet uses as they pertained to their jobs. For these measures, respondents needed to indicate the level of importance (on a scale of most important [I] to least important [5]) that they attached to a communication-related use (using email), a content-related use (doing research), a 43 Journal ofSmall Business Strategy Vol. /4, No. 2 Fall/Winter 2003 coordination-related use (transferring files to associates), and a commerce-related use (purchasing). In addition, respondents were asked to check any of ten categories of Internet uses that were currently being employed at their company (see Appendix A). The "providing customer service" category was employed as the community-related variable for the implementation stage. Finally, respondents were asked to place checkmarks next to any of ten types of diAiculties that they had experienced in doing global e-commerce. To measure practice, three questions were developed. The first and second questions asked about the extent to which the Internet and e-commerce were making a contribution currently to company sales and profitability and expectations for their contributions to sales and profitability in the future. Respondents were then asked to indicate when they believed that the Internet and e-commerce would play an important role in their companies (0 = already important; I I year or less; 2 = 1-3 years; 3 = 4-6 years; 4 = 7 or more years). The survey insnument was pilot tested with a convenience sample of 20 participants. Their feedback included suggestions to drop questions pertaining to the design stage as noted above, and to simplify technical terminology to match the Internet experience level of the target population. As a result, no questions were added, but certain terms were simplified. RESULTS Univariate statistics were used to identify means, frequencies, and percentages regarding sample characteristics and propositions. Business size is usually measured by the number of employees (Miesenbock, 1988). Following the methodology of Gaskill, Van Auken and Manning (1993) and Van Beveren and Thomson (2002), the sample was divided into four groups by size of business (I = I to 5 employees; 2 = 6 to 10; 3 = 11 to 25; and 4 = 26 to 50). The percentage breakdown by size of business for the 382 small manufacturers was as follows: 52% represented businesses with I to 5 employees; 15% represented businesses with 6 to 10 employees; 19% represented businesses with 11 to 25 employees; and 14% represented businesses with 25 to 50 employees. Table 2 displays the means, standard deviations, and correlations for the study's key variables. The table shows that over two- thirds of the correlations achieved significance (at p & .05 or lower). The strongest correlations were related to the measures of content, while business size had the weakest correlations. Small Business Internet Awareness Regarding proposition ¹I, Table 3 illustrates the level of awareness of the Internet 5-C's for the small manufacturers by business size. The table shows average awareness levels of various activities conducted using the Internet (on a scale of least preferred [I] to most preferred [5]) in addition to percentage responses to yes vs. no questions. Regarding awareness of communication, respondents were asked whether they had an e-mail address that they used for business purposes. Percentage responses were high for all 4 groups, ranging from 88% at the 11 to 25 employee businesses to 94% at the I-to-5-employee businesses. Awareness of content scored somewhat lower, with a high mean of 3.41 (on a 5- point scale) for the smallest businesses and a low mean of 2.60 for the larger businesses. While respondents indicated a moderate preference for using the web to research supplies and equipment, most preferred to access more traditional content found in product literature and newspapers or journals. Awareness levels for community revealed moderate scores for the question on the degree to which the businesses'verall business strategies included Internet usage. Responses ranged from 62% awareness for the I-to-5-employee businesses to 74% for the 6-to-10-employee businesses. 