Operating in the global economy means that small to medium enterprises (SME) will need to be flexible in the way they conduct business and in their utilisation of information technology. The strategic competitive advantage of businesses is constantly under threat. This paper describes what businesses, especially small to medium enterprises, must do, in order to maintain the balance between the needs of business and exploiting dynamically changing technology.
Key words: SME, organisational systems, business technology.
Introduction
In Australia today there are approximately 800,000 small to medium sized businesses. As defined by the SME Profile (1997) small enterprises have less than 100 employees in the manufacturing industries sector and less than 20 employees in the service industries. The definition for medium enterprises says it will be between small and large. Thus medium enterprises are assumed to be defined as having between 100-499 employees in the manufacturing industry sector and between 20-499 employees in service industries.
These small to medium enterprises, referred to as SMEs, account for around 95% (you will find percentages that range between 94% to 96%) of the on-going annual business activities in Australia, while contributing to 40% of the gross national product (Mitchell 1997). Small business also share a number of common organizational characteristics. Small business are independently owned, they are financially controlled by the owner / manager and the business operation are primarily locally based (SME Profile 1997). SMEs employ less than 20% of the Australia workforce, with a little more than 50% of the SMEs having one to two employees. Businesses having one to two employees are considered micro-businesses.
Competition for these enterprises has been growing substantially over the past three decades. Over the last ten years alone, global competition, due to the changes brought on by information technology, has been transformed from the multi-national footprint to the local hand (Andersen Consulting 1998). Today, more then ever, businesses, especially SMEs, are faced with local business issues, global business issues and with more barriers to their successfully operations than ever before.
This paper is directed at top level suggestions and observations that apply to the small to medium sized businesses (SMEs). In other words, this paper is directed at approximately 400,000 businesses in Australia, i.e. not necessarily micro businesses. The application of the points herein, and identifying solutions, needs to be tailored to the individual business needs and environment.
Business Issues and Barriers
Business today faces more and more issues and barriers then ever before. Competition comes from organisations that are local, national, and global (DFAT 1997). Size, in terms of number of employees or number of locations, is no longer an issue to become or becoming a global competitor. The issues, barriers, and opportunities of the day are changing and business needs to understand these issues in order to more effectively compete in the global environment.
Issues
Information technology is well recognized as an enabler to doing business locally, nationally, and globally. Some of the pressing issues brought on by information technology to modern business are:
Information technology has enabled new ways in which business operations and work flow can be, and are being, done - such as:
SMEs operate in the global economy. In this economy SMEs are burdened by barriers in attempting to balance the needs of their business, on the one hand, and being able to exploit the business opportunities brought on by changing technologies, on the other hand.
Barriers
There are a number of real barriers that SMEs need to overcome before they can readily balance dynamic changing technologies against business needs. These barriers are not mutually exclusive, but rather intertwined.
First, SMEs have a short-term focus. Small to medium enterprises, by their nature are concerned with the day to day, month to month operations. When SMEs bid for contracts, receive large requests for goods or services, they react. This often entails acquiring resources, such as hiring people, acquiring equipment, or modifying systems, to do the job. Large organisations, on the other hand, can shift resources from one location to the next location and can afford the luxury of carrying ‘extra’ resources in down times. Large organisations anticipate dynamic changes in their business environment, SMEs react.
Second, due to the capital position SMEs are in, they need to achieve a return on their investments (ROI) in a relatively short period of time, say 6 to 18 months. Before an SME can invest in information technology, whether it be a system or application, they want to feel confident that they will get a return on their investment in the near future. However, Diederich (1998) shows that the payback of doing Web based business, for example electronic commerce, rarely begins within the first 12 months. For SMEs to have resources tied up for 12 months, and not contributing to revenue generation, is difficult.
Third, the resources and expertise that are needed to address technology and technology issues are often confusing or not well understood (technophobia). Many businesses do not understand the extent or possible use of their current technologies, are confused about the changes that information technology is going through, and are confused about the issues their business faces in relationship to the changing information technologies. Time is of the essence to these businesses, thus to become familiar with information technology and its changing environment means that SME management has to divert resources, often themselves, to this activity.
Fourth, business cooperation, partnerships, and virtual organisations, are difficult environments for SMEs. For the small to medium enterprise (SME) it is difficult to develop such collaborative arrangements due to the nature of their competitive environments. Traditionally the key drivers to the SMEs ability to differentiate between competitors has been their independence and flexibility.
Fifth, there has always been a fear, within the SME community, of larger organisations dominating the marketplace. This has meant that, in terms of time and available capital, SMEs have had to spend more time fending off competition with less time and resources for achieving their core business goals and objectives.
