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The current issue and full text archive of this journal is available at De´partement des sciences de la gestion, Universite´ du Que´bec a ` Trois-Rivie`res, Accepted 28 February 2008 ´ conomie et Gestion, Universite´ du Que´bec a` Montre´al, AbstractPurpose – The present study aims at a deeper understanding of the performance outcomes of thealignment between the e-business capabilities of manufacturing small- and medium-sized enterprises(SMEs) and their business strategy in terms of Miles and Snow’s recognised strategic typology thatincludes prospectors, analyzers, and defenders.
Design/methodology/approach – From a contingency theory perspective, a survey of 107Canadian manufacturers was used to collect data that were analyzed through correlation analysis.
Findings – Results indicate that the ideal e-business profiles vary in the relation to the firms’strategic orientation, whether it is of the defender, analyzer or prospector type. E-business alignmenthas positive performance outcomes for manufacturing SMEs in terms of growth, productivity andfinancial performance.
Research limitations/implications – The nature of the sample impose care in generalizing theresults of the study. These results also allow us to emphasise the nature rather than the investmentvalue of the SMEs’ information technology investment, given that certain forms of e-business would bemore appropriate for certain firms, depending upon their strategic orientation.
Practical implications – For SME owner-managers that require greater manufacturing flexibility,increased systems integration, products and services of better quality, and higher levels of product andprocess innovation, the results of this study allow us to prone an examination of their firm’s level ofe-business assimilation, this being done in conjunction with their strategic intent.
Originality/value – This is one of the first studies to have used a rigorous conceptualisation andmeasure of alignment to confirm the theoretical validity and empirical usefulness of this notion and ofthe strategic contingency approach for research on e-business, and to compare this approach with theuniversalistic approach founded upon “best practices”.
Keywords Electronic commerce, Small to medium-sized enterprises, Business performance, Canada 1. IntroductionE-business is now a standard in industry. In Canada for instance, more than 45 per cent of firms possess an e-business capability in one form or the other (Statistics Canada, 2007).
The authors would like to thank the Canada Research Chairs Program and the Canada q Emerald Group Publishing Limited Foundation for Innovation for their financial support of this research.
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. However, the choice of e-business capabilities that firms mustdevelop could be critical to their success. The complexity of technological choices,implementation difficulties, personnel training costs and the continuous updatingof systems demand that organisations target their e-business activities upon their business strategy. The issue of information technology’s (IT) alignment with the firm’sbusiness strategy constitutes one of the five main problems faced by IT managers in largeenterprises (Luftman et al., 2006).
But what about small- and medium-sized enterprises (SMEs), and especially in the manufacturing sector given these organisations’ specificities at the strategic andoperational levels, including their dependency upon certain business partners such aslarge prime contracting firms (Dangayach and Deshmukh, 2001)? Is the strategicalignment of their e-business activities as critical? Does this alignment allowmanufacturing SMEs to perform better in terms of growth, productivity, andprofitability? Since IT alignment with business strategy has been shown tosignificantly contribute to the business performance of SMEs (Chan and Horner Reich,2007a), the alignment of e-business activities on business strategy should also be of theutmost importance for these organizations.
Based on survey data obtained from 107 Canadian SMEs, the present study aims at a deeper understanding of the alignment between e-business and business strategy interms of Miles and Snow’s (1978) recognised strategic typology that includesprospectors, analyzers, and defenders. The first of the three objectives of this research isto identify the consequences of e-business alignment for the organisational performanceof manufacturing SMEs. The second objective is to verify if these consequences are validfor all types of business strategies or only for some of these. And finally, this researchaims at determining what e-business capabilities would be most appropriate for eachtype of business strategy. The research question is then formulated as follow: RQ. Can SMEs enhance their performance by aligning their e-business activities 2. Theoretical and empirical contextThe study’s theoretical and empirical context is constituted by IT alignment research thatis founded upon contingency theory. The notion of strategic alignment emanates fromstrategic management and organisation theory research whose fundamental propositionis that organisational performance is a consequence of the coherence or “fit” between twoor more factors such as strategy, structure, and technology (Burns and Stalker, 1961). Inthis perspective, coherence is a dynamic search that seeks to align the organization with itsenvironment and to organize resources internally in support of this alignment (Miles andSnow, 1984, p. 11). Given that strategy is the mediating force between the firm and itsenvironment, it constitutes in concrete fashion the basic alignment mechanism, and theorganization’s technology, internet and web-based technology here, must be compatiblewith this strategy if a significant competitive advantage is to be created.
