International Small Business Journal

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International Small Business Journal

DOI: 10.1177/0266242607071780 2007; 25; 27 International Small Business Journal

Maria Bengtsson, Håkan Boter and Vladimir Vanyushyn Firms of Different Size

Integrating the Internet and Marketing Operations: A Study of Antecedents in

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Bengtsson et al.: Integrating the Internet and Marketing

27

Integrating the Internet and Marketing OperationsA Study of Antecedents in Firms of Different Size

M A R I A B E N G T S S O N , H Å K A N B OT E R A N D V L A D I M I R VA N Y U S H Y NUmeå School of Business, Sweden

Adopting the Internet for advanced marketing operations opens up challenging opportunities for fi rms of all sizes. However, such adoption might destroy investments in present market channels and thus has the characteristics of radical innovation. In this article, we draw on the literature on innovation to investigate what differentiates adopters of advanced Internet-based marketing operations from non-adopters in fi rms of different sizes. The conceptual model for this study is centred 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 fi rms. The results of analysis show that composition of factors on which fi rms base their decision to adopt advanced Internet-based marketing operations varies signifi cantly with fi rm size. A number of implications for further research as well as for managers and educators are discussed.

KEYWORDS: adoption of innovation; channels; entrepreneurship; fi rm size; Internet; marketing; willingness to cannibalize

Introduction

The Internet has become an important medium with a wide spectrum of applications used by private persons, fi rms and organizations. The easily accessible application introduced initially for basic information exchange is now widespread and it is apparent that most fi rms use electronic mail and many have company presentations on websites. The process within a fi rm of investing in the equipment necessary to utilize the potential of the Internet as a business instrument, and not least the pro-cess of developing competence and routines for ‘Internet management’, is often presented in the literature as a process that develops successively in sequential steps over time. From the fi rst stumbling steps regarding some basic e-commerce activities the fi rm learns and thereby gains experience, and continues with the next stages of development. Through this process fi rms gradually increase their use of

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Internet applications in business and reach more and more advanced levels (Daniel et al., 2002; Jones and Coviello, 2005). This stage model is also found to be relevant in other fi elds of small business studies, including the development of new technology- based fi rms, and the internationalization of the development process (Bilkey and Tesar, 1977; Drazin and Kazanjian, 1993).

An increasing number of research fi ndings, however, indicate that rapid and also often radical changes in business environments lead to business strategies based on thinking that is less rational than implied by stage models. Studies of internationalization processes in small high-tech fi rms exhibit fast or even instant development processes when fi rms move from local to extensive international activities (Boter and Holmquist, 1996; Jones et al., 2005). Similarly, the process of adopting and developing Internet applications in fi rms can be very rapid because of 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 organizations but are weakly covered in the literature. This study aims at bridging this gap by comparing the adoption of the Internet in SMEs.

Use of the Internet is also described as a cluster of innovations (Prescott and Conger, 1995; White et al., 1998), and different innovations are illustrated as various steps in stage models (Daniel et al., 2002; Jones et al., 2003). These studies suggest that a more basic use of the Internet is adopted before more advanced applications are developed. However, they neither elaborate adequately on the challenges of introducing more advanced applications, nor on how the introduction of different innovations 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 discuss these issues. Basic use of the Internet includes online presentation of the fi rm, its products or services, and simple information exchange via email. Advanced use of the Internet assumes more sophisticated two-way interaction and data processing, and includes online ordering and payment, collecting feedback from customers and integrating the homepage with the fi rm’s internal functions. Basic use of the Internet hence includes innovations in the three steps as set out in the stage model of Daniel et al. (2002). Advanced use of the Internet includes innovations in the fourth step. A number of studies have only focused on basic use of the Internet but have only touched upon its advanced use, or have not distinguished clearly between the two (BarNir et al., 2003; Cohen et al., 1987; Höst et al, 2001). However, the distinction between basic and advanced use of the Internet is signifi cant and has far-reaching implications for the adoption process. The aim of this study is thus to further elaborate on drivers behind the development of advanced Internet use. We have chosen to focus on one specifi c advanced use of the Internet, namely the use of Internet market channels.

While adopting the Internet for basic purposes does not require major investments or organizational changes, adopting advanced Internet operations as a market channel might require the fi rm to change its established channels of distribution and routines, sustain short-term losses, and also require signifi cant competencies and fi nancial resources. Using the Internet for marketing operations may reshape the ways fi rms interact with their customers, destroying investments in existing market




29

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 fi rm’s marketing operations has the characteristics of radical innovation, which has the capacity to destroy established markets and products (Tushman and Andersson, 1986). The experience and knowledge gained from earlier steps or innovations may not be enough to overcome all the challenges related to the advanced use of the Internet. It is, therefore, a great challenge for fi rms to build market channels via the Internet, and it is of interest to further elaborate on this specifi c innovation. In this article we seek to fi nd out what differentiates adopters of advanced Internet-based operations from non-adopters in fi rms of different sizes. Our analysis is built on the survey data from 379 Swedish manufacturing fi rms.