44 Journal ofSmail Business Strategy Vog 14, No. 2 Fall/Winier 2003 Table 2: Means, Standard Deviations, and Correlations Among all Variables Means SO 1 2 3 ~ 5 6 7 6 9 10 11 12 1 almbless Sls4 196 113 awareness Varlables 2 Commenlcadon 0 e3 02e -06 3 Content 3 11 1.36 -24"" .12' Crnnnaedtp 0 65 0 48 .04 09 .02 5 Coordlnauon 2.60 I 65 08 -.06 .14'2 e Commerce 3 21 I 63 02 - 05 .11'2'33-- 7 Commenlcatlon 4 25 1 20 col 27-- 25-- .14- D5 12' Content 3 21 1 42 ~ 07 .10 45'"'S .16" .30'"'2"" 9 Commnnllr 028 045 -.03 .09 11'3"" .04 .10 .12'Ml'" ~ Coordlnaeon 2 27 1.73 .16"'1"" 16'" .09 .17"'10 .33"" 29'"'l' Commerce 208 143 -.14- .19"" 45'"'08 .12'13'18"'0'"'1""23'"' actlco variables ~ peters Conlrlbedon 1 37 0 53 .01 08 31"" 21"" 20"" .32"" .12'28'"'19"" 19"'4"" 38"" 'p 05 "p .01 "'p .005 --p ml Table 3: Small Business Internet Awareness Level Susiness Communication Content Commerce Community CoordinationSize Average Average Average % having an interest in interest in% having email preference for Internet- . using website for business using websites related using Internet marketing in for order purposes to do research business current (I to 5 scale) strategy I business processing I to 5 94 3.41 62 2.54 3.22 6to10 93 2.93 74 2.42 3.11 11 to 25 88 2.79 68 2.58 3.12 26 to 50 93 2.60 65 3.00 3.42 OVERALL 93 3.11 65 2.60 3.21 Level of awareness regarding coordination of order processing activities was the lowest scoring area for respondents, with the highest mean being 3.00 for the largest businesses in the sample and the lowest mean being 2.42 for 6-to-10-employee businesses. Awareness of commerce, for which respondents were asked about their interest in using website marketing, 45 Journnl of Small Business Strategy Vol. 14, No. 2 Fall/Winter 2003 showed a mean of 3.21, with the low being 3.11 for the 6-to-10-employee businesses, and the high being 3.42 for the largest businesses in the sample. Proposition ¹ I was tested using the analysis of variance (ANOVA) statistical technique. This technique was used to provide information on whether or not there were differences in awareness among the four business sizes. Because of the formatting of questions, this test could only be used to test the content, coordination, and commerce variables for the awareness stage. Results of the ANOVA tests are presented in Table 4. Table 4: One-Way Analysis of Variance Summary Table for Awareness, Implementation, and Practice Variables Dependent Source of Degrees Mean F- p Variables Variation of Square Ratio values Freedom Awareness Business Size 3 13.404 7.59 .000 Content Within Groups 366 l. 767 Coordination Business Size 3 3.230 1.192 n.s. Within Groups 326 2. 7/1 Commerce Business Size 3 1.117 .418 n.s. Within Groups 349 2.674 Implementation Business Size 3 .209 .144 n.s. Communication Within Groups 370 1.456 Content Business Size 3 6.227 3.149 .025 Within Groups 359 1.978 Coordination Business Size 3 13.941 4.820 .003 IVithin Groups 354 2.893 Commerce Business Size 3 5.001 2.477 .061 lVi thin Groups 358 2.019 Practice Business Size 3 .494 1.467 n.s. Current Within Groups 357 .337 contribution Future Business Size 3 .159 .559 n.s. contribution Within Groups 364 .284 n.s. = not significant. The results showed no differences among business sizes on the coordination and commerce awareness variables. However, significant ditferences were found for the content variable, showing differences among business sizes in their preference to use company websites when researching supplies and equipment (F = 7.586, p & .001). Deeper analysis (via contrasts) revealed that the smallest businesses (i.e., those having 1-5 employees) preferred using websites for research significantly more than did the other business sizes (t = 4.83, p & .001). 46 Journal of Small Business Strategy Voh l4, Na. 2 Fall/Winter 2003 While there was some evidence of differences on the content variable, the results were in the opposite direction to what was expected. These findings, then, provide no support for proposition ¹l. Small Business Internet Implementation The findings for Internet implementation are shown in Table 5. In the communication area, e- mail was rated as highly important by all of the businesses, with means ranging from 4.17 for the 11-to-25-employee businesses to 4.30 for the largest businesses. With respect to content, the average importance of using the Internet for doing research was 3.21; the smallest businesses had the highest mean at 3.39 while the 6-to-10-employee businesses had the lowest mean at 2.85. For the community variable, the Internet was used for customer service functions by only 28% of the businesses, ranging from 23% (for 11-to-25-employee businesses) to 38% (for 6-to-10-employee businesses). Table 5: Small Business Internet Implementation Level Business Communication Content Community Coordination Commerce Size Average Average Average importance of Average importance importance % using using Internet importance of of using . of using using Internet for Internet for Internet for for transferring Internet for customer files to email (on a scale research purchasing of I to 5) (on a scale service associates (on f ] (on a scale of 1 to 5) of 1 to 5) 1 to 5 4.26 3.39 28 2.08 2.22 6 to 10 4.26 2.85 38 2.22 2. 