Sixth, the road to the merging of the two cultures simultaneously: the information technology culture and the business world, has been a barrier for both SMEs and large organisations. This has occurred in the development of business information systems and information technology management. These systems require the information technology culture to understand business, and business management to understand information technology, both of which continue to be evasive.
Opportunities
Never before have SMEs had more business opportunities than they do now (Andersen Consulting 1998, DFAT 1997). Never before have SMEs had an infrastructure, ie. Internet, or the technologies available to them to compete globally. The ways and means for SMEs to be globally competitive will continue to grow. By assimilating emerging information technologies the road can be very bright.
Assimilating Emerging Information Technologies
The balance requires that businesses make decisions on the assimilation of emerging and new information technologies. To do this, businesses need their technology management to be effective in addressing and dealing with the business barriers. Organisations need to consider managing the technologies such that technology management develops:
Getting the Balance Right
Many organisations, small, medium, and large have failed. An important factor behind the fall of many good companies is that they did everything right! They listened closely to their customers; invested aggressively in the technologies of the day that promised highest returns, and weeded out unprofitable ideas targeted at minor markets (Christensen 1997). Yet, they still have successfully failed.
What many of these organisations failed to get the balance right. The balance is between the challenges of doing business, and information technology’s flexibility to support SMEs business operations in a globalized business environment. One of the major challenges that globalized business poses to SMEs is not just understanding their business requirements, but in shaping new business opportunities in the global environment. In getting the balance between business and information technology as a supporting client, SMEs need to consider information technology for what it is meant to do. The SMEs must see information technology in its:
Within this framework, small to medium enterprises need to consider and recognize the use of information technology initiates (such as electronic commerce, outsourcing, virtual assistants, global partnerships, and virtual organisation establishments).
To get the balance right SMEs need to look at the following issues.
Overcome many of the barriers – look at the organisation’s barriers and see what possible solutions or partial solutions there might be.
Basis of information technology understanding – develop a basis for understanding of the changing world of information technology, this may involve seminars, reading, associations, or just listening in a social environment what users have to say.
Listen to what employees have to say – it is difficult to be everywhere at once, thus listen to what those who work and deal with the business issues at the grass roots level have to say.
The trust economy – the trusted economy is an area that there is still much to be learned from and understood, as SMEs try to identify sources of information that they can trust.
Achieve economies of scale – in use and design of systems and applications,
Long-term vision of business operations – organisations need to take the time to develop mechanisms to achieve long term results in the short run.
Partnerships - look for and create virtual partnerships, even including competitors, many airlines have, florists have, and so can small to medium businesses.
Leverage core business skills - know the difference between non-core business skills and core business skills, and find ways to more effectively deal with the non-core skills thus turning them into strengths.
Develop an appropriate range of services – the range of services can be done via brokers and / or partnerships, as well as trusted competitors.
Diversity marketing – technology can be used to develop and target diverse niches (Hetzer 1998).
Pay attention to customer care – it does not have to be information technology based,
diversify in products and service.
Identify competitor visibility (Jentzsch 1998) – this is both market intelligence and just seeing what your competitors are doing and how they are going about it. The Web holds a lot of information.
Not getting the balance right
There are always two sides to the coin. On this side are the potential affects of not maintaining a balance between the business needs and the information technology initiatives.
Affects of competing technologies – in the technology marketplace the change is rapid. These changes can be confusing and conflict with each other. The question is: given two technologies, which ones will enable us to advance, if not maintain, our competitive edge? SMEs generally attempt to develop standard information technology architectures, but with the amount employee turnover in organisations there is not guarantee the competing technologies will not ingrain themselves in to the business environment and cause problems.
Cost of changing to new technologies (leap frogging vs band wagoning) – the cost to the operation of the business in changing to new technologies, or even upgrading to a current technology, can be dramatic. The question is: does the organisation continuously acquire new technologies (band wagoning) and attempt to replicate the information that they were getting from the prior system, or do they wait until the move becomes one that is more strategic and the return of investment is greater (leap frogging)? This one brings a whole lot of issues, such as software compatibility, training / re-training, hardware capabilities, network structure and capabilities, and maintenance.
Market strength of organisations that introduce new technologies – the power of some vendors can make it necessary and cost advantageous to follow the introduction of their new technologies. The question is: Is the organisation ready for the new technology?
Use of information technology as a competitive advantage – the nature of competition is changing especially in the time frame that businesses have to act and react to competitive pressures. There is little doubt that information technology is needed to support an organisation in its competitive environment. But the question is: How much can the organisation use information technology as a competitive advantage?
The ramp-up of any business venture entails big spending on marketing and technology, especially where the Internet is involved. Staten (1998), at Dataquest, estimates that the development of an initial HTML site for a SME ranges between $15,000 (AUS$24,000) and $30,000 (AUS$48,000). Efficient and effective maintenance, per year, of such sites can range between one and a half, and three times the initial investment.