Internet Adoption from an Innovation Perspective: A Conceptual ModelThe adoption of the advanced Internet can be viewed as a specifi c case of innovation. In this article, we examine how the following factors drawn from innovation-related literature are used: (1) fi rm size as a determining factor that captures many of the differences in fi rms’ innovation-related activities, and (2) specifi c factors explaining innovative behaviour: entrepreneurial drivers, willingness to cannibalize, management support, and market pressure.1

The relationship between fi rm size and innovation has attracted much research attention since the publication of the work by Schumpeter in 1942. Size has been shown to be a signifi cant factor in explaining innovative behaviour. However, size alone is not suffi cient if we want to understand why some fi rms are innovative but not others, which was also a conclusion drawn by Schumpeter (1942). Entrepreneurs have important roles in the breakthrough of new products, new production and distribution methods and new markets. Other internal organizational conditions of importance are the willingness to cannibalize (Chandy and Tellis, 1998) and man-agement support for the innovation process (Ettlie et al., 1984). In addition, radical innovations have not only been related to internal conditions but also to external markets that pressure fi rms 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 fi rst layer, size serves as a grouping vari-able to form three categories of fi rms: small, medium and large. At the second layer we examine 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 is based on Schumpeter’s (1942) hypothesis that large fi rms are more innovative than small fi rms. 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).




30

Furthermore, studies on the adoption of the Internet, that draw on innovation and organizational change literature, hypothesize that e-commerce would be more pre-valent in small fi rms and that young fi rms would lead in the adoption of this new technology (e.g. BarNir et al., 2003; Höst et al., 2001). Daniel et al. (2002) could not, however, fi nd any signifi cant differences between fi rms with variations in number of employees, turnover and years in business.

In the discussion of the importance of size, the main reason why it is argued that large fi rms are more innovative is linked to resources and the fact that certain types of more advanced R&D-processes are linked to economies of scale, an advantage diffi cult to fully exploit by the small fi rm. Schmalensee (1988) shows, for example, that there is a connection between the amount of capital that is invested in research and development, which is related to the fi rm size, and the amount of successful innovations.

Contradictory research fi ndings are also evident. Aldrich and Auster (1986) indicate that an increase in fi rm size, with a growing administrative apparatus and bureaucratic inertia, negatively infl uence essential qualities linked to creativity, experimentation and innovation processes. Instead many small fi rms possess im-portant qualities linked to fl exibility and active search processes, which are necessary prerequisites for innovations. Studies also show that innovative behaviour is fostered in medium-sized fi rms since they may have a stronger resource base than small fi rms and less rigid structures and formal administrative routines than large fi rms. However, other studies indicate that small and large fi rms are more innovative than medium-sized fi rms (Pavitt, 1990).

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




31

In summary, it is diffi cult to provide an unequivocal answer to the questions of if and how size affects fi rms’ innovative behaviour. This uncertainty is further compounded by 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 by the operationalization of size (the number of employees, fi nancial indicators, physical capacity), and whether direct vs logarithmic measures were used. However, we argue that the introduction of advanced use of the Internet is resource consuming and hence diffi cult to attain for small fi rms. These fi rms might be pioneers in introducing less complex applications, but do not to the same extent fulfi l the prerequisites for the introduction of more advanced Internet applications. Management structures, as well as the whole process of doing business, vary with the size of the fi rm. If we are to understand what differentiates adopters from non-adopters of advanced Internet, we need to distinguish between fi rms of different size groups. Pooling together, for instance, microfi rms employing 5 people and established SMEs with 200 employees is likely to obscure the true drivers behind adoption. For this reason we put forward the following proposition regarding the relationship between size and adoption of advanced Internet:

Proposition: There is a positive association between the size of the fi rm and its propensity to adopt advanced Internet for marketing operations.

We argue that fi rms of different sizes differ with regard to their propensity to adapt advanced Internet for marketing operations; nevertheless, some fi rms of all sizes 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 of whether drivers vary between fi rms of different sizes. We will, therefore, discuss a set of factors of importance for innovative processes observed in earlier studies, and use these to investigate whether there are differences between different fi rms in terms of drivers.

