STRATEGIC ALIGNMENT OF E-BUSINESS DEVELOPMENT

Performance Outcomes for Manufacturing SMEs

Louis Raymond

Institut de recherche sur les PME, Université du Québec à Trois-Rivières, P.O. Box 500, Trois-Rivières, Canada G9A 5H7

François Bergeron

Faculté des sciences de l’administration, Université Laval, Québec, Canada G1K 7P4

Keywords: Alignment, e-business, SME, strategy, performance.

Abstract: Facing pressures from an increasingly competitive business environment, manufacturing SMEs are called

upon to implement strategies that are enabled and supported by information technologies and e-business

applications. Based on the Internet and Web technologies, these include applications such as e-

communication, e-commerce, e-business intelligence and e-collaboration. From a contingency theory

perspective, and using survey data obtained from 107 Canadian manufacturing SMEs, this study examines

the alignment of e-business development with business strategy, based on Miles and Snow’s strategic

typology. The performance outcomes of this alignment in terms of growth, productivity and financial

performance are also examined. Results indicate that the ideal e-business development profiles vary in the

relation to the firms’ strategic orientation, whether it is of the Defender, Analyzer or Prospector type.

1 INTRODUCTION

A number of business activities such as

communicating, transacting, environmental scanning

and collaborating with other organisations are now

done through the Internet and the World-Wide-Web.

The complexity of technological choices,

implementation difficulties personnel training costs

and the continuous updating of systems demand that

organisations target their e-business activities upon

their business strategy. This issue of information

technology (IT) alignment, and consequently of the

alignment of e-business activities with the firm’s

business strategy constitutes one of the five main

problems faced by IT managers in large enterprises

(Luftman, Kempaiah and Nash, 2006).

But what about small and medium-sized

enterprises (SMEs), and especially in the

manufacturing sector? Is the strategic alignment of

their e-business activities as critical? Does this

alignment allow manufacturing SMEs to perform

better in terms of growth, productivity, and

profitability? The main objective of this research is

to answer this last question, through an empirical

study of 107 Canadian manufacturing SMEs.

2 THEORETICAL AND

EMPIRICAL CONTEXT

The study’s theoretical and empirical context is

constituted by the IT alignment research founded

upon contingency theory. The notion of strategic

alignment emanates from strategic management and

organisation theory research whose fundamental

proposition is that organisational performance is a

consequence of the coherence or “fit” between two

or more factors such as strategy, structure, and

technology (Burns and Stalker, 1961). In this

perspective, coherence is a dynamic search that

seeks to align the organisation with its environment

and to organise resources internally in support of

this alignment (Miles and Snow, 1984, p. 11). Given

that strategy is the mediating force between the firm

and its environment, it constitutes in concrete

fashion the basic alignment mechanism, and the

organisational technology, Internet and Web-based

Raymond L. and Bergeron F. (2007).

STRATEGIC ALIGNMENT OF E-BUSINESS DEVELOPMENT - Performance Outcomes for Manufacturing SMEs.

In Proceedings of the Ninth International Conference on Enterprise Information Systems - SAIC, pages 78-83

DOI: 10.5220/0002402300780083

 SciTePress

technology here, must be compatible with this

strategy if one aims to create a significant

competitive advantage.

2.1 Business Strategy

While many definitions of business strategy can be

found in the literature, Porter’s (1980) perspective

will be adopted here, wherein strategy is constituted

by offensive and defensive actions undertaken to

counter competitive forces and thus provide the firm

with an increased return on its investment. With

regard to the business strategy, Miles and Snow

(1978) typology has been the most recognised and

widespread classification scheme for the last twenty-

five years (DeSarbo, Di Benedetto, Song and Sinha,

2005). A firm is thus classified as a Prospector to

the extent that it is innovative in introducing new

technologies and seeking new markets, as a

Defender if it is engineering-oriented and aims to

maintain its position in a relatively stable market, or

as an Analyzer if it adopts a “second but better”

orientation based on a trade-off between the

minimisation of risk and the maximisation of

business opportunities.

