Bengtsson Et Al 2007 - Integrating the Internet and Marketing Operations

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International Small Business Journal

DOI: 10.1177/02662426070717802007; 25; 27International Small Business Journal

Maria Bengtsson, Hkan Boter and Vladimir VanyushynFirms of Different SizeIntegrating the Internet and Marketing Operations: A Study of Antecedents in

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Bengtsson et al.: Integrating the Internet and Marketing

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Integrating the Internet and MarketingOperations

A Study of Antecedents in Firms of Different Size

MARIA BENGTSSON, HKAN BOTER ANDVL AD IM IR VANYUSHYNUme School of Business, Sweden

Adopting the Internet for advanced marketing operations opens up challengingopportunities for firms of all sizes. However, such adoption might destroyinvestments in present market channels and thus has the characteristics of radicalinnovation. In this article, we draw on the literature on innovation to investigatewhat differentiates adopters of advanced Internet-based marketing operations fromnon-adopters in firms of different sizes. The conceptual model for this study iscentred on the set of internal and external factors size, willingness to cannibalize,entrepreneurial drivers, management support, and market pressure. Our analysis is

built on survey data from 379 Swedish manufacturing firms. The results of analysisshow that composition of factors on which firms base their decision to adoptadvanced Internet-based marketing operations varies significantly with firm size.A number of implications for further research as well as for managers andeducators are discussed.

KEYWO RDS: adoption of innovation; channels; entrepreneurship; firm size;Internet; marketing; willingness to cannibalize

Introduction

The Internet has become an important medium with a wide spectrum of applicationsused by private persons, firms and organizations. The easily accessible applicationintroduced initially for basic information exchange is now widespread and it isapparent that most firms use electronic mail and many have company presentationson websites. The process within a firm of investing in the equipment necessary toutilize the potential of the Internet as a business instrument, and not least the pro-cess of developing competence and routines for Internet management, is oftenpresented in the literature as a process that develops successively in sequentialsteps over time. From the first stumbling steps regarding some basic e-commerce

activities the firm learns and thereby gains experience, and continues with the nextstages of development. Through this process firms gradually increase their use of

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Internet applications in business and reach more and more advanced levels (Danielet al., 2002; Jones and Coviello, 2005). This stage model is also found to be relevant inother fields of small business studies, including the development of new technology-based firms, and the internationalization of the development process (Bilkey and

Tesar, 1977; Drazin and Kazanjian, 1993).An increasing number of research findings, however, indicate that rapid and

also often radical changes in business environments lead to business strategiesbased on thinking that is less rational than implied by stage models. Studies ofinternationalization processes in small high-tech firms exhibit fast or even instantdevelopment processes when firms move from local to extensive internationalactivities (Boter and Holmquist, 1996; Jones et al., 2005). Similarly, the process ofadopting and developing Internet applications in firms can be very rapid becauseof the international diffusion of computer and Internet technology. Furthermore,stage models are derived mainly from studies of small and medium-sized enter-

prises (SMEs). Similar adoption processes also take place in large organizationsbut are weakly covered in the literature. This study aims at bridging this gap bycomparing the adoption of the Internet in SMEs.

Use of the Internet is also described as a cluster of innovations (Prescott andConger, 1995; White et al., 1998), and different innovations are illustrated as varioussteps in stage models (Daniel et al., 2002; Jones et al., 2003). These studies suggestthat a more basic use of the Internet is adopted before more advanced applicationsare developed. However, they neither elaborate adequately on the challenges ofintroducing more advanced applications, nor on how the introduction of differentinnovations is stimulated or hindered. It is important to differentiate between Inter-

net innovations that are challenging in different ways in order to be able to discussthese issues. Basic use of the Internet includes online presentation of the firm, itsproducts or services, and simple information exchange via email. Advanced use ofthe Internet assumes more sophisticated two-way interaction and data processing,and includes online ordering and payment, collecting feedback from customersand integrating the homepage with the firms internal functions. Basic use of theInternet hence includes innovations in the three steps as set out in the stage modelof Daniel et al. (2002). Advanced use of the Internet includes innovations in thefourth step. A number of studies have only focused on basic use of the Internet buthave only touched upon its advanced use, or have not distinguished clearly between

the two (BarNir et al., 2003; Cohen et al., 1987; Hst et al, 2001). However, thedistinction between basic and advanced use of the Internet is significant and hasfar-reaching implications for the adoption process. The aim of this study is thus tofurther elaborate on drivers behind the development of advanced Internet use. Wehave chosen to focus on one specific advanced use of the Internet, namely the useof Internet market channels.

While adopting the Internet for basic purposes does not require major investmentsor organizational changes, adopting advanced Internet operations as a marketchannel might require the firm to change its established channels of distributionand routines, sustain short-term losses, and also require significant competencies and

financial resources. Using the Internet for marketing operations may reshape theways firms interact with their customers, destroying investments in existing market

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channels, sales force operations, and relationships with suppliers and customers(Deleersnyder et al., 2002; Eyuboglu and Kabadayi, 2005; Johnson and Bharadwaj,2005). Viewed from this perspective, integrating the Internet into a firms marketingoperations has the characteristics of radical innovation, which has the capacity to

destroy established markets and products (Tushman and Andersson, 1986). Theexperience and knowledge gained from earlier steps or innovations may not beenough to overcome all the challenges related to the advanced use of the Internet.It is, therefore, a great challenge for firms to build market channels via the Internet,and it is of interest to further elaborate on this specific innovation. In this article weseek to find out what differentiates adopters of advanced Internet-based operationsfrom non-adopters in firms of different sizes. Our analysis is built on the survey datafrom 379 Swedish manufacturing firms.