Entrepreneurial DriversThe important contribution from Schumpeter (1942) pointing at the symbiosis be-tween the fi eld of innovation and entrepreneurship still continues to strongly infl uence the debate today (Drucker, 2002). Schumpeter (1942) stresses that entre-preneurial individuals are important as ‘drivers’ both in large and in small fi rms, but that radical innovations mainly take place in larger fi rms. Kirzner (1973) fi nds that entrepreneurially oriented people will take initiatives to exploit new business op-portunities and these persons are equipped with a specifi c set of characteristics and may be found in fi rms of all sizes. A small fi rm can compensate for a weak resource base with an entrepreneurial spirit, and the key actors will contribute to a creative milieu and innovative behaviour of the fi rm.

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, but product innovations in particular, namely the concept of product champions. The process of creating new products it is argued is strongly facilitated by individuals with the interest, the drive and the professional qualifi cations to match a number




32

of necessary prerequisites (Chakrabarti, 1974; Ettlie et al., 1984; Winistorfer, 1996). A number of research results confi rm that such persons may have a key role in suc-cessful product innovation and we propose that Internet champions are likewise of importance for market channel innovations. In smaller fi rms, Internet champions can supply the much needed IT competence (Mehrtens et al., 2001, Walczuch et al., 2000). Entrepreneurs or Internet champions in larger fi rms can represent the drivers for 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 to the top management, persuading the management to develop suffi cient interest in the new project and thereby reduce resistance to change.

Willingness to CannibalizeChandy and Tellis (1998) and Höst et al. (2001) argue that attitudinal and organ-izational factors are of importance for understanding the real drivers of radical innovations, and argue that willingness to cannibalize is closely related to radical innovations. Lomax et al. (1996) and Moorthy and Png (1992) defi ne cannibalization as the loss of sales or demand, whereas Chandy and Tellis (1998) defi ne willingness to cannibalize as fi rms’ readiness to reduce the actual or potential value of their earlier investments. Existing internal, domestic and foreign market organization and competence development of marketing personnel are examples of investments that must be cannibalized to make way for a new model for market channels. Willingness to cannibalize is the readiness to take part in an act of creative destruction, i.e. to destroy 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 fi rms need to be willing 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 means that they change very slowly (Höst et al. 2001). One reason for this inertia and the lack of innovation in this area may be that a radical channel innovation is systemic, not autonomous (Chesbrough and Teece, 1996). Systemic innovation can only be realized in conjunction with other parts of the distribution system and the rigidity inherent in market channels is therefore related to their systemic dependency. Other studies confi rm the systemic nature of innovation within the fi eld of e-commerce, which often functions together with other new products, services and routines, but that this ‘cluster of separate innovations’ provides consumers and fi rms with a wide set of new opportunities for developing their competence concerning Internet appli-cations, and that this facilitates a tailor-made development process for a specifi c fi rm (Daniel et al., 2002; Hamill and Gregory, 1997).

Customers, however, often react to changes with resistance, confl ict 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 radical channel 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 fi rm’s own distribution system. Chandy and Tellis (1998) state that the reluctance to make




33

radical channel innovations derives from a fi rm’s 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 dependency makes it even more important that fi rms are willing to cannibalize.

The importance of willingness to cannibalize, relative to the importance of size, for radical market channel innovations, has been the subject of some studies (Chandy and Tellis, 1998; Höst et al., 2001). These studies show that willingness to cannibalize can to a greater extent explain why fi rms use the Internet as a marketing channel. However, they do not discuss whether the willingness to cannibalize differs between fi rms of different sizes. It can be assumed that the importance of cannibalization and the willingness to cannibalize differs between fi rms of different size. Small fi rms might not have invested in the development of a distribution system to the same ex-tent as medium and large fi rms. On the other hand large fi rms might have more resources and greater preparedness to fi nance 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 when radical innovations are discussed, and they state, ‘a greater support of top managers in the innovation process is necessary to initiate and sustain radical departures from the past for that organization’. In small, as well as in large fi rms, the real leadership is 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 the explicit mission of formulating strategies and goals and via control routines regu-larly monitoring the development in the fi rm. In smaller fi rms leadership is often carried out through quite informal groups. Formal organization of structures is for various reasons not operative and the real infl uence comes from other parties – professional units, external units – or there exist strong entrepreneurial initiatives among the management and employees and this provides signifi cant input in the innovation process.

In larger organizations management has the task of defi ning the formal mission and goals of the fi rm and, via formal channels in the fi rm, transforming these goals into action in departments, e.g. production, administration, R & D and marketing. The investment in new Internet-based marketing channels is a strategic issue that must be integrated into the ‘management system’; a number of routines will be infl uenced, 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 and adoption of radical innovations needs to be centralized. It is thereby possible to reduce the impact of inert structures and routines resulting from the size of the fi rm.