Being applicable

independently of the industrial sector (Hambrick,

1983), this typology has been validated and used in

numerous empirical studies, including a number

done in the context of SMEs (Aragón-Sánchez and

Sánchez-Marín, 2005; O'Regan and Ghobadian,

2005).

2.2 Strategic E-Business Development

The development of e-business in the organisation

can come in different forms. The most frequent is in

the form of “e-communication”, referring to the

promotion of the firm, its products and services,

brochureware, online catalogs, and other types of

Internet uses (including intranets and extranets) and

Web sites designed to communicate with customers

and employees (Raymond, Talbot and Vézina,

2002). The second form is “e-business intelligence”

wherein the nature and breadth of information now

available on the Internet allow the firm to scan its

technological, commercial and competitive

environment in search of ways and means to

improve its operations and decision-making, and

seek new product-market opportunities (Hill and

Scott, 2004). The third form of e-business

development, namely “e-commerce”, is of a

transactional nature, and is still rather difficult to

implement successfully, for SMEs in particular. It

concerns the buying and selling of goods and

services through the Internet and Web-based

technologies (Laudon, Laudon, Bergeron and

Gingras, 2006). Another manner in which e-business

can be applied is “e-collaboration”. It consists in

integrating and sharing, through the Internet or

extranets, information on the extended value chain

linking the firm with its upstream and downstream

business partners. This allows stakeholders within

the same industry or network organisation that share

the same objectives to collaborate in the design,

development, production and management of

products and services at different stages of their life-

cycle (Cassivi, Lefebvre, Lefebvre and Léger, 2004).

2.3 Research Model

The research model underlying the present study is

presented in Figure 1. There is reason to believe that

different forms of e-business development would be

appropriate for each type of business strategy, that

is, for Defenders, for Analyzers, and for Prospectors.

As defined by Miles and Snow (1978), many aspects

of their typology can be affected by the firm’s e-

business strategy, including the Defenders’ emphasis

on operational efficiency in terms of production and

sales costs, the Prospectors’ need for innovation in

terms of product and market development, and the

Analysers’ need for flexibility to balance both

operational efficiency and innovation.

Growth Productivity

Organisational Performance

e-Communication

e-Commer ce

e-Business Intelligence

e-Collabor at ion

e-Business

Development

Siz e o f th e SM E

ali gnment

Defender

Analy zer

Prospector

S trategic O rientation

Profitabilit y

Figure 1: Research model on the strategic alignment of e-

business development in manufacturing SMEs.

Manufacturing SMEs whose business and e-business

strategies are aligned should be less vulnerable to

changes in their business environment and to

internal inefficiencies. They should also perform

better as Internet and Web-based technologies

provide the systems and support the processes

STRATEGIC ALIGNMENT OF E-BUSINESS DEVELOPMENT - Performance Outcomes for Manufacturing SMEs

required to successfully implement their business

strategy, focused on the development of networks,

products and markets.

In line with previous research results on the

strategic alignment of IT (Croteau and Bergeron,

2001; Sabherwal and Chan, 2001; Bergeron,

Raymond and Rivard, 2004), one can surmise that a

high level of alignment between the manufacturing

SME’s e-business development and its business

strategy demonstrates that the use of Internet and

Web-based technologies and applications is targeted

on its competitive needs an its strategic priorities,

and thus allows it to increase its performance. Thus

the following research proposition:

P: Greater alignment of e-business development

with business strategy is associated to greater

performance.

Note that with regard to organisational

performance, the research model includes two

proximal indicators, that is, growth and productivity,

directly related to the e-business development

objectives, and one distal indicator, that is,

profitability. And whereas organisational size can

play a potentially determining role in the e-business

development and the performance of manufacturing

SMEs (Sadowski, Maitland and Van Dongen, 2002;

Yang, Yang and Wu, 2005), this factor will be

included as a control variable in the research model,

the underlying hypothesis being that size will have a

moderating effect on the relationship between e-

business alignment and performance.