14 11 to 25 4.17 2.94 23 2.20 1.83 26 to 50 4.30 3.32 26 3.10 1.71 OVERALL 4.25 3.21 28 2.27 2.06 For coordination, the average importance of using the Internet to transfer files to associates was lowest for the smallest businesses (mean = 2.08) and highest for the largest businesses (mean = 3.10). The overall average for all of the businesses was 2.27. With respect to commerce, the average importance of using the Internet for purchasing was lowest for the largest businesses (mean = 1.71) and highest for the smallest businesses (mean = 2.22), and the overall average for all of the companies was 2.06. Proposition ¹2 was also tested to determine if there were differences in implementation among the four business sizes (using ANOVA). Again, due to question formatting, this test 47 Journal of Small Business Strategy Vof 74, No. 2 Fal(/Winter 2003 could only be used to test the communication, content, coordination, and commerce variables for the implementation stage. No differences among business sizes on the communication (using email) and commerce (purchasing) variables were found. However, significant differences were uncovered for the content and coordination variables (see Table 4). For content, businesses significantly differed in their use of the Internet for research purposes (F = 3.15, p & .05). More focused analyses (using contrasts) revealed that the smallest businesses (i.e., those having 1-5 employees) placed a greater importance on Internet research than did the other 3 business sizes (t = 2.35, p & .05). For coordination, results showed significant differences among business sizes in the importance of using the Internet to transfer files to associates (F = 4.82, p & .005). Contrasts revealed that the largest businesses (i.e., those having 26-50 employees) rated the importance of this use significantly higher than did the other business sizes (t = 3.53, p & .001). Thus, the findings on the coordination variable provide some support for proposition ¹2. Similar to the awareness analyses, the results for the content variable were not in the anticipated direction as the smallest businesses gave higher ratings than did the larger businesses. Business size was not a significant predictor for the other implementation variables. Regarding Internet implementation, email was used by a majority (92%) of the businesses. About half the respondents had a company website, but only 40% used the Internet for receiving orders. The findings also revealed the Internet was sometimes used for improving communication (35%), generating sales leads (33%), customer service (28%), retail sales (27%), market support (25%), purchasing (22%), and researching competition (7%). Respondents also provided information on the major difficulties related to implementing global e-commerce. The top three obstacles reported were regulatory issues, lack of know- how, and having a complicated product to deliver. Table 6 shows the results related to difficulties. Table 6: Percentages of Businesses Reporting Major Difficulties in Using the Internet Personal Company Inadequate Lack of Business preference not preference Inadequate service know- Size to use e- not to use e- .d hardwareprovider how commerce commerce 1 to 5 6 4 3 3 18 6 to 10 5 3 5 2 22 11 to 25 7 6 6 6 18 26 to 50 7 2 2 2 7 OVERALL 6 4 3 3 17 Proposition ¹3 could not be tested statistically due to extremely low response rates on the "difficulties of doing e-commerce" question. It is possible that our ten proposed barriers did not accurately reflect the actual barriers that businesses perceived. Alternatively, respondents 48 Journal of Small Business Stra(egy Vah /4, Na. 2 Fall/IVinrer 2003 may not have considered their Internet use from this perspective before and did not have a reason readily available to explain their current approach. Table 6 (Continued) Complicated Business Regulatory Cultural Marketproduct to CostSize issues differences pressuredeliver I to 5 15 24 10 3 2 6 to 10 17 21 7 7 0 11 to 25 11 16 10 7 I 26 to 50 17 20 4 4 2 OVERALL 15 22 9 4 I Small Business Internet Practice The current contribution of the Internet to sales and profitabihty was reported as strong by 9% of respondents, 60% indicated some contribution, and 27% saw no contribution. When asked about the Internet's future contribution to sales and profitability, 39% of respondents expected a strong contribution, 56% expected some contribution, and only 2% saw no contribution. Overall, fewer than 12% of respondents reported that they expected a strong contribution of the Internet to sales and profitabihty in the short-term, yet 32-41% expected a strong future contribution. For all business sizes, respondents indicated that