Market PressureIndividual and organizational attributes must, according to March and Sproull (1990), be combined with environmental demands in order to become a driving force for innovation. Hence external factors are also of importance for radical innovations.




34

Traditionally, pluralism and rivalry in the industrial setting are argued to promote innovation (Anand and Kogut, 1997; Athreye, 2001). Porter (1990) argues that com-petition functions as a catalyst in dynamic industry clusters as competitors pressure each other to innovate, to sustain or further develop their competitive advantages. Competitors push each other in technological development and compete for the best engineers, best venture capital and for relationships with suppliers and custom-ers that can support the development of the fi rm (Audretsch and Feldman, 1996; Porter, 1990).

Competition is not the only origin of pressure on fi rms to be innovative. Close re-lationships with supplying and buying fi rms are also of importance (Antonelli, 1996; Porter, 1990). Håkansson (1987), and Von Hippel (1988), argue that both product and process innovation are often a result of recurring interaction with suppliers and customers. Antonelli (1996) argues that the rate of technological change is related to demand-pull. Firms are forced to introduce new inventions through the pressure of customers. Porter (1990) also discusses the quality of the demand. Customers in most of the industrialized western world demand advanced solutions, and this demand stimulates fi rms 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 fi rm. Monopolies that restrict rivalry can develop both as a result of a large fi rm’s dominant position in an industry and due to the dominant position of small and medium fi rms in 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 fi rms operating in these segments.

Research Methodology

SampleData for this study was collected through the sampling of Swedish fi rms located in four different regions. These different types of industrial context represent one metropolitan area and three provincial regions in the south, north and middle parts of Sweden. The fi rms are active in six traditional industrial sectors – wood, publishing/printing, chemicals, metal, machinery and electrical equipment. The initial purpose was to examine 100 randomly selected manufacturing fi rms within 4 size groups in these 4 regions. However, only 8 of these 16 strata contain the required minimum of 100 fi rms. When the total number of fi rms of a given size class in a specifi c region was less than 100, all the existing fi rms were chosen. After merging the 2 middle groups, the fi nal analysis was conducted on the basis of three size groups: small with 1–19 employees, medium with 20–199 employees, and large with more than 200 employees. The questionnaire together with an explanation of the study was mailed to a total of 1037 fi rms.

As made clear in the earlier review of the literature, the entrepreneur, owner and top manager in smaller fi rms is often represented by one person or a small team with multifunctional work tasks in the fi rm. A number of earlier research fi ndings also indicate that the style and support of management, as well as the entrepreneurial drivers, also signifi cantly infl uence the adoption and implementation of e-business in smaller fi rms (Fillis et al., 2004; Gilmore et al., 2001). However, in a covering letter




35

we underlined that it was important that the questions should be answered by the person responsible for marketing or the marketing manager in the respective fi rms. We consider 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, amounted to 479 of which 379 were usable (36% of the total mailout). Not unexpectedly, the smallest fi rms had the lowest response rate, 34%, compared with 45% and 40% for the medium-sized and large fi rms. An extensive analysis of differences between size classes and industry affi liation show non-response biases to be insignifi cant. In total, we obtained 95 responses from small, 237 responses from medium-sized, and 47 responses from large fi rms.

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

‘Advanced use of Internet’ was measured by a 6-point Likert-type summated scale (Alpha .78). The variable was then recoded into a binary adopter/non-adopter nominal variable. Firms that scored less than two on the composite scale ‘Advanced use of Internet’ were coded as non-adopters; these fi rms did not use the Internet for advanced purposes, and did not plan to do so in the immediate future. Firms that scored above two were coded as adopters. These fi rms had either implemented advanced 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 fi rms respectively.

‘Willingness to cannibalize’ and ‘Market pressure’ were also measured by 5-point Likert-type summated scales. All scales used in the study showed suffi ciently high reliability (Nunally, 1978) (Alpha ≥ .70). ‘Management support’ was measured by a single variable asking to what extent the top management of the fi rm encourages the utilization of the Internet media. ‘Entrepreneurial drivers’ was measured by two independent variables, with one question explicitly focusing on the extent to which Internet champions infl uence development in the fi eld and the other focusing on what role key actors play in the utilization of the Internet in general. The independent and dependent variables, their composition and the specifi c wording of the questions are presented in Table 1.

Statistical ToolsTo examine whether adoption rate depends on the fi rms’ size, the variables ‘Adoption’ and ‘Size’ were cross-tabulated and the chi-square statistic was computed. Then, canonical discriminant analysis was used to analyse which of the factors presented in the model predict the group membership of a particular fi rm. In other words, we identify factors that differentiate adopters of advanced Internet-based operations from non-adopters. The ranking of the importance of different factors was then developed. Weight-coeffi cients, which illustrate the inherent ‘discriminating power’ for each of the independent variables, were used to rank the factors according to their predictive power.




