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How does your Web culture stack up against that of your competitors? A new study looks at companies wrestling with e-commerce.

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E-culture survey

How the Internet is transforming and tweaking and fulfilling and failing and motivating and muddling companies just like yours

Growth-company leaders grappling with the Web are badly in need of perspective. Are their strategies sound enough, they often wonder, and their organizations fit enough to compete with other businesses on an increasingly digital terrain? "It's not just about doing business faster and cheaper," says one young CEO. "I'm sure I'm not alone in wishing I could get above the trees to speculate about the dramatic cultural and interpersonal changes brought about by the Internet."

To help companies orient themselves in the Web's competitive landscape, my team of researchers at Harvard Business School spent much of the past year surveying top executives about the Internet's impact on their businesses. We received and analyzed responses from 785 organizations ranging from small and emerging companies -- many of them on the Inc. 500 list and in the Young Entrepreneurs' Organization -- to global corporations belonging to the World Economic Forum. Our results suggest that while frustrations persist, the Internet is starting to live up to its billing. And though large organizations are, in general, more adept at wringing value from the Web's multifaceted capabilities, a growing number of small companies run with the Internet bulls.

First, the good news: our survey found that small and emerging businesses are as likely as large ones to love the Web. Small businesses handily beat the giants in creating virtual offices, which should allow them to grow without sacrificing flexibility and speed. Small businesses also outpace or match large companies in applying the Internet to some internal operations, such as training and harvesting employee feedback. And while E-business has proved more of an obstacle course than a smooth path to the finish line, many small-company respondents claim that the Web helps them compete with more formidable rivals and find customers outside their established markets.

The not-so-good news: small companies still lag behind large ones in using the Web to build their businesses and are less likely to deem it a competitive necessity. Restrained by the unpreparedness or intransigence of customers and suppliers, many small businesses have trouble finding the right partners in this we-are-the-networked-world. Companies founded before the advent of the Web -- even growth companies in high-tech fields -- face internal resistance to change. Still, only 4% of our respondents dismiss the Web outright as a waste of time and money. And many of the dissenters cite barriers specific to their industries, such as the importance of face-to-face relationships for big-ticket or "emotional" purchases.

The bottom line: actions matter. Companies that have been faster to the Web than their competitors are also more likely to report Web-related increases in revenues, profits, and market share. Many of those businesses have also modified or rebuilt their organizations to incorporate Internet technology and its attributes -- openness, collaborativeness, and flexibility -- into internal work processes and, by extension, into their relationships with partners and suppliers. This is what I call "E-culture."

Let them count the ways
One measure of companies' embrace of E-culture is the number of tasks they assign to the Web. We asked respondents about 11 possible uses of the Web, ranging from sales and purchasing to internal and external communication. At least 32% of small companies (those having fewer than 100 employees) report using the Web for each application. The top uses are selling to traditional customers (cited by 45% of respondents); allowing employees to telecommute (44%); and getting news and information (43%). Wrote one enthusiast: "I would have liked to mark a category of 'duh.' Why would we not use the Internet to do these things?"

In general, small companies are more internally focused than their bigger brethren in their Web use. Small businesses are slightly more likely to use the Internet to communicate with employees than with customers and suppliers. But a few truly virtual organizations rely on the Web for almost everything they do both inside and outside their sometimes nonexistent walls. "We're totally virtual, run out of my house," reports the CEO of a small Canadian company. "The VP of sales works from his house. We produce in Taiwan, fulfill from San Francisco, and ship around the world. The Internet facilitates the communication. We will do $2 million this year and $8 million to $10 million next year and should be able to remain virtual."

Compared with large companies, however, small companies are taking less advantage of the Web's outreach. Surprisingly, only 39% of the small companies responding to our survey use the Web for advertising their products or services. By contrast, more than half of large companies say they exploit the Web's billboard capabilities. Similarly, half of large companies are recruiting customers through the Web, compared with 41% of small businesses. Nonetheless, some growing companies evince flashes of inspiration in their approach to new markets. "Our unit took a product, hardtack crackers, that our parent company has sold for over 200 years," says one manager of a midsize company. "We capitalized on the market of Civil War reenactors by going online, and within three months increased our sales by 250% over the prior two years combined." Others are mining rich new veins -- not of customers but of employees. "The Web has greatly improved our ability to recruit from all over the world," reports the CEO of an advertising and graphic-design firm in California.

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