they thought the Internet would play an important role in their businesses in the next one ra three years. As with the previous propositions, proposition ¹4 was tested using the ANOVA technique to determine if there were differences in practice among the four business sizes. As indicated in Table 4, no differences among business sizes were found with regard to perceptions about the Internet's current and future contributions to company sales and profitability. Also, no significant differences were revealed as to when the Internet was expected to play an important role in their businesses. These results provide no support for proposition ¹4. DISCUSSION Small Business Internet Awareness It appeared that small businesses in all the size groupings were well aware of the importance of email as a key communication tool — nearly all respondents had e-mail addresses. Respondents reported a moderate degree of Internet usage for research and content-gathering purposes, indicating they had some degree of experience with and awareness of the Internet. With respect to level of awareness of community-related Internet uses, approximately two- thirds of respondents indicated their current business strategy incorporated the use of the Internet. This suggested a growing awareness of the need to include Internet-related functions in one's long-term business plan as a way to promote internal and external relationships. 49 Journal of Small Business Strategy Vol. l4, No. 2 Fall/Winter 2003 In terms of coordination, the results showed a moderate degree of interest in using the Internet for order processing. Thus, companies may just be beginning to recognize the utility of the Internet for coordinating work tasks between employees, customers, and suppliers. Finally, the compames reported a moderate level of interest in using website marketing, indicating that they were moderately aware of Internet options related to commerce. When the sample was segmented by size of company, there were no differences reported in awareness levels for communication, community, coordination, and commerce; however, there were significant differences in respondents'atings for content. The smallest businesses had a stronger preference for using supplier websites as a way to research wine industry supplies and equipment than did their larger counterparts. This finding may indicate that the smallest businesses, being low on manpower, have more difficulty gathering adequate information. Or, it may indicate that the smaller businesses did not have enough buying volume to encourage supplier salespeople to call upon them. Therefore, they rely more heavily on the information that they can access via the Internet. On balance, it appeared that most companies were aware of the importance of the Internet for communication purposes, but the content, community, coordination, and commerce areas were relatively weak blips on the small business radar screen. Small Business Internet Implementation The findings for Internet implementation for the small businesses showed a strong focus on communication, a moderate focus on content, and a weak focus on the community, coordination, and commerce areas. All of the respondents rated email as being highly important, a prime indicator of a communication-related use of the Internet. There were signilicant differences among the companies on the content variable; the smallest businesses assigned more importance to doing research on the Internet than did the larger businesses. Agam, this may be a result of the labor-poor situation characteristic of very small businesses, because the Internet provides an easy and speedy way to access needed information that requires little manpower. Results for the community factor showed that only about a fourth of respondents were employing the Internet for customer service purposes. In terms of coordination, respondents placed a relatively low importance on using the Internet for file transfers to associates. However, here there were significant disparities among respondents of different sizes. The smallest businesses rated this Internet use as far less important than did the largest businesses. This finding shows how business growth may dnve Internet usage. Since the largest businesses have anywhere from five to fifty times more employees than the smallest businesses, it is reasonable that the coordination needs would be greater in the larger businesses. Finally, this study found that using the Internet for purchasing was of relatively low importance for respondents, indicating that the commerce area is still developing. Thus, a pattern similar to the awareness findmgs emerged in that most businesses were using the