1. PART A - Introduction Tidd and Bessant (2009) state that innovation is the process of turning opportunity into new ideas and putting these into practice. In respect of incorporating new ideas into business processes the systems approach is a key principle underpinning all BPI methodologies. Deming (2000) identifies a system as a network of interdependent components that work together to try to accomplish the aim of the system. The impetus for BPI initiatives typically come from competitive pressures, firms must improve performance by decreasing costs while increasing quality (Khan et al 2007) while at the same time developing the core competences (Prahalad 1990) and unique resources ( Barney 1991) of the firm that will yield sustainable competitive advantage. The role of knowledge is seen as the key resource of the firm in achieving this objective (ibid Deming 2000). The selection of Lean, Six Sigma and BPM for examination in this paper was based on the following reasons: 1. Their degree of current usage in industry and the proportion with which they comprise the approaches of practitioners of modern BPI methodologies. 2. The availability of sufficient relevant academic research to enable a well informed critique. 1
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1. PART A - Introduction
Tidd and Bessant (2009) state that innovation is the process of turning opportunity into new
ideas and putting these into practice. In respect of incorporating new ideas into business
processes the systems approach is a key principle underpinning all BPI methodologies.
Deming (2000) identifies a system as a network of interdependent components that work
together to try to accomplish the aim of the system. The impetus for BPI initiatives typically
come from competitive pressures, firms must improve performance by decreasing costs while
increasing quality (Khan et al 2007) while at the same time developing the core competences
(Prahalad 1990) and unique resources ( Barney 1991) of the firm that will yield sustainable
competitive advantage. The role of knowledge is seen as the key resource of the firm in
achieving this objective (ibid Deming 2000).
The selection of Lean, Six Sigma and BPM for examination in this paper was based on the
following reasons:
1. Their degree of current usage in industry and the proportion with which they comprise
the approaches of practitioners of modern BPI methodologies.
2. The availability of sufficient relevant academic research to enable a well informed
critique.
2. The Lean approach to business process innovationLean strives to make organisations more competitive in the market by increasing efficiency
and decreasing costs incurred. This is achieved through the elimination of non value-adding
steps/activities from the business processes (Naslund 2008). Cycle times are reduced by
increasing the velocity of the process by reducing waste (overproduction, waiting,
transportation, inappropriate processing, inventory-WIP, unnecessary motions, defects) in all
its forms (George 2003) thereby preserving value (producing an acceptable standard of
products and services at the lowest cost and as fast as possible (Antony 2011) ) with less
work. It requires that all members of the organisation change their long standing work
practices and ideas as it is more a way of life leading to a total change in culture.
For more information on Lean principles and common Lean tools please see Appendix 1.
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2.1 Lean implementation within SMEs
Achanga et al.(2006), in a study of ten SMEs based in the East of the UK, finds that the
critical success factors are in order of importance leadership, finance, organisational culture
and expertise. Stuart and Boyle (2007), in a study of 18 Canadian SMEs, found that early
implementation and a high intensity of effort are critical to success. The use of Lean
techniques alone does not in itself constitute being a Lean organisation and this study found
that few participants implement true Lean thinking. In many cases participants continued to
examine Lean improvement initiatives against some form of standard payback or Return on
Investment (ROI) method using benefits analysis that was highly restrictive. In the SMEs
studied by Stuart and Boyle (ibid 2007) the prevailing accounting system and existing project
approval process was an impediment to advancing Lean implementation. Antony (2011) finds
that the main difficulties companies (based on collate opinions from a number of leading
academics and practitioners from five different countries) experience in trying to implement
Lean are a lack of direction, a lack of planning and a lack of adequate project sequencing.
2.2 Critical evaluation of Lean
Positive evidence for Lean: Bhasin and Burcher (2006), based on an extensive literature
review, claim that implementing lean can reduce waste by 40 per cent in successful
implementations. However issues specific to the Lean approach to BPI can be grouped under
the following headings.
