Transcript of "ICT, Small Enterprise Strategic Management and Performance: A ..."
ICT, Small Enterprise Strategic Management
and Performance: A Theoretical Model with
Some UK Evidence
SAF Hasnu & Shehla Amjad *
University of Peshawar, Pakistan
Abstract: The paper reviews the ICT adoption models and strategic management in
small enterprises in developed countries. The review shows that developed world
have yielded evidence of a significant effect on performance with ICT and strategic
management. The case studies approach has been used to assess the ICT adoption and
strategic management process in small enterprises. The findings from the case studies
are in line with the argument.
Governments in developed countries have long been trying to promote small and
medium enterprises by initiating specific policies and more recently encouraging the
adoption of Information and Communication Technologies (ICT). The first resolution
on ICT for development was passed on 21st December 2001. In that two conferences
were planned, World Summit on Information Sciences (WSIS) 2003 in Geneva and
the second WSIS in Tunis 2005. The 56th session/258 of General Assembly (dated
31st January 2002) was also devoted to ICT suggesting that ICT is very crucial for
creating a global knowledge-based economy, accelerating growth, raising
competitiveness, promoting sustainable development, eradicating poverty and
facilitating the effective integration of all countries into the global economy. 1
In the United Kingdom, ninety-nine percent of businesses come under the definition
of small enterprises (SBS, 2002b:6). These are at the lower end of cut off point and in
terms of employment and turnover their contribution is very significant. There are
more than 3.7 million small businesses, employing 12.5 million people and 51
percent of private sector turnover.2 The Insolvency Act 2000, No-Nonsense guide to
government rules and regulations for setting up businesses and encouraging
We are grateful to Professor Sam Cameron for useful comments and suggestions on earlier drafts. We
are also grateful to Professor Farhad Analoui for conceptual discussion and encouragement at the initial
stage of the research. Fellowship from the Higher Education Commission, Pakistan is gratefully
businesses to value external advice approaches were effective in reducing cost and
regulations for setting up a business in UK as compared to other OECD countries
(SBS, 2002b). The United Kingdom is trying to work with business support and
education to make sure the country is best place to start and grow business. SMEs
have been considered as the driving force behind job and wealth creation.
This paper reviews the literature concerning the adoption of ICT and strategic
management process in small enterprises. The paper uses the case studies from
Bradford, West Yorkshire, UK, carried out by the authors, to assess the impact of ICT
on small enterprise strategic management and performance. The paper is organized as
follows: Section 2 reviews the e-business adoption models for small enterprises and
section 3 reviews strategic management in small enterprises. Section 4 introduces
data and methodology. In section 5, the model is developed. Some preliminary
findings are reported in section 6 and conclusions are discussed in section 7.
2. e-Business Adoption Models for Small Enterprises:
Taylor and Murphy (2004) pointed out that it is very difficult to asses the
involvement of small enterprises with ICT because the statistics on ICT adoption are
presented in different ways. 3 However, the presentation of data and diversity of small
enterprises did not discourage the following researchers from presenting e-business
adoption models. The ‘Adoption Ladder’ approach begins with the use of e-mail and
progresses through website development to the buying, selling and payment
mechanism of e-commerce, to the supply chain management of e-business and the
new business models using latest technology (Martin & Matlay, 2001). In case of
‘Digital Divide’, the firms must cross two digital divides. The first is achieving basic
ICT skills and technology to operate e-mail and having simple brochure websites.
The other is the threshold to e-business proper and requires advance technology and
IT skills and a wide range of business skills and knowledge in areas as management,
strategy and marketing (Local Futures Group, 2001 cited in Taylor & Murphy, 2004).
The ‘PIT’ model has two elements, for what functions ICT can be used for in the firm
and what activities it can be applied for (Foley & Ram, 2002). Whereas the ‘e-
Business Development Life Cycle’, can be classified into four groups (wait & see,
passive use, active use, and supply chain) that could represent four phases of the e-
business development life cycle (Ravarini et al, 2002).