36

Findings

The proposition, which states that there is an association between size and adoption of 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 signifi cant at the .000 level. The contingency coeffi cient, which measures the strength of association, has a value of 0.223 and is also signifi cant 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 α =.78) Our fi rm uses or plans to use Internet for the following activities: 1. Receiving orders from the website 2. Getting feedback from customers 3. 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 α =.75) 1. We are ready to support Internet projects even if it will jeopardize our sales through existing channels 2. We are willing to sacrifi ce sales through our existing channels to implement Internet-based sales 3. We are willing to bet on new technology even if our past investments will lose value

Market pressure 5-points Likert-type scales (‘Strongly Disagree’ – (Summated scale, ‘Strongly Agree’). overall scale α =.70) 1. Our customers want to buy our products through the Internet 2. Our market is ready for e-business 3. Our closest competitor has started to use the Internet for marketing and sales 4. 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’ – Independent drivers ‘Strongly Agree’). questions 1. Key persons’ support for Internet projects is important 2. Internet advocates affect the Internet implementation in our fi rm




37

The theoretical model presented in Figure 1 specifi es three internal and one external condition that were assumed to affect fi rms’ innovativeness. By a discrim-inant analysis, with fi rms grouped according to size, we wanted to estimate which variables are of importance for fi rms in the different groups. The discriminant analysis classifi cation matrix presented in Table 2 indicates that 75.8%, 65.4% and 78.7% of the small, medium-sized and large fi rms respectively were correctly classifi ed. For fi rms in all three categories, discriminant function offers a statistically signifi cant improvement over the proportional chance criterion (t ≥ 3.62, p < .01) (Lattin et al., 2003).

Table 2. Classifi cation Results. Adopters vs. Non-Adopters of Advanced Internet-based Marketing Operations

Actual Group Predicted Group Membership Membership Adopters (%) 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 classifi cation equals 75.8% (small fi rms), 65.4% (medium-sized fi rms), 78.7% (large fi rms); Proportional Chance Criterion CPRO equals 55% (small fi rms), 50% (medium-sized fi rms), 60% (large fi rms); N = 95 small fi rms; 237 medium-sized fi rms, 47 large fi rms.

The standardized coeffi cients in the discriminant function, presented in Table 3, show that for the small fi rms with less than 20 employees, decisions to adopt advanced Internet-based operations depend on the presence of Internet champions (coeffi cient .679). Almost of the same importance is the commitment from the top management (.633) and entrepreneurial support (.580) in the fi rm. External market pressure is of notably less signifi cance, and willingness to cannibalize is not an issue for this category of fi rms.

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

VariablesVariables Standardized Coeffi cients Means – Adopters Means – Non-AdoptersStandardized Coeffi cients Means – Adopters Means – Non-Adopters Small 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: * Signifi cant 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 fi rms; 237 medium-sized fi rms, 47 large fi rms.




38

Among the medium-sized fi rms, with 20–199 employees, the willingness to can-nibalize is the most important factor affecting adoption of advanced Internet-based marketing operations (coeffi cient .727). This factor is closely followed by external pressure from customers, and competitors (.684). Presence of Internet champions and top management support are also infl uential, while entrepreneurial support appears to be irrelevant.

Finally, for large fi rms, with over 200 employees, market pressure is the most infl uential factor affecting the adoption of the advanced Internet technology (coeffi cient .810). The willingness to cannibalize is also of importance in the large fi rms but not to the same pronounced extent as in the medium-sized fi rms (.555). Table 4 summarizes the fi ndings.

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

Small Firms Medium Firms Large Firms

1. 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 ConclusionsThe primary purpose of this article was to examine the relationship between fi rm size, organizational level innovation antecedents, and implementation of the advanced Internet. Our fi ndings suggest that, per se, size is positively associated with the adoption of the advanced Internet-based marketing operations. The fact that size of a fi rm evidently infl uences investments in Internet routines for marketing purposes provides tentative support to the stage model which indicates that investments in the Internet as a business resource instrument is a lengthy and sequential process over time (Jones et al., 2003). Consequently, the larger the fi rm, the more likely that the process of developing Internet-based routines has been started earlier and has now reached a more advanced level compared with the average small fi rm. An alternative way to interpret this fi nding is to conclude that the Schumpeterian (1942) hypothesis is true: big fi rms are more innovative than smaller fi rms.