Speed of product delivery – Once a new product or upgrade hits the market place, competitors must respond quickly not to loose their market share. Information technology has been given the responsibility to enable the organisation to deliver its products or react to its competitors in a shorter time frame then ever. O’Reilly (1998) said in his keynote speech at a conference in Boston, USA in May 1998 that in the competitive environment his firms is in, the response to new products from competitors has dramatically changed over the last 30 years. O’Reilly (1998) estimated that the time frame for his organisation to response to competitors was:
| In the | Estimate to Market |
| 1970’s | 24 months to 36 months |
| 1980’s | 18 months to 24 months |
| 1990’s | 6 months to 18 months |
| 2000’s (anticipated to be) | 6 weeks to 18 weeks |
This can also be seen in such industries as banking where banks can develop new loan types and the marketing of the new loan types within weeks. Without information technology supporting the business environment and being an enabler of the business environment new products and the marketing of the products takes longer. In the airline industry the pricing of tickets, and seating availability for the tickets can change in days. Reservation agents and travel agents get the information at nearly the same time as the carrier. The use of technology is balanced with the needs of supporting the organisation.
Without technology, neither the banks nor the airline companies could respond to the changes in their industries as fast as they now can.
Use of information technology as a barrier to competitors – other organisations can use their technology to restrict your ability to be a competitor. The cost of entering some industries requires millions of dollars to set up the infrastructure to do business. Some organisations currently have the infrastructure thus can use their existing resources to reduce or even prevent others from become competitors. For example the use of automated reservation systems and the pricing of airline seats can rapidly change, using information technology, so that it is difficult for a SME to keep up with pricing compared to larger businesses. Major airlines, banks, and credit card companies already have the infrastructure to be travel agents. If they choose to utilize their infrastructure they can create a barrier to new entrants as well as force existing competitors out of business. In 1995 the airlines choose to flex their information technology muscles and in so doing were able to place a greater burden on travel agents (Crockett 1997).
Points to Ponder
Not all factors of not getting the balance right can be attributed to information technology. There are many non-technological factors that need to be considered, such as:
Summary
The results of statistical models reported by Kazarian (1996) have shown that SMEs who made extensive use of technology experienced substantially higher revenue per employee compared to similar businesses in the same industry. However, the extent to which the technology is applied and utilized is not well defined. The competitive environment for SME is not just local it is global, thus to coin a phrase by Brandel (1997): “think global act local”. In beginning to get the balance right, we can begin by adhering to what Staten in 1998 said: “Don’t be snowed by techno-babble. Buy from someone who speaks your language.” To add to that, get the balance right for the business by exploiting the technology at the appropriate level, time, and place.
References
Andersen Consulting. (1998). “eCommerce: Our Future Today.” April 1998
Borzo, J. (1998). “How to succeed at e-commerce”. Computerworld, 17 July 1998. p59.
Brandel, M, (1997). “Think Global Act Local”. Computerworld 3 October 1997. http://www.computerworld.com/search/AT-html/9703/970303globSL97glob5.htm.
Christensen, C. M. (1997). “Fatal Attraction. The Dangers of Too Much Technology”. Computerworld, June Leadership Series. June 16, 1997. www.computerworld.com/leadership.
Crockett, B. (1997). “Cloudy skies for cyber-travel agents.” MSNBC. http://www.msnbc.com/news/75877.asp
Department of Foreign Affairs and Trade (DFAT). (1997). “Putting Australia on the New Silk Road: the Role of Trade Policy in Advancing Electronic Commerce.” Commonwealth of Australia.
Diederich, T. (1998). “E-commerce experts say sites need time to grow”. Computerworld OnLine News, 24 September 1998. www.computerworld.com/home/news.nsf/CWFlash/9809244.ice.
Hetzser, B. (1998). “Find a Niche – and Start Scratching.” Business Week Online Management Enterprise. 25 September. http://www.businessweek.com/smallbiz/news/columns/98-37/e3595056.htm
Jentzsch, R. (1998). “Virtually Visible”. Paper submitted to IRMA’99 conference.
Kazarian, B. (1996). “Basics For Building Relationships”. Computer Reseller News. The Small-Business Opportunity. October, 7, 1996. (p SB19).
Mitchell, S. (1997). “Scraping the big bucks from small business”. 29 March 1997. http://apcmac.com http:apcmag.com/news/23ba_1d2.htm.
O’Reilly, Cormac, Wang Laboratories Inc. Keynote Speaker, IRMA’98 conference. May17-20. Boston, U.S.A.
SME Profile. (1997). Definition of Small and Medium Enterprises, http://www.actetsme.org/aust/profaus.html.
Staten, James. (1998). “Entrepreneurs, Let the Tech Leaders Come to You.” Business Week Enterprise. 07 October.