Internet Adoption from an Innovation Perspective:A Conceptual Model

The adoption of the advanced Internet can be viewed as a specific case of innovation.In this article, we examine how the following factors drawn from innovation-related literature are used: (1) firm size as a determining factor that captures manyof the differences in firms innovation-related activities, and (2) specific factorsexplaining innovative behaviour: entrepreneurial drivers, willingness to cannibalize,management support, and market pressure.1

The relationship between firm size and innovation has attracted much researchattention since the publication of the work by Schumpeter in 1942. Size has been

shown to be a significant factor in explaining innovative behaviour. However, sizealone is not sufficient if we want to understand why some firms are innovative butnot others, which was also a conclusion drawn by Schumpeter (1942). Entrepreneurshave important roles in the breakthrough of new products, new production anddistribution methods and new markets. Other internal organizational conditions ofimportance are the willingness to cannibalize (Chandy and Tellis, 1998) and man-agement support for the innovation process (Ettlie et al., 1984). In addition, radicalinnovations have not only been related to internal conditions but also to externalmarkets that pressure firms to become innovative (Anand and Kogut, 1997; Antonelli,1996; Porter, 1990). These internal and external conditions need to be included in the

model to further understand the relationship between radical innovation and size.We have constructed a conceptual model to examine the importance of these con-ditions for adopters and non-adopters of advanced Internet marketing channels(Figure 1). The model has two layers. At the first layer, size serves as a grouping vari-able to form three categories of firms: small, medium and large. At the second layer weexamine what factors contribute to the adoption decision within each size group.

Size of the FirmMuch of the research on forces driving organizations to develop radical innovations isbased on Schumpeters (1942) hypothesis that large firms are more innovative than small

firms. This hypothesis, while supported by a number of other researchers (Ali, 1994;Schmalensee, 1988), has also been shown to be inconclusive (Chandy and Tellis, 1998).



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Furthermore, studies on the adoption of the Internet, that draw on innovation andorganizational change literature, hypothesize that e-commerce would be more pre-valent in small firms and that young firms would lead in the adoption of this newtechnology (e.g. BarNir et al., 2003; Hst et al., 2001). Daniel et al. (2002) could not,however, find any significant differences between firms with variations in numberof employees, turnover and years in business.

In the discussion of the importance of size, the main reason why it is argued thatlarge firms are more innovative is linked to resources and the fact that certain typesof more advanced R&D-processes are linked to economies of scale, an advantagedifficult to fully exploit by the small firm. Schmalensee (1988) shows, for example,that there is a connection between the amount of capital that is invested in researchand development, which is related to the firm size, and the amount of successfulinnovations.

Contradictory research findings are also evident. Aldrich and Auster (1986)indicate that an increase in firm size, with a growing administrative apparatus andbureaucratic inertia, negatively influence essential qualities linked to creativity,experimentation and innovation processes. Instead many small firms possess im-portant qualities linked to flexibility and active search processes, which are necessaryprerequisites for innovations. Studies also show that innovative behaviour is fosteredin medium-sized firms since they may have a stronger resource base than small firmsand less rigid structures and formal administrative routines than large firms. However,other studies indicate that small and large firms are more innovative than medium-sized firms (Pavitt, 1990).

Figure 1. Internal and External Conditions Discriminating between Adopters andNon-adopters of Advanced Internet-Based Marketing Operations among Firms ofDifferent Sizes



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In summary, it is difficult to provide an unequivocal answer to the questions of if andhow size affects firms innovative behaviour. This uncertainty is further compoundedby the fact that conclusions regarding relationship between size and innovation de-pend on how the size is measured. In a meta-analytic study, Camison-Zornoza et al.

(2004) have shown that the magnitude and direction of the relationship is affected bythe operationalization of size (the number of employees, financial indicators, physicalcapacity), and whether direct vs logarithmic measures were used. However, we arguethat the introduction of advanced use of the Internet is resource consuming and hencedifficult to attain for small firms. These firms might be pioneers in introducing lesscomplex applications, but do not to the same extent fulfil the prerequisites for theintroduction of more advanced Internet applications. Management structures, as wellas the whole process of doing business, vary with the size of the firm. If we are tounderstand what differentiates adopters from non-adopters of advanced Internet,we need to distinguish between firms of different size groups. Pooling together, for

instance, microfirms employing 5 people and established SMEs with 200 employeesis likely to obscure the true drivers behind adoption. For this reason we put forwardthe following proposition regarding the relationship between size and adoption ofadvanced Internet:

Proposition: There is a positive association between the size of the firm and its propensityto adopt advanced Internet for marketing operations.

We argue that firms of different sizes differ with regard to their propensity toadapt advanced Internet for marketing operations; nevertheless, some firms of allsizes adopt the Internet for these operations. It is thus of interest to further elaborate

on factors behind the development of advanced Internet use, and the question ofwhether drivers vary between firms of different sizes. We will, therefore, discuss aset of factors of importance for innovative processes observed in earlier studies,and use these to investigate whether there are differences between different firmsin terms of drivers.

Entrepreneurial DriversThe important contribution from Schumpeter (1942) pointing at the symbiosis be-tween the field of innovation and entrepreneurship still continues to stronglyinfluence the debate today (Drucker, 2002). Schumpeter (1942) stresses that entre-preneurial individuals are important as drivers both in large and in small firms, butthat radical innovations mainly take place in larger firms. Kirzner (1973) finds thatentrepreneurially oriented people will take initiatives to exploit new business op-portunities and these persons are equipped with a specific set of characteristics andmay be found in firms of all sizes. A small firm can compensate for a weak resourcebase with an entrepreneurial spirit, and the key actors will contribute to a creativemilieu and innovative behaviour of the firm.