The firm level evidence based on econometric estimates of the impact of ICT on
performance suggests that there are returns exceed to IT compared with the non-IT
capital. That is the marginal product of IT capital is substantially higher than the
marginal product of non-IT capital. Siegel et al (1992) reported positive and
significant correlation between a manufacturing industries rate of investment in IT
and its productivity growth for all time periods. Lichtenberg (1995) at firm level
found excess return to information system equipment and labour (for similar findings
see Stiroh, 2001 and Jorgenson & Stiroh, 2000). Jorgenson et al (2002) in a
comprehensive analysis of IT capital, computer hardware, and software and
communication equipment found that IT accounted for a much larger fraction of
economic growth in the last six years than in the earlier periods. OECD (2003)
undertook a detailed study of IT impact on productivity and it confirms the findings
and conclusions of many researchers on the importance of IT investment. Some of the
earlier research work found no significant contribution by IT capital. Using industry
level data, Berndt et al (1992) found that IT was uncorrelated with productivity
growth in most industries (see also Morrison, 1997). Whereas Morrison & Siegel
(1997) looked at the possibility that the conventional empirical studies underestimate
returns to ICT because they fail to take account of externalities (R& D, investment in
computers & human capital) that arise from investment in ICT.
Ramsey et al (2004) found that the smaller the enterprises, the less likely they are to
be prepared to adapt their businesses process to accommodate “e” services. On the
other hand there are many studies that suggest that e-commerce and small business
strategic alliance has many advantages like a ready source of technical information,
market expertise, business know how and a more flexible business structure for
tackling with the changing business environment (Overby & Min, 2001; Jarratt, 1998).
3. Strategic Management for Small Enterprises: A Review
Strategic management can be defined as formulating, implementing and evaluating
cross-functional decisions to achieve organizational objectives (David, 1995). It helps
in determining what is required to achieve corporate objectives over three to five
years time periods; examining the organization and the competitive environment; and
reviewing and revising the strategic plan as necessary. The functional organizational
structure of the small enterprise is very simple and the owner/manager has strategic
control over firm’s activities.
In the literature there is consensus that strategic management as a field of enquiry
deals with large businesses (d‘ Amboise & Muldowney, 1988, Berry, 1998, Beal,
2000). Whereas some researchers are of the view that it is inappropriate for SMEs
because they do not have the appropriate resources for such practices and empirically
found no significant relationship between strategic planning and performance of small
enterprises (Cragg & King, 1988, Shrader et al, 1989, Watts & Ormsby, 1990). On
the other hand, some researchers found strategic management in small enterprises
improves the performance (Robinson, 1982; Bracker et al, 1988; Smith, 1998). When
the businesses grow, strategic management is essential for survival and long-term
success (Stone, 1999, Wolf, 2000).
Reviewing the literature on strategic management in small businesses, two distinct
schools of thought are identifiable. The ‘Rational Model’ considers strategy making
as a formal activity in the firm. It focuses on the link between the external
environment and the organization. Strategic fit is regarded an important goal for the
rational strategist (Wheelen & Hunger, 1998; Analoui & Karami, 2003). The
‘Intuitive learning Model’ focuses on the internal dimension of the organization such
as culture, leadership and human resources policies. It suggests that in a dynamic
environment formal strategic planning is not useful (Mintzberg et al, 1995; McCarthy
& Leavy, 2000). However, the literature specifically related to small business
strategic management is not very rich and the majority of the work comes under the
rational planning model discussed earlier.
In this paper, the conceptual framework for the construction of a theoretical model
is developed based on the review of the relevant literature, insight gained during the
primary data collection and the authors’ experience of research in the field of small
enterprises. The model attempts to explain why ICT is adopted by the small
enterprises and its implications on strategies and performance.
4. Data and Methodology
The size is of vital importance in strategic management studies on small enterprises.
Since the organizational structure and behaviour is very much different in enterprises
up to fifty-employment size as compared to up to two hundred and fifty employment.
In case of medium size enterprises, the firms at the upper threshold are similar/close
to large firms in terms of management structure than small enterprises. In this
research, small enterprise definition of EU has been adopted which is effective in UK
from 1st January 2005 and medium size enterprises have not been included in the
Bradford in the West Yorkshire region was selected as the study area. To analyse as
well as to identify some stylized facts in the small enterprise sector, nine firms in
different sub-sectors selected for analysis as case studies. The interviews for the case
studies were conducted during February-July, 2005, and the respondents were visited
many times to study small enterprises in a less structured, indirect and more
imaginative way (Ramsey, 2004; Matlay & Westhead, 2005). Secondary information
was collected from DTI, SBS, OECD and other published information regarding
small enterprise sector. The analysis of data is mainly concerned with the level of
adoption of ICT, its effect on strategic management and performance.