2.1 Strategic alignment of e-businessTwo research perspectives can be taken to examine how e-business alignment createsvalue for the firm (Amit and Zott, 2001). The first perspective reflects a market power imperative, and viewing the firm as a bundle of strategic activities aimed at attaining a competitive position in the market in response to environmental forces (Porter, 1980). In an e-business context, it is best exemplified by Porter (2001) who sees the internet as ameans by which firms can gain competitive advantage by altering the competitive forces strategy of SMEsthat collectively determine industry profitability. E-business capabilities can contributeto this alteration of competitive forces by contributing to either lowering costs orenhancing differentiation. The second perspective, the resource-based view of the firm, conceptualizes the enterprise as a bundle of resources and dynamic capabilities that areinherently valuable, thus contending that the firm’s strategy should in essence bedefined by its unique resources and capabilities (Barney, 1991; Teece et al., 1997). In ane-business context, this perspective sees e-business capabilities themselves as a sourceof competitive advantage (Bharadwaj, 2000).
A number of studies have shown that strategic alignment between IT and the business strategy plays a significant role in explaining business performance (Chan andHorner Reich, 2007a). Generally speaking, these studies define alignment as the extent towhich IT activities and capabilities support business strategy (Chan and Horner Reich,2007b). While researchers contend that e-business should be pursued as a strategicinitiative (Hackbarth and Kettinger, 2000; Chang et al., 2003; Azumah et al., 2007) andthus propose e-business planning models (Kao and Decou, 2003; Burn and Ash, 2005;Ferguson and Yen, 2007), there have been as of yet very little conceptualisation andempirical investigation of e-business alignment and its effect on organizationalperformance in both SMEs and large enterprises.
2.2 E-business capabilitiesThe development of e-business capabilities in the organisation can come in differentforms. The most frequent is in the form of “e-communication”, referring to the promotionof the firm, its products and services, including brochureware, online catalogs, and othertypes of internet uses (i.e. intranets and extranets) and web sites designed tocommunicate with customers and employees (Turban et al., 2000). The second form is“e-intelligence” (sometimes called e-business intelligence) wherein the nature and breadthof 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 itsoperations and decision making, and seek new product-market opportunities (Hill andScott, 2004). The third form of e-business development, namely “e-commerce”, is of atransactional nature, and is still rather difficult to implement successfully, for SMEs inparticular. It concerns the buying and selling of goods and services through the internetand web-based technologies (Rayport and Jaworski, 2001). Another manner in whiche-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 thefirm with its upstream and downstream business partners. This allows stakeholderswithin the same industry or network organisation that share the same objectives tocollaborate in the design, development, production and management of products andservices at different stages of their life-cycle (Cassivi et al., 2004).
The four types of e-business capabilities can be classified under two dimensions, one horizontal the other vertical. Based on the business processes they are meant to support,e-communication and e-intelligence would be viewed as informational, wherease-commerce and e-collaboration would be viewed as relational (Amit and Zott, 2001).
From a different perspective, a classification of e-business capabilities based on the managerial and decision support level would place e-communication and e-commerce at the operational level, whereas e-intelligence and e-collaboration would be placed at thestrategic level (Karagozoglu and Lindell, 2004).
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 offensiveand defensive actions undertaken to counter competitive forces and thus provide thefirm with an increased return on its investment. Approaches to identifying a businessstrategy can be textual, multivariate, or typological (Hambrick, 1980). The typologicalapproach is recognized as creating a better understanding of the strategic reality of anorganization, since all types of business strategy are viewed as having particularcharacteristics but a common strategic orientation.
While several typologies have been proposed (Ansoff and Stewart, 1967; Freeman, 1974; Porter, 1980), the most frequently used in empirical research is Miles and Snow’s(Zahra and Pearce, 1990). With regard to business strategy, Miles and Snow (1978)typology has been the most recognized and widespread classification scheme for thelast 25 years (DeSarbo et al., 2005). A firm is thus classified as a prospector to the extentthat it is innovative in introducing new technologies and seeking new markets, as adefender if it is engineering-oriented and aims to maintain its position in a relativelystable market, or as an analyzer if it adopts a “second but better” orientation based on atrade-off between the minimisation of risk and the maximisation of businessopportunities. Being applicable independently of the industrial sector (Hambrick,1983), this typology has been validated and used in numerous empirical studies,including some in the context of SMEs (Arago´n-Sa´nchez and Sa´nchez-Marı´n, 2005;O’Regan and Ghobadian, 2005).