In the marketing area, a closely related but partly different concept is used to de-scribe persons that not only foster the development of opportunities in general, butproduct innovations in particular, namely the concept of product champions. Theprocess of creating new products it is argued is strongly facilitated by individualswith the interest, the drive and the professional qualifications to match a number



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of necessary prerequisites (Chakrabarti, 1974; Ettlie et al., 1984; Winistorfer, 1996).A number of research results confirm that such persons may have a key role in suc-cessful product innovation and we propose that Internet champions are likewise ofimportance for market channel innovations. In smaller firms, Internet champions

can supply the much needed IT competence (Mehrtens et al., 2001, Walczuch et al.,2000). Entrepreneurs or Internet champions in larger firms can represent the driversfor starting new innovation processes even though established owner/manage-ment routines and old investments function as barriers to change. Chakrabarti (1974)argues that a product champion can protectively nurture new ideas and market them tothe top management, persuading the management to develop sufficient interest inthe new project and thereby reduce resistance to change.

Willingness to CannibalizeChandy and Tellis (1998) and Hst et al. (2001) argue that attitudinal and organ-

izational factors are of importance for understanding the real drivers of radicalinnovations, and argue that willingness to cannibalize is closely related to radicalinnovations. Lomax et al. (1996) and Moorthy and Png (1992) define cannibalizationas the loss of sales or demand, whereas Chandy and Tellis (1998) define willingnessto cannibalize as firms readiness to reduce the actual or potential value of theirearlier investments. Existing internal, domestic and foreign market organization andcompetence development of marketing personnel are examples of investments thatmust be cannibalized to make way for a new model for market channels. Willingnessto cannibalize is the readiness to take part in an act of creative destruction, i.e. todestroy old investments and innovations by introducing new ones. The introduction

of completely new solutions frequently destroys both investments in earlier solutions,as well as sales and demand (Tushman and Andersson, 1986), and firms need to bewilling to accept these negative consequences if they want to implement Internet-based market channels.

Marketing channels are traditionally argued to be rigid and static, which meansthat they change very slowly (Hst et al. 2001). One reason for this inertia and thelack of innovation in this area may be that a radical channel innovation is systemic,not autonomous (Chesbrough and Teece, 1996). Systemic innovation can only berealized in conjunction with other parts of the distribution system and the rigidityinherent in market channels is therefore related to their systemic dependency. Other

studies confirm the systemic nature of innovation within the field of e-commerce,which often functions together with other new products, services and routines, butthat this cluster of separate innovations provides consumers and firms with a wideset of new opportunities for developing their competence concerning Internet appli-cations, and that this facilitates a tailor-made development process for a specific firm(Daniel et al., 2002; Hamill and Gregory, 1997).

Customers, however, often react to changes with resistance, conflict and confusion(Andersson et al., 1997). This can result in increased brand switching towards com-petitors products and channels (Mason and Milne, 1994). Retailers regard radicalchannel innovations as a disruptive force that will hamper their business or even make

it obsolete (Deleersnyder et al., 2002). Barriers to change also exist within a firmsown distribution system. Chandy and Tellis (1998) state that the reluctance to make



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radical channel innovations derives from a firms base in specialized investments.Earlier channel investments might lose value if radically new channels are introduced.The inertia to change inherent in market channels due to their systemic dependencymakes it even more important that firms are willing to cannibalize.

The importance of willingness to cannibalize, relative to the importance of size, forradical market channel innovations, has been the subject of some studies (Chandyand Tellis, 1998; Hst et al., 2001). These studies show that willingness to cannibalizecan to a greater extent explain why firms use the Internet as a marketing channel.However, they do not discuss whether the willingness to cannibalize differs betweenfirms of different sizes. It can be assumed that the importance of cannibalizationand the willingness to cannibalize differs between firms of different size. Small firmsmight not have invested in the development of a distribution system to the same ex-tent as medium and large firms. On the other hand large firms might have moreresources and greater preparedness to finance new innovations, and to manage the

negative consequences of sunk costs.

Management SupportA third dimension, closely related to those already discussed, is management sup-port. Ettlie et al. (1984: 682) argue that the support of top managers is important whenradical innovations are discussed, and they state, a greater support of top managersin the innovation process is necessary to initiate and sustain radical departures fromthe past for that organization. In small, as well as in large firms, the real leadershipis often exercised through a group of key actors. Such dominant groups, network-based entrepreneurial teams (Cooney, 2005) or internal sway groups (Stymne, 1970),

can be formalized in terms of boards of directors or leadership teams, with theexplicit mission of formulating strategies and goals and via control routines regu-larly monitoring the development in the firm. In smaller firms leadership is oftencarried out through quite informal groups. Formal organization of structures isfor various reasons not operative and the real influence comes from other parties professional units, external units or there exist strong entrepreneurial initiativesamong the management and employees and this provides significant input in theinnovation process.

In larger organizations management has the task of defining the formal missionand goals of the firm and, via formal channels in the firm, transforming these goals

into action in departments, e.g. production, administration, R & D and marketing. Theinvestment in new Internet-based marketing channels is a strategic issue that mustbe integrated into the management system; a number of routines will be influenced,one major decision is needed and a plan for implementation has to be developed.Ettlie et al. (1984) thus argue that decision and support for the implementation andadoption of radical innovations needs to be centralized. It is thereby possible to reducethe impact of inert structures and routines resulting from the size of the firm.