5. ICT, SE Strategic Management & Performance
The model developed has two main aspects: ICT Environment Analysis and ICT &
Strategic Management process in Small Enterprises:
5.1. ICT Environment Analysis
In literature, the ICT environment analysis consists of General Surroundings; Inter-
Industry; and Internal Environment.
i) General Surrounding
Aggregate like the E-Readiness Index (ERI) prepared by Economic Intelligence Unit,
UK (2003) and Network Readiness Index (NRI), a joint effort by INSEAD, World
Economic Forum and the Infodev programme of the world bank (Dutta et al, 2003),
are reasonably good indicators of environment, readiness and usage of ICT in a
country. The secondary information presented in Table 1 shows a similar trend for all
the developed countries for ICT use. In IT investment and NRI relationship, there are
some exceptions, eg., New Zealand, that has the highest rate of IT investment and a
very low ranking in NRI. Indjikian & Siegel (2005) found with some exception that
there is positive relationship in IT investment and NRI. However, there is still a long
way to go as Van Ark et al (2004) found that 2/3rd of US & EU industry as non-IT
industry and for the purpose of analysis they have divided the economy in three
sectors; IT producing; IT using; & non-IT industry.
Table 1: ICT Expenditure and SME e-business
Adoption Rate for Selected Countries (2001)
% SME UK Austria Sweden Italy Norway Netherlands
Using ICT 92 92 96 86 93 87
Web Access 62 83 90 71 73 62
Own Websites 49 53 67 9 47 31
Purchases 32 14 31 10 43 23
Sales 16 11 11 3 10 22
% of GDP
Devoted to ICT 8 5.6 8.8 4.6 6.1 7.5
(1993-2001) (6) (26) (2) (32) (22) (9)
Networked- 5.35 5.01 5.58 ----- 5 5.26
Readiness Index (7) (16) (4) (17) (11)
Note: Figures in Parentheses are World Ranking.
Source: EC (2002:4), Dutta et al (2003) and Indjikian & Seigel (2005:682).
ii) The Inter-Industry
The best practice in the industry and the best practice among the competitors will help
in deciding the level of ICT adoption. CE/Owner have huge amount of information
available and do not have time to wade through this mass of information. They need
to simply access appropriate, manageable information, and this would save time,
money and trouble.
iii) The Internal Environment
In internal environment analysis, financial and human resources are very important
aspects. Hirch et al (2005) argued that the investment in hardware and software is
very nominal but it enables the entrepreneur to enjoy the benefits of online services.
The improvement in internet is offering tremendous opportunities for starting or
growing venture. In practice there are many problems, it is not so simple.
5.2 ICT & Strategic Management Process in Small Enterprises
The ICT shifts emphasis from short term to long term and so leads to strategic
management processes in small enterprises. Some recent studies have examined the
relationship between technical and organizational change. Seigel et al (1997) in their
study examined the effects of advanced manufacturing technology on human resource
management. They found positive relationship between some type of technologies
and employee empowerment. Kuratko & Hodgetts (2001) argued that strategic
management is affected by organizationalenvironmental factors 4. Whereas Bresnahan
et al (2002) presented evidence on the connection among technological change,
organizational change and organizational performance. They reported that proxies for
work place organization and human capital are strong determinants of the demand for
IT capital, but not other types of capital. The result is inline with the argument that
there is some connectivity between IT, organizational change and human capital.
They further reported that in developed countries IT use has resulted in developing
new organizational practices such as:
• mass production to flexible manufacturing technology;
• changing interaction with suppliers and consumers;
• decentralized decision making;
• other organizational transformations; and
• greater use of coordination & enhanced communication.