Internet for communication purposes, but Internet use for content, conununity, coordination, and commerce was substantially less. The data related to how companies use the internet supported this conclusion because they showed a dramatic reduction in the reported importance of various Internet uses aside from the all-important email. Although most of the implementation variables showed similar results across the business sizes, the significant differences in the content and coordination variables provide clear evidence of the effects of business size on Internet usage. The major barriers to implementing e-commerce revolved around the perennial problem of complexity. Regulatory issues, lack of know-how, and having a complicated product to 50 Journal of Small Business Strategy Vol. /4, No. 2 Fall/Winter 2003 deliver were all obstacles that tapped into the problems of coping with a multifaceted, complex, and uncertain realm. Since small businesses must function with greatly reduced manpower compared to larger businesses (of 50 employees or more), it makes sense that they would have particular difficulty in dealing with these complicated areas. Small Business Internet Practice According to respondents in every size category, the future effects of the Internet on sales and profitability were expected to be much greater than they are currently. Clearly, respondents saw the Internet as a critical factor in their business's future growth and success. In fact, the findings revealed that respondents believed the Internet would play an important role m their businesses over the next one-to-three years, a finding consistent across all size segments. The fact that there were no differences among respondents by size indicates that, even though there may be differences in Internet awareness and implementation, all had similar perceptions of the growmg importance of the Internet and expect greater involvement in the practice stage in the near future. Respondents apparently perceive the urgency of enhancing their Internet-related practice to become more competitive and profitable. IMPLICATIONS AND APPLICATIONS FOR SMAI.L BUSINESSES If small manufacturers are to expand their capabilities to use the Internet for commercial purposes, they need to develop an appropriate set of goals and evaluation criteria with which to measure their progress towards those goals. Companies are currently struggling in this area, particularly in the tension between their awareness of the internet's potential and the strategic concerns that they may need to make investments even if the Iinancial benefits are hard to quantify or realize in the short term. In an effort to provide practical application of this research to small busmess owners, consultants, and entrepreneurship educators, the following five quesnons are provided as evaluative critena for Internet utilization: 1. Does the Internet strate fit with the business strate ? In general, Internet initiatives permit a broadening of the scope of a business strategy and greater emphasis on differentiated services. For this study's wine manufacturers, the niost critical limitation is access to markets, as direct wine sales are subject to regulation and are currently limited to 14 U.S. states. Using the Internet to help customers leam more about products and make online purchases provides an additional service to complement other promotional activities. To some extent, online sales may canmbalize conventional distribution and retail channel sales, but for the smallest manufacturers producing low volumes of product, access to conventional channels is notonously difficult. 2. Is the com an 's roduct or service conducive to electronic transaction'! Will it make sense to the tar et customers? The "product" is not only the manufactured product itself, but also the information and education that the Internet provides about new products and savings incentives. Information products are easily transmitted electronically. Online wine shopping differs from retailing because a physical product needs to be delivered, and consumers need to adjust to a new method of selecting wine. These differences suggest that online wine sales are a much riskier e-commerce application than online education about wine. 3. Does the a roach take advanta e of the uni ue attributes of the Internet? One attribute of the Internet is 24-hour, 7-day-a-week accessibility. This is an improvement over purchasing wine at retail stores or at restaurants, where information about the product may be limited or non-existent. The Internet as content medium for information can thus benefit manufacturers, retailers, and consumers. For the wine manufacturers, however, 