Note that Miles and Snow’s (1978) typology initially included a fourth type, namely reactor, that is, enterprises that do not demonstrate any coherent business strategy.
As was later done by Miles and Snow (1984) themselves and as is done in mostempirical studies that have used this typology, reactors are excluded from the presentstudy (Delery and Doty, 1996; Sabherwal and Chan, 2001).
2.4 Research model on e-business alignmentThe research model underlying the present study is shown in Figure 1. In enablingfirms to create value and sustain competitive advantage, different strategiccapabilities, and IT capabilities in particular, are clearly related to different strategictypes (DeSarbo et al., 2005). There is thus reason to believe that different e-businesscapabilities would be appropriate for each type of business strategy, that is, fordefenders, 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 andsales costs, the prospectors’ need for innovation in terms of product and marketdevelopment, and the analysers’ need for flexibility to balance both operationalefficiency and innovation.
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 thesystems and support the processes required to successfully implement their businessstrategy, focused on the development of networks, products and markets.
In line with previous research results on the strategic alignment of IT (Bergeron et al., 2004), one can surmise that a high level of alignment between the manufacturingSME’s e-business capabilities and its business strategy demonstrates that the use ofinternet and web-based technologies and applications is targeted on its competitiveneeds and its strategic priorities, and thus allows it to increase its performance. Thus,the following research hypothesis: Greater alignment of e-business capabilities with business strategy isassociated to greater performance.
Note that with regard to organisational performance, the research model includes twoproximal indicators, that is, growth and productivity, directly related to the e-businesscapabilities, and one distal indicator, that is, profitability. And whereas organisationalsize can play a potentially determining role in the e-business development and theperformance of manufacturing SMEs (Sadowski et al., 2002; Yang et al., 2005), this factorwill be included as a control variable in the research model. Apart from its size, the firm’sage or organizational lifecycle may come into play as younger firms generally facehigher information costs and financing constraints (Hartarska and Gonzalez-Vega,2006), which may also influence their capacity to invest in e-business (Chan and Lin,2007). Industry effects are seen to explain in part the heterogeneity of SMEs with regardto performance and strategic behaviour (Mauri and Michaels, 1998), and also withregard to e-business capabilities (Piscitello and Sgobbi, 2004; Coltman et al., 2007).
A competitive force that also comes into play, for SMEs especially, is related to thepower of customers, as large prime contractors or important customers may imposestrategic behaviour upon these firms (Freel, 2000), including e-business technologiessuch as EDI (Raymond and Bergeron, 1996). The underlying hypothesis is that size, age, industry and power of customers 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 ideale-business alignment profiles for defenders, analyzers and prospectors are presented inTable I. The profile deviation approach for measuring alignment is the most appropriate approach in this context (Sabherwal and Chan, 2001).
Defenders are organisations that concentrate their effort into relatively secure niches within their industry. They usually engage in little or no development of new products,services and markets. These firms compete primarily on the basis of operationaleffectiveness with low-cost, high-quality products, speed of delivery and quality ofservice, and obtain efficiency by relying on economies of scale (Hambrick, 1983; Dotyet al., 1993). Defenders invest in equipment and infrastructure but make limited use oftechnologies. As such, given their strategic objectives, their use of technologies willlikely be targeted toward the integration of inter and intra-firm manufacturing processesin order to rationalize their production and distribution costs, improve their productivityand increase their customers’ satisfaction. These objectives can be attained by the use oftechnologies such as EDI and ERP for internal and external value chain efficiency(Markus, 2000). The e-business capabilities that would best support this type of businessstrategy, given their basic function, are e-communication and e-commerce, wherease-intelligence and e-collaboration capabilities would not be supportive in this regard.
Thus, from a strategic alignment perspective, the “ideal” e-business profile of thedefender is assumed to include e-communication and e-commerce capabilities.
Defenders who have developed these two capabilities should obtain greater businessperformance than defenders who have not done so or have instead implemented othertypes of e-business capabilities: For defenders, a better alignment with their ideal e-business profile isassociated with a better performance.
