SCOTLAND'S BUSINESSES are failing to keep pace with the web 2.0 phenomenon. Despite a welter of global excitement generated by the new generation of interactive web applications such as social networking and user-generated content, the failure of small and medium-sized companies to embrace such advances has awoken concern among the sector's major players.

Calling upon Scotland's commercial sector to bridge a fast-widening productivity gap, Cisco's top technologist has warned that unless SMEs keep up with the pace of change, they risk placing themselves at a serious disadvantage.

"There is a revolution going on that Scottish businesses, particularly SMEs, are missing out on. It is something that could be used to enhance the productivity and profitability of every company, but across every sector companies seem to have been reluctant to take advantage of the situation," said Richard Moir, Cisco Scotland's chief technology officer.

"There is a vast array of web 2.0 applications out there that anyone with limited technical expertise could use to improve any number of business processes from marketing to research to company administration. Yet while an increasing number of people spend their leisure time using the same technologies at home, we are not carrying that knowledge over into the workplace."

The recent news that social-networking site Bebo has now overtaken Google as the UK's most visited web destination underlines how the way people use the internet is rapidly evolving. Lightweight online applications that allow users to communicate and collaborate on the fly have proliferated, and a raft of companies using these tools to streamline and expand their operations have emerged over the past two years.

A recent Cisco survey found that 32% of Scottish organisations believe they are being held back by an inability to respond to change, considerably more than the 20% figure reported in England and Wales. Underlining a worrying trend, the study found that while only 5% of firms south of the Border were technically incapable of supporting advances like teleworking, in Scotland that figure rose to 11%.

Despite the global excitement generated by web 2.0, the research reveals that Caledonia isn't keeping pace. Some 57% of the decision makers surveyed said that economic life had become less personal as a result of technology, with 75% listing personal recommendations as the top reason to do business with a company, yet only 27% are now using the internet to network with potential partners and customers.

Smaller businesses are missing a trick. The internet is no stranger to hype and industry commentators understand why many might view the current focus on such tools with some scepticism, but most agree that the second generation of web applications holds tremendous potential.

"There has been a lot of hype about social networking, but the fact is that if you get it right it works. Using blogs, podcasts and sites like Facebook can improve your business's profile and deliver revenue, but it's not just about sales and marketing. It's another example of the way the web changes our ability to deliver goods and services," said Richard Mahony, senior analyst at Ovum.

Cisco believes that part of the reluctance to embrace the next generation is spawned by the nature of the knowledge involved. The company points out that, as is often the case in the technology sector, the vast majority of web 2.0 skills and applications have been developed ad-hoc, with self-teaching users acquiring the necessary skills through practice and perseverance. While these abilities might be powering a consumer phenomenon, they lack the certified credibility most businesses seek.

In an attempt to combat the problem, Cisco has joined a host of IT companies such as Sun Microsystems in calling upon Scotland's business community to address its skills gap using existing available services such as Scottish Enterprise's e-Skills Academy. Supported by the universities of Strathclyde and Paisley, the initiative offers a range of low-cost training courses and seminars designed to equip companies with the expertise they need to progress.

Responding to the suggestion that many small businesses are too busy with their core operations to expand time or money on exploring a entirely new field, a spokesman for Scottish Enterprise recognised the difficulties facing many firms when considering the use of new technology. He claimed that the organisation had learned from previous failures and formulated an approach designed to minimise the impact of re-skilling.

"In the past, a valid criticism of such courses has been that they are too focused on the core technology. In light of this we have designed a series of sessions which focus on how these relate to your individual business, irrespective of whether you are a plumber or a financial adviser," said Russell Stevenson, manager for innovation and ICT at Scottish Enterprise.

"The focus now has to be on practicality. We understand the pressures SMEs are under, but can help them come to terms with the new ways of doing business in a manner that complements their existing operation."