Ease of application: Continued scepticism within SMEs about the benefits of lean to their
business is one of the fundamental limitations that Lean implementation faces (Achanga et al
2006). To achieve Lean objectives it is common to include a combination of techniques
however there is no agreed methodology or agreed framework for all the tools leading to
confusion and uneven outcomes. This leads on to the observation that in many cases Lean
implementations have failed to deliver effective bottom line results due poor implementation
by consultants who themselves are badly trained in the principles of Lean (ibid Antony
2011). Bhasin and Burcher (ibid 2006) found that the Lean philosophy was correctly
implemented in only 10% of projects. Antony (ibid 2011) also notes loss of momentum at the
critical early stages as normally companies start with a value stream mapping (VSM)
programme and spend endless time in developing rigorous VSMs without progressing
to Future Stream maps.
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Practicality of Objectives: Lean in its truest sense may lead to a pointless pursuit of
perfection. According to Womack et al (1990 Page: 13) “Lean producers, on the other hand,
set their sights explicitly on perfection: continually declining costs, zero defects, zero
inventories, and endless product variety.”
Bhasin and Burcher (2006) state that the Lean implementation record suffers due a the
multiplicity of tools and the fact that Lean is a philosophy (with significant implications for
company culture) rather than a strategy.
Basis for project selection: In the case of many Lean projects, while the reason given is
customer expectations, in many cases the major driver in project selection in reality is “cost
down”. When cost becomes the major driver it is possible to forget the fundamental business
strategic objectives. According to Bendell (2006) such a narrow focus on the traditional
toolkit and approach to implementation means that major improvement opportunities may be
missed.
3. The Six Sigma approach to business process innovation
According to Naslund (2008) the purpose of Six Sigma is to reduce cost caused by defects by
reducing the variability in processes which in turn leads to decreased defects (with the
statistical measure “six sigma” being the goal, which equates to 3.4 defects per million
process opportunities). This is achieved by focusing on the process outputs which are critical
in the eyes of customers (Antony 2011). The Six Sigma’s DMAIC (define, measure,
analyse ,improve, and control) project methodology is particularly effective for
manufacturing (Bendell 2006). McAdam and Hazlett (2010) state that some writers claim that
Six Sigma has started to develop beyond that of a technology based statistical process
approach towards that of a broader change management philosophy and approach over the
past ten years. According to Porter (2002) in all successful Six Sigma implementations
committed leadership is the top priority followed by strategic alignment (with the strategic
objectives of the organisation), development of a cadre of change leaders (who are held
accountable within the organisation and continuous reinforcement.
Basic principles and concepts of Six Sigma along with a list of common Six Sigma Tools
may be found in Appendix 2.
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3.1 Six Sigma Implementation within SMEs
Kumar and Antony (2008), in a survey of 500 SMEs, finds that the essential prerequisites to a
Six Sigma implementation are availability of resources and commitment from the top
management to invest in the required resources for successful implementation, the critical
success factors were found to be in order of importance management involvement and
commitment, communication, linkage of quality improvement to employees, cultural change
and education and training. Continuous improvement programs like Six Sigma do not appear
to be easily understood or interpreted by SMEs, which may be a significant contributor to its
low implementation. According to Kumar and Antony (2008) there is very little evidence of
success of Six Sigma in SMEs context. The requirement of Six Sigma to document standards
of operation in quality systems such as ISO 9000 preclude many SMEs due to the costs and
relevance of ISO 9000 to the average SME (Porter 2002).
3.2 Critical evaluation of Six Sigma
Positive evidence for Six Sigma: According to Moosa and Sajid (2010) Six Sigma is a
positive approach to make breakthrough improvement by involving managers at all levels in
any organisation. In their critical analysis of published case studies they found that Six Sigma
can make considerable reductions in defect rates however the degree of success depends on
the complexity of the product (e.g. shoes versus automobiles). Shah et al (2008) found, in a
study of 2511 subscribers to industrial magazine (Industry Week, targeted at executives and
managers of US manufacturing firms), the group of plants implementing Six Sigma had a
higher manufacturing quality performance than non-implementers. Issues specific to the Six
Sigma approach can be grouped under the following headings.
Ease of application: Six Sigma may be criticised for a potential tendency towards
complexity of technique and analysis (Bendell 2006). Costs of implementing Six Sigma
projects can be high with black belt training for 20 days amounting to £6600 + VAT (PMI
2011).