Analyzers share some common characteristics with defenders and prospectors, beingoriented toward operational effectiveness and increased production in stable markets(like defenders) but also, to some extent, in more turbulent environments (likeprospectors) (Slater and Narver, 1993). Analyzers try to optimize their business activitiesby analysing their market, their past and projected performance, and minimising risk, atask that can be partly supported by business intelligence. They are less aggressive andpro-active than prospectors but more than the defenders. On one hand, analyzers mustmaintain a complete and efficient line of products that have been proven successful onthe market, which requires intra- and inter-organisational integration. This can besupported by e-communication and e-commerce capabilities. On the other hand, they also try to benefit from occasional or emerging product/market opportunities, that can be explored through e-intelligence capabilities, and that require both product innovation and (production and distribution) process innovation. Their potentially conflictingneeds for both competitiveness and operational effectiveness would drive analyzers to strategy of SMEsexploit technologies that increase the flexibility of their production and distributionprocesses, and thus allow them to benefit from increased demand for their products(Beach et al., 2000). The e-business capabilities that would support this type of business strategy are e-communication, e-commerce, and e-intelligence. Thus, assuming that theideal e-business profile includes these three capabilities, it is hypothesised that analyzerswho have developed all of these will perform better that those who have not done so, orhave only developed one or two of these capabilities, or have developed ane-collaboration capability instead: For analyzers, a better alignment with their ideal e-business profile isassociated with a better performance.
SMEs of the prospector strategic type are focused on developing new products and newmarkets. They frequently change their product line and compete primarily by seizingnew market opportunities (Hambrick, 1983). Investing in research and development,these firms continuously innovate and regularly launch new products/services (O’Reganand Ghobadian, 2005). Prospectors adapt to a turbulent business environment byemphasising environmental scanning (Daft and Weick, 1984), a function that issupported by e-intelligence. Experimenting with a larger number of technologies, theyemploy more complex coordination and communication mechanisms, and rely onparticipative and decentralized decision making. Prospectors can thus count one-communication for such purposes. Their strategic priority would be the technologiesthat improve their innovation capacity but also those that increase their flexibility andreduce their new products’ time-to-market (Arago´n-Sa´nchez and Sa´nchez-Marı´n, 2005),this objective being well-suited for e-commerce. As these firms benefit fromcollaborating with partners in the design of new products and services (Lee andChang, 2007), an e-collaboration capability would be very appropriate for them, while itwould be less important for analyzers and not required by defenders. Thus, it is assumedthat the prospectors’ ideal e-business profile would include e-communication,e-commerce, e-intelligence and e-collaboration, hypothesising in this last case that allfour types of e-business capabilities will jointly contribute to improving organisationalperformance: For prospectors, a better alignment with their ideal e-business profile isassociated with a better performance.
3. Research methodThe research data were obtained from the PDGe database created by a universityresearch center, containing information on 307 Canadian manufacturing SMEs. Withthe collaboration of an industry association to which most of these firms belong, thedatabase was created by allowing them to participate in a benchmarking exercise, thatis, by having the firms’ chief executive and functional executives such as the controller,human resources manager, and production manager fill out a questionnaire to providedata on the practices and results of their firm and add their firm’s financial statements for the last five years. In exchange for these data, the firms were provided with a complete comparative diagnostic, that is, their overall situation was benchmarked in terms of performance and vulnerability (further information on the diagnosis systemand on data collection and validation can be found in St-Pierre and Delisle, 2006). Oneyear later, 107 of these firms renewed the benchmarking exercise, and in so doing,answered a second questionnaire on their use of the internet and the web. Data from the initial questionnaire were also updated on this occasion.
Annual sales of the sampled organisations vary from $1.4 (CAD) to 55 million, with a median of 7.6 million. Approximately, 40 per cent of these firms are small (19 to49 employees), whereas the others are medium-sized (50-336 employees), the medianbeing 60 employees. More than 15 manufacturing sectors are present, including metalproducts, wood, plastics and rubber, electrical products, food and beverage, andmachinery. A total of 27 SMEs (25 per cent) operate in a sector whose technologicalintensity is low, 66 (62 per cent) in a medium to low-tech sector, and 14 (13 per cent) in amedium to high-tech sector (OECD, 2005). There are no high-tech firms.
Following a self-classification approach previously used ( James and Hatten, 1995; O’Regan and Ghobadian, 2005) to identify the firm either as a prospector, defender,analyzer or reactor, it was asked of the CEOs to choose among the following statementsthe one that best described their business strategy (the strategic type, not mentioned inthe original questionnaire, is included here for the benefit of the reader): I continuously innovate and regularly launch new products/services (prospector).
My first goal is to maintain my current market share with existingproducts/services by lowering their price or increasing their quality (defender).