5l Journal ofSrooll Business Strategy Vol. 14, No. 2 Fallltyinter 2003 the benefits of this attribute are limited by the above-mentioned regulatory restrictions regarding physical delivery of the product. The Internet permits global expansion of markets, considered critical for small manufacturers, particularly in the wine industry, and it also facilitates mass customization through interactivity. With online sales tracking, interactivity enables much more targeted offerings, which are more convenient for consumers and more cost-effective for manufacturers. Moreover, if small manufacturers can handle delicate privacy concerns to consumers'atisfaction, they can gather and sell useful data regarding product satisfaction to their customers. 4. Is the or anization re ared for the redefinition of the business that usuall accom anies a shift to an Internet strate ? Small manufacturers'mplementation of an Internet strategy must give high-level attention to new initiatives and moving quickly. The disadvantage is that it may be difficult to coordinate with other parts of the business. Many sniall manufacturers already have the challenge of managing multiple products that are sold to overlapping sets of customers. For example, numerous small wine manufacturers sell wine through traditional distribution and retail channels, as well as through tasting rooms. Managing electronic products separately and needing to coordinate with strategic partners increase the complexity of this task. Furthermore, the lesser intimacy of selling via the Internet is hkely to be seen as a threat that will require major education and communication efforts to minimize organizational resistance. Choosing an internal person as the point person for information technology is recommended to help perl'orm the needed coorilination and championing of Internet activities. 5. Does the Internet initiative rovide a rofitable business model'! The prolitability of any Internet model for small business depends on a clear understanding of how customers purchase products as well as the effectiveness of competitively pricing products and services sold via the Internet. Smce the online wine business is a new busmess model, strategic alliances can help provide access to experience and knowledge in operating online. Many small manufacturers do not have a consumer brand name themselves, but can rely on their partners to attract consumers to online web sites. However, if small manul'acturers'mplementation is indirect, providing tools to distributors, restaurateurs, and retailers to allow them to compete online, an(l if these channels value the tools, the Internet could be a profitable business for all. LIMITATIONS OF THE STUDY There are several limitations to this study. The first is that it is a cross-sectional study focused on the wine industry This makes it more difficult to generalize findings to other small business industries. In addition, because of proprietary issues, it was not possible to measure the Design stage of the Small Business Internet Utilization Framework. Finally, as this is the first survey of its kind —developed specifically to measure the four stages of the framework—the validity of the survey questions Inay be of concern. However, with repeat studies in the future, this limitation could be alleviated. FUTURE RESEARCH Areas for future research regarding this study include a replication of the study in other small business industries. Through this type of apphcation, researchers could determine the validity of the survey questions, ascertain the validity of the model, and analyze potential differences or similarities between industries, increasing the generalizability of these findings. Other iesearch could include the addition of the design stoge measures specifically for industries that do not harbor strong proprietary issues. Finally, this type of research lends itself well to 52 Journal ofSmall Business Strategy Vol. /4, No. 2 Fa?IIIV/nter 2003 longitudinal studies that could assess any potential uses of feedback loops to improve the capabilities of small businesses to adopt and use the Internet, as well as to assess the extent to which adoption actually did impact their sales and profits. REFERENCES Afuah, A., & Tucci, C.L. (2001). Internet business models and strategies. 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Five steps to a dot.corn strategy: How to find your footing on the Web. Sloan Management Review, 4/(3), 15-28. Weiss, M. (2000). Manufacturers not making full use of tech. Atlanta Business Chronicle, 22(54), 20. Wine Business Monthly, Wine industry directory and almanac —200l. Sonoma, CA: Wine Business Publications. 