Concluding that a corporate organization performance linked to improvements in
communication, networking & coordination achieved because of IT. Taylor and
Murphy (2004) pointed towards such practices as the strength of ICT in transforming
business organization and operations. Whereas Brynjolfson et al (2000) found that
these complementary technological and organizational changes enhance the market
value of the firms. Indjikian & Seigel (2005) also pointed that the way IT is being
used, is changing organizational structure, design and control systems. 5
5.3 The Model
The ICT, Small enterprise strategic management and performance model is an
extension of the basic strategic management model. 6 The model consists of four
1- ICT environment analysis;
2- Strategy formulation;
3- Strategy implementation; &
ICT, SE Strategic Management & Performance
ICT Environment Analysis
Corporate Strategy Business Strategy Functional Strategy
Mission Strategic Human Resource Management Strategic Marketing
The model describes a process in which small enterprises analyse, formulate,
implement, and assess progress. The sequence of activities in the model is as follows:
a) ICT environment analysis consists of examining the general surroundings,
inter-industry & internal environment. This helps in deciding whether to adopt ICT
and the level of adoption compared to the best practice in the sector.
b) Strategy formulation, implementation and control, is similar to basic strategic
management model. The difference here is that only small enterprises up to fifty
employment size are considered, which leads to a very simple organizational structure
where every decision is taken by the owner/manager of the firm.
c) Adoption of ICT leads to strategic management process even in those firms
which do not practice it. SHRM initiated as there is change in training & recruitment
policies. Hiring ICT qualified worker is rare in small enterprises, so the emphasis is
more on the training of the existing workforce.
d) Market research becomes easy with ICT adoption and useful in gathering
information vital for strategic marketing plan.
e) It leads to change in the mission/objective of the enterprises, which in most
cases is survival to profitability and growth.
f) ICT leads to multitasking which is suitable for small enterprises where
owner/manager and workers have to undertake jobs of different nature. 7
g) Implication of changes in mission, strategic human resource management &
strategic marketing is positive regarding profitability and growth of the enterprises.
The ICT environment in the country leads to its adoption & initiation of strategic
management process in small enterprises. Specially, the change in mission, strategic
human resource management and strategic marketing will affect the performance of
the enterprises in the long term.
6. Some Preliminary Findings
This research is based on an analysis of nine firms selected from the small
enterprise sector of Bradford, UK as case studies. General information about the firm
and entrepreneur are outlined in Table 2. Out of nine, four are manufacturing
enterprises and five are providing services of different kinds. 8
Table 2: General Information of Case Studies
Employment Age of Age of the Education
Case Study Size the Firm Owner Status Sector .
Case Study-1 20 9 42 Graduate Manufacturing
Case Study-2 40+ 35 61 --- Services
Case Study-3 45 40 68 --- Manufacturing
Case Study-4 5 13 40 Graduate Services
Case Study-5 30 24 65 --- Services
Case Study-6 15 11 55 --- Manufacturing
Case Study-7 2 27 58 --- Manufacturing
Case Study-8 9 13 39 --- Services
Case Study-9 2 4 28 O level Services
Note: Age in Years
Out of nine enterprise owners, two-third has no formal education. However, some
are helped by their educated children and some have employed qualified managers
not related to them. Employment size in the table indicates the full time employees of
The ICT usage in case studies is reported in Table 3. All the enterprises use ICT. By
analysing each case study in relation to ICT usage it is possible to identify that ICT
adoption declines as level of technology increases. This is shown by number of
enterprises using ICT at different levels from column 2 to column 6 in Table 3. The
average use of ICT in the case studies is close to the national average in terms of ICT
Table 3: ICT Usage in the Case Studies
Using Own e-commerce e-commerce
Case Study ICT E-Mail Website Purchases Sales .
Case Study-1 *** *** + ** *
Case Study-2 *** * + * ---
Case Study-3 *** ** + --- ---
Case Study-4 *** * + * *
Case Study-5 *** *** + --- ---
Case Study-6 *** * --- --- ---
Case Study-7 *** --- --- --- ---
Case Study-8 *** --- --- --- ---
Case Study-9 *** * --- --- ---
Note: ***, ** & * = High, Medium & Low Usage, + indicating Yes.
The planning level and characteristics of the case studies are given in Table 4. The
table indicates that small enterprises do involve in planning process. However in
majority of the cases the involvement is informal.
Table 4: Planning Level and Characteristics
Past Involvement Internet Financial F- FP Formal Strategic
Case Study Experience in Exports Marketing Planning & IF-SM Management .