Inferred from the attributes of Miles and

Snow’s typology and the implications of this

typology for the development of e-business in

manufacturing SMEs, the ideal e-business alignment

profiles for Defenders, Analyzers and Prospectors

are presented in Table 1.

Table 1: Ideal e-business development profile for each

type of business strategy.

Bus. Strategy

e-Business Dev.

Defender Analyzer Prospector

e-Communic.

e-Commerce

e-Bus. intellig.

e-Collaboration

yes

3 RESEARCH METHOD

The data used in the study were obtained from a

database created by a university research centre that

contains information on more than 350

manufacturing SMEs located in the province of

Quebec, Canada. With the collaboration of a 800-

member industry association to which most of these

firms belong, the database was created by having the

SMEs' chief executive and functional executives

such as the controller, human resources manager,

and production manager fill out a questionnaire to

provide data on the practices and results of their

firm. In exchange for these data, the firms are

provided with a complete comparative diagnostic of

their overall situation in terms of performance and

vulnerability. Anonymity of the questionnaire data

and resulting diagnostic is preserved by the industry

association, which assigns an identification code to

each firm. Out of these firms, 107 came back for a

second diagnostic a year later and were then

questioned about their use of the Internet and the

Web. Questionnaire data, including sales and export

data, were also updated to reflect changes in the last

year. Annual sales of the sampled organizations

range from 1.4 M$ (Can.) to 55 M$, with a median

of 7.6 M. Approximately 40 % are small (SEs: 19-

49 employees), whereas the rest are medium-sized

(MEs: 50 - 336 employees), the median number of

employees being 60. Over fifteen industrial sectors

are present, including metal products, wood, plastics

and rubber, electrical products, food and beverages,

and machinery.

A previously validated self-classification

approach (James and Hatten, 1995; O'Regan and

Ghobadian, 2005) was used to identify the firm as

either, a Prospector, a Defender or an Analyzer. The

measure of e-business development was based upon

a list of business activities for which the Internet

(including intranets and extranets) and the Web are

used by the SME. The classification of these

activities refers to the various levels of e-business

development observed in previous studies (Raymond

and Bergeron, 1996; Kula and Tatoglu, 2003; Levy

and Powell, 2003; Xu, Zhu and Gibbs, 2004), as

adapted for the manufacturing SME sector.

Organisational performance is assessed from

growth, productivity and profitability indicators

commonly employed in strategic management

research.

Alignment is hence conceptualised and measured

from a “profile deviation” perspective

(Venkatraman, 1989), that is, the less Defenders,

Analyzers and Prospectors deviate from their ideal

e-business development profile (Table 1), better will

be their performance. Following the method used by

Sabherwal and Chan (2001), values of 1 and 0 are

assigned as ideal values (yes and no), the measure of

alignment being calculated from the euclidean

ICEIS 2007 - International Conference on Enterprise Information Systems

distance between the firm’s actual strategic profile

and its ideal profile, for each type of business

strategy.

4 RESULTS

All of the sampled manufacturing SMEs use

Internet-based technologies to develop e-

communication internally and/or with their present

and potential customers. A good proportion of firms

(77 %) have also developed e-business intelligence

activities, using the Web to scan the commercial

environment and/or prospect for new markets.

However, much less SMEs (35 %) have developed

e-business applications to sell their products. Even

less practice e-collaboration (30 %) by using the

Internet to interact in R&D with their business

partners in order to develop new products. As to

their business strategy, 51 firms were classified as

Prospectors (47.7 %), 35 as Analyzers (32.7 %) and

21 as Defenders (19.6). Analysis of variance results

presented in Table 2 also indicate that these three

groups do not differ with respect to their

development of e-business, that is, in terms of their

developing e-communication, e-business

intelligence, e-commerce and e-collaboration.

