For small businesses, forming partnerships are likely to be beneficial for survival and growth in the networked economy. Integration of IT systems is one way to cement such partnerships.
With any talk of integration, most business owners would either respond that they are too small, or don't have the time, resources or know-how for integration.
They think that integration is only meant for mergers and acquisitions, where a business has to integrate completely with another.
Increasingly, as businesses devote their scarce resources to doing what they do best, they need to rely on their partners, such as suppliers, customers and other businesses offering complementary business.
It will allow businesses to compete successfully in the global market and networked economy with lower operating costs, increased profits and customer satisfaction.
In fact, the smaller the business is, the more likely the partnerships are beneficial to continued business growth, and most of these partnerships can be cemented via infocomm integration.
Such integration generally falls into two broad categories - vertical integration and horizontal integration.
With vertical integration, businesses integrate their infocomm systems with those of their customers or suppliers to improve their competitive advantage.
When businesses integrate with their suppliers, they save time on sourcing. With a strong relationship with their suppliers, businesses may be able to enjoy bulk discounts.
At the same time, businesses and their suppliers can work out an arrangement where more inventory is delivered only when stock levels fall below required levels.
This allows businesses to reduce the amount of inventory they have to hold, thereby reducing carrying costs.
When businesses integrate with their customers, the advantages are obvious. By capturing customer information acquired from sales, marketing, customer service and support, businesses will be able to improve the interactions and engagement with their customers.
One company that has successfully empowered its sales representatives through vertical integration with customers is Seng Hua Hng Foodstuff Pte Ltd (SHH).
SHH is in the business of processing and distributing snack products. Instead of carrying loads of call cards, their sales representatives are now equipped with a small hand-held device packed with sales history and real-time inventory information.
'Previously, because it was difficult to track customers' purchase history, there was a tendency to miss recurring items and thus lose sales. Now our sales reps can avoid this because every customer's purchase history is placed right in his hands,' said SHH executive director Poh Siew Hua.
The ultimate aim of such integration is to assist in building lasting customer relationships - to turn customer satisfaction into customer loyalty and bringing higher profits to the businesses.
Horizontal integration is the modern-day version of business alliances. Smaller businesses are the bigger beneficiaries of such integration.
While smaller businesses often focus on what they excel in, customers, however, increasingly want the full service.
Take the case of small bus operators. They often find themselves squeezed by larger tour operators who provide sub-contracting bus tour services. Customers are not likely to book just the bus or the coach they require.
These small bus operators can, therefore, benefit from forming alliances with other niche tour service operators, such as tour guides, ticketing agents and boutique hotels.
Together, they can present the various services they provide via a travel portal. Customers can then book all the services they need through the portal.
The small bus operators can now offer their services directly to the customers without being at the mercy of the larger tour operators.
With horizontal integration, small businesses with complementary services can collaborate and increase their market power by offering more complete offerings to end consumers.
Small businesses can also enjoy economies of scale by banding together for their infocomm needs. For instance, the above-mentioned bus and tour service operators would only need one provider to put up the unified system to offer all their complementary services from a single portal.
Businesses would certainly do well by considering what their long-term strategy is and who they intend to partner before embarking on any integration projects. This trend also heralds good news for the customers. They can expect better service as businesses innovate towards enhancing the customer experience.
The Technology Innovation Programme (TIP) supports SMEs in infocomm innovation projects and helps to defray up to 50 per cent of the qualifying costs. TIP can also defray up to 70 per cent of the qualifying costs for industrywide projects. Find out more about IDA's programmes for SMEs at www.ida.gov.sg/sme or e-mail: ida_sme@ida.gov.sg.
- This article first appeared in The Business Times on 5 August 2008 and information is correct at the time of publication.
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