Market PressureIndividual and organizational attributes must, according to March and Sproull (1990),

be combined with environmental demands in order to become a driving force forinnovation. Hence external factors are also of importance for radical innovations.



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Traditionally, pluralism and rivalry in the industrial setting are argued to promoteinnovation (Anand and Kogut, 1997; Athreye, 2001). Porter (1990) argues that com-petition functions as a catalyst in dynamic industry clusters as competitors pressureeach other to innovate, to sustain or further develop their competitive advantages.

Competitors push each other in technological development and compete for thebest engineers, best venture capital and for relationships with suppliers and custom-ers that can support the development of the firm (Audretsch and Feldman, 1996;Porter, 1990).

Competition is not the only origin of pressure on firms to be innovative. Close re-lationships with supplying and buying firms are also of importance (Antonelli, 1996;Porter, 1990). Hkansson (1987), and Von Hippel (1988), argue that both productand process innovation are often a result of recurring interaction with suppliers andcustomers. Antonelli (1996) argues that the rate of technological change is related todemand-pull. Firms are forced to introduce new inventions through the pressure of

customers. Porter (1990) also discusses the quality of the demand. Customers in mostof the industrialized western world demand advanced solutions, and this demandstimulates firms to further develop their products and market interaction.

The role of market pressure is not in any obvious way related to the size of the firm.Monopolies that restrict rivalry can develop both as a result of a large firms dominantposition in an industry and due to the dominant position of small and medium firmsin a strategic group or a small niche of the market. Demanding customers can simi-larly also be expected to exist in market segments independently of the size of firmsoperating in these segments.

Research Methodology

SampleData for this study was collected through the sampling of Swedish firms locatedin four different regions. These different types of industrial context represent onemetropolitan area and three provincial regions in the south, north and middle partsof Sweden. The firms are active in six traditional industrial sectors wood, publishing/printing, chemicals, metal, machinery and electrical equipment. The initial purposewas to examine 100 randomly selected manufacturing firms within 4 size groups inthese 4 regions. However, only 8 of these 16 strata contain the required minimum of

100 firms. When the total number of firms of a given size class in a specific region wasless than 100, all the existing firms were chosen. After merging the 2 middle groups,the final analysis was conducted on the basis of three size groups: small with 119employees, medium with 20199 employees, and large with more than 200 employees.The questionnaire together with an explanation of the study was mailed to a totalof 1037 firms.

As made clear in the earlier review of the literature, the entrepreneur, owner andtop manager in smaller firms is often represented by one person or a small team withmultifunctional work tasks in the firm. A number of earlier research findings alsoindicate that the style and support of management, as well as the entrepreneurialdrivers, also significantly influence the adoption and implementation of e-businessin smaller firms (Fillis et al., 2004; Gilmore et al., 2001). However, in a covering letter



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we underlined that it was important that the questions should be answered by the personresponsible for marketing or the marketing manager in the respective firms. Weconsider that the project is relatively tightly connected to aspects of the Internet tech-nology linked to marketing and that the person responsible for the marketing function

also normally has the greatest insight and knowledge about these aspects.The number of questionnaires returned, after two follow-up mailouts, amountedto 479 of which 379 were usable (36% of the total mailout). Not unexpectedly, thesmallest firms had the lowest response rate, 34%, compared with 45% and 40% forthe medium-sized and large firms. An extensive analysis of differences betweensize classes and industry affiliation show non-response biases to be insignificant. Intotal, we obtained 95 responses from small, 237 responses from medium-sized, and47 responses from large firms.

QuestionnaireThe questionnaire included a number of questions addressing all the constructspresented in the conceptual model.2

Advanced use of Internet was measured by a 6-point Likert-type summatedscale (Alpha .78). The variable was then recoded into a binary adopter/non-adopternominal variable. Firms that scored less than two on the composite scale Advanceduse of Internet were coded as non-adopters; these firms did not use the Internet foradvanced purposes, and did not plan to do so in the immediate future. Firms thatscored above two were coded as adopters. These firms had either implementedadvanced Internet-based operations or were taking active steps to do so in the im-mediate future. The resulting split adopters/non-adopters was as follows: 32/63(34%/66%) for small, 123/114 (52%/48%) for medium sized, and 34/13 (72%/28%)

for large firms respectively.Willingness to cannibalize and Market pressure were also measured by 5-point

Likert-type summated scales. All scales used in the study showed sufficiently highreliability (Nunally, 1978) (Alpha .70). Management support was measured by asingle variable asking to what extent the top management of the firm encouragesthe utilization of the Internet media. Entrepreneurial drivers was measured by twoindependent variables, with one question explicitly focusing on the extent to whichInternet champions influence development in the field and the other focusing onwhat role key actors play in the utilization of the Internet in general. The independentand dependent variables, their composition and the specific wording of the questions

are presented in Table 1.

Statistical ToolsTo examine whether adoption rate depends on the firms size, the variables Adoptionand Size were cross-tabulated and the chi-square statistic was computed. Then,canonical discriminant analysis was used to analyse which of the factors presentedin the modelpredict the group membership of a particular firm. In other words, weidentify factors that differentiate adopters of advanced Internet-based operationsfrom non-adopters. The ranking of the importance of different factors was thendeveloped. Weight-coefficients, which illustrate the inherent discriminating powerfor each of the independent variables, were used to rank the factors according totheir predictive power.