Moreover, conforming to Miles et Snow’s (1978)

initial assertion, none of the three types of business

strategy is associated better performances.

Table 2: Breakdown of e-business development, size and

performance by type of business strategy (n=107).

Strategy Type Defend.

(n=21)

Analyz.

(n=35)

Prosp.

(n=51)

e-Bus. Dev.

e-Communic.

e-Commerce

e-Bus. intellig.

e-Collaboration

1.00

.33

.90

.33

1.00

.31

.74

.31

1.00

.37

.73

.27

0.0

0.2

1.4

0.1

Org. Size

Performance

Growth

Productivity

Profitability

.148

.008

.036

.103

.010

.024

.193

.012

.052

0.5

1.5

0.7

1.8

all F-values (one-way ANOVA) are non significant (p > 0.5)

attainment of this development level (1:yes, 0: no)

number of employees

average growth rate for the last 3 years

gross margin / number of production employees

margin = net profit / sales

There is thus no direct link between a firm’s

strategic orientation and its level of e-business

development, in conformity with the contingency

argument that underlies the research model. This

argument implies that is neither the business strategy

nor the development of e-business as such that

affects performance but rather their alignment, there

being thus no “one best way” in matters of e-

business.

Results pertaining to the research proposition are

presented in Table 3, that is, product-moment

(Pearson) coefficients of correlation between

strategic alignment, measured for each SME by the

gap between its actual and ideal e-business

development profiles, and the three dimensions of

organisational performance, namely growth,

productivity and profitability. Partial correlations are

presented, i.e. controlling for the potential effect of

size as proposed in the research model, for the

sample as a whole (P) as well as for each type of

business strategy.

These results confirm the basic proposition of

this research to the effect that a greater strategic

alignment of e-business is associated to a better

performance of manufacturing SMEs, whatever their

strategic orientation, to the extent that this is true for

these firms’ productivity (r = 0.18, p < 0.05) and

profitability (r = 0.13, p < 0.1), but not for their

growth (r = 0.04). One can also ascertain if the

proposition holds within each type of business

strategy. Returning to Table 3, one sees that for

Defenders, e-business alignment is highly associated

to growth (r = 0.52, p < 0.01) and to profitability (r =

0.35, p < 0.05) but not to productivity (r = 0.03).

Moreover, e-business alignment is associated only to

profitability for Analyzers (r = 0.27, p < 0.1)

whereas it is only associated to productivity for

Prospectors (r = 0.33, p < 0.05).

Table 3: Correlation of strategic alignment with

performance.

(zero-order

correlation)

partial

correlation

Alignm.

All

(n=107)

Alignm.

Defend.

(n=21)

Alignm.

Analyz.

(n=35)

Alignm.

Prosp.

(n=51)

Growth

Productivity

Profitability

(.06)

.04

(.13

)

.18*

(.13

)

.13

(.37*)

.52**

(.08)

.03

(.27

)

.35*

(.16)

.15

(.04)

.06

(.27

)

.27

(-.01)

-.02

(.19

)

.33*

(.11)

.12

p < 0.1 *: p < 0.05 **: p < 0.01

controlling for Organisational Size

From a “resource-based view” (Barney, 1991), it

is worth noting that e-business alignment seems to

“compensate” for the potential weaknesses of

manufacturing SMEs with regard to their strategic

STRATEGIC ALIGNMENT OF E-BUSINESS DEVELOPMENT - Performance Outcomes for Manufacturing SMEs

orientation. This alignment is in fact associated to

growth for Defenders, whereas these firms rather

aim for productivity and profitability, to productivity

for Prospectors that rather aim for growth, and to

profitability for Analyzers that rather aim for a

dynamic equilibrium between growth and

productivity.

5 IMPLICATIONS

A number of contributions and implications of this

research can be found. Firstly, this is one of the first

studies to have rigorously conceptualised and

measured e-business alignment in order to confirm

the theoretical validity and practical utility of this

notion and of the strategic contingency approach in

the study of e-business, contrary to the universalistic

approach founded on “best practices” notion.