I rely primarily on existing products, while I cautiously introduce products orservices that have already been proven successful on the market (analyzer).
I am quite satisfied with the current situation. I will revise the price or quality ofmy products or eventually introduce new products or services only if my firm isfacing a major threat that endangers its survival (reactor).
E-business capabilities are measured by asking CEOs to indicate the businessactivities for which the internet (including intranets and extranets) and the web areused in their organisation. The nine activities proposed are grouped under fourcategories, namely e-communication, e-commerce, e-intelligence and e-collaboration.
This categorisation corresponds to various levels of e-business development observedin previous studies (Raymond and Bergeron, 1996; Kula and Tatoglu, 2003; Levy andPowell, 2003; Xu et al., 2004), and adapted to the SME context. The firm is considered tohave attained a particular level (dichotomous variable) if it uses the internet and theweb for in at least one of the business activities associated to that level, that is, for eachof the four categories.
Organisational performance is assessed from growth, productivity and profitability indicators commonly employed in strategic management research (Venkatraman,1989a). Thus, growth is evaluated by the average growth in net sales over the last threeyears. The productivity of labour is measured by the gross margin per employee. Andprofitability is indicated by the return on assets (ROA).
Alignment is hence conceptualised and measured from a “profile deviation” perspective (Venkatraman, 1989b), that is, the less defenders, analyzers and prospectors deviate from their “ideal” e-business profile (as defined in Table I), the 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 ofalignment being calculated from the euclidean distance between the firm’s actual strategy of SMEsstrategic profile and its ideal profile, for each type of business strategy: AlignmentDefender ¼ 1 2 ½½e – Communic: 2 1Š2 þ ½e – Commerce 2 1Š2 þ ½e – Intelligence 2 0Š2 þ ½e – Collab: 2 0Š2Š1=2 AlignmentAnalyzer ¼ 1 2 ½½e – Communic: 2 1Š2 þ ½e – Commerce 2 1Š2 þ ½e – Intelligence 2 1Š2 þ ½e – Collab: 2 1Š2Š1=2 AlignmentProspector ¼ 1 2 ½½e – Communic: 2 1Š2 þ ½e – Commerce 2 1Š2 þ ½e – Intelligence 2 1Š2 þ ½e – Collab: 2 1Š2Š1=2 where e-communication, e-commerce, e-intelligence and e-collaboration, respectively,take on a value of 1 or 0 depending if the particular e-business capability is possessedor not, and noting that the deviation score is subtracted from 1 in order to obtained ameasure of “alignment” rather than “misalignment”.
4. ResultsAs shown in Figure 2, all of the sampled manufacturing SMEs use internet-basedtechnologies to develop e-communication internally and/or with their presentand potential customers. A good proportion of firms (77 per cent) have also developede-intelligence activities, using the web to scan the commercial environment and/orprospect for new markets. However, much less SMEs (35 per cent) have developede-business applications to sell their products and services. Even less practicee-collaboration (30 per cent) by using the internet to interact in R&D with their businesspartners in order to develop new products and services.
As to their business strategy, 51 firms were classified as prospectors (47.7 per cent), 35 as analyzers (32.7 per cent), 21 as defenders (19.6 per cent), and none as reactors(0 per cent). The greater proportion of prospectors may be due to the sample beingcomposed of firms that have voluntarily undertaken a benchmarking exercise for asecond consecutive year. Analysis of variance results presented in Table II alsoindicate that these three groups do not differ with respect to their e-businesscapabilities, that is, in terms of their developing e-communication, e-intelligence,e-commerce and e-collaboration. There thus appears to be no direct link betweenthe SME’s strategic orientation and its e-business capabilities, in conformity with thecontingency approach underlying the research model.
One may recall at this point that a “universalistic” or “best practices” argument posits that the most-recognised strategic capabilities would have a positive effectwhenever they are applied (Delery and Doty, 1996; Ketokivi and Schroeder, 2004).
Thus, simply applying one or more capability would directly and positively influenceorganisational performance. Whereas the contingency argument suggests that ITcapabilities are effective to the extent that they are “aligned” with the business strategy E-business capabilities ofmanufacturing SMEs Note: n = 107
E-business capabilitiesby type of business Notes: ns – Non significant ( p . 0.1). aFunction for which the internet is used (dichotomous variable, 1: yes, 0: no); bsize and age of the firm, industry, and power of customers (Bergeron et al., 2004). In the present study, this last argument implies that it is neitherthe business strategy nor the e-business capabilities as such that affect performancebut rather their alignment, and thus there is no “one best way” in matters of e-business.