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Findings

The proposition, which states that there is an association between size and adoptionof advanced Internet, was tested via simple cross-tabulation. The value of the chi-square statistic is 19.838 with 2 degrees of freedom, and is significant at the .000 level.The contingency coefficient, which measures the strength of association, has a value

of 0.223 and is also significant at the .000 level. Thus, the proposition is supported:per se, size is positively associated with the adoption of advanced Internet.

Table 1. Variables and Constructs Used in the Analysis

Construct Measurement and questions Scale

Advanced use 6-points Likert-type scale (Have not considered (Summated scale,of Internet Already implemented). overall scale =.78)

Our firm uses or plans to use Internet for thefollowing activities:1. Receiving orders from the website2. Getting feedback from customers3. Our website is integrated with other systems

(order processing, logistics, etc.)4. Gather information on how our customers

use our website

Willingness to 5-points Likert-type scales (Strongly Disagree (Summated scale,cannibalize Strongly Agree). overall scale =.75)

1. We are ready to support Internet projects even if itwill jeopardize our sales through existing channels

2. We are willing to sacrifice sales through our existingchannels to implement Internet-based sales

3. We are willing to bet on new technology even ifour past investments will lose value

Market pressure 5-points Likert-type scales (Strongly Disagree (Summated scale,Strongly Agree). overall scale =.70)1. Our customers want to buy our products through

the Internet2. Our market is ready for e-business

3. Our closest competitor has started to use theInternet for marketing and sales4. We are forced to use the Internet as our

competitors already do so

Management 5-points Likert-type scales (Strongly Disagree Single questionsupport Strongly Agree).

1. Top management encourages use of Internet

Entrepreneurial 5-points Likert-type scales (Strongly Disagree Independentdrivers Strongly Agree). questions

1. Key persons support for Internet projects isimportant

2. Internet advocates affect the Internetimplementation in our firm



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The theoretical model presented in Figure 1 specifies three internal and oneexternal condition that were assumed to affect firms innovativeness. By a discrim-inant analysis, with firms grouped according to size, we wanted to estimate whichvariables are of importance for firms in the different groups. The discriminant analysis

classification matrix presented in Table 2 indicates that 75.8%, 65.4% and 78.7% ofthe small, medium-sized and large firms respectively were correctly classified. Forfirms in all three categories, discriminant function offers a statistically significantimprovement over the proportional chance criterion (t 3.62,p < .01) (Lattinet al., 2003).

Table 2. Classification Results. Adopters vs. Non-Adopters of Advanced Internet-basedMarketing Operations

Actual Group Predicted Group Membership

MembershipAdopters (%) Non-Adopters (%) Totals

Small Medium Large Small Medium Large Small Medium Large

Adopters 50.0 67.5 88.2 50.0 32.5 11.8 32 123 34Non-Adopters 11.1 36.8 46.2 88.9 63.2 53.8 63 114 13

Notes: Total correct classification equals 75.8% (small firms), 65.4% (medium-sized firms), 78.7%(large firms); Proportional Chance Criterion CPROequals 55% (small firms), 50% (medium-sizedfirms), 60% (large firms); N = 95 small firms; 237 medium-sized firms, 47 large firms.

The standardized coefficients in the discriminant function, presented in Table 3,show that for the small firms with less than 20 employees, decisions to adopt advanced

Internet-based operations depend on the presence of Internet champions (coefficient.679). Almost of the same importance is the commitment from the top management(.633) and entrepreneurial support (.580) in the firm. External market pressure isof notably less significance, and willingness to cannibalize is not an issue for thiscategory of firms.

Table 3. Standardized Canonical Discriminant Function Coefficients: Adopters vs. Non-Adopters of Advanced Internet-based Marketing Operations

VariablesVariables Standardized Coefficients Means Adopters Means Non-AdoptersStandardized Coefficients Means Adopters Means Non-AdoptersSmall Medium Large Small Medium Large Small Medium LargeSmall Medium Large Small Medium Large Small Medium Large

Market pressure .395* .684* .810* 2.78 2.75 2.79 2.40 2.21 1.96Willingness to .149 .727* .555* 2.41 2.78 3.10 2.24 2.11 2.33cannibalizeTop management .633* .507* .475 4.62 4.42 4.44 3.88 4.00 3.92commitmentEntrepreneurial support .580* .205 .119 4.34 4.42 4.44 3.69 4.07 4.30Internet champions .679* .641* .413 3.65 3.66 3.61 2.84 3.13 3.07

Notes: * Significant at .05 level; Micro: Wilks Lambda = .754; chi-square = 25.58; d.f. = 5; sig. = .000;SMEs: Wilks Lambda = .814; chi-square = 47.90; d.f. = 5; sig. = .000; Large: Wilks Lambda = .736;chi-square = 13.00; d.f. = 5; sig. = .023; N = 95 small firms; 237 medium-sized firms, 47 large firms.



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Among the medium-sized firms, with 20199 employees, the willingness to can-nibalize is the most important factor affecting adoption of advanced Internet-basedmarketing operations (coefficient .727). This factor is closely followed by externalpressure from customers, and competitors (.684). Presence of Internet champions and

top management support are also influential, while entrepreneurial support appearsto be irrelevant.

Finally, for large firms, with over 200 employees, market pressure is the mostinfluential factor affecting the adoption of the advanced Internet technology(coefficient .810). The willingness to cannibalize is also of importance in the largefirms but not to the same pronounced extent as in the medium-sized firms (.555).Table 4 summarizes the findings.