Practicality of Objectives: In Six Sigma projects objectives can lack consideration of human
factors and fail to have a clear linkage to the strategic objectives (ibid Moosa and Sajid
2010).
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Basis for project selection: According to Bendell and Marra (2002) while GE, one of the
main proponents of Six Sigma, identifies customer satisfaction as the prime driver for project
selection, the authors found in talking to Black Belts that are implementing projects that there
is excessive focus in projects on “costs down”. It is also noted that Six Sigma also only works
in certain environments and certain industries.
4. The Business Process Management (BPM) approach to business
process innovation
BPM is a general methodology that supports the design, management, and improvement of
business processes, closely supported by information technology, in order to raise the
productivity of a company and enable it to maintain a competitive edge. According to Smith
and Fingar (2003, p73) BPM is “the convergence of management theory ... with modern
technologies”. BPM (which evolved from BP Re-engineering) represents a goal-oriented
management of business processes towards the achievement of strategic and operative
objectives of a company (Houy et al 2010).
BPM has evolved towards techniques that are incremental, evolutionary and continuous in
nature (such as TQM) emphasising continuous improvement, customer satisfaction, and
employee involvement thereby reducing its focus on radical, revolutionary total process re-
engineering (Rozenfeld et al 2009).
Basic principles and concepts of BPM along with a list of common BPM Tools may be found
in Appendix 3.
4.1 BPM implementation within SMEs
To date BPM initiatives have been concentrated in large, well funded organisations. In the
SME population BPM initiatives have occurred predominantly in technology hardware or
manufacturing organisations (Khan et al 2007). Companies implementing a BPM project
should bear in mind that BPM-system implementation is not mainly an IT-project, but should
preferably be initiated by top management. Ravesteyn and Batenburg (ibid 2010) found, in a
survey conducted among 39 Dutch consultants, developers and end-users of BPM-systems,
that communication, involvement of stakeholders and governance are the most important
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factors to BPM project success in all company types. According to Chong (2007) the major
factors inhibiting implementation of BPM initiatives in SMEs in the Australian wine industry
are the lack of financial resources, time, and knowledge of BPM.
4.2 Critical Evaluation of BPM
Positive evidence for BPM: Schiff (2003), in an analysis of a number of case studies, finds
that BPM initiatives can generate high payback and return on investment depending on which
part of the organisation it is implement in. Issues specific to the BPM approach can be
grouped under the following headings.
4.2.1 Ease of application: This depends on the degree of BPM being considered, from to
reengineering an entire plant. Serious problems can arise with the inability to translate
business models into information (workflow) models precisely and without ambiguity
(Bosilj-Vuksic 2006). According to Ravesteyn and Batenburg (2010) when implementing
BPM projects aligning third party software tools to the organisation’s strategy, and reusing
existing information systems and applications, can lead to significant difficulties and costs.
4.2.2 Practicality of Objectives: Schiff (2007) states that there is often a discrepancy
between the objectives of company strategy and of measured activity. In his work he finds
that in some companies a performance KPI dashboard takes the financial ratios and statistics
found on old reports and places them on the dashboard. However this does not deliver on the
true objectives of any BPM project, to truly achieve the full benefits of BPM senior
management must review and update the corporate strategy and define key financial and
operational indicators that measure progress on the path to achieving their strategic
objectives.
4.2.3 Basis for project selection: In common with other BPI approaches most BPM projects
are focussed on cost reduction in practice. According to Ravesteyn and Batenburg (ibid 2010)
there is an over focus in project selection on IT, most IT vendors and resellers seem to
neglect the specific implementation aspects of BPM-systems as they tend to use existing
software development methodologies and project management principles during BPM-
implementations. Hence, the implementation of a BPM-system is mainly regarded as a
standard software development project. Hedge (2005) states that many BPM projects fail in
the early stages due to faulty project selection and “automating a bad process just makes a
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bad process faster”. Hedge (ibid 2005) also highlights the influence of power groups within
the organisation in manipulating project selection via framing (thereby undermining the true
impact of the project and the potential implications for those power groups).