However, we have also discovered that the make-up of factors that affect the decision to adopt advanced Internet is different for small, medium, and large fi rms.3 In other words, within each size group, the composition of factors that distinguish adopters from non-adopters is different. We discuss these differences later; at this point we draw attention to a methodological implication that falls out of the results. Firm size is a multidimensional factor that refl ects a set of complicated inter-relationships (Camison-Zornoza et al., 2004). It has been shown that the results of the study may be affected by the way size is measured, e.g. number of employees vs log number of employees. Therefore, including size as a regular continuous variable in regression or covariance structure models (e.g. Höst et al., 2001),4 or excluding size and treating SMEs as a homogeneous group (e.g. Grandon and Pearson, 2004) may distort the results. We suggest that small business researchers can approach the problem of




39

fi rm size in two ways. The fi rst approach, the one used in this study, is to split the sample in different size groups and check how the hypothesized model behaves in each size group. An alternative approach would be to create size groups, code them 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 these dimensions, and possibly bring to light patterns that are not immediately obvious.

The starting point for this article was the assumption that adoption of advanced Internet-based marketing operations has features of radical innovation. From the review of the literature, we also concluded that innovation processes are of a different character and that the introduction of advanced Internet applications demands far more extensive changes in business routines and strategic outlook on the part of the fi rm; we also identifi ed several factors that, together with size, can explain why some fi rms use the Internet for advanced purposes and others do not. Here we discuss some of the core issues for the SMEs.

The Very Small Firm: Focusing on Internet ChampionsOur fi ndings suggest that the presence of the Internet champions, top management commitment, and entrepreneurial support are the top three attributes that differ-entiate between adopters and non-adopters of advanced Internet-based marketing channels. The effect of market pressure is only marginally signifi cant. The role of Internet champions fi ts well into earlier fi ndings that technical specialists are of great importance for the adoption of radical innovations (Dewer and Dutton, 1986; McDermott and O’Connor, 2002). These studies do not, however, make a distinction between fi rm size and mainly relate to large fi rms. Our data suggest that Internet champions have an even more important strategic role in this type of innovation in very small fi rms. The study also shows that top management commitment is of strategic importance in developing processes for Internet marketing routines in small fi rms. As found in other studies, the involvement of the top management is of evident value for successfully integrating the Internet with business routines. The prerequisite for the small fi rm, with its close relationships between the workforce in general, and the tight integration of many work functions, for achieving a successful outcome from the initiatives and efforts made by Internet champions is having clear approval from the owner-manager level (Ettlie et al., 1984; Walczuch et al., 2000). Strong infl uence 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 the Internet champions.

In sum, our results fi t well with the general fi ndings from the entrepreneurship and small-business management literature on the high importance of an individual decision maker both in general and e-business acceptance contexts (Fillis and Wagner, 2005). The implication is that organizational level factors may not be able to adequately capture the adoption processes in small fi rms; individual-level models that focus on the preferences and perceptions of individuals may be better suited for studying the adoption in the smaller fi rms (Jeyaraj et al., 2006). A potentially promising research path would be to investigate the applicability of the extended technology acceptance model (e.g. McFarland and Hamilton, 2006) to the adoption of Internet marketing by small fi rms.




40

The Medium-sized fi rm: Prepared to CannibalizeWhen it comes to advanced Internet adoption, medium-size fi rms combine the attributes of smaller fi rms (as Internet champions and top management commitment are important) and large fi rms (market pressure is second most important factor). What makes these fi rms stand out is that willingness to cannibalize, i.e., readiness to reduce the actual or potential value of their earlier investments, is the most important factor differentiating between adopters and non-adopters.

One way to explain this result is to conclude that, ‘medium-sized fi rms have the liabilities of large and small fi rms and few of their strengths’ (Chandy and Tellis, 1998: 475). From this perspective, medium-sized fi rms have invested much more into their existing market operations than smaller fi rms did, and yet they do not possess the market and bargaining power that larger fi rms do. An alternative way to approach this result is to apply the stage model. For example, a medium-sized fi rm, by making considerable efforts, has developed its marketing function and employed and trained new staff for market analysis and sales work, started to cooperate with other SMEs in networks, and also engaged an agent for a specifi c export marketing programme in another country. These efforts are often accomplished with limited fi nancial and organizational resources over a relatively long period. In order to invest in new technology and alternative ways of working with sales and market operations, there must be an explicit willingness to partly dismantle the existing apparatus. The existing and established organization and its routines would evidently impede the introduction of new alternatives.

Irrespective of explanation, our results indicate that medium-sized fi rms perceive the Internet channel as cannibalistic. While conceptual arguments for why the Internet channel can be cannibalistic are abundant, the results of empirical studies suggest that the observed effects of channel cannibalization are not as adverse as they are generally expected to be (e.g. Deleersnyder et al., 2002). Thus, managers of the medium-sized fi rms have the most to gain from implementing various strategies to reduce potential channel confl ict (Eyuboglu and Kabadayi, 2005; Houghton and Winklhofer, 2004).