Table 4. Ranking of Significant Factors Affecting the Adoption of the Advanced Internet-based Marketing Operations

Small Firms Medium Firms Large Firms1. Internet champions 1. Willingness to cannibalize 1. Market pressure2. Top Management commitment 2. Market pressure 2. Willingness to cannibalize3. Entrepreneurial support 3. Internet champions4. Market pressure 4. Top management commitment

Discussion and Conclusions

The primary purpose of this article was to examine the relationship between firm size,organizational level innovation antecedents, and implementation of the advanced

Internet. Our findings suggest that, per se, size is positively associated with theadoption of the advanced Internet-based marketing operations. The fact that size ofa firm evidently influences investments in Internet routines for marketing purposesprovides tentative support to the stage model which indicates that investments inthe Internet as a business resource instrument is a lengthy and sequential processover time (Jones et al., 2003). Consequently, the larger the firm, the more likelythat the process of developing Internet-based routines has been started earlier andhas now reached a more advanced level compared with the average small firm. Analternative way to interpret this finding is to conclude that the Schumpeterian (1942)hypothesis is true: big firms are more innovative than smaller firms.

However, we have also discovered that the make-up of factors that affect thedecision to adopt advanced Internet is different for small, medium, and large firms.3In other words, within each size group, the composition of factors that distinguishadopters from non-adopters is different. We discuss these differences later; at this pointwe draw attention to a methodological implication that falls out of the results. Firmsize is a multidimensional factor that reflects a set of complicated inter-relationships(Camison-Zornoza et al., 2004). It has been shown that the results of the study maybe affected by the way size is measured, e.g. number of employees vs log number ofemployees. Therefore, including size as a regular continuous variable in regressionor covariance structure models (e.g. Hst et al., 2001),4 or excluding size and treating

SMEs as a homogeneous group (e.g. Grandon and Pearson, 2004) may distort theresults. We suggest that small business researchers can approach the problem of



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firm size in two ways. The first approach, the one used in this study, is to split thesample in different size groups and check how the hypothesized model behavesin each size group. An alternative approach would be to create size groups, codethem as dummy variables, and test for the interaction effects between size and other

factors in the model. These approaches would explicitly acknowledge the multi-dimensional nature of the size construct, avoid the narrow focus on only one of thesedimensions, and possibly bring to light patterns that are not immediately obvious.

The starting point for this article was the assumption that adoption of advancedInternet-based marketing operations has features of radical innovation. From thereview of the literature, we also concluded that innovation processes are of a differentcharacter and that the introduction of advanced Internet applications demands farmore extensive changes in business routines and strategic outlook on the part of thefirm; we also identified several factors that, together with size, can explain why somefirms use the Internet for advanced purposes and others do not. Here we discusssome of the core issues for the SMEs.

The Very Small Firm: Focusing on Internet ChampionsOur findings suggest that the presence of the Internet champions, top managementcommitment, and entrepreneurial support are the top three attributes that differ-entiate between adopters and non-adopters of advanced Internet-based marketingchannels. The effect of market pressure is only marginally significant. The role ofInternet champions fits well into earlier findings that technical specialists are ofgreat importance for the adoption of radical innovations (Dewer and Dutton, 1986;McDermott and OConnor, 2002). These studies do not, however, make a distinctionbetween firm size and mainly relate to large firms. Our data suggest that Internet

champions have an even more important strategic role in this type of innovationin very small firms. The study also shows that top management commitment is ofstrategic importance in developing processes for Internet marketing routines insmall firms. As found in other studies, the involvement of the top management is ofevident value for successfully integrating the Internet with business routines. Theprerequisite for the small firm, with its close relationships between the workforce ingeneral, and the tight integration of many work functions, for achieving a successfuloutcome from the initiatives and efforts made by Internet champions is having clearapproval from the owner-manager level (Ettlie et al., 1984; Walczuch et al., 2000).Strong influence is also found from key persons in general, but can be regarded as

having a complementary and supportive role in relation to the focused role of theInternet champions.

In sum, our results fit well with the general findings from the entrepreneurshipand small-business management literature on the high importance of an individualdecision maker both in general and e-business acceptance contexts (Fillis andWagner, 2005). The implication is that organizational level factors may not be ableto adequately capture the adoption processes in small firms; individual-level modelsthat focus on the preferences and perceptions of individuals may be better suitedfor studying the adoption in the smaller firms (Jeyaraj et al., 2006). A potentiallypromising research path would be to investigate the applicability of the extended

technology acceptance model (e.g. McFarland and Hamilton, 2006) to the adoptionof Internet marketing by small firms.



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The Medium-sized firm: Prepared to CannibalizeWhen it comes to advanced Internet adoption, medium-size firms combine theattributes of smaller firms (as Internet champions and top management commitmentare important) and large firms (market pressure is second most important factor). What

makes these firms stand out is that willingness to cannibalize, i.e., readiness to reducethe actual or potential value of their earlier investments, is the most important factordifferentiating between adopters and non-adopters.

One way to explain this result is to conclude that, medium-sized firms have theliabilities of large and small firms and few of their strengths (Chandy and Tellis,1998: 475). From this perspective, medium-sized firms have invested much moreinto their existing market operations than smaller firms did, and yet they do notpossess the market and bargaining power that larger firms do. An alternative way toapproach this result is to apply the stage model. For example, a medium-sized firm,by making considerable efforts, has developed its marketing function and employed

and trained new staff for market analysis and sales work, started to cooperate withother SMEs in networks, and also engaged an agent for a specific export marketingprogramme in another country. These efforts are often accomplished with limitedfinancial and organizational resources over a relatively long period. In order to investin new technology and alternative ways of working with sales and market operations,there must be an explicit willingness to partly dismantle the existing apparatus. Theexisting and established organization and its routines would evidently impede theintroduction of new alternatives.