5. Compare and contrast the three approaches
It was felt that a table served best as a means of contrasting the three approaches, please see
below. A detailed comparison on the basis of Novelty, Numbers Bias, Implications for
Innovative Capability and Absorptive Capacity, Common Success Factors, the Role of
People and Questionable Assumptions of the three approaches is contained in Appendix 4.
Table 1: Comparison of the three approaches to BPI
Business strategy Operational efficiency Quality control
Approach and
knowledge
management
(KM)
Potential to
improve KM
however has the
potential to
undermine
absorptive capacity
Potential to improve
KM however has the
potential to undermine
absorptive capacity
depending on the
degree of success of
Potential to improve
KM in respect of
process however has the
potential to undermine
absorptive capacity
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depending on the
nature of the
project
implementation of the
philosophy
Approach Continuous Process
Improvement with
culture change
Continuous Process
Improvement with
culture change
Six Sigma uses a
“divide and conquer”
approach
Time period in
which
techniques
became public
Nordsieck 1934 in
the book
“Foundations of
Organisation
Theory”
commenced the
thinking on
business processes
on which BPM is
based.
The term Lean as
applied to business
processes first appeared
in the book “The
Machine that Changed
the World” (Womack et
al., 2007) which
outlined the group of
techniques pioneered
by Toyota.
Publication of
information by
Motorola in 1987
Applicable to Can be applied to
individual
processes or an
entire
organisation’s
systems.
An entire system
including suppliers
Key elements of a
process where variation
has been observed.
Degree of change
management
required
High High High
Appropriateness
to typical small
businesses
Moderate Low Low
Implementation
horizon
Can be
implemented in a
modular manner
Is a long term
companywide
commitment
Is a long term approach
Contribution to
an innovation
Moderate when
implemented with
High when culture
aspects are correctly
Low, are data driven
methods focussed
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culture knowledge
management
processes.
implemented and
projects do not lead to
excessive downsizing.
predominantly on
solving process
problems.
6. BPI and Change Management
All BPI initiatives involve change and change can be a cause of stress to staff. Deming (ibid
2000) draws attention to the key psychological aspects necessary to the success of BPI
initiatives. Change Management is the process whereby the transition from the old
position/process to the new is effected in a structured manner. Any discussion of BPI needs to
address Change Management due to the impact that human factors have on the success or
failure of such initiatives. Kotter (1990) identifies that the reasons improvement initiatives
fail include complexity, lack of clear vision, lack of communication, lack of planning and
failure to anchor changes in corporate culture. His book “Leading Change” (1995) identifies
eight steps for leading change which are identified in Appendix 5.
7. BPI and Key Performance Indicators
Key Performance Indicators (or KPIs) play a key role in BPI as they are often selected as the
benchmark measures against which company performance is assessed post BPI project
completion. Schiff (2007) states that KPIs should define key financial and operational
indicators that measure progress on the path to achieving the firm’s strategic objectives. The
objective is to identify the key business objectives and then pick the KPIs to measure
progress against those objectives. Common problems with establishing useful KPIs are
identified in Appendix 6.
8. Knowledge Management and its role in Business Process Innovation
Knowledge is the combination of data and information to which is added expert opinion,
skills and experience. A firm’s knowledge, inter alia, resides in its business processes,
business rules and employees and may be both tacit and explicit. Nonaka and Umemoto
(1996) focuses on knowledge conversion mechanisms, between tacit and explicit knowledge,
that help build a learning organisation while a firm’s “ability to recognize the value of new
information, assimilate it, and apply it to commercial ends” (Cohen and Levinthal 1990)
underpins the absorptive capacity model of how a firm embeds the dynamic capability
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relating to knowledge creation and utilisation that enhances a firm's ability to gain and sustain
a competitive advantage.
Zahra and George (2002) the Absorptive Capacity model whereby a series of indicators can
be use to evaluate each element of absorptive capacity comprising acquisition (ability to
identify and acquire externally generated knowledge critical to its operation), assimilation
(the firm's routines and processes that allow it to analyse, process, interpret, and understand
that information), transformation (ability to develop and refine the routines that facilitate the
combination of existing knowledge and the newly acquired and assimilated knowledge) and
exploitation (the routines that allow firms to refine, extend, and leverage existing
competencies or to create new competencies by incorporating acquired and transformed
knowledge into its operations).