Moreover, as indicated in Table III and conforming to Miles and Snow’s (1978) initial assertion, none of the three strategic types is associated as such to betterperformances, neither to a particular environmental or organizational context. Indeed,for strategic management, the basic postulate of contingency theory is that no strategyis universally superior, whatever the environmental or organisational context Notes: ns – Non significant ( p . 0.05). aNumber of employees; bnumber of years since creation; ctechnological intensity associated to the industrial sector under the OECD’s (2005) classification; dpercentage of sales to the three main customers; eaverage growth in net sales over the last three years; fgross margin per employee ¼ gross profit/net sales/number of production employees; greturn on Context and performanceassets ¼ earnings before income taxes/total assets; hsize and age of the firm, industry, and power of (Venkatraman, 1989b). Thus, the absence of a direct link between strategic orientationand performance is again in conformity with the contingency argument that underliesthe research model.
Further evidence with regard to the contingency versus the universalistic or “best practice” argument is presented in Table IV, wherein the direct link between e-businesscapabilities and organizational performance is estimated by zero-order and partialcorrelation coefficients. When the environmental and organizational contexts are takeninto account, it is essentially only in terms of productivity that e-business is shown topositively impact the sampled SMEs. More specifically, firms who use the internet fore-commerce, for e-intelligence, and especially for e-collaboration purposes are moreproductive. E-commerce is also associated, but less significantly, with greaterprofitability.
From a “best practice” perspective, e-business capabilities have become necessary to the extent that they enable manufacturing SMEs to be more productive by increasing the“reach” and the “richness” of their business processes (Sambamurthy et al., 2003). Fore-commerce, the significant effect upon productivity, and eventually upon profitability,is realised through web-enabled processes that integrate the firm with its customers, Notes: *p , 0.1; * *p , 0.05; * * *p , 0.01. aWith control of size and age of the firm, industry, and power of customers; bvariable is constant ( ¼ 1 in all cases) suppliers and other business partners for purposes of supply chain management and customer relationship management. For e-intelligence, it is the greater reach and richness of the market, technological and competitive intelligence captured andshared throughout the organisation that translates into improved productivity. Whereasthe SME becomes more productive through e-collaboration by its ability to leverage theresources and competencies of customers, suppliers and other business partners within IT-enabled by inter-firm processes such as joint product research and development.
However, greater leverage from e-business capabilities, while it may lead to improvedproductivity, does not necessarily lead to increased growth and profitability. Thus, inlight of the study’s premise and objectives, one expects that the strategic alignment ofe-business, through the contingency argument, to be a better predictor of businessperformance than e-business capabilities alone, through the universalistic argument.
The results of testing the research hypotheses are presented in Table V, that is, the correlation between strategic alignment, as measured by the gap between the firm’sactual and ideal e-business profiles, and the three dimensions of organizationalperformance, namely the firm’s growth, productivity and profitability. Zero-ordercorrelations are first presented, followed by partial correlations, i.e. by controlling forthe potential effects of the size and age of the firm, the technological intensity of theindustry in which it operates and the power of its customers. Correlations arecalculated for the sample as a whole (H1) as well as for each type of business strategy,that is, for defenders (H2), analyzers (H3) and prospectors (H4).
These results partially confirm the basic hypothesis of this research (H1) in that greater alignment of e-business capabilities with the SME’s business strategy isassociated to an improved organizational performance. This relationship is observed tobe significant for productivity (r ¼ 0.20) and profitability (r ¼ 0.18) but not for growth.
The three other hypotheses are also partially confirmed. For SMEs whose strategicorientation is of the defender type (H2), greater alignment of their e-business activitiesis associated to stronger growth (r ¼ 0.52) and greater profitability (r ¼ 0.45) but notto greater productivity. For analyzer firms (H3), this alignment is also associated togrowth (r ¼ 0.40) and profitability (r ¼ 0.44). Whereas for SMEs whose strategicorientation is of the prospector type, alignment is associated only to productivity(r ¼ 0.33). One may recall here that the conceptualisation of “alignment” is in terms ofthe gap between the firm’s actual profile of e-business activities and its ideal profile forsuch activities, as determined by its type of business strategy.