The Large Firm: Anticipating and Responding to Market IndicationsMarket pressure is by far the most important factor differentiating between adopters and non-adopters among large fi rms. These fi rms exhibit a classical ‘rational’ approach to the adoption process, investing in the Internet when the market demands such action or when a fi rm anticipates such demand. The explanation could be that large fi rms are often embedded in industrial systems and networks and as soon as new radical technological innovations appear on the market and the fi rst pioneering stage is passed, 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 invest in Internet-based applications, this will function as a driving force.

Another interesting result for this group of fi rms is that factors related to presence and behaviour of individuals are not signifi cant. Given that it has been shown that technical specialists are infl uential for the adoption of radical innovations (Dewer and Dutton, 1986; McDermott and O’Connor, 2002), we can conclude that the ad-vanced Internet-based marketing is not radical innovation for these fi rms. This is also




41

consistent with Dewer and Dutton’s (1986) fi ndings that large fi rms have a broader and deeper knowledge base, which can explain why Internet champions are not that important for this category. Finally, while large fi rms are not exempt from the cannibalization effects of adopting advanced Internet-based marketing, it is easier for large fi rms to compensate for sales and investments losses. They operate on larger markets and might have greater opportunities for developing new customer relationships than small and medium-sized fi rms.

To summarize, our data supported Schumpeter’s (1942) hypothesis of a positive relationship between rational innovation and size when considering the advanced use of the Internet. Implementation of advanced Internet application requires a systemic innovation (Chesbrough and Teece, 1996), and our data indicates that size is important for these types of innovations. The study also shows that ‘entrepreneurial drive’ is of strategic importance in the development of new processes in small and medium-sized fi rms, but is irrelevant for large fi rms. Various combinations of Internet champions, entrepreneurs and managers together create this type of driving force towards innovation. The willingness of a fi rm to accept lower sales through existing market channels when replacing and complementing these with Internet-enabled distribution is a central issue for medium-sized fi rms, and also important for large fi rms. For the latter group, external market pressure exerts the strongest infl uence on this development direction. The results should be understood in the context of their limitations. The study, with survey data collected at a certain time, has generated valuable results on how fi rms of various sizes utilize the Internet in their marketing operations. However, further research must be conducted and with a longitudinal approach 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 small fi rm and the content of available support programmes, especially in the smallest fi rms, where there is a great need for entrepreneurs to be independent and thus avoid most situations involving risk of ‘interference’ in their autonomy. The Internet as such has over a relatively short time developed into an all-embracing panacea for creating more effective business functions. This implies that policy programmes aiming at supporting the development of Internet-based business applications ought to take research fi ndings and the specifi c needs of fi rms as their starting points. For example, the signifi cant role of Internet champions, entrepreneurs and managers indicates that this group must be enlightened and educated in the potential advantages of integrating the Internet and the marketing function. Internet technology is opening up challenging opportunities for all types of fi rms and the weak resource base in smaller fi rms creates specifi c potentials in this respect. Radical investment in new Internet technology can provide access to entirely new markets, channels that in the long run may be most cost-effective and also bridge large geographical distances.

The ‘newness’ and rapid development of Internet technology also implies that policy-oriented programmes should continuously draw up and disseminate success ‘stories’ that can give inspiration and function as role models for the business com-munity at large. With reference to the specifi c focus in this study on the transition from traditional marketing routines to Internet-based marketing operations, such cases




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could with advantage focus on the cannibalizing and rebuilding of the marketing function in fi rms of different sizes.

Notes1. In a review of 51 studies of general organizational IT adoption, Jeyaraj et al. (2006) have

found top management support, external pressure, and organization size to be the best predictors of adoption.

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

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

4. Höst et al. (2001), in an empirical setting similar to the one reported in this article, iden-tifi ed 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 Umeå School of Business (U.S.B.E.), at Umeå University, Sweden. Her research focuses on competition, network alliances, and technology-driven organizations. Maria is a member of the Swedish market court. Please address correspondence to: Maria Bengtsson, Umeå School of Business, 901 87 Umeå, Sweden. [email: [email protected]]

HÅKAN BOTER is Professor of Entrepreneurship and Director of Centre for Entrepreneurship, 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: Håkan Boter, Umeå School of Business, 901 87 Umeå, Sweden. [email: [email protected]]

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




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Intégration de l’Internet et des opérations de marketing

Une étude des antécédents dans les entreprises de différentes tailles

Maria Bengtsson, Håkan Boter et Vladimir VanyushynÉcole de commerce de Umeå, Suède