Moffett and McAdam (2006) developed a prescriptive, conceptual model of KM which
outlines five factors that influence the adoption of KM, namely the MeCTIP model (Me
Macro Environment, C Culture, T Technology, I Information, P People). It was found in a
survey of approximately 90 companies in the engineering, hi-tech and financial services
industries that human intervention is an all-pervasive and essential element of KM, irrelevant
of organisation size(ibid 2006).
In terms of the relationship between BPI and KM all process management systems include
the decision-making tools, techniques, and infrastructure for “design, control, improvement,
and redesign of processes” (Silver, 2004, p. 274). All processes are underpinned by
organisational routines which play a key role in encoding organisational knowledge; this in
turn contributes to the knowledge creation process. The intentional improvement to business
processes creates new organisational knowledge which must be captured (Linderman 2010).
However according to Bosilj-Vuksic (2006) an approach that explicitly integrates knowledge
management activities into the business process environment is still missing. The continued
development of BPI and KM software tools should enable the transformation of the integral
business processes model into the knowledge repository.
Therefore in conclusion of Part A of this paper it is clear that evidence for the degree of
success and appropriateness of each BPI approach remains divided. It is also clear that KM
and change management are key to the success of any BPI initiative. The paper will now
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move to examining the application of one of the BPI approaches, the BPM approach, to
Novara Technology Limited. When it came to choice of BPI approach at Novara both Six
Sigma and Lean were felt to be excessively manufacturing orientated and not suitable for the
specific requirements of the firm.
9. PART B - Introduction to Novara Technology Limited
Novara Technology Limited was a provider of web hosting and data centre services to excess
of 10,000 clients (including organisations such as Jurys Doyle, the Department of Justice,
98FM, EBS Building Society, the Department of Agriculture and London Stock Exchange
listed Eco Securities). Surveys carried out by the company found high levels of customer
satisfaction. In 2005 Novara acquired the business of Tornado Hosting in order to
complement their data centre services offering.
Novara was majority owned by Eoin Costello. External investors included Dublin Business
Innovation Centre, Dublin City Enterprise Board and Bank of Ireland. One of Ireland’s
largest ISP’s (Digiweb) acquired Novara in 2008. At the time of sale Novara had grown to
second largest hosting company in Ireland (overtaking Eircom in the process), had fifteen
staff, was highly profitable with zero debt and had one of the best staff to sales ratios in the
industry thanks to Novara’s considerable investment in in-house developed automation
software.
Novara was a scale intensive firm (Tidd and Bessant 2009) in a volume driven sector
exhibiting positive returns to scale, technological accumulation was generated by the design,
building and operation of the process systems(a combination of humans and software
applications) underpinning the services offered. The majority of products sold were services
due to their virtual nature (domain name registration, hosting accounts). The company
operated in a highly competitive market where an approximation of perfect competition
existed. Therefore the capability to successfully innovate was critical to survival.
10. The Objectives of PART BIn Part B of this paper it is proposed to examine how the BPM and KM initiatives undertaken
over the eight years of the firm’s lifetime contributed to the evolution of the company as an
innovative organisation that generated a sustainable competitive advantage. The objective is
13
to assess whether the experience of the firm fits with the models outlined by Tidd and
Bessant (outlined in 10.1 below) and Churchill and Lewis (outlined in 10.4). Further
objectives include seeking if Novara’s experience conforms to the findings of McAdam et al.
(2000) whereby SMEs which had adopted a culture of Continuous Improvement found that
this could provide a solid foundation on which to build a culture of effective business
innovation.
In order to carry out the analysis of the role that BPM and KM played in the evolution of
Novara it will be necessary to make use of the following models:
10.1 Stage of Innovative Capacity: The methodology proposed by Tidd and Bessant (2009)
will be used to denote which stage of the development of the firm’s innovate capacity had
been achieved. Novara was not in the situation of Type 1 Firms (“Don’t know what or how to
change”) and therefore commenced in the Type 2 firm quadrant.