When comparing these last results to the previous ones relating to the universalistic argument (Table IV), that is, when comparing the strength and direction of the correlation Notes: *p , 0.1; * *p , 0.05; * * *p , 0.01. aWith control of size and age of the firm, industry, and coefficients, it is quite evident that a greater proportion in the variance in performance is explained in general through the contingency argument, and in particular for growth and profitability in the case of defenders and analyzers, and for productivity in the case ofprospectors.
From complementary resource-based and competitive strategy perspectives (Rivard et al., 2006), the different impacts of e-business alignment on different dimensions ofperformance is also seen to compensate for the potential weaknesses of manufacturing SMEs with regard to their strategic orientation, if one recalls that defenders tend todevelop inward-oriented capabilities that are less apt to impact growth, whereasprospectors tend develop outward-oriented capabilities that are less apt to impactproductivity. Indeed, returning to Table V, e-business alignment is associated toincreased sales growth for defenders whereas these firms rather aim to be moreproductive, to increased productivity for prospectors whereas these SMEs rather aimfor growth in terms of market share, new product and services and increased sales.
It is possible that e-business contributes to the defenders’ performance in terms of productivity if it is assumed that defenders are already productive before theimplementation of e-business applications. In that case, the contribution of e-businessis noticeable particularly in terms of sales growth and profitability, two indicators ofperformance. The sales of their standardized products would gain from beingaccessible by a larger customer base through the internet.
For the prospectors, e-business does not directly contribute to sales growth possibly because these firms’ customers are generally large manufacturing firms or primecontractors, with whom long-term business relationships have been established andwhere internet accessibility is not a critical issue in delivering new services or products tothese customers (Raymond and Blili, 2001). However, it is understandable that prospectorsare more productive since e-collaboration provides significant benefits in terms of theduration, cost and effectiveness of collaborative R&D and product design projects. As forthe analyzers who occupy the strategic middle ground between defenders andprospectors, they benefit from e-business alignment in about the same way as defendersbut in addition to growth and profitability, they also show a sizable positive (but notsignificant) relationship between alignment and productivity.
Overall, the analyzers seem to draw the most diversified benefits from their development and alignment of e-business. E-business alignment is associated to anincreased sales volume and a better ROA for analyzers, in conformity with these firms’aim for a dynamic equilibrium between growth and profitability through selectiveexploitation of product/market opportunities and realisation of cost economies. In thissense, e-business alignment creates the most value for analyzers because their strategicchoices require the most flexibility (Beach et al., 2000), and it is this flexibility that isenhanced by developing e-business capabilities.
5. DiscussionA number of contributions and implications of this research can be identified. This isone of the first studies to have used a rigorous conceptualisation and measure ofalignment to confirm the theoretical validity and empirical usefulness of this notionand of the strategic contingency approach for research on e-business, and to comparethis approach with the universalistic approach founded upon “best practices”.
Without the notion of strategic alignment, no direct link between the business strategy and the type of e-business applications can be demonstrated. Here, it is the combination of the e-business application types that makes the difference. This combination ofapplications, that is, the SME’s “profile” of e-business capabilities, is critical to itsorganisational performance. A defender firm should thus aim for e-communicationand e-commerce. An analyzer SME should target e-communication, e-commerce and e-intelligence. A prospector firm should aim for e-communication, e-commerce,e-intelligence and e-collaboration. One should note that for defenders in particular, thee-business applications actually implemented do not conform at all to their ideal profile.
Indeed, these SMEs favour e-intelligence more than analyzers or prospectors, whereas it ise-commerce that should contribute more to the defenders’ performance. In other words,these SMEs invest in e-intelligence to no avail, whereas they would be better advised toinvest in e-commerce applications.
This research also shakes the notion of the “tried-and-true” in matters of e-business, often associated to the experience of practitioners. A purely descriptive approach wouldhave indeed shown the most prevalent forms of e-business in manufacturing SMEs to bee-communication, followed by e-intelligence, e-commerce, and finally e-collaboration.
Consequently, one could have prescribed to these firms the implementation of e-businessapplications in that order, that is, to “follow the leaders”, which would have been a firsterror. Such an approach would also have demonstrated that, apart frome-communication, e-intelligence is the most prevalent form of e-business for SMEs ofthe defender type. Hence, prescribing the implementation of e-intelligence in theseorganizations to the detriment of e-commerce would have been a second error. Thestrategic alignment perspective thus clarifies the relationship between the various typesof e-business and the performance of manufacturing SMEs and, at the same time, bringsto light results that contradict the initial descriptive findings.