Case Study-1 --- + + --- --- +
Case Study-2 + --- --- --- --- ---
Case Study-3 + + --- --- + ---
Case Study-4 --- --- --- --- + ---
Case Study-5 --- + --- --- + ---
Case Study-6 + + --- --- + ---
Case Study-7 + --- --- + --- ---
Case Study-8 + --- --- --- + ---
Case Study-9 + --- --- --- + ---
Note: + indicating Yes.
F-FP&IF-SM = Formal Financial Planning And Informal Strategic Management
The main findings of the study are:
- In the case studies, all the firms use ICT in general but when it
comes to web access, own website, making e-commerce
purchases and making e-commerce sales, the level of ICT
adoption declines similar to secondary information. 9
- All owners/managers have no formal training in management
and only one firm is involved in formal strategic management
process. Seven firms are performing formal financial planning
and involved in informal strategic management process. This is
interesting in the sense that all the firms in some aspect are
involved with strategic management.
- The past-experience of owner/manager is very important factor
regarding the involvement in strategic management. 10 Our
findings show that owner/manager with relevant past-
experience are less inclined towards the strategic management
process compared to owner/manager with no relevant past
- The small enterprises engaged in exports adopt e-business
more than the others hypothesis was considered. However, no
such difference found in exporters and non-exporters in this
- No ICT expert employed in the sample case studies conducted.
In most of the cases, owner/manager deals with ICT and
training of the existing staff is preferred. In recruitment,
candidates with some ICT skills are preferred even though the
firm is not conducting business on web.
- Two firms are using e-commerce purchase and sales. ICT
adoption seems to be influenced more with entrepreneur (no
relevant experience & young) and sector specific requirement
instead size of the firm.
- Only one firm use internet marketing whereas the majority of
them have their own web page. In most of the cases, the
owner/manager intended to use ICT for marketing in future.
- The owner/manager in all the firms realise that ICT leads to
new opportunities and threats. The survival of the enterprises is
the mission in almost all the firms. ICT changes the human
resource management and marketing practices mostly and in
turn changes the mission of the enterprise from survival to
profitability and growth.
The findings from the case studies shows, small enterprises adopt ICT and do involve
in strategic management process. However, in majority of the cases, the involvement
in ICT is at initial stages and strategic management process is informal.
The literature review does suggest that the firms adopting ICT do perform better and
it changes the organizational structure as well as consumer/supplier relationship.
UN and governments are encouraging businesses to adopt ICT and different
programmes initiated at both the levels. The experience of US & EU is encouraging
the developing countries to opt for ICT for achieving higher profitability and growth
by the businesses and the economy as a whole.
The ICT, Small enterprise strategic management and performance model is an
extension of the basic strategic management model. The model suggested that the ICT
environment is very important factor in the adoption of ICT and it does lead to some
strategic management process and better performance in small enterprises. The case
studies do indicate some important indication of the impact of ICT adoption on firm
level. The findings from the case studies are in line with the argument. However, the
results are based on the analysis of only nine case studies due to time and cost
considerations, it might be different with a larger sample size.
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It was emphasised that market forces & private sector alone cannot achieve that and instead a
partnership involving governments, multilateral development institutions, bilateral donors, the
private sector, civil society and other relevant stakeholders will play a key role in bridging the
European Commission (2003) considers small businesses as the backbone of European Economy.
Such as, in US it is investment per employee; in EU it is based on use of new technology; and in
UK & some OECD countries it is the percentage of firms business conducted on web (Taylor and
UKs Total Entrepreneurial Activity (TEA) index is 5.4 which is almost half that for the US, 10.7
The studies reviewed are not considering the size of the firm as an issue but implicitly related to
large/corporate level businesses. However some researchers have pointed out few stylized facts for
the small enterprises in the area of management, decision making and planning process within the
organization (see Mac Gregor et al 2005).
Strategy formulation & implementation have been considered as inter-related elements of
corporate strategy (For detail see Mintzberg et al, 1995).
“Despite this fairly substantial increase in the returns to education, the demand for computer
literate workers continues to outstrip supply, which explains part of the wage premium economists
have observed for the workers.” (Indjikian & Seigel, 2005:693).
The sub-sectors have not been mentioned here since the owners were shy to disclose their full
For details, see OECD (2003).
For organisational learning experience, see Hendry et al, 1995 & Chaston et al, 1999.