ICT, Small Enterprise Strategic Management
     and Performance: A Theoretical Model with
                Some UK Evidence...
businesses to value external advice approaches were effective in reducing cost and
regulations for setting up a business i...
passive use, active use, and supply chain) that could represent four phases of the e-
business development life cycle (Rav...
structure of the small enterprise is very simple and the owner/manager has strategic
control over firm’s activities.
  In ...
In case of medium size enterprises, the firms at the upper threshold are similar/close
to large firms in terms of manageme...
Table 1: ICT Expenditure and SME e-business
     Adoption Rate for Selected Countries (2001)
     % SME                   ...
management. They found positive relationship between some type of technologies
and employee empowerment. Kuratko & Hodgett...
ICT, SE Strategic Management & Performance

                               ICT Environment Analysis


                    ...
e)    It leads to change in the mission/objective of the enterprises, which in most
cases is survival to profitability and...
average use of ICT in the case studies is close to the national average in terms of ICT
usage.


     Table 3: ICT Usage i...
process. Seven firms are performing formal financial planning
    and involved in informal strategic management process. T...
The findings from the case studies shows, small enterprises adopt ICT and do involve
in strategic management process. Howe...
Bracker, J. S., Keats, B. W. & Pearson, J. N. (1988) Planning and financial
     performance among small firms in a growth...
Indjikian, R., & Siegel, D. S. (2005) The Impact of Investment in IT on Economic
      Performance: Implications for Devel...
Overby, J. W. & Min, S. (2001) International supply chain management in an internet
    environment: A network-oriented ap...
Stone, B. (1999) Ergonomics and the small to medium sized organisation, The Safety
     & Health Practitioner, vol. 17, no...
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  1. 1. ICT, Small Enterprise Strategic Management and Performance: A Theoretical Model with Some UK Evidence SAF Hasnu & Shehla Amjad * University of Peshawar, Pakistan Email: amjadhasnu@hotmail.com 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. 1. Introduction 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 acknowledged.
  2. 2. 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: A Review 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, 2
  3. 3. 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 3
  4. 4. 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. 4
  5. 5. 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 sample. 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. 5
  6. 6. 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 Making e-commerce Purchases 32 14 31 10 43 23 Making e-commerce Sales 16 11 11 3 10 22 --------------------------------------------------------------------------------------------------- Annual Average % 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 6
  7. 7. 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 stages: 1- ICT environment analysis; 2- Strategy formulation; 3- Strategy implementation; & 4- Implication 7
  8. 8. ICT, SE Strategic Management & Performance ICT Environment Analysis Small Enterprises Strategy Formulation Strategy Implementation Corporate Strategy Business Strategy Functional Strategy Mission Strategic Human Resource Management Strategic Marketing Implication: Performance 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. 8
  9. 9. 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 these enterprises. 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 9
  10. 10. average use of ICT in the case studies is close to the national average in terms of ICT usage. 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 10
  11. 11. 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 experience. - 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 study. - 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. 11
  12. 12. 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. 7. Conclusion 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. Reference: d’ Amboise, G. and Muldowney, M. (1988) Management theory for small business: Attempts and requirements, Academy of Management Review, vol. 13, no. 2, pp. 226-240. Analoui, F. & Karami, A. (2003) Strategic Management in Small and Medium Enterprises, 1st edn, Thomson Learning, London. Beal, R. M. (2000) Competing effectively: Environmental scanning, competitive strategy and organisational performance in small manufacturing firms, Journal of Small Business Management, vol. 38, no. 1, pp. 27-47. Berry, M. (1998) Strategic planning in small high tech companies, Long Range Planning, vol. 31, no. 3, pp. 455-466. Berndt, E. R., Morrison, C. J., & Rosenblum, L. S. (1992) High tech capital formation and labor composition in US manufacturing industries: An exploratory analysis. National Bureau of Economic Research Working Paper. No. 4010 12
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