54 Journal ofSmall Business Straiegy Vok )4, No 2 Fall/Winter 2003 Armand Gilinsky, Jr., Ph.D. is Professor of Business at Sonoina State University, where he teaches Strategy, Entrepreneurship and Small Business Management. He has also held teaching appointments at the Harvard Business Scliool, CSU Hayward, and Northeastern University. Dr. Gilinsky has extensive consulting experience with more than 30 companies, includmg menibers of the wine mdusiry. His areas of specialty include strategic planning and corporate business planning services. He has authored numerous business case .stutlies, co- auihored several articles on corporate strategy. He hohls the Ph.D. in Busiiress Policy froin Henley Maiiageinent College/Brunel Um'versity (London), aiid M.B.A. in Finance froiir Golden Gute University, an A.M. in Education Adniinistration and Policy Analysis from Sta%rd University and an A.B. (honors) in English from Sta%rd University. Elizabeth "Liz" Tliach, Pli.D. is an Associate Professor of Management and HRD at Sonoma State Uiiiversity. She currently has over /8 years experience in the field, specializing in international leadership developinent, change management, and the impact of conrniunicaiion technology on business perfonnance. Liz has extensive corporate experience —having worked previously for Cotnpaq, US West, Amoco, and Texas Instmiments. ICaren Thompson, Ph.D. is an Assistant Professor of Management and Huinan Resources ai Sonoma State University, where slie teaches courses in Leadership, Organizatiottal Behavior, and Human Resource Management. She received lier Pli.D. at the State University of New York in Buffalo. Her work experience spans both large corporations and small businesses, in addition to botli public and prii aie organi ations. i 55 Journal ofSmall Business Strategy Vol. /4, No. 2 Fall/Winter 2003 APPENDIX I: SURVEY QUESTIONS 1. Do you personally have an Email address that you use for business purposes? Yes No 2. Which of thc following would you prefer to use when researching wine industry supplies or equipment? (Please rate based on level of preference from 0-5 with 0 = Not Applicable; I = Least preferred and 5 = Most preferred) Trade Shows 0 I 2 3 4 5 Product Literature 0 I 2 3 4 5 Company Website 0 I 2 3 4 5 Company Sales Rep 0 1 2 3 4 5 B2B Internet Site 0 I 2 3 4 5 Broker 0 I 2 3 4 5 3. Does your current business strategy include the use of the Internet and E- Commercc? Yes No 4. With respect to the Internet, which of the following services would you be interested in utilizing to enhance your current business. (Please rate based on interest from 0-5 with 0 = Not Applicable; I = Low Interest; 5 = Very Interested) Website Development 0 I 2 3 4 5 Website Marketing 0 I 2 3 4 5 Sales Leads Generation 0 1 2 3 4 5 Targeted Broadcast Emails 0 I 2 3 4 5 Request for Quotes 0 I 2 3 4 5 Purchasing 0 1 2 3 4 5 Wine Tracking 0 I 2 3 4 5 Accounting Services 0 I 2 3 4 5 Order Processing 0 1 2 3 4 5 Data Storage 0 I 2 3 4 5 Compliance Services 0 I 2 3 4 5 5. Which of thc following best describes your use of the Internet as it pertains to your job? (Please rate based on importance from 0-5 with 0 = Not Applicable; I = Least Important; 5 = Most Important) Email 0 I 2 3 4 5 File transfers to associates 0 I 2 3 4 5 Research 0 I 2 3 4 5 Purchasing 0 I 2 3 4 5 Reading news 0 I 2 3 4 5 Using directories 0 I 2 3 4 5 Researching competition 0 I 2 3 4 5 56 Journal of Small Business Strategy Vol. /4, No. 2 Fall/Winter 2003 6.WWh thill lgh td lh ~ lh I ty(Ch k many as you like) Email Website with General Information Receive Orders Customer Service Purchasing Generate Sales Leads Improve Communication Retail Sales Market Support Research Competition Other: 7. With respect to your business, what is the major difficulty in doing global e- commerce? (Please check all that apply) Personal preference not to use e-commerce Company preference not to use e-commerce Inadequate service provider Inadequate hardware Lack of know-how Complicated product to deliver Regulatory issues Cost Cultural differences Market pressure Other: 8. Do you believe that the Internet and E-Commerce c~urrenrl make a contribution to sales and profitability in your company? Makes No Contnbution Makes Some Contribution Makes a Strong Contribution Not Sure 9. Do you believe that the Internet and E-Commerce will make a contribution to sales and profitability in your company in the future? Will Make Nio Contribution Will Make Some Contribution Will Make a Strong Contribution Viot Sure IO. If you agree that the Internet and E-Commerce will play an important role in your company, when do you believe that will happen? Already Important I year or less I —3 years 4 —6 years 7 or more years 57