These results also allow us to emphasise the nature rather than the investment value of the SMEs’ IT investment, given that certain forms of e-business would bemore appropriate for certain firms, depending upon their strategic orientation. Forinstance, SMEs that would have the most interest in implementing a web site of atransactional nature (e-commerce) would be of the defender type, given the positiveimpact this would have on their financial performance, whereas prospectors wouldbenefit more from a web-based business intelligence system (e-intelligence) withregard to their productivity. Imitation would thus be a valid e-business strategy only tothe extent that the firm shares the same type of business strategy with the competitoror competitors it is trying to imitate.
Having examined the rather complex relationship between the strategic alignment of e-business and organisational performance, we have confirmed the existence ofcertain associations, a number of which depend upon the business strategy. Forinstance, a positive association between alignment and growth was observed fordefenders and analyzers but not for prospectors. In a similar way, a positiveassociation between alignment and productivity was found only for prospectors. Thisimplies that strategic alignment cannot in turn be prescribed in universal fashion.
However, these results are take on added validity and transferability in that they takeinto account the contextual diversity of the SMEs’ e-business activities, be it in terms ofthe size and age of these firms that conditions their resources and competencies, the power of customers that is imposed upon their business processes, and the institutional forces present in the industry in which they operate.
There is another relevant implication with regard to the assimilation of e-business in manufacturing SMEs. For owner-managers of such firms that require greater strategy of SMEsmanufacturing flexibility, increased systems integration, products and services ofbetter quality, and higher levels of product and process innovation, the results of thisstudy allow us to prone an examination of their firm’s level of e-business assimilation, this being done in conjunction with their strategic intent. Identifying the extent towhich various forms of e-business have been developed and assimilated is essential todetermine if these are aligned with the firm’s strategic objectives and competitiveenvironment. For example, this would help in answering a question that is now posedto a number of manufacturing SMEs under pressure from competition that is nowglobal and from large prime contractors in particular, that is, if they must participate ine-markets and in what form (Brown and Lockett, 2004).
6. LimitationsThis study has certain limitations that must be mentioned. The enterprises sampledmay not be fully representative of Canadian manufacturing SMEs with regard to sizeand industry. Given that these are firms that have chosen to undertake anorganisational diagnostic exercise, there might be a sample bias in that the sampledSMEs may differ from the general population in terms of their strategic orientation,their e-business profile and their performance (Cassell et al., 2001). Other than the natureof the sample, a limitation associated to the survey method lies in the use of perceptualmeasures that demand prudence in generalising results. Relying on the perceptions ofone key informant, the CEO, for the self-typing of the firm’s IT-strategy alignment mayalso imply cognitive biases; however, previous empirical studies have demonstratedthis type of measurement to be valid. The cross-sectional rather than longitudinalnature of the study implies that causality cannot be inferred, and that the results do notnecessarily reflect the nature of alignment as a process as well as the changes that canoccur in the SMEs’ strategy, given their level of development or their competitiveenvironment. Finally, while it has been used in this research to describe the strategicbehaviour of SMEs with clarity and parsimony, Miles and Snow’s typology inevitablysimplifies reality to the extent that firm may adopt hybrid strategies that combinecertain characteristics of defenders, analyzers and prospectors (DeSarbo et al., 2005).
7. ConclusionIt is recognised that SMEs must be flexible and readily adaptable to change, be itcompetitive, strategic, operational or technological in nature. In a businessenvironment that has become more complex, a number of these enterprises havealready possess e-business capabilties in the form of e-intelligence, e-commerce ande-collaboration in order to improve their competitive position. In the continuation of thepresent research results, one should not however propose such practices to SMEs asbeing “the best”, to be adopted by all firms whatever their strategic orientation, butrather in a contingency perspective. As demonstrated, investments in e-business aloneare not sufficient to improve business performance, especially if they are not coherentwith the environment and strategic objectives of SMEs. To this end, these enterprisesmust improve their technology management capability, and thus they must receive added support from researchers and knowledge transfer agents. For purposes of comparison and extension of these findings, further research on the strategic alignment of e-business in SMEs must be pursued, using other strategic typologies than that ofMiles and Snow, such as Porter’s (1980) generic competitive strategies, and examiningother manifestations of e-business such as the business models that result fromdeveloping e-business capabilities.
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Corresponding authorLouis Raymond can be contacted at: [email protected] To purchase reprints of this article please e-mail: [email protected] visit our web site for further details: www.emeraldinsight.com/reprints

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