Irrespective of explanation, our results indicate that medium-sized firms perceivethe Internet channel as cannibalistic. While conceptual arguments for why the

Internet channel can be cannibalistic are abundant, the results of empirical studiessuggest that the observed effects of channel cannibalization are not as adverse asthey are generally expected to be (e.g. Deleersnyder et al., 2002). Thus, managers ofthe medium-sized firms have the most to gain from implementing various strategiesto reduce potential channel conflict (Eyuboglu and Kabadayi, 2005; Houghton andWinklhofer, 2004).

The Large Firm: Anticipating and Responding to Market IndicationsMarket pressure is by far the most important factor differentiating between adoptersand non-adopters among large firms. These firms exhibit a classical rational approach

to the adoption process, investing in the Internet when the market demands suchaction or when a firm anticipates such demand. The explanation could be that largefirms are often embedded in industrial systems and networks and as soon as newradical technological innovations appear on the market and the first pioneering stage ispassed, all actors in this arena must adapt to the rules of the game (Anand and Kogut,1997; Porter, 1990). When competitors, customers, subcontractors, etc. start to investin Internet-based applications, this will function as a driving force.

Another interesting result for this group of firms is that factors related to presenceand behaviour of individuals are not significant. Given that it has been shown thattechnical specialists are influential for the adoption of radical innovations (Dewer

and Dutton, 1986; McDermott and OConnor, 2002), we can conclude that the ad-vanced Internet-based marketing is not radical innovation for these firms. This is also



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consistent with Dewer and Duttons (1986) findings that large firms have a broaderand deeper knowledge base, which can explain why Internet champions are notthat important for this category. Finally, while large firms are not exempt from thecannibalization effects of adopting advanced Internet-based marketing, it is easier

for large firms to compensate for sales and investments losses. They operate onlarger markets and might have greater opportunities for developing new customerrelationships than small and medium-sized firms.

To summarize, our data supported Schumpeters (1942) hypothesis of a positiverelationship between rational innovation and size when considering the advanceduse of the Internet. Implementation of advanced Internet application requires asystemic innovation (Chesbrough and Teece, 1996), and our data indicates that size isimportant for these types of innovations. The study also shows that entrepreneurialdrive is of strategic importance in the development of new processes in small andmedium-sized firms, but is irrelevant for large firms. Various combinations of Internet

champions, entrepreneurs and managers together create this type of driving forcetowards innovation. The willingness of a firm to accept lower sales through existingmarket channels when replacing and complementing these with Internet-enableddistribution is a central issue for medium-sized firms, and also important for largefirms. For the latter group, external market pressure exerts the strongest influenceon this development direction. The results should be understood in the context oftheir limitations. The study, with survey data collected at a certain time, has generatedvaluable results on how firms of various sizes utilize the Internet in their marketingoperations. However, further research must be conducted and with a longitudinalapproach a deeper understanding of the complex dimensions in the development

process can be gained.Earlier research shows that the theoretical basis for SME policy is relatively weak

(Storey, 2003). Curran (2000) found that there is a gap between the daily life of a smallfirm and the content of available support programmes, especially in the smallest firms,where there is a great need for entrepreneurs to be independent and thus avoid mostsituations involving risk of interference in their autonomy. The Internet as such hasover a relatively short time developed into an all-embracing panacea for creatingmore effective business functions. This implies that policy programmes aiming atsupporting the development of Internet-based business applications ought to takeresearch findings and the specific needs of firms as their starting points. For example,

the significant role of Internet champions, entrepreneurs and managers indicatesthat this group must be enlightened and educated in the potential advantages ofintegrating the Internet and the marketing function. Internet technology is openingup challenging opportunities for all types of firms and the weak resource base insmaller firms creates specific potentials in this respect. Radical investment in newInternet technology can provide access to entirely new markets, channels that in thelong run may be most cost-effective and also bridge large geographical distances.

The newness and rapid development of Internet technology also implies thatpolicy-oriented programmes should continuously draw up and disseminate successstories that can give inspiration and function as role models for the business com-

munity at large. With reference to the specific focus in this study on the transition fromtraditional marketing routines to Internet-based marketing operations, such cases



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could with advantage focus on the cannibalizing and rebuilding of the marketingfunction in firms of different sizes.

Notes

1. In a review of 51 studies of general organizational IT adoption, Jeyaraj et al. (2006) havefound top management support, external pressure, and organization size to be the bestpredictors of adoption.

2. The questionnaire was written in Swedish and is available from the authors uponrequest.

3. We would like to remind the readers that in this study a small firm has fewer than 20 em-ployees, a medium one between 20 and 200, and a large one more than 200 employees.

4. Hst et al. (2001), in an empirical setting similar to the one reported in this article, iden-tified the negative association between size, continuous variable number of employees,and adoption of the Internet-based marketing channels.