Without the alignment notion, no direct link can

be demonstrated between the business strategy and

the type of e-business application. Here, it is the

combination of the different forms of e-business that

makes the difference. This combination, i.e. the

manufacturing SME’s e-business development

“profile”, is critical to its organisational

performance. A Defender should thus develop e-

communication and e-commerce. An Analyzer

should develop e-communication, e-commerce, and

e-business intelligence. And a Prospector should

develop e-communication, e-commerce, e-business

intelligence, and e-collaboration. One must note that

for the Defenders studied here, this ideal profile does

not conform to the e-business applications actually

implemented, as these firms favour e-business

intelligence (90 %) more than Analyzers (74 %) and

Prospectors (73 %), whereas it is e-commerce that is

rather meant to allow Defenders to improve their

performance. In other words, these SMEs wrongly

invest in e-business intelligence and would be better

to implement e-commerce applications.

This study cast some doubt on notions of “tried-

and-true” in matters of e-business, often linked to

the experience of practitioners. A purely descriptive

approach would have in effect demonstrated that the

most frequent types of e-business in manufacturing

SMEs are, in order: e-communication, e-business

intelligence, e-commerce and lastly e-collaboration.

Consequently, one could have prescribed that these

firms implement e-business applications in this order

to “follow the trend”, which would have been a first

error. Such an approach would have also

demonstrated that apart from e-communication, e-

business intelligence is the form of e-business that is

the most important for Defenders. Thus prescribing

to the latter that they give priority to e-business

intelligence would have been a second error. Now

one can realise that the strategic alignment

perspective clarifies the relationship between the

various forms of e-business and organisational

performance and, as the same time, uncovers results

that contradict initial descriptive findings.

These results also allow us to emphasize the

nature rather than the value of the SMEs’

technological investment, given that certain forms of

e-business would be more appropriate than others

for certain firms in relation to their strategic

orientation. For example, Defenders would have the

most to gain by implementing a transactional Web

site (e-commerce), given the positive impact this

would have on their financial performance, whereas

Prospectors would benefit more from Web-based

environmental scanning (e-business intelligence) in

terms of their productivity. From an institutional

point of view, technological imitation would only be

valid to the extent that the firm shares the same

strategic orientation with the competitor it is trying

to imitate.

Having examined the complex relationship

between strategic alignment and performance, we

have confirmed the existence of many associations,

a number of which depend upon the firm’s strategic

orientation or business strategy. For example, a

positive association was found between alignment

and productivity for Prospectors but not for

Defenders and Analyzers. Similarly, a positive

association between alignment and growth was

found only for Defenders. This implies that strategic

alignment can not I turn be prescribed in an

universalistic fashion. In particular, the size of the

firm must be taken into account, as e-business

alignment was found to be rather more important for

small enterprises than for medium-sized ones.

The level of e-business assimilation is also

relevant. For owner-managers of manufacturing

SMEs wanting or needing to increase their

organisation’s flexibility, to lower costs, to increase

systems integration, to improve product quality and

to strengthen innovation capabilities, the results of

this study may lead to an examination of their firm’s

level of e-business assimilation, this being done in

conjunction with their strategic intent. Identifying

the extent to which various forms of e-business have

been developed and assimilated is essential to

determine if these are aligned with the strategic

objectives and competitive environment of the

manufacturing SME. For example, this would help

in answering a question that is now posed to a

ICEIS 2007 - International Conference on Enterprise Information Systems

number of manufacturing SMEs under pressure from

competition that is now global and from large prime

contractors in particular, that is, if they must

participate in e-markets and in what form.

ACKNOWLEDGEMENTS

The authors would like to thank the Canada

Research Chairs Program for its financial support of

this research.

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STRATEGIC ALIGNMENT OF E-BUSINESS DEVELOPMENT - Performance Outcomes for Manufacturing SMEs