10.2 Key drivers for change: Kumar and Antony (2008) find that firms, in deciding their
strategic objectives, see profitability, quality, and cost as the main criteria. For each stage the
dominant driver will be identified.
10.3 Change Management Methods: During the lifetime of the company the techniques
which were used to effect change management included mechanistic methods (routines and
rule based systems introduced focussed on key objectives) and soft methods (face to face
staff meetings and the like). For each stage of the firm’s progress the framework provided by
Kotter (please see section 6) will be utilised.
10.4 Firm lifecycle stage: In order to put the stages of evolution that BPM and KM
facilitated in context, the Churchill and Lewis (1983) lifecycle stage model will be
referenced. Due to the fact that Novara commenced operations with the customer base of a
prior business Stage 1 (Existence) was bypassed.
10.5 The role of Critical Incidents: McAdam and Mitchell (2010) found, in a longitudinal
study of 13 SMEs, that critical incidents can act (dependent upon the firm’s lifecycle stage)
as catalysts for developing more radical innovation. Therefore critical incidents within each
life cycle stage will be identified and their contribution to the creation of an innovation
culture identified.
10.6 Sophistication of Absorptive Capacity: The Zahra and George Absorptive Capacity
Framework outlined in section 8 will be used to indicate the degree of innovative absorptive
capacity the firm embodied at each stage.
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10.7 Installation of Knowledge Management: According to Tidd and Bessant (2007)
managing knowledge involves 5 critical tasks. The progress towards completion of each of
these tasks will also be tracked. The typologies used in Nonaka’s model of Knowledge
Creation and Transformation will be used in respect of the knowledge activities that
accompany each stage in order to identify the activities involved in managing the knowledge
of the firm.
THE FOLLOWING SECTIONS REMOVED FOR COMMERCIAL REASONS
14. Conclusion
While there is increasing evidence that BPI projects can be successfully implemented in
SMEs outside the manufacturing sector, all approaches to BPI implementation in SMEs
continue to suffer from criticism and divided opinion. McAdam and McClelland (2002)
found that, in respect of innovative practices, efforts to apply these at SMEs have suffered
from applying large organisational process innovation methodologies in an SME context
without sufficient modification or questioning of the underlying assumptions. This is also
found to be the case in respect of BPI initiatives (Antony 2011). Meanwhile some argue that
Six Sigma and Lean are “Scientific Management in disguise” or repackaged versions of
previously popular methods such as total quality management and just-in-time (Naslund
2008) while BPM is claimed to be a sanitised version of BPRe-engineering.
For SMEs the selection of BPI approach should primarily depend upon the issues that the
organisation is facing and its nature, as well as being influenced by the organisation’s and
individual’s aspirations and perceptions (Bendell 2006).
In general terms implementation of BPI initiatives in the service industry have lagged that of
manufacturing. In manufacturing the ability to physically see and trace the flow of work,
manufacturing processes renders it more amenable to re-organisation whereas people are the
dominant component of processes in service business and as such require far more resources
in terms of change management and training. Also in services, work is often largely invisible
(George 2003). In services many processes evolve organically with no initial plan and
become unnecessarily complex over time.
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Part B of this paper has found that the frameworks offered by Tidd and Bessant (2009) and
Churchill and Lewis (1983) offer an accurate and realistic structure in the case of the
lifecycle of Novara Technology and they may act as a guide to the evolution of a BPM
regime leading to the creation of an innovative organisation. The finding by McAdam et al.
(2000) was also borne out by the experience of Novara, once the firm had moved to a culture
supporting Continuous Improvement the managing director found that this facilitated the
building of a culture capable of generating increasingly radical business innovation.
Furthermore the BPM initiatives at Novara were key to the firm maintaining its competitive
advantage in a very competitive industry. When Novara commenced it was in eight position
and charging the same price as the number two in the market (Irish Domains) for key
services. Over the period of the intervening years both companies continued to match each
other’s prices however Irish Domains fell to 6th while Novara rose to 2nd position in the
market.
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