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MARIA BENGTSSON is Professor in Management at Ume School of Business (U.S.B.E.),at Ume University, Sweden. Her research focuses on competition, network alliances, andtechnology-driven organizations. Maria is a member of the Swedish market court. Pleaseaddress correspondence to: Maria Bengtsson, Ume School of Business, 901 87 Ume,Sweden. [email: [email protected]]

HKAN BOTER is Professor of Entrepreneurship and Director of Centre forEntrepreneurship, Innovations and Business Development (CEIB) at U.S.B.E.He conducts research in internationalization processes in SMEs, entrepreneurial policy,and SME competence development. Please address correspondence to: Hkan Boter,Ume School of Business, 901 87 Ume, Sweden. [email: [email protected]]

VLADIMIR VANYUSHYN is a doctoral student at U.S.B.E. His research interestsinclude marketing models, technology adoption, and emerging markets. Please addresscorrespondence to: Vladimir Vanyushyn, Ume School of Business, 901 87 Ume, Sweden.[email: [email protected]]



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Intgration de lInternet et des oprations de marketing

Une tude des antcdents dans les entreprises de diffrentes tailles

Maria Bengtsson, Hkan Boter et Vladimir Vanyushyn

cole de commerce de Ume, SudeLadoption de lInternet dans les oprations de marketing de pointe ouvre tout un ventailde possibilits et de crneaux aux entreprises de toutes dimensions. Elle risque, nanmoins,de mettre fin lafflux dinvestissements dans les filires actuelles du march, prsentantde ce fait toutes les caractristiques dun innovation radicale. Dans cet article, nous nousinspirons de documents affrents linnovation pour examiner ce qui distingue les adeptesdes oprations de marketing de pointe articules sur lInternet et ceux qui sy opposent dansles entreprises de diffrentes tailles. Le modle conceptuel, sur lequel sappuie cette tude,est ax sur un ensemble de facteurs internes et externes, au nombre desquels nous citerons :la taille de lentreprise, le dsir de cannibaliser, lesprit dentreprise, le soutien administratif

et la pression des marchs. Les rsultats de notre analyse qui repose sur les informationsrecueillies suite un sondage auprs de 379 entreprises manufacturires sudoises indiquentque la composition des facteurs, sur lesquels les entreprises prennent leur dcision dadopterdes oprations de marketing de pointe articules sur lInternet, varie considrablement enfonction de la taille des entreprises concernes. Font lobjet de dbats un certain nombredimplications importantes pour la ralisation dautres recherches, autant pour les managersque pour les pdagogues.

Mots cls: adoption de linnovation; filires; initiative entrepreneuriale; taille de lentreprise;internet; marketing; dsir de cannibalisation

Integracin de Internet y las operaciones de marketingUn estudio de los antecedentes de empresas de distintos tamaos

Maria Bengtsson, Hkan Boter y Vladimir VanyushynEscuela de Negocios de Ume, Suecia

La adopcin de Internet para las operaciones de marketing avanzadas abre un abanico deposibilidades a las empresas de todos los tamaos. No obstante, dicha adopcin podra acabarcon las inversiones en los canales del mercado actual y presenta, por lo tanto, las caractersticasde una innovacin radical. En este articulo, nos inspiramos en la literatura referente a lainnovacin para investigar lo que distingue a los que estn a favor de los que estn en contra

de las operaciones de marketing basadas en Internet en las empresas de distintos tamaos. Elmodelo conceptual para este estudio se centra en el conjunto de factores internos y externosentre los que se incluyen el tamao, la propensin a canibalizar, los generadores empresariales,el apoyo administrativo y la presin del mercado. Nuestro anlisis se basa en los datos deuna encuesta de 379 empresas industriales suecas. Los resultados del anlisis demuestranque la composicin de los factores sobre los cuales la empresa fundamenta su decisin deadoptar las operaciones de marketing avanzadas vara apreciablemente segn el tamao dela empresa. Se discuten varias deducciones de importancia tanto para las investigacionescomplementarias como para los directores y pedagogos.

Palabras clave: adopcin de la innovacin; canales; iniciativa empresarial; tamao de laempresa; Internet; marketing; propensin a canibalizar



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Integration des Internets und Marketingoperationen

Eine Studie der Antezendenzen in Firmen verschiedener Gren

Maria Bengtsson, Hkan Boter and Vladimir Vanyushyn

Ume School of Business, SchwedenDie Nutzung des Internets fr weiterreichende Marketingoperationen erffnet anspruchsvolleMglichkeiten fr Firmen aller Gren. Eine solche Nutzung kann jedoch Investitionenin existierende Vertriebswege zerstren und hat somit den Charakter einer radikalenInnovation. In diesem Artikel sttzen wir uns auf die Literatur ber Innovation, umherauszufinden, was in Firmen unterschiedlichster Gren Anwender von fortgeschrittenen,auf das Internet basierenden Marketingoperationen von denen unterscheidet, die es nichtnutzen. Das konzeptionelle Modell fr diese Studie zentriert sich auf eine Reihe internerund externer Faktoren wie Gre, die Bereitschaft zu kannibalisieren, unternehmerischerAntrieb, Untersttzung des Managements und der Marktdruck. Unsere Analyse basiert

auf Umfragedaten von 379 schwedischen Fertigungsbetrieben. Die Ergebnisse der Analysezeigen, dass die Zusammensetzung der Faktoren, auf die Firmen ihre Entscheidung basieren,ob sie fortgeschrittenes, auf das Internet basierendes Marketing betreiben, stark von derUnternehmensgre abhngt. Einige Folgerungen fr die weitere Forschung sowie frManager und Ausbilder werden auerdem errtert.

Schlsselwrter: Einfhrung von Innovation; Kanle; Unternehmertum; Unternehmensgre;Internet; Marketing; Bereitschaft zur Kannibalisierung



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Documents

Bengtsson Et Al 2007 - Integrating the Internet and Marketing Operations