L’adoption de l’Internet dans les opérations de marketing de pointe ouvre tout un éventail de possibilités et de créneaux aux entreprises de toutes dimensions. Elle risque, néanmoins, de mettre fi n à l’affl ux d’investissements dans les fi lières actuelles du marché, présentant de ce fait toutes les caractéristiques d’un innovation radicale. Dans cet article, nous nous inspirons de documents afférents à l’innovation pour examiner ce qui distingue les adeptes des opérations de marketing de pointe articulées sur l’’Internet et ceux qui s’y opposent dans les entreprises de différentes tailles. Le modèle conceptuel, sur lequel s’appuie cette étude, est axé sur un ensemble de facteurs internes et externes, au nombre desquels nous citerons : la taille de l’entreprise, le désir de cannibaliser, l’esprit d’entreprise, le soutien administratif et la pression des marchés. Les résultats de notre analyse – qui repose sur les informations recueillies suite à un sondage auprès de 379 entreprises manufacturières suédoises – indiquent que la composition des facteurs, sur lesquels les entreprises prennent leur décision d’adopter des opérations de marketing de pointe articulées sur l’Internet, varie considérablement en fonction de la taille des entreprises concernées. Font l’objet de débats un certain nombre d’implications importantes pour la réalisation d’autres recherches, autant pour les managers que pour les pédagogues. Mots clés: adoption de l’innovation; fi lières; initiative entrepreneuriale; taille de l’entreprise; internet; marketing; désir de cannibalisation

Integración de Internet y las operaciones de marketing

Un estudio de los antecedentes de empresas de distintos tamaños

Maria Bengtsson, Håkan Boter y Vladimir VanyushynEscuela de Negocios de Umeå, Suecia

La adopción de Internet para las operaciones de marketing avanzadas abre un abanico de posibilidades a las empresas de todos los tamaños. No obstante, dicha adopción podría acabar con las inversiones en los canales del mercado actual y presenta, por lo tanto, las características de una innovación radical. En este articulo, nos inspiramos en la literatura referente a la innovación para investigar lo que distingue a los que están a favor de los que están en contra de las operaciones de marketing basadas en Internet en las empresas de distintos tamaños. El modelo conceptual para este estudio se centra en el conjunto de factores internos y externos entre los que se incluyen el tamaño, la propensión a canibalizar, los generadores empresariales, el apoyo administrativo y la presión del mercado. Nuestro análisis se basa en los datos de una encuesta de 379 empresas industriales suecas. Los resultados del análisis demuestran que la composición de los factores sobre los cuales la empresa fundamenta su decisión de adoptar las operaciones de marketing avanzadas varía apreciablemente según el tamaño de la empresa. Se discuten varias deducciones de importancia tanto para las investigaciones complementarias como para los directores y pedagogos. Palabras clave: adopción de la innovación; canales; iniciativa empresarial; tamaño de la empresa; Internet; marketing; propensión a canibalizar




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Integration des Internets und Marketingoperationen

Eine Studie der Antezendenzen in Firmen verschiedener Größen

Maria Bengtsson, Håkan Boter and Vladimir VanyushynUmeå School of Business, Schweden

Die Nutzung des Internets für weiterreichende Marketingoperationen eröffnet anspruchsvolle Möglichkeiten für Firmen aller Größen. Eine solche Nutzung kann jedoch Investitionen in existierende Vertriebswege zerstören und hat somit den Charakter einer radikalen Innovation. In diesem Artikel stützen wir uns auf die Literatur über Innovation, um herauszufi nden, was in Firmen unterschiedlichster Größen Anwender von fortgeschrittenen, auf das Internet basierenden Marketingoperationen von denen unterscheidet, die es nicht nutzen. Das konzeptionelle Modell für diese Studie zentriert sich auf eine Reihe interner und externer Faktoren wie Größe, die Bereitschaft zu kannibalisieren, unternehmerischer Antrieb, Unterstützung des Managements und der Marktdruck. Unsere Analyse basiert auf Umfragedaten von 379 schwedischen Fertigungsbetrieben. Die Ergebnisse der Analyse zeigen, dass die Zusammensetzung der Faktoren, auf die Firmen ihre Entscheidung basieren, ob sie fortgeschrittenes, auf das Internet basierendes Marketing betreiben, stark von der Unternehmensgröße abhängt. Einige Folgerungen für die weitere Forschung sowie für Manager und Ausbilder werden außerdem erörtert. Schlüsselwörter: Einführung von Innovation; Kanäle; Unternehmertum; Unternehmensgröße; Internet; Marketing; Bereitschaft zur Kannibalisierung